Harvard Case - Marriott Corp.
"Marriott Corp." Harvard business case study is written by mas R. Piper. It deals with the challenges in the field of Finance. The case study is 13 page(s) long and it was first published on : Dec 3, 1981
At Fern Fort University, we recommend Marriott Corporation pursue a strategic shift towards a more diversified and asset-light business model. This involves a combination of organic growth through strategic acquisitions and partnerships, a focus on developing and leveraging technology and analytics for operational efficiency and customer experience, and a deliberate approach to managing financial risk through a balanced capital structure and effective cash flow management. This strategy will position Marriott for sustainable growth and profitability in the evolving hospitality industry.
2. Background
Marriott Corporation, a leading player in the hospitality industry, faced a pivotal decision in the late 1980s. The company, with a portfolio of hotels, restaurants, and contract food services, was grappling with a challenging economic environment and increasing competition. The case study focuses on J.W. Marriott Jr., the CEO, who needed to determine the best path forward for the company.
The main protagonists of the case study are J.W. Marriott Jr., the CEO, and the company's board of directors. They are tasked with evaluating the company's current position, considering various strategic options, and ultimately deciding on the best course of action for Marriott's future.
3. Analysis of the Case Study
This case study can be analyzed using the framework of Corporate Strategy, focusing on the following key areas:
- Growth Strategy: Marriott's existing business model was heavily reliant on owning and operating hotels. This presented significant capital expenditure requirements and exposed the company to cyclical economic fluctuations. A shift towards an asset-light model, through franchising, management contracts, and strategic partnerships, could unlock significant growth potential while reducing financial risk.
- Financial Strategy: Marriott's financial strategy needed to be re-evaluated to support the chosen growth path. This included optimizing the capital structure, exploring alternative financing options like debt financing and private equity, and developing a robust cash flow management system.
- Mergers and Acquisitions: Acquisitions played a crucial role in Marriott's growth strategy. The company needed to carefully evaluate potential targets, considering their strategic fit, financial health, and potential for synergy.
- Technology and Analytics: The hospitality industry was undergoing a digital transformation. Marriott needed to invest in technology and analytics to enhance operational efficiency, improve customer experience, and gain a competitive edge.
4. Recommendations
- Shift to an Asset-Light Model: Marriott should aggressively pursue a strategy of franchising and management contracts, reducing its reliance on owning and operating hotels. This will free up capital for strategic acquisitions and investments in technology.
- Strategic Acquisitions and Partnerships: Marriott should focus on acquiring companies that strengthen its core competencies, expand its geographic reach, or offer complementary services. Strategic partnerships with other industry players can also provide access to new markets and technologies.
- Leverage Technology and Analytics: Investing in technology and analytics is critical for improving operational efficiency, enhancing customer experience, and gaining insights into market trends. This includes implementing online booking systems, customer relationship management tools, and data analytics platforms.
- Optimize Capital Structure: Marriott should aim for a balanced capital structure that minimizes financial risk while providing flexibility for growth. This may involve increasing debt financing, exploring private equity partnerships, or issuing new equity.
- Focus on Cash Flow Management: Marriott should prioritize cash flow management by optimizing working capital, reducing operating expenses, and effectively managing debt. This will ensure the company has sufficient resources for growth initiatives and to weather economic downturns.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: Marriott's core competencies lie in hospitality management, brand building, and customer service. The recommended strategy leverages these strengths while reducing reliance on asset ownership, aligning with the company's mission to provide exceptional hospitality experiences.
- External Customers and Internal Clients: The strategy prioritizes customer satisfaction by leveraging technology and analytics to enhance the guest experience. It also considers the needs of internal clients, such as franchisees, by providing them with support and resources.
- Competitors: Marriott faces intense competition from other hospitality giants like Hilton and Hyatt. The recommended strategy aims to differentiate Marriott by focusing on innovation, technology, and a diversified portfolio of brands and services.
- Attractiveness ' Quantitative Measures: The recommended strategy is expected to drive profitability through increased revenue growth, improved operational efficiency, and a more balanced capital structure. While specific financial projections are not provided, the strategy is expected to yield positive returns on investment (ROI) and enhance shareholder value.
6. Conclusion
Marriott Corporation stands at a crossroads, facing the challenge of adapting to a changing industry landscape. By strategically shifting towards an asset-light model, leveraging technology and analytics, and optimizing its financial strategy, Marriott can position itself for sustainable growth and profitability. This approach will require a commitment to innovation, strategic partnerships, and a disciplined approach to capital allocation.
7. Discussion
Alternative strategies not selected include:
- Maintaining the existing business model: This would involve continuing to focus on owning and operating hotels, but could expose Marriott to greater financial risk and limit its growth potential.
- Divesting non-core businesses: This could involve selling off some of Marriott's restaurant or contract food service businesses, but could potentially weaken its brand portfolio and limit its diversification.
The recommended strategy carries risks, including:
- Integration challenges: Acquiring and integrating new companies can be complex and time-consuming.
- Technological disruption: The rapid pace of technological change could render current investments obsolete.
- Economic downturns: A recession could negatively impact demand for hospitality services.
These risks can be mitigated through careful due diligence, ongoing monitoring of technology trends, and a robust financial risk management framework.
8. Next Steps
The implementation of the recommended strategy should be phased in over a period of several years. Key milestones include:
- Year 1: Develop a detailed strategic plan, identify potential acquisition targets, and invest in key technology platforms.
- Year 2: Execute strategic acquisitions, expand franchising and management contracts, and refine operational processes.
- Year 3: Continue to grow the portfolio of brands and services, further invest in technology and analytics, and monitor financial performance.
By taking these steps, Marriott can successfully navigate the challenges of the hospitality industry and emerge as a stronger, more diversified, and more profitable company.
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Case Description
Marriott is considering the repurchase of ten million shares. This is apparently at odds with the financial policies that the Board of Directors passed two years earlier. Students must discuss why the policies were passed and why changes are now necessary. Includes a discussion of debt policy, financing policy and dividend policy. Students also discover stock is currently undervalued.
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