Horst Schulze is telling a story, and the audience is squirming.

The head of the Ritz-Carlton Hotel Co. is inside a makeshift auditorium at Northwood University in the Michigan city of Midland. Three years of shameless begging by the school have brought Schulze to this tiny campus, where hotel and automotive management students hang on the words of the maestro of hotel customer service.

It is an awkward moment. With Schulze's tendency to meander, his tale seems headed nowhere, least of all to a climax. But no one leaves.

Schulze has made a career of pampering business travelers with indulgences once reserved for the rich and famous. Over the past 15 years, the veteran hotelier has built a single Ritz-Carlton in Boston into a chain of 36 luxury properties operated by Ritz-Carlton, which will add two more in the District over the next two years. The unit of Marriott International Inc. had estimated 1998 revenues of $1.3 billion.

And the point is, Schulze's story has a point. He walks into a bank to get change for a $50 bill and encounters a surly teller. She doesn't greet him or smile. "I can tell she clearly hates me," he says.

To Schulze, that first encounter with a customer is the crucial moment for service industries such as his, from which lasting impressions flow. Bad service is like the ache you get in your bones from the flu. It takes awhile to go away, and you never quite forget the feeling.

Schulze's philosophy on customer service has its origins in his childhood, growing up in a ravaged postwar Germany. As a teenager in a hotel apprentice program, he realized that the humble waiter and the tuxedoed guests do not exist in different worlds.

"I saw that people working in [hotels and restaurants] presented similar excellence and class, if not more actually, than those experiencing it," says Schulze. "I realized that if you're excellent in what you're doing, behave accordingly, you're equally a gentleman and a lady as the people sitting in the room."

Schulze preaches service as the intangible that can lift Ritz-Carlton above its competitors, which bombard guests with giveaway brand-name shampoos and designer sweets. In a traveler's manic world of laptops, cell phones and pagers, Schulze has unapologetically clung to the polished atmosphere that dominates Ritz-Carlton hotels, drawing in a new crop of nouveau riche business executives eager for a taste. It helps to have the deep pockets of Marriott, which purchased a stake in the company in 1995.

Hitting its stride in the Reagan era, the Ritz-Carlton chain has created an atmosphere of tradition that is largely based on personal interaction between customers and employees. Among its touches: The bellmen who greet every guest by name, the well-sourced concierge who can get tickets to high-profile sporting or theater events, the signature cobalt blue drinking glasses, the old-money decor of faux Chippendale furniture.

Service is the part of the job that drives Schulze in his quest to overtake his chief nemesis, Four Seasons, which has seven more hotels and $1 billion more in revenues than Ritz-Carlton. Making Ritz-Carlton the leader in the $16.7 billion luxury hotel market is a job Schulze has been preparing for his entire life.

Learning His Lessons Early

Schulze learned the art of luxury service as a waiter in the elegant spas and restaurants of Europe. He emigrated from Germany to the United States to work for some of the top U.S. hospitality companies, including Hilton Hotels and Hyatt Corp. His friends say he is ambitious, aggressive, a natural leader -- the perfect pitchman for pampering demanding Ritz-Carlton customers.

"Horst is what Ritz-Carlton is all about," says Bill Tiefel, an executive vice president of Marriott and chairman of Ritz Carlton's board of advisers. "He's the visionary. He has the vision of what Ritz-Carlton is and ought to be."

Naked ambition, though, provokes reactions; in Schulze's case, it prompted industry backbiting and bitter disputes with the chain's hotel owners. For starters, some say he pushed Ritz-Carlton's growth in the midst of an industry slump by inducing developers to build hotels based on allegedly exaggerated forecasts of revenues and occupancy rates. Between 1988 and 1994, Ritz-Carlton went from 12 hotels to 28.

Ritz-Carlton is still without hotels in four key markets -- the District, New York, Los Angeles and Aspen, Colo. -- after a nasty legal brawl with the owner of properties that it once managed. The hotels' owner, Saudi Sheik Abdul Aziz Bin Ibrahim Al Ibrahim, filed a $250 million suit against Ritz-Carlton for mismanagement in 1995, contending occupancy rates were inflated to gain higher fees. Ritz-Carlton countered that the sheik was a cheapskate who would only pay for one-ply toilet paper. Both sides eventually settled out of court.

Other critics say Schulze's focus on service has become an obsession.

He is fiercely loyal to the tenets of total quality management, a complex charts and graphs approach to empower employees to develop new services and solve guests' problems. Most of corporate America has abandoned the techniques. Ritz-Carlton is the only hotel chain to win the Malcolm Baldrige National Quality Award, which it claimed in 1992. "They didn't buy it [the Baldrige Award] in the sense of bribery," says an industry source who asked not to be named. "But the desire was to win that award at all costs."

For years, Schulze fought against the installation of voice mail in the rooms of Ritz-Carlton hotels, in part because he didn't believe it was necessary under the guidelines of a total quality management approach.

Finally, his employees convinced him that consumers were demanding the service. To this day, he has no personal computer in his office. He doesn't travel with a cell phone, choosing instead to borrow one from his communications vice president when he needed to call his office while delayed at the airport on his recent trip to Northwood.

The management culture set off tensions between Ritz-Carlton, which manages the hotels, and the companies that own them. At the height of the recession in the early '90s, the battle became pitched. Hotel owners fumed at paying the $4,500 tab for training each employee in quality management. They wanted to cut costs on items such as the fresh-cut floral arrangements in lobbies and dishes of fruit in every room to save money that could be used to pay off the loans on their highly leveraged properties.

Schulze dismisses his critics' remarks as petty jealousy over Ritz-Carlton's success and the attention it has gotten. Indeed, some owners did threaten to sue the company over the extra training costs. But he points to the company's low employee turnover rate of 20 percent a year and its strong occupancy rate at a little over 80 percent.

If anything, the growing pains and the company's attention to detail are what define Ritz-Carlton and led Schulze to move there from a post as corporate vice president of food and beverage at Hyatt Corp. in 1983.

"It was my moment to create something special," Schulze says, remembering.

What Luxury Means

Schulze has a sense about luxury and what consumers will clamor for. It is not a sixth sense, though. Schulze is old school. Raised in a small village north of Frankfurt, he left home at age 14 to learn about the hotel business at a vocational boarding school.

His father delivered mail, while his mother stayed home to raise her two sons. Schulze's family never ate at a restaurant or slept in a hotel, so he has no idea where his interest in the hospitality industry comes from. "We were very poor," Schulze says. "Since food is in a hotel, I could have been driven by that."

Schulze also had little idea of what luxury meant. Luxury "is dictated by one's financial means. My financial means were zero then."

At 17, he started as a busboy at a spa near Cologne. He moved amid the wealthy as he traveled across Europe, working as a waiter in resort restaurants in Switzerland, Paris and London. Schulze says he found his own confidence among his co-workers, including an intelligent, impeccably dressed maitre d'.

With only $46 in his pocket, Schulze set out for the United States at a friend's urging to come work in Houston. When his boat arrived at Hoboken, N.J., Schulze grabbed a taxi and headed to the famed Waldorf-Astoria before embarking on the long bus ride to Texas.

He sat in the grand lobby, soaking up the atmosphere. Some immigrants stare at the Statue of Liberty or the immense skyscrapers. To a man fascinated with the trappings of high-end travel, the Waldorf was the place to be. "It had so much grandeur," Schulze says.

The job in the Houston restaurant ended after Schulze was obliged to serve fish without a fish knife. "It was sacrilegious," he told his friend. "Nobody can live like this." Not a snob, but more a pragmatist, Schulze fled to San Francisco to work in an upscale restaurant. He moved on to similar work at the University Club in Chicago, then to management jobs with Hilton and Hyatt. Schulze stood out at Hyatt from the moment he arrived.

"He's always been very ambitious and a natural leader," says Pat Foley, the former president of Hyatt and a friend of Schulze's. "He could be demanding. And when it was all over, he had the respect of the people who worked for him."

An Abrupt Turning Point

For a long time, Schulze didn't see his drive as the unseemly ambition that some so often accused him of. That's until he was diagnosed with stomach cancer five years ago. It began with a lump in his stomach that an ultrasound revealed to be a tumor the size of a grapefruit.

Schulze had surgery to remove the growth but was forced to undergo a long convalescence.

"It [cancer] truly makes you review your whole life and values," Schulze says. "When I'm home with my family it's different. I was so afraid that I wouldn't be a part of their upbringing," he said of his three younger daughters. "That I haven't lived life with the right values. And why didn't I see it earlier?"

He would attack cancer in the same way he would negotiate the construction of a new Ritz-Carlton -- with passion. He took the controversial step of refusing chemotherapy. He read countless books and journals in search of alternative treatments, eventually settling on a microbiotic diet. His family hired a chef to help prepare the meals. He stopped drinking. He says doctors have pronounced him in remission.

More important, friends say, Schulze is a different man. He has cut back on his travel schedule. When he's at home, he takes his daughters to school in the morning.

But the illness hasn't meant that Schulze has lost the edge to continue Ritz-Carlton's growth. Although the luxury market is costly to enter, other hospitality companies are taking a stab at it. Starwood Hotels & Resorts has launched an upscale business travelers boutique brand called "W." Fairmont Hotels is expanding aggressively on the East Coast.

Tiefel of Marriott says Schulze is already anticipating the industry's direction with the Ritz-Carlton under construction in Georgetown. The 100-room property will be much smaller than other Ritz-Carltons and will be part of an upscale condominium and entertainment complex. Another Ritz-Carlton will open next year in the West End.

Some Marriott officials questioned the concept of a smaller Ritz-Carlton. "He came back and made a strong case for the project," Tiefel said. "He said it would be a terrific project, but it would have to be run differently. It would almost be like a club."

The Georgetown Ritz-Carlton hotel is like coming full circle for Schulze, reminiscent of the small boutique properties where his personal touches were the defining quality of his service as a waiter.

"I've learned luxury is consequently what you do above what you need," he says. "You don't really need a bottle of Dom Perignon. You could do with a cheaper champagne. It is something not only for the rich, but somebody that deserves it and enjoys it."


Horst Schulze

Title: President and chief operating officer, Ritz-Carlton Hotel Co.

Age: 58

Background: Born and raised in Winningen-Mosel, Germany

Business: Ritz-Carlton operates 38 luxury hotels in the United States, Australia, Bali, Canada, Hong Kong, Japan, Korea, Germany, Mexico, China, Singapore, Spain and Malaysia.

Personal: Married, four children (all girls)

Hobbies: Running (you can do that everywhere you go, he says), biking, fishing (just returned from nine-day rafting trip in Alaska with no guides) and tennis.

Favorite Ritz-Carlton: Pasadena, Calif., Bali and Berlin (designed by clothing designer Karl Lagerfeld).

Favorite vacation spots: Has taken only two in 14 years at Ritz-Carlton -- St. Thomas, Virgin Islands and Bali.

Frequent travel miles: 150,000 miles per year, or eight trips a month on the road.

Major business accomplishment: Created a luxury hotel chain from one single Ritz-Carlton property in Boston and then instituted a global employment philosophy that gives employees power and career opportunities. "It is a philosophy that isn't offensive to any culture."

Most challenging business moment: The 1990-1992 recession. "Analysts created an all-out attack on who we were. We didn't cut our services in a difficult time. We should have been instituting quality management. Honestly, it would have been immoral to cut our services and still charge high prices."