Marriott’s Merger with Starwood Hotels

Strategic Analysis and Planning

Assessment:

Marriott’s Merger with Starwood Hotels

1. Introduction

The key focus of this report is the merger of the Marriot International Inc. and Starwood Hotel & Resorts Worldwide Inc. groups.  The merger of the two international organisations has taken the hotel and hospitality industry by storm with many obstacles and challenges being faced before a successful merger can be completed.  The merger will effectively create the largest hotel and resort chain in the world, opening a wide range of possibilities and economies of scale that can be exploited to the benefit of the merger and the involved parties.

This report will focus on the organisations’ strategic position together with the levels of strategy used by the organisations, to ensure future stability and sustainability.  The first focus point of the report is an evaluation of the strategic levels, followed by a critical evaluation of the stakeholders whose influences can affect the merger taking place successfully. The second focus is an external and internal analysis to explore the key trends and relevant industry factors for the merger taking place and the long-term results that may ensue.

The possible alignment in the strategies of Marriot and Starwood before the merger began together with how the alignment or misalignment was dealt with will also be explored in the report.  Key strategies for each company may be highlighted to emphasise this so-called alignment and to give a clearer indication as to why the merger may have such positive results for the merged companies and all stakeholders and shareholders affected.  

A company’s strategy is to ensure long-term stability and provide long-term value to shareholders, stakeholders and customers with whom they deal.  These key outcomes will be evaluated and examined to determine the long-term merger and company strategy of the Marriott-Starwood merger.

1. Evaluation of the Strategic Levels

The respective companies’ board of directors approved Marriot and Starwood’s merger on the 16th of November 2015 (Marriott International Inc., 2015).  The merger is founded on combining Starwood’s lifestyle brands and international footprint with that of Marriott’s presence in the luxury, convention and resort segments to create a comprehensive portfolio.  (Marriott International Inc., 2015).  This strategy can be seen throughout the various strategic levels for both companies, and the aligned strategies from corporate through the functional strategies aids in strengthening the merger and outcomes of such.

1. Corporate Strategy Level

The corporate strategy level is focused on the overall purpose and scope of the company, adding value to shareholder investment and the allocation of resources between business units.  

The corporate strategy level for both of the Marriott and Starwood, as put forward by Arne Sorenson, is to focus on accelerated growth and to combine the strengths of each company to enhance their competitiveness in the marketplace (Nyitray, 2015).  Together with accelerated growth, another major component of the merger is for Starwood to sell the Vistana Signature Experiences business before the completion of the Starwood-Marriott merger (Ting, 2016).  The Vistana business is a timeshare vacation business that Marriot withdrew from during the course of 2011.  Higley (2016) expresses concern that the timeshare business is a very competitive market to belong to, and requires a different management and maintenance approach to remain profitable.  Withdrawing completely from the timeshare market allows the merger to focus purely on the hotels and resorts and the direction of a single company.  

Marriott currently has what is called an “asset light strategy” (Ting, 2016), where as a company they are not in the long-term real estate market, rather dealing with local expertise and local partners to enhance their market share (Ting, 2016).  This strategy can be seen on a corporate strategy level, as it concerns the direction and approach to the markets that the business is in.  This strategy allows to Marriott to concentrate on hotels and resorts, minimising the need to develop additional skillsets needed for handling the real estate markets.  The merger of Marriott and Starwood companies will potentially see the sale of the Starwood’s 23 estates with long-term agreements in place to mimic Marriott’s approach (Ting, 2016).

1. Business Level

The strategic business level is predominantly concerned with developing and maintaining a competitive advantage in the market place.  To maintain the business level strategy of Marriott’s during the recession, the company used marketing and sales channels to advertise and develop awareness, together with focusing on customer service (UK Essays, 2015).  Ting (2016) highlights that in an age of increasing technological reliance, the human customer service interactions and the human touch are able to make an important difference in hospitality.  

By reducing the operating costs of the combined companies, the Marriott-Starwood merger is able to generate increased savings for the merged companies that is greater than the individual reduction in operating costs.  A figure of roughly $200 million a year by the end of the second year has been given by Matthews (2016).  The reduced operating costs results in savings that can be passed onto the customers to maintain the competitive advantage of the company going forward.

1. Marriott’s Overall Strategy

The Marriott International company allows each operation, i.e. hotel, suites etc., to operate as an autonomous stand-alone unit, making each operation an individual strategic business unit (SBU) (Camacho & Knain, 1989).  Camacho and Knain (1989) justify that each SBU should have its own set of responsibilities from financial to operational to planning and marketing, using the corporate strategy to cover capital financial expenditure, market research and knowledge transfer.  

The similarities to the strategies of Starwood and Marriott’s of accelerated expansion, together with more efficient operations with the reduction of operating costs, allow for a smoother transition during the merger to take place.  There will be no need to completely redefine either company’s direction or focus during a merger.  

1. Bowman’s Clock for Marriott and Starwood After a Merger

Marriott and Starwood are similar to most major hotel groups in that they have portfolios that cover a spectrum of hotels and resorts.  Marriott and Starwood can be seen as complementary to each other.