Marriott’s Merger with Starwood Hotels

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Marriott is much larger, with 4300 hotels to Starwood’s 1270, and a larger share of Marriott’s hotels are utilitarian spots…. While Starwood’s portfolio is more weighted towards fancy hotels. (Yglesias, 2015)

If this is then displayed on a Bowman’s Clock, Figure 1 below, we can see the over lapping areas of the two hotel groups.

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From the overlap of the two companies’ portfolios and the area in which they have concentrated, it can clearly be seen that a differentiation strategy has been developed to explain and justify the merger. The single company, Marriott-Starwood, is no longer targeting either end of the hotel spectrum. It now rather targets the complete spectrum from low cost-high value to high cost-luxury accommodation. Experience from each company can be combined to target all markets in the hotel spectrum without each company having to experience the learning curve normally associated with entering new market segment. The merger:

…gives Marriott property ownership in some of the largest (and fastest) growing cities across the United States, including Detroit. The deal also gives Marriott a stronger position in popular urban destinations, like New York City, Chicago and Los Angeles, offering guests a wider selection and variety of rooms and chains to choose from that cater to a broad selection of price points and types of travellers. (Perkins, 2015)

The merger will affect the influence of the stakeholders and shareholders in both Starwood and Marriott, resulting in new stakeholders becoming part of a single corporation. The merger will directly influence the role of other industry competitors in all market segments, as the Starwood-Marriott Company will become the largest hotel group in the world offering services across potentially all segments worldwide. This may lead to a strategy shift to maintain the competitive advantage brought on by the merger.

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Stakeholders

Stakeholders are “those groups without whose support the organisation would cease to exist” (Elias & Cavana, 2014). All stakeholders have a range of influence and power in a company. To adequately map the stakeholders, a Mendelow Matrix will be used. The Mendelow Matrix highlights the power and interest of stakeholders in a company.

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Figure 2: Example of a Mendelow Matrix

There are three dominant types of stakeholders in any company: internal, external and marketplace. The relevant stakeholders and the impact on them that the merger will have are listed below. Once stakeholders have been identified, a Mendelow Matrix is constructed to highlight the power vs. interest held by each group of stakeholder.

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List of Stakeholders and the Impact of the Merger

- Shareholders – The shareholders have a massive power and interest behind the merger. Their financial backing and decision-making is responsible for the merger being approved. Shareholders have a financial interest together with the power to invest in the merger.

- Hotel Owners – As many of Marriott’s hotels are franchised and run by independent owners, they have a large amount of power to either stay within a franchise or to leave the company. This can amount to a decrease in options for the merged company as loss of hotels reduces the global footprint that they may hold. The conditions of the merger will mean they have a high interest in the company for any changes that may occur.

- Travel Agents – They have a high level of interest in the company, as new relationship will need to be formed with the merged company. They have a low level of power due to pricing, but a high level of interest for meeting clients budget and interests.

- Employees / Unions – A change in company structure may affect all employees. Their terms and conditions of their employment may also be affected. They have high power and interest as the hospitality industry is known on the human interactions and this helps to keep repeat customers.

- Banks / Finance Houses – They have a high power and low interest in the merger. Approving the funding and loan directly influences the outcome of the merger, though finance institutes have low interest provided payments are made timeously.

- Suppliers – Suppliers have high interest and low power to challenge the merger. Suppliers have a high interest in the merger as increased profitability and turnover directly affect them and demands placed on them by merger.

- Governments – Governments have a high power and low interest in such a merger. The antitrust and regulatory influences may affect the details of the merger, though there is little reason for this to stop the merger unless there are irregularities in the merger dealings.

- Competitors – Competitors have a relatively small effect on the other hotels as all hotels are constantly evolving to reduce operating costs and therefore reduce the costs passed onto customers. This categorises the competitors as a low power and low interest, as they have no direct means to influence the hotel’s strategy. Healthy competition between hotels forces the hotels to evolve and search for ever more efficient operating methods.

- Customers – Customers are the key players in the hotel industry, they have a high power and interest in the hotel industry. Customers are seeking better value and service, and directly influence the industry through their choices of hotels and their customer satisfaction.

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Figure 3: Mendelow Matrix for Stakeholders of Merger

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External Factors Driving the Strategy

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PEST Analysis

“PEST analysis is an analysis of the political, economic, social and technological factors in the external environment of an organization, which can affect its activities and performance.” (Jurevicius, 2013) The PEST analysis is used to identify the key external factors that may affect the company in the short-term and long-term markets. A PEST analysis was performed