An Investigation of Hospitality Business on Marriott International Inc - Case Study Example

An Investigation on Marriott International, Inc. About Marriott International, Inc. Marriott International, Inc. is a leading worldwide hospitality company. Its manoeuvres are clustered into five business segments: Full-Service Lodging, Select-Service Lodging, Extended-Stay Lodging, Timeshare and Synthetic Fuel. (Reuters 2006). Its legacy can be drawn in 1927 from a small root beer stand opened in Washington, D.C. by J. Willard and Alice S. Marriott. (http://www.deca.org/marriott.html). Its assortment of lodging brands includes: Marriott Hotels & Resorts; The Ritz-Carlton Hotels Bulgari; Renaissance Hotels & Resorts; Courtyard; Residence Inn; Fairfield Inn, SpringHill Suites; TownePlace; Marriott Vacation Club International; Horizons by Marriott Vacation Club; The Ritz-Carlton Club; Grand Residences by Marriott; and International Serviced Apartments. Moreover, Marriott’s ExecuStay offers 2,005 furnished corporate housing units, and Marriott Golf operates 24 golf course facilities about the United States. (http://ir.shareholder.com/mar/downloads/Corpprofile.pdf). It’s goal is to produce considerable value by insistently establishing its brands and developing its businesses. The company is devoted to providing incomparable service to customers, prospects of expansion for associates, and attractive proceeds to owners and shareholders. (www.marriott.com) Marriott International, Inc. is positioned as the most admired company in the lodging industry, and among the best places to work for according to Fortune Magazine (2006). In 2004, its worldwide occupancy rates had an average of 75% (www.marriott.com). For a brief tour in the company’s history, the breaking of Marriott Corporation into two companies in 1993 found Marriott International. Meanwhile, the second company was became Host Marriott Corporation. Marriott International procured 49% interest in Ritz-Carlton in 1995, and another 50% interest augmentation in 1998, totalling to its 99% possession of the brand. The year 2002 sparked a major reformation of the company when it spun off SLSC or Senior Living Services Communities and Marriott Distribution Services, in order for it to concentrate on hotel ownership and management. The adjustments lasted until 2003. Meanwhile, the Ramada International Hotels & Resorts was sold to Cendant in On September 15, 2004 (http://en.wikipedia.org/wiki/Marriott_International). Until now, the company's operations consist of the same segments. The lodging business encompasses full-service lodging (65%), select-service lodging (11%), extended-stay lodging (6%), timeshare (14%) and synthetic fuel (4%). Basing on the Internal Revenue Code Section 29, the synthetic fuel that it produces should be considered for tax credits. Its synthetic fuel operation encompasses concentration in four coal-based synthetic fuel production installations. By the conclusion of 2006’s second quarter, Marriott Lodging either operates or franchises 2,789 hotels. This totals to 507,130 rooms, as well as 11,008 timeshare villas, located in 66 other nations around the globe (http://www.deca.org/marriott.html) For Question 1: Evaluate the centrality of the consumer to the business chosen; show how the organisation could develop a plan of action to respond their consumer needs. (850 words) 1. Evaluation on Consumer Centrality and Response to Consumer Needs Introduction The consumers are indispensable elements of any business. They are particularly vital in assuring the eventual success of any business venture. How consumers perceive a product or service is influenced by a lot of factors, and whatever they are, should be satisfied by the firm wanting any degree of success (Camarota 1997). Customer Interaction The function of every service provider or those who have access to interaction with customers is to efficiently and effectively supply whatever the customers call for. Through the utilization of the enhanced CRM applications, Marriott concentrates largely on the business traveller sector. Foremost, Marriott centres on certain business travellers who have been recognized as budding lucrative and faithful customers. Out of this, they construct customer databases by means of requests and preferences from previous vacations. This is intended to produce personalised customer solutions anchored in individual customer requirements. Examples of this are recreation, tee times, dinner reservations, and the likes. Having done all these, Marriott traces customer experiences and every facet of customer satisfaction so that they can constantly project and meet consumers’ shifting preferences. Customers who were subjected to this Personal Planning services generated significantly superior customer satisfaction marks and spent $100 per day more on the average for services further than the room rate. Service Recovery and Customer Retention In handling its service recovery and customer retention, Marriott takes action in customer complaints or troubles. In order to preserve its customers, it was specified in the company’s policies in Marriott 2000 Annual Report that “whatever customers’ travel plans, the Marriott portfolio of brands offers the right product at the right price by understanding the unique needs of each customer group, and tailoring each Marriott brand to respond to those needs. Marriott builds strong, enduring relationships that help it stay connected to its customers, through Marriott’s unique blend of quality, consistency, personalized service and recognition”. Pricing In response to the ever changing consumer demands, Marriott offers a diverse selection of price varieties and packages. The company presents modestly priced hotels, small boutique hotels, extended stay hotels, timeshare, resort destinations, and luxury hotels. Marriott’s various brands and sorts of hotels enable it to satisfy not only the requirements of business travellers, but also the whims of different sectors of travellers and consumers. Location Perhaps, Marriott’s strong presence in 66 different countries and territories makes it more than able to cater to consumers, wherever they are in the globe. Marriott also ensures that they have a branch wherever there is a profitable climate for hospitality business. Never ceasing in its expansion, it has established its businesses in areas such as Hong Kong, Thailand, and the likes just recently, making its presence known wherever there is a possible consumer. Promotions Marriott instigated an advertising campaign called “It’s the Marriott Way” in 2004 stirred by actual life travel experiences to popularize the company’s exceptional service culture. The campaign presented a succession of accounts of Marriott’s strong connection with its clients. It emphasizes the various advancements that the company’s hotel brands are offering. The company also recognized in its promotions its incredible employees, and in showcasing its best to speak of what the company is all about. Use of the Internet Marriott International is intent on using the influence of electronic Business systems to compel customer service, abundance and escalation. The company needs to be capable of responding to their customers without fail, whatever media is used by the customers to reach it. In 1998, the company took on an e-business scheme to redirect itself to better customer servitude. The company was crossing over from a decentralized property-orientation to a centralized customer-orientation. Marriott devoted $70 million over a two-year period to employ various IT applications in different functional areas such as personnel, sales, and accounting. A key factor of its e-business scheme was its CRM applications. The system was established in cooperation with Siebel Systems, the foremost CRM software corporation. By establishing eCRM applications, Marriott was able to enhance its hospitality services through the numerous new services that it was able to offer. ‘www.marriott.com’ which was the company's website became one of the most frequented sites in the hospitality industry, since it gave clients easy way in to the services tendered by the whole chain of Marriott hotels and resorts. Conclusion Marriott is a very large enterprise that never ceased on innovating and improving its services and expanding its brand holdings, which may well be the reason why it has gone a long way already. With its unceasing efforts, it is now able to cater to its consumers more than sufficiently, and had already developed a response for every possible consumer need. All of Marriott International Inc.’s initiatives that were discussed above boosted the company's capacity to take action in answering for the requirements of its consumers. In turn, these initiatives yielded strong financial performance for the company. Throughout the years, Marriott kept on making constant improvements in its business practices in order to 'delight' its clients. This is further proof of the vitality of the consumers to the business. Marriott satisfied them, and they satisfied Marriott in turn. For Question 2: Analyse the external influences that impact on the organisation and reflect on how the business can adjust to them. (967 words) 2. External Influences that Impact on Marriott International, Inc. Introduction Naturally, Marriott International, Inc. is subject to the variety of operating threats universal to the hotel, timeshare and corporate apartment industries. These operating threats can be further specified into external influences that may adversely affect the profitability of the hotels, vacation timeshare resorts and corporate apartments that the company is now having. External Influences Marriott International, Inc.’s financial yields and financial growth are persistently swayed by the uncertain rate and duration of the existing growth environment in the lodging industry. Various issues on public safety and the continuing downtrend of economic conditions almost everywhere have caused consumer confidence to decline as a consequence. Some prospective travellers have trimmed down or avoided unnecessary trips thus resulting to a depression in business and leisure travel. The lodging operations of the company are hugely affected by regional, national, international, geopolitical and economic conditions. Specifically, war and terrorist activity, as well as mere threats of terrorist activity that result to intensified travel security measures instituted on business and leisure travel creates huge impacts on the business, given its multinational nature (http://ir.shareholder.com/mar/downloads/2005AR.pdf). The desirability of certain locations and adjustments in travel patterns are also significant external factors. Based on Marriott International Inc.’s 2005 Annual Report, these can vary among: “travellers’ fears of exposure to infectious diseases, such as Bird Flu and Severe Acute Respiratory Syndrome (“SARS”); the occurrence of natural disasters such as hurricanes, earthquakes, or tsunamis; taxes and government policies that determine prices, wages, interest rates, construction procedures and expenditures; the availability and cost of capital to allow Marriott, prospective hotel proprietors and joint venture associates to finance investments; national and regional expansion of competing properties; augmentations in wages and other labour costs, energy, insurance, healthcare, transportation and fuel, and other expenses central to the operation of the hospitality business, including current amplifications in energy costs and further escalation envisaged by the Department of Energy for the winter of 2006; and organized labour activities that could diminish company profits in certain major market cities including those in New York, Los Angeles, Waikiki Beach in Hawaii, San Francisco, and Boston where some of Marriott’s hotels are under collective bargaining agreements terminating by 2006. Moreover, the terms of the company’s leases, franchise agreements and management contracts for individual lodging facilities are manipulated by the terms of agreement offered by the competitors” (http://ir.shareholder.com/mar/downloads/2005AR.pdf). More specifically, it should be noted as influential that lodging supply expansion in the United States was low during 2005, whereas demand escalated. Consequently, occupancies and average daily rates both kept on rising. And because there was a momentary towering demand for business and leisure goods in 2005, a predominantly forceful pricing power has been held by the company in its hands. And while the raise in demand in the Midwestern and South Central regions of the US was more moderate, demand was strong in Hawaii and strongest in the Western and Eastern regions. To boot, Marriott’s group rates are progressing to increase as business which was already settled at lower prices in previous years is reinstated with business agreed upon at higher rates (http://ir.shareholder.com/mar/downloads/2005AR.pdf). The relatively feeble U.S. dollar assisted an increase in travel to the United States as opposed to the preceding year. Into the bargain, U.S. vacationers who travelled domestically instead of abroad as an impact of the weak U.S. dollar contributed to a rise in demand. Meanwhile, in countries outside the United States such as in Hong Kong, China, Mexico, the Caribbean, and the Middle East, there was a stronger demand relative to the previous year. Countries in Europe and South America continued in the path of less robust demands, while some economies persisted to come out from a slowdown (http://ir.shareholder.com/mar/downloads/2005AR.pdf). In a more general sense, the policies for foreign investments of the governments that serve as hosts for Marriott’s hotels should also be considered as external influence. This respect encompasses central issues such as new markets that show potential, availability of capital, global tourism’s development and continual rise, lower-priced and abundant labour, and incentives which are given out by host governments, or tax dispensations, etc. An effective modelling of the threats of the aforementioned influences will be the decades of considerable building in the U.S. that resulted to a grave hotel rooms’ oversupply. This sequentially resulted to stumpy occupancies. For problems like this, the company can adjust by building up new market alcoves and segmentation branding. Alarming challenges to developers are posed by differences. To this, however, resolutions should be dealt with persistence and sensitivity. Understanding the host country and the market that they are dealing with is crucial for the company in the aspects of their domestic socio-economic state, power structure, political history, inclinations in trade and travel, and many more(Gee, C. 1994). Conclusion The identification of these external influences is a crucial step since the demand for Marriott International, Inc can be restricted by one or more of these influences. Probably, these can result to heightening the rates of hotel rooms, corporate apartments, and timeshare units that the company had already struggled to acquire. Also, any of the aforementioned factors could raise the costs of the company’s lodging businesses, thereby reducing its profits. A diminishing in the demand for hotels could also generate losses from the loans, guarantees and minority equity investments made by the company with the partner hotels that it is running (http://ir.shareholder.com/mar/downloads/2005AR.pdf). Even where such influences do not decrease the demand, the company’s profit margins may still suffer. In order to adjust, Marriott must be able to fully recover the rise in operating costs from its customers. One specific adjustment method that the company can make is to intensify its operations in areas where a more favourable pricing climate can be viewed for their industry. This refers to the transient demand which is strong in most markets around the world. For Question 3: From the organisations’ financial data, analyse its success to date and comment upon areas of improvement. (991 words) 3. Financial Analysis of Marriott International, Inc. Introduction Financial information can be considered the heart of business management. Knowledge and proper analysis and utilization of a company’s financial data enables a manager to run a business effectively. Financial statements and accounting reports reveal as much of the “health of the business,” as pulse rate and blood pressure reports indicates the state of a person’s health. This kind of information can be found in the company’s “Annual Report,” a statement of the financial state and development of an institution published every year, and covering a one-year period (http://faculty.valencia.cc.fl.us/srusso/ch18bus.htm). The following financial presentation and analysis were based on Marriott International Inc.’s 2005 Annual Report. Revenues The year 2005 saw to a record high achievement for Marriott. Revenues increased from $10,099 million in year 2004 to $11,550 million in 2005 because of the strong demand for hotel rooms around the globe. This amounts to a very high 14 percent increase. Annually, increases in prices drive RevPAR to increase similarly. Progress in occupancy also contributes to this escalation, only to a lower degree (http://ir.shareholder.com/mar/downloads/2005AR.pdf). The increase in revenue last year compared alongside that of the year 2004 reflects that $14 million of incentive fees were already recognised in 2005. These incentives were already determined based on previous period results, but were only earned in 2005. Higher financially reportable development revenue manifested through higher timeshare interval, fractional and whole ownership sales and services revenue also improved the company’s 2005 revenues. Likewise, buying the 13 properties which Marriott had only managed before caused owned and leased revenue to increase significantly (http://ir.shareholder.com/mar/downloads/2005AR.pdf). A $743 million of increased cost reimbursements revenue, from $6,928 million in 2004 to $7,671 million in 2005, is included in the 14 percent increase in total revenue. This revenue corresponds to reimbursements spent to aid the operation of managed and franchised properties. The said revenues also speak mainly about the costs of payroll set by Marriott as employer at the properties that it supervises. This revenue and related expense however have no big effect on either the company’s net income or operating income. The growing number of properties managed by the company could be the chief cause of the increased reimbursed costs. In that recent year, the company added 45 managed properties, or 4,519 rooms, to its system, including the Whitbread properties (http://ir.shareholder.com/mar/downloads/2005AR.pdf). Interest Expense, Interest Income, Provision for Loan Losses Interest expense increased by 7 percent or $7 million, from $99 million in 2004, to $106 million in 2005. This merely reflects the increase in the debt levels that was employed to facilitate significantly higher capital spending and share repurchases in 2005. Interest income, before the provision for loan losses, decreased from $146 million in 2004 to $79 million in 2005. The 46% or $67 million decrease largely reflects the impact of loans repaid to Marriott. Its provision for loan losses increased to $36 million due to the impairment of the company’s Delta Air Lines, Inc. aircraft leveraged lease. (http://ir.shareholder.com/mar/downloads/2005AR.pdf). Equity in Earnings (Losses) Equity in earnings (losses) of equity method investees increased $78 million from a net loss of $42 million in 2004 to net earnings of $36 million in 2005. $28 million of the increase can be attributed to the company’s synthetic fuel joint ventures which were accounted as an equity investment in the first quarter of 2004, against consolidation of the joint ventures for the periods subsequently (http://ir.shareholder.com/mar/downloads/2005AR.pdf). Minority Interest Attributable to the adjustments in the company’s accounting method for synthetic fuel operations, minority interest rose from a profit of $40 million to $45 million, from 2004-2005. This minority interest in 2005 includes the whole year’s share of the synthetic fuel losses by Marriott’s partner company. (http://ir.shareholder.com/mar/downloads/2005AR.pdf). Capital Expenditures, Other Investments and Debts Capital expenditures of $181 million in 2004 skyrocketed to $780 million in 2005. These were spent in building and developing new hotels and in acquiring new hotel properties. Existing assets or properties and systems initiatives were also improved. Meanwhile, from $1,325 million in 2004, Marriott’s debt increased by $412 million in 2005 to reach $1,737 million Losses by Synthetic Fuel Facility It was in the first quarter of 2002 that the operation of synthetic fuel facility began. . It is worth noting that the facility generated significant losses for the company. However, these losses are more than compensation by the reduction in the company’s tax expenditures brought about by Section 29 tax credits (http://ir.shareholder.com/mar/downloads/2005AR.pdf). Conclusion The most recent analysis of the financial performance of Marriott International, Inc., seemed to indicate a strong success rate which is likely to stay. The year 2005 saw to a stable economic expansion at a global level. Combining this opportunity with modest industry supply growth and a potent business model saw to the achievement of record levels of revenue and earnings for Marriott (http://ir.shareholder.com/mar/downloads/2005AR.pdf). For the fiscal year that concluded in the 30th of December 2005, the company’s revenues escalated by 14% to reach $11.55B. From constant operations, net income jumped by 12% to $668M. Revenues reflect increased REVPAR and occupancy levels resulting in higher revenues from the full-service, select-service, timeshare and extended-stay lodging segments. However, a boost in the all-purpose and executive expenditures that generated pre-tax charges connected with the CTF transaction counterbalanced the company’s net income to some extent (finance.yahoo.com). Overall, a firm as experienced and as large as Marriott International, Inc. has displayed a great administration of its finances, resulting to much success over the years. There is little to suggest upon the company’s improvement in these terms, except for its liquidity and fuel facility. Marriott should maintain its liquidity in the aspect of real estate so that it will avoid facing heightened exposure to the operating risks of owning real estate. It should also improve the operation of its fuel facility so that it will incur profits instead of losses. In general, Marriott should focus on increasing sales and profitability, on minimizing costs and enhancing productivity, and on maximizing the employment of its assets (Camarota 1997). For Question 4: Identify the external stakeholders to the organisation and analyse what courses of action the manager can take to satisfy their needs. (976 words) 4. External Stakeholders to Marriott International, Inc. Introduction Post, Preston, and Sachs (2002), in their book entitled “Redefining the Corporation: Stakeholder Management and Organizational Wealth,” made it their fundamental proposition that organisational wealth is created (or destroyed) through a corporation’s dealings with its stakeholders. Effective stakeholder management expands and uses relationships between a company and its stakeholders for mutual benefit, thereby realising the basic purpose of wealth creation. (http://www.sup.org/book.cgi?book_id=4304%204310) The legality of the corporation as an institution in the context of the community lies not only on its ability in creating wealth, but also in meeting the expectations of various stakeholders who contribute to its existence and success (http://www.sup.org/book.cgi?book_id=4304%204310). Apart from its meaning decades ago, the term "stakeholder" has evolved today to include not only an organisations employees, sellers, and customers, but even components of a society where its establishments may have impact on the local economy or environment. (http://en.wikipedia.org/wiki/Stakeholder) Identification of stakeholders In 1984, R. E. Freeman first proposed the stakeholder theory. This theory attempted to determine which groups in an organisation should be considered as stakeholders, and therefore requires the attention of the management. Traditionally, firms only concentrate on the requirements and fancies of four classically identified sectors: customers, employees, investors, and suppliers. Stakeholder theory takes into account the involvement of other factors such as communities, trade associations, associated corporations, branches of the government, trade unions, political groups, etc. Aside from the function of identifying stakeholders, this view also looks at the circumstances under which these factors should be considered as stakeholders. These two functions constitute today’s conduct of Stakeholder Theory. (Freeman, 1984) Theoretically, stakeholders can vary from a several individuals and/or organizational entities. In reality, however, the number must be restricted to the relevant stakeholders; i.e. to those who are swayed by the identified problems and for whom the project’s lifecycle and accomplishment are crucial. (http://en.wikipedia.org/wiki/Stakeholder_analysis) Stockholders Primarily, Marriott International, Inc.’s should include its shareholders as external stakeholders. To satisfy these stockholders, Marriott must grant them special privileges which could vary depending on the class of stock. This may consist of suffrage on the affairs of the business such as the board of directors’ elections, the right to share in divisions of Marriott’s income, the right to procure new shares that the corporation issues, and the right to Marriott’s assets should liquidation of the company arises (http://en.wikipedia.org/wiki/Stockholder).  Other Financial Stakeholders Aside from shareholders, it is important to consider financial stakeholders such as lenders, and insurers. These parties have a primary interest in the financial performance of the company. Their concern is for the company to provide adequate financial return from the assets it employed, and that it maintains the flow of cash positive in order to accommodate existing debts and to provide satisfactory dividends. This, therefore, is what Marriott should ensure. Also, Marriott should keep its financial exposure on the low because insurers are concerned about the measures that the company take to minimize the risk of default or bankruptcy (Camarota 1997). The Customers As already discussed in the first section of this paper, customers are more than vital to the company. As primary stakeholders, the company must be able to ensure their satisfaction through constant identification of their needs and wants, and constant innovation of company services in response to customer’s ever changing demands. To do this, Marriott should carefully innovate in their discount policies, services, facilities, and the like. The specific products and services that are most important to customers should also be determined (Camarota 1997). Communities and Public Policy The human communities locally or worldwide; the local, state, and federal regulatory agencies; and the community of contending businesses should be considered by the company as stakeholders. In order to satisfy this specific group of stakeholders, Marriott must ensure that they abide by the political, environmental, and social regulations, laws, and norms of these external factors. The company should also establish proper communication with the community, as well as self-evaluation of the effects of the company’s operations on the factors around them (Camarota 1997). Further, Marriott can initiate proactive and participatory policies to improve the condition of these external factors, and to gain the trust of the community as well. As for the issue of competition among companies in the industry, the organisation can seek new ways to come up with joint ventures, distribute technology, or build up integrated cooperation and arrangements of teams (Camarota 1997). The Biosphere Aldo Leopold in A Sand County Almanac said "A thing is right when it tends to preserve the integrity, stability, and beauty of the biotic community. It is wrong otherwise." With this in mind, Marriot should indeed manage the biosphere as necessary stakeholders, meaning all the sentient life forms under its area of responsibility. However, it should be noted that responding to the needs of these stakeholders would take much painstaking effort since it is hard and costly to measure the environmental impacts the company might be having upon them, particularly if these impacts are removed in time and space from the Marriott’s day to day operations. (Camarota 1997). Some basic measures to respond to these needs would be to use land in a sustainable conduct that conserves naturally-occurring ecosystems, biodiversity, habitats, water quality for drinking, recreational, and wildlife use, and air quality. (Camarota 1997). Conclusion All of the above-mentioned external factors should be identified as stakeholders with the objective of establishing relationships and to determine their satisfaction requirement. Upon accomplishing this, Marriott must be able to device a systematic process to translate those requirements into product or service designs. The conduct of this systematic process should be facilitated by a certain mechanism, the internet for instance, to perform business dealings and seek assistance and information, including contact standards. These programs and services should then be promoted so that Marriott will be seen as a company engaged in mobilizing resources to generate wealth and benefits for all its stakeholders (http://www.sup.org/book.cgi?book_id=4304%204310). Summary Throughout the conduct of this study, Marriott International Inc. has been investigated for the centrality of its consumer and its responses to its consumer’s needs; its external influences; its success based on financial data; and its stakeholders and the ways in which to satisfy their needs. In order to do this, practical business planning approaches to business were applied. It had been found that Marriott International is already a stable and established hospitality business. Already, it has innovated and improved on every way to response to its consumers needs. However, it still constantly strives to improve its services. Further, it had been able to identify external influences on its processes, and consequently adjust to whatever external threat had come. Analysis of its financial performance merely established the fact that its progress is unstoppable, and is here to stay for a good measure. Its 2005 Annual report showed proofs of its record high yields. More importantly, and key to its plausible success is its success in identifying vital stakeholders, and in satisfying the needs of these. These factors establish the effective marketing and business planning and management practices of Marriott International, Inc, and this investigation clearly explained how the company has become one of the leading hospitality businesses in the world. Bibliography Camarota, Anton G. (1997). Stakeholder Satisfaction: The Key to Understanding ISO 14001. Retrieved 12 August 2006. DECA Inc.’s Educational Gateway. National Advisory Board. Retrieved 12 August 2006. Fortune Magazine. (2006). Retrieved 12 August 2006. Freeman, R.E. 1984, Strategic Management: A stakeholder approach. Boston: Pitman. Gee, C.Y. (1994). International Hotels: Development and Management. The Educational Institute of American Hotel and Motel Association. East Lancing, Michigan. Hotel & Motel Management (2000). Marriott International’s Marriott.com. Hotel & Motel Management (2001). ACCOR, Century International Hotels, Le Meridien Hotels and Resorts, Hotel Plaza Ltd., Orchid Assets Co. Kim, Seong-Min (2002) School of Travel Industry Management. University of Hawaii at Manoa. Retrieved 12 August 2006. Read More