Strategic Analysis of Marriot's Merger with Starwood

MARRIOT’S MERGER WITH STARWOOD HOTEL

Introduction

The Marriot International Inc. has endured in the hospitality industry for almost a century and the Starwood Hotels have also stood the test of time. Marriot merger with Starwood was strategic not only because it strengthens their position in the industry but it also creates an avenue to make a bigger brand that can eclipse the influence and stronghold of the rival brands. The two hotel chains had been in the first 10 of the largest chains in the world for a pretty over a decade and their position has been enviable to others in the industry. The merger was a strategic move to build a bigger and larger entity that can compete strongly in the industry

Mergers and acquisitions enable successful companies to grow faster than their competition by combining the strengths of the companies that have merged. On the other hand, they lead to total extinction of the weaker companies by having them acquired by other large and successful companies. ‘Mergers and acquisitions are a vital part of any healthy economy and importantly, the primary way that companies are able to provide returns to owners and investors.’ and also that ‘Merger and acquisitions are among the most powerful and versatile growth tools employed by companies of all sizes and in all industries. Sherman (2006).

The level of Strategy employed

Strategies were employed into the Marriot/Starwood merger. Different rationales were considered to peruse the ideas and to execute the merger. Rationales consist of the higher-level reasoning that represents decision conditions under which a decision to merge could be made.  Roberts and Co (2010). Corporate level strategy in this case of merger has to do with the quest for Growth and Stability. The hospitality business is a very competitive one. Many new hotels are established every day and established ones keep improving their service delivery systems to compete strongly in the market. The executives of Marriot International want to ensure that there is strength and buoyancy for the company to not only competes but also to be the best among peers. According to CBSnews (2016), Marriott and Starwood - like other hotel chains - own very few individual hotels. Instead, they manage or franchise their brands to hundreds of individual owners, often real estate development companies. Marriot acquiring more hotels that are of less reputation and strength would have required far less financial implication. However, merger with Starwood brought about an unprecedented level of expansion and growth internationally that has never been observed before in the hospital/hotel industry. In total, 30 hotel brands now fall under the Marriott umbrella to create the largest hotel chain in the world, with more than 5,700 properties and 1.1 million rooms in more than 110 countries. That’s more than 1 out of every 15 hotel rooms around the globe. CBSnews (2016).

At the business level, cost, low cost, best cost, differentiation, focused differentiation. The merger provides the perfect opportunity to reach a far larger customer base. This provides a larger competitive advantage for Marriot, first through providing best cost services and also through differentiation; best cost services because the cost of managing two different entities individually will be more than managing them in a single unit. Dealing with suppliers and buyers, top management hiring, advertisement of products, providing customer services and other related services are fund zapping expenditures that can be merged into one unit making it easier and costing far less financial implication. Moreover, Marriot, having a wider range of outlets, can now provide a wide range of services and reach out to a wider range of customers in terms of number, nationalities, financial buoyancy and passion.

Furthermore, expertise in the business is hardly a value that can be priced; this abstract and intangible value determines a lot in business. The merger allows for a great deal of blending of expertise between Marriot and Starwood – two great actors who have been in the industry for decades and who have done well individually. This blending allows for better ‘’differentiation’’ of ideas and development of new strategies over time.

With hotel chains like InterContinental Hotels Group, Hilton Worldwide Holdings and Wyndham Hotel Group among others, already performing excellently well and expanding immensely in the hospitality industry, Marriot needed a leverage to strategically position itself at the pinnacle of excellence in the industry; acquiring the skills and properties of Starwood was just the piece needed to achieve that.

These factors contribute not only to creating competitive advantage for Marriot over rivals in the industry but it also strengthens their chances of sustaining such advantage.

ANALYSIS OF THE BUSINESS UNIT LEVEL STRATEGY[pic 1]

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Low                                                                                                                                                       High

Using the Bowman’s Strategy Clock, Marriot/Starwood will be sustainably positioned at the 4th which is the Differentiation level.  Great improvement in values comes from the combined standard, already known for Marriot and Starwood. In addition, the buoyant loyalty bonus for which Starwood is well known which is now fully integrated into the Marriot’s system of loyalty. Moreover the customer service/relationship of the Marriot Hotels has remained in legendary status for decades and this closely complements the Starwood system of customer relationship. As far as pricing goes, Marriot/Starwood’s services might appear relatively high compared to other hotels in the industry but relatively low when compared to the great and excellent services they render. In addition, the wide range of customer services and room types available to customers in the merger makes it easier for more clients to assess the facilities in this merged hotel. The cost for the merger is high though but it does not appear too high when compared to the added value. This is more so, when other factors are taken into consideration like considering the fact that Anbang Insurance Group valued the Starwood Hotels as high as $14 billion and Marriot got it for less. However, with the standard, excellent services and price all put into consideration, Marriot/Starwood can comfortably occupy the 3rd (Hybrid), 4th (Differentiation) and 5th (Focused Differentiation). Price basically increases with value with all level delivering excellent services as represented below.

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