Marriott International (Strategic Mangment Project)

TALAL-BIN-TAMIMM.ALI BAIGUSMAN ALI ASHRAF

Submitted to:Anabia jamshaidLahore School of Economics

History and Overview

INTRODUCTION:Marriott International, Inc. is a worldwide operator and franchisor of a broad portfolio of hotels and related lodging facilities. Founded by J. Willard Marriott, the company is now led by son J .W. (B i l l ) Mar r i o t t , J r . Today , Mar r i o t t I n t e rna t i ona l ha s abou t 3 ,150   l odg ing  properties located in the United States and 67 other countries and territories.

History

Marriott was founded by J. Willard Marriott1927 when he and his wife opened a root beer  stand in Washington D.C. As a missionary in the sweltering, humid summers in Washington, Marriott was convinced that what the city needed was a place to get a cool drink. They later expanded their enterprises into a chain of restaurants and hotels. The Key Bridge Marriott in Arlington, Virginia is Marriott International’s longest operating hotel, and will celebrate its 50th anniversary in 2009. Their son and current Chairman and Ch ie f  Execu t i ve  Of f i c e r ,   J .W.   (B i l l )  Mar r i o t t ,   J r .   ha s   l ed   t he   company   t o  spec t acu l a r  worldwide growth. Today, Marriott International has about 3,150 lodging properties located in the United States and 67 other countries and territories.

Mar r i o t t   I n t e rna t i ona l  was   fo rmed   i n   1992  when Corporation split  i n t o   t w o companies, Marriott International and Host Marriott Corporation. In 2002 Marriott International began a major restructuring by spinning off many Senior  Living Services Communities (which is now part of  Sunrise Senior Living) a n d Marriott Distribution Services, so t ha t i t cou ld focus  on ho t e l   owne r sh ip and managemen t . The changes were completed in 2003.Marriott International headquarters in the Bethesda area o f   unincorporated Montgomery County, Maryland, United States I n Apr i l 1995 , Mar r i o t t I n t e rna t i ona l a cqu i r ed a 49% in t e r e s t i n t he Ritz-Carlton Hotel Company LLC. Marriott International believed that it could increase sales and profit margins at the Ritz, a troubled chain with a significant number of properties either losing money or barely breaking even. The cost of Marriott's initial investment was estimated to be about$200 million in cash and assumed debt. The next year, Marriott spent $331 million to take over the Ritz-Carlton Atlanta and buy a majority interest in two properties owned by William Johnson, a real estate developer who had purchased the Boston Ritz Carlton i n 1983 and expanded his Ritz holdings over the next twenty years.

The Ritz began expansion into the lucrative timeshare market among other new initiatives made financially possible by the deep pockets of Marriott, which also lent its own in-house expe r t i s e i n c e r t a i n a r ea s . The re we re o the r bene f i t s f o r R i t z -Ca r l t on f l owing f rom i t s relationship with Marriott, such as being able to take advantage of the parent company’s reservation system and buying power. The partnership was solidified in 1998 when Marriott boosted its interest in Ritz-Carlton to 99 percent.

By 1999 revenues from the 35 hotels it operated around the world totaled about $1.4 billion.Marriott International ownedRam ada   I n t e rn a t i ona l   Ho t e l s   &   Res o r t s u n t i l i t s s a l e o n September 15, 2004 to Cendant. It is the first hotel chain to serve food that is completely free of  transfats at all of its North American properties. In 2005, Marriott International and Marriott Vacation Club International comprised two of t he 53 en t i t i e s t ha t con t r i bu t ed t he max imum o f $250 ,000 t o t he s econd i naugu ra t i on o f  President George W. Bush. On July 19, 2006, Marriott announced that all lodging buildings they operate in the United States and Canada would become non-smoking beginning September 2006. "The new policy includes all guest rooms, restaurants, lounges, meeting rooms, public space and employee work areas."

Vision and mission statement

Vision:

To become the leading provider and facilitator of the luxury, leisure and business experiences across the globe.

Mission:

“To create an environment conducive and helpful to both our employees and customers, thereby encouraging our employees to work at their maximum capacity in being of service to our customers whilst providing our customers with Good Food & Good Service at a Fair Price”

Propose vision statement:

For more than 76 years, Marriott has earned a reputation for delivering the best service with the best people. That’s an imperative that never changes, and a strategy that has served well in good times and bad. Marriott international is an industry leader because they never get satisfied, they’re always looking for ways to improve, and strive tirelessly for excellence. They proudly serve guests in nearly 70 countries, with a lodging portfolio that includes more than 2,700 hotels, resorts and timeshare properties, as well as corporate housing apartments, across 18 distinctive brands.

Proposed Mission statement:

Marriott international tries to maintain its loyal customer base and attract new customers in both domestic and international markets with its commitment to provide best quality services. Marriott international will lead the industry through commitment to innovation, service, growth, and quality. Its franchise system ensures profitability for retailers, shareholders and franchisees while providing convenient access for customers. Marriott international desires to instill the belief that the company is a set of capabilities with high morale employees working in best conditions provided by Marriott. Marriott delivers superior profitability to their owners and franchisees. Marriott associates are the best in the business they do their best to serve their customers with skills, enthusiasm and work hard to guarantee the success.

External Audit

Opportunities:

1) Environmentally and family orientation

2) Decrease cost of real estate in U.S: there is gradually decrease in the cost of the real estate in America due to the recession.

3) Eco-tourism: Now days the trend of eco-tourism is developing so there’s been an opportunity for the Marriott international to provide the nature friendly environment to their customers.

4) Emerging Asian travel and tourism markets: Now days there has been high increase in the Asian tourism and travel market that provides the opportunity for Marriott to spread its business in Asia.

5) Improving hospitality market in U.S: North America the single largest market of Marriott showing signs of normalcy after recessionary turbulence. The lodging industry which derives its growth from economic climate is also recovering fast from the recessionary blues.

6) Rising income: Owing to the rise in income levels, people have more spare money to spend, which is expected to enhance leisure tourism

7) Economic growth: it is noted that there has been economic growth of about 2.9% per year so it’s an opportunity for the Marriott to increase its business worldwide.

8) Population growth: there has been population growth of 310 million which allows Marriott to extend its business.

9) Franchising: there is opportunity for the Marriott to increase its franchises in the different countries around the globe.

10) Emerging markets: in order to offset the negative impact of such a challenging business environment and to capitalize on the opportunities present in emerging markets a number of hotels have turned to them. Marriott international is no different and Asia- Pacific countries became key target markets.

Threats

1) Vulnerability to terrorists attacks raise security and safety concerns: The tourism industry is affected by threats from terrorists attack after Sep 11, 2001. Marriott a symbol of luxury and power has been a prime target of terrorist’s attacks.

2) Timeshare business vulnerable in a dismal capital and credit market: The timeshare business segment of the company is still facing the heat of troubled financial and credit markets. The company, under this segment, markets and sells residential properties; finances consumer purchases; and operates resorts.

3) Fragmented and intensely competitive lodging industry: The Company faces a strong competition both as a lodging operator and as a franchisor. The US lodging market is highly crowded with several key players like Accor, Hilton Hotels, Starwood and Intercontinental Hotel Group and others, have a strong established base in US.

4) Labor issues: Some of the company’s union contracts in New York, Chicago, Boston, and many other major cities are set near to expire. The hotel union is threatening a strike in all of these cities simultaneously.

5) Rising interest rates: The US has seen 17 successive interest rate hikes over the past few years leading to the current high of 5.25%. Inflation fears in US may see another raise in the short-term. This could affect the company’s growth plans by increasing the financing costs.

6) High labor cost in America: there is high labor cost in America which is the most largest market for the Marriott International.

7) Economic recession: recession hits worldwide which affects the hotel industry highly and due to this the consumer spending get decrease.

8) Political instability: there is political instability in various countries which can appear as a threat to Marriott international and affects its business..9) Increase of real estate in Asia: there has been high increase of real estate prices in Asia so it can affect the Marriott international to generate revenues from Asia region.

10) Economy brand development: The rapid growth achieved by economy hotel brands in the last three years posses a potential threat for mid-scale, limited service brands such as Springhill suits.

Internal Audit

Strengths

1) Large expanse of brands: Marriott international have large expanse of brands which includes; the Ritz-Carlton, JW Marriott, Bulgari hotels and resorts, Edition, Autograph collection, AC hotels, Marriott hotels and resorts, Renaissance hotels, Courtyard by Marriott etc.

2) Geographic presence: Marriott is one of the key players in lodging and hospitality industry with operations spanning 68countries around the globe. Although the US is single largest market

of the Marriott, yet 43% of the earnings before interest and tax is contributed by the company’s international operations.

3) Global leader in the hotel market: Marriott international is the leader in the global hotels market with a near 5% value share in 2007 and a large geographic presence.

4) Excellent strategies to attract and retain the customers: Marriott international have the excellent strategies to attract the customers and retain the customers through price, quality, satisfaction etc.

5) Eco-friendly: Marriott international is adopting the trend of eco friendly tourism to prevent the nature and the environment.

6) High revenue and growth rate: Marriott international generates the high revenue between 2004-2006 from $10.1 billion to $12.16 billion and enjoy the high growth rate.

7) IT solutions: Marriott international is upgrading its properties with technology that responds to the needs of business and leisure travelers. In the latter part of the review period for example it has transformed its public areas to encourage guests to work and socialize through the adoption of the latest design, technology, food and beverage offerings.

8) Franchising: Marriott international have large no of franchisees over 60 countries which facilitate the rapid expansion of its portfolio.

9) Strong presence in all the segments: The Company has presence in all the segments: luxury, upper moderate, moderate and lower moderate price segments.

10) Higher brand recognition and recall makes the company priority choice for clients: Marriott is one of the leading hotel and leisure companies known for its strong brand portfolio in all the major segments and market. The company operates in most major markets and segments around the world through its luxury brands.

Weaknesses:

1) Focus on US instead of international establishments (over reliance on US market): Marriott international mainly focus on the US as North America is its main market for the business. Marriott international remains heavily reliant on the US making sensitive to the changing fortunes of its domestic market.

2) Over dependence on luxury brands: Marriott international primarily focus on the luxury products but there is large population which cannot afford the luxuries.

3) Terrorism threats: Marriott international is being targeted by the terrorists and the extremists.

4) Lack of low cost lifestyle brand: Marriott international does not have a low cost lifestyle brand product portfolio like aloft from Starwood and hotel indigo from IHG.

5) Courtyard brand: the courtyard brand of the Marriott international is maturing and losing its core business customers.

6) Business model which has the potential to dilute the brand perception and limit the revenue growth: Marriott follows the business model wherein it emphasizes on managing and franchising hotels, rather than owning them. The company operated 46% of its hotel rooms under management agreements, 52% under franchise agreements, and only 2 % were owned or leased as of December, 2009. But, as compared to this, only 33.6% of the revenue in FY2009 were earned through franchise and management agreements while 66.4% from owned or timeshare sales and service.

7) High leverage combined with downgrade in rating will affect the future capital generation and expansion projects: The Company has substantial debt to equity ratio. The ratio increased from 0.7 in 2006 to 2.24 in2008 and stood at 2.01 in 2009. In percentage terms, the company’s long term debt to equity ratio stood at 291.96% as against the industry standard of 56.07%.

8) Weak financial performance affecting the company’s expansion plans: Marriott registered weak financial performance in the FY2009 due to the slowdown in the economy and the lodging industry. The company’s revenues declined by almost 15.3% in 2009 compared to the previous fiscal.

9) Operating income decrease: Marriott international faces the loss of $76 million in 2006 due to high oil prices.

10) Low gross margins: Marriott international have low gross margin of 13.6% where as Hilton has 30%.

SWOT MATRIX:

STRENGHTS:1. Large expanse of brands: Marriott international have large expanse of brands which includes; the Ritz-Carlton, JW Marriott etc.2. Geographic presence: Marriott is one of the key players in lodging and hospitality industry with operations spanning 68countries around the globe.3. Global leader in the hotel market: Marriott international is the leader in the global hotels market with a near 5% value share in 2007 and a large geographic presence.4. Excellent strategies to attract and retain the customers: Marriott international have the excellent strategies to attract the customers and retain the customers through price, quality, satisfaction etc.5. Eco-friendly: Marriott international is adopting the trend of eco friendly tourism to prevent the nature and the environment.6. High revenue and growth rate: Marriott international generates the high revenue between 2004-2006 from $10.1 billion to $12.16 billion and enjoy the high growth rate.7. IT solutions: Marriott international is upgrading its

WEAKNESS:1. Focus on US instead of international establishments (over reliance on US market).2. Over dependence on luxury brands: Marriott international primarily focus on the luxury products but there is large population which cannot afford the luxuries.3. Terrorism threats: Marriott international is being targeted by the terrorists and the extremists.4. Lack of low cost lifestyle brand: Marriott international does not have a low cost lifestyle brand product portfolio. 5. Courtyard brand: the courtyard brand of the Marriott international is maturing and losing its core business customers.6. Business model which has the potential to dilute the brand perception and limit the revenue growth.7. High leverage combined with downgrade in rating will affect the future capital generation and expansion projects.8. Weak financial performance affecting the company’s

properties with technology that responds to the needs of business and leisure travelers.8. Franchising: Marriott international have large no of franchisees over 60 countries which facilitate the rapid expansion of its portfolio.9. Strong presence in all the segments: The Company has presence in all the segments: luxury, upper moderate, moderate and lower moderate price segments.10. Higher brand recognition and recall makes the company priority choice for clients.

expansion plans.9. Operating income decrease: Marriott international faces the loss of $76 million in 2006 due to high oil prices.10. Low gross margins: Marriott international have low gross margin of 13.6% where as Hilton has 30%.

OPPORTUNITIES:1. Environmentally and family orientation:2. Decrease cost of real estate in U.S: there is gradually decrease in the cost of the real estate in America due to the recession.3. Eco-tourism: Now days the trend of eco-tourism is developing.4. Emerging Asian travel and tourism markets.5. Improving hospitality market in U.S.6. Rising income: Owing to the rise in income levels, people have more spare money to spend, which is expected to enhance leisure tourism.7. Economic growth: it is noted that there has been economic growth

SO Strategies:SO1. Apply eco-friendly efforts and eco-tourism across the chain to promote the nature as well open the hotels at the areas around the world which provides the eco-tourism and strategically build the hotels/resorts that would most preserve the environment (S5,O1,O3,)SO2. Acquire or establish hotels in Asia as there is high increase in the travel and tourism market of Asia(S2,O4)SO3. Allow the investors from other countries to open the Marriott international franchises to their countries(S8,S2,S3,O9)

WO Strategies:WO1. Expand in Asia as the travel and tourism industry of Asia is increasing and that can be profitable market for the Marriott international(W1,O4)W02. Make the joint ventures with the locals in the countries where is risk and threats from the terrorists and use the locals name(W3,W1,O4,O8)WO3. Build the low cost hotels in US as it is the large market for the Marriott international and provide the benefit to the medium and low level customers(W4,W2,O2.O5)

of about 2.9% per year so it’s an opportunity for the Marriott to increase its business worldwide. 8. Population growth: there has been population growth of 310 million which allows Marriott to extend its business.9. Franchising: there is opportunity for the Marriott to increase its franchises in the different countries around the globe.10. Emerging marketsTHREATS:1. Vulnerability to terrorists attacks raise security and safety concerns.2. Timeshare business vulnerable in a dismal capital and credit market.3. Fragmented and intensely competitive lodging industry.4. Labor issues: Some of the company’s union contracts in New York, Chicago, Boston, and many other major cities are set near to expire. The hotel union is threatening a strike in all of these cities simultaneously.5. Rising interest rates: The US has seen 17 successive interest rate hikes over the past few years leading to the current high of 5.25%. Inflation fears in US may

ST Strategies:ST1. Hire, train and support the localities where Marriott operate to win the heart and mind of the locals(T1,S4)

ST2. Provide financial support to the franchisees in the Asia to start or support the operations(S8,S3,S13,T9)

WT Strategies:WT1. Make joint ventures with the locals in the other countries where is risk and threats from the terrorists(T1,W3)

WT2. Use relationship with employees in order to temporarily reduce salaries to be more competitive(W8,T4,T6)

WT3. Focus on the other countries for the expansion of business and also make low cost hotels in other countries(W1.T4,T5)

see another raise in the short-term.6. High labor cost in America.7. Economic recession: recession hits worldwide which affects the hotel industry.8. Political instability: there is political instability in various countries.9. Increase of real estate in Asia.10. Economy brand development: The rapid growth achieved by economy hotel brands in the last three years posses a potential threat for mid-scale, limited service brands such as Springhill suits.

External Factor Evaluation Matrix (E.F.E):

Key external factors Weight Rating Weighted score

Opportunities1. Environmentally and family orientation 0.03 3 0.092. Decrease cost of real estate in U.S: there is gradually decrease in the cost of the real estate in America due to the recession.

0.05 4 0.2

3. Eco-tourism: Now days the trend of eco-tourism is developing.

0.02 3 0.06

4. Emerging Asian travel and tourism markets 0.06 4 0.245. Improving hospitality market in U.S: North America the single largest market of Marriott showing signs of normalcy after recessionary turbulence. The lodging industry which derives its growth from economic climate is also recovering fast from the recessionary blues.

0.04 3 0.12

6. Rising income: Owing to the rise in income levels, people have more spare money to spend, which is expected to enhance leisure tourism.

0.05 3 0.15

7. Economic growth: it is noted that there has been economic growth of about 2.9% per year so it’s an opportunity for the Marriott to increase its business worldwide.

0.07 3 0.21

8. Population growth: there has been population growth of 310 million which allows Marriott to extend its business.

0.045 3 0.135

9. Franchising: there is opportunity for the Marriott to increase its franchises in the different countries around the globe.

0.035 4 0.14

10. Emerging markets: in order to offset the negative impact of such a challenging business environment and to capitalize on the opportunities present in emerging markets a number of hotels have turned to them. Marriott international is no different and Asia- Pacific countries became key target markets.

0.05 3 0.15

Threats1. Vulnerability to terrorists attacks raise security and safety concerns.

0.05 3 0.15

2. Timeshare business vulnerable in a dismal capital and credit market

0.05 2 0.10

3. Fragmented and intensely competitive lodging industry. 0.09 4 0.364. Labor issues: Some of the company’s union contracts in New York, Chicago, Boston, and many other major cities are set near to expire.

0.05 3 0.15

5. Rising interest rates: The US has seen 17 successive interest rate hikes over the past few years leading to the current high of 5.25%. Inflation fears in US may see another raise in the short-term.

0.04 4 0.16

6. High labor cost in America. 0.07 3 0.217. Economic recession: recession hits worldwide which affects the hotel industry.

0.08 3 0.24

8. Political instability: there is political instability in various countries.

0.04 2 0.08

9. Increase of real estate in Asia. 0.05 3 0.1510. Economy brand development: The rapid growth achieved by economy hotel brands in the last three years.

0.03 2 0.06

Total Weighted Score 1.00 3.155

(Note: Assign a rating between 1 and 4 to each key external factor to indicate how effectively the firm’s current strategies respond to the factor, where 4= the response is superior, 3= the response is above average, 2= the response is average and 1= the response is poor and the weigh shows the relative importance of the factor to being successful in the industry (0.0) indicates that certain opportunity or the strength is not important and higher the weight goes the more important the opportunity or the threat is.

Analysis:

The total weighted score for Marriott international is 3.155, which is much above the average (2.50) this shows that Marriott international is doing extremely well by taking advantage of external opportunities and avoiding threats; however there is a definite room for improvement in some opportunities.

Internal Factor Evaluation: IFE MATRIXKey internal factors Weight Rating Weighted

Score

Strengths1. Large expanse of brands: Marriott international have large expanse of brands which includes; the Ritz-Carlton, JW Marriott etc.

0.10 4 0.40

2. Geographic presence: Marriott is one of the key players in lodging and hospitality industry with operations spanning 68countries around the globe

0.10 4 0.40

3. Global leader in the hotel market: Marriott international is the leader in the global hotels market with a near 5% value share in 2007 and a large geographic presence.

0.10 4 0.40

4. Excellent strategies to attract and retain the customers: Marriott international have the excellent strategies to attract the customers and retain the customers through price, quality, satisfaction etc.

0.05 4 0.20

5. Eco-friendly: Marriott international is adopting the trend of eco friendly tourism to prevent the nature and the environment.

0.04 3 0.12

6. High revenue and growth rate: Marriott international generates the high revenue between 2004-2006 from $10.1 billion to $12.16 billion and enjoy the high growth rate.

0.05 4 0.20

7. IT solutions: Marriott international is upgrading its properties with technology that responds to the needs of business and leisure travelers.

0.02 3 0.06

8. Franchising: Marriott international have large no of franchisees over 60 countries which facilitate the rapid expansion of its portfolio.

0.04 4 0.16

9. Strong presence in all the segments: The Company has presence in all the segments: luxury, upper moderate, moderate and lower moderate price segments.

0.10 3 0.30

10. Higher brand recognition and recall makes the company priority choice for clients: Marriott is one of the leading hotel and leisure companies known for its strong brand portfolio in all the major segments and market.

0.07 4 0.28

Weaknesses

1. Focus on US instead of international establishments (over reliance on US market): Marriott international mainly focus on the US as North America is its main market for the business. Marriott international remains

0.04 1 0.04

heavily reliant on the US making sensitive to the changing fortunes of its domestic market.2. Over dependence on luxury brands: Marriott international primarily focus on the luxury products but there is large population which cannot afford the luxuries.

0.04 2 0.08

3. Terrorism threats: Marriott international is being targeted by the terrorists and the extremists.

0.04 1 0.04

4. Lack of low cost lifestyle brand: Marriott international does not have a low cost lifestyle brand product portfolio like aloft from Starwood and hotel indigo from IHG.

0.03 2 0.06

5. Courtyard brand: the courtyard brand of the Marriott international is maturing and losing its core business customers.

0.02 2 0.04

6. Business model which has the potential to dilute the brand perception and limit the revenue growth: Marriott follows the business model wherein it emphasizes on managing and franchising hotels, rather than owning them.

0.02 2 0.04

7. High leverage combined with downgrade in rating will affect the future capital generation and expansion projects: The Company has substantial debt to equity ratio. The ratio increased from 0.7 in 2006 to 2.24 in2008 and stood at 2.01 in 2009.

0.03 2 0.06

8. Weak financial performance affecting the company’s expansion plans: Marriott registered weak financial performance in the FY2009 due to the slowdown in the economy and the lodging industry. The company’s revenues declined by almost 15.3% in 2009 compared to the previous fiscal.

0.02 2 0.04

9. Operating income decrease: Marriott international faces the loss of $76 million in 2006 due to high oil prices.

0.04 1 0.04

10. Low gross margins: Marriott international have low gross margin of 13.6% where as Hilton has 30%.

0.05 1 0.05

Total weighted score 1.00 3.01

(Note: We assign a 1-4 rating to each factor to indicate weather; that factor represents a major weakness (rating=1), a minor weakness (rating=2), a minor strength (rating=3), or a major strength (rating=4) and the weight assigns represents whether the importance of the factor to survive in the industry from (0.00) represents not important and higher the weight goes the important the factor become.

Analysis:

The total weighted score for Marriott international is 3.01 which is high. This shows that Marriott is doing very god and its internal position is strong but there is definitely rooms for improvements like tighten the security of its hotels as there is threat to Marriott and also expand its business internationally rather than focus only on US.

Competitive profile matrix

Marriott international

Hilton hotels Accor

Critical success factor

Weight Rating score Rating Score Rating Score

Advertisement 0.09 1 0.09 1 0.09 1 0.09Financial position 0.17 4 0.68 4 0.68 3 0.51

Global expansion 0.13 4 0.52 4 0.52 2 0.26

Market share 0.17 4 0.68 3 0.51 3 0.68

Management 0.13 2 0.52 4 0.52 4 0.26

Product quality 0.13 4 0.52 4 0.52 2 0.52

Customer service 0.09 4 0.36 4 0.36 4 0.36

Price competitive 0.09 1 0.09 2 0.09 3 0.09

Total 1.00 3.46 3.29 2.77

(Note: the ratings values are as follows; 1= major weakness, 2=minor weakness, 3= minor strength and 4= major strength and the weight assigned represents how much important the factor are to being successful in the industry)

Analysis:

The two most important factors to being successful in the industry are financial position and market share as indicated by the weight assigned are 0.17. Marriott international is fully utilizing its financial position, market share, global expansion, and product quality and customer service but there is a definite room for the improvement in advertising, management and price competitive as they are not fully utilized compared to the competitors. However Marriott international is doing much well than its competitors as its score is much higher than the competitors.

Financial Ratios:

2006 2005Liquidity ratios

Current asset 3314 M 3390 M

Current liability 2522 M 2133 MCurrent ratio 1.31 1.59Current assets 3314 M 3390 MInventory 1208 M 1164 MCurrent liability 2522 M 2133 MQuick ratio 0.835 1.043

Leverage ratios

Debt 5970 M 5278 M

Total assets 8588 M 8530 MDebt to Total Assets 0.6951 0.6187Debt 5970 M 5278 MEquity 2618 M 3252 MDebt to Total Equity 2.280 1.623Long term debt 1818 M 1681 MEquity 2618 M 3252 MLong term debt to equity

0.694 0.516

EBIT 997 M 717 MInterest expense 124 M 106 MTimes interest earned 8.04 6.764

Activity ratios COGS 11149 M 10995 MInventory 1208 M 1164 MInventory turnover 9.229 9.445Sales 12160 M 11550 MFixed assets 1238 M 1134 MFixed assets turnover 9.822 10.185Sales 12160 M 11550 MTotal Assets 8588 M 8530 MTotal Asset Turnover 1.41592 1.35404Sales 12160 M 11550 MA/R 1117 M 1001 M

A/R turnover 10.8863 11.5384A/R 1117 M 1001 MSales/365 33.315 M 31.643 MAverage collection period

34 32

Profitability ratios

Sales 12160 M 11550 M

COGS 11149 M 10995 MGross profit 1.091 1.051EBIT 997 M 717 MSales 12160 M 11550 MOperating profit margin

0.0819 0.0620

Net income 608 M 669 MSales 12160 M 11550 MNet Profit Margin 0.05 0.057Net Income 608 M 669 MTotal Assets 8588 M 8530 MROA 0.070 0.078Net income 608 M 669 MEquity 2618 M 3251 MROE 0.232 0.205Net Income 608 M 669 MNo. of shares common stock outstanding

5 M 5 M

EPS $121.6 $133.8Diluted EPS $ 1.41 $ 1.45Basic EPS $ 1.50 $1.55Market price 38.13 32.12EPS 1.50 1.55

price to earnings 25.42 20.72

Analysis of important ratios:Current ratio:Current ratio gets decreased with respect to the last year due to the increase in the liability but the ratio is above than 1 which shows that the current assets are enough to meet the short term liabilities.

Inventory turnover:Inventory turnover shows how quickly the inventory is converted into cost of goods sold and then back into inventory. The inventory turnover ratio of Marriott international decreased slightly in 2006 as compared to the previous year.

Return on assets:

The return on assets shows the after tax profits per dollar of assets. ROA of Marriott international in 2006 is 0.070 which is slightly low than the previous year.

Return on equity:Return on equity shows the after tax profits per dollar of stockholders investment. And in this case the ratio gets improved as compared to the previous year. In 2006 it is 0.232.

Earnings per share: The basic EPS of Marriott in 2006 is $1.50 and diluted is $1.41.

SPACE Matrix:

RatingsFinancial strengths

1. Return on investment2. Revenue3. Sales growth4. Cash flow

+5+6+5+6

Industry strengths1. Technological know-how2. Growth potential3. Productivity 4. Financial stability

+4+5+6+4

Environmental stability1. Risk involved in business2. Competitive pressure3. Rate of inflation4. Technological changes

-4-2-2-3

Competitive advantage1. Product diversity2. Market share3. Product quality4. Customer loyalty

-1-1-1-2

Conclusion:

FS average = 5+6+5+6 = 22/4 = 5.5

IS average = 4+5+6 +4 = 19/4= 4.75

ES average = -4-2-2-3 = -11/4= -2.75

CA average = -1-1-1-2 =-5/4 =-1.25

Directional vector coordinates:

X-axis: CA + IS = -1.25+ 4.75 = 3.5

Y-axis: FS + ES= 5.5– 2.75= 2.75

Strategy Profile:

FS

6

5

4

3

2

1

CA -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 IS

-1

-2

-3

-4

-5

-6

ES

Aggressive: Backward, forward and horizontal integration. Market penetration Market development Product development Diversification

(Note: We assign a numerical value ranging from +1(worst) to =6 (best to each of the variable s that make up the FS and IS dimensions. Also we assign a numerical value ranging from -1(best) to -6(worst) to each of the variables that make up the ES and CA dimensions.)

(3.5, 2.75)

Boston Consulting Group (BCG) Matrix:

Relative market share

High Low

High

MarketGrowth

Low

Analysis:

The hotel industry is very fragmented and no one got the market share more than 20%.Marriott international has high market share in the industry of 9% as Marriott got the market cap of $16.97 Billion in 2006 which is highest in the industry, however the growth of industry is also high approx 7%, so Marriott international fall in the 2nd quadrant which is star and its follows backward, forward or horizontal integration, market penetration, market development, product development.

Stars

QUESTION MARKS

Cash Cows DOGS

Internal-External AnalysisInternal-External Analysis

Internal factor analysis

Strong 3.0 to 4.0 average 2.0 to 2.99 weak 1.0 to 1.99

External

Factor

Analysis

High 3.0 to 4.0

Average 2.0 to 2.99

low 1.0 to 1.99

I

II III

IV V VI

VII VIII IX

Internal External matrix:

Analysis:

IFE score is mention on x axis and EFE score is mention on y axis. IFE score is 3.155 and EFE score is 3.01, so Marriott international fall on 1st quadrant which shows that Marriott international should follow backward, forward or horizontal integration, market penetration, market development, product development strategies.

Grand Strategy matrix:

Grand Strategy Matrix Analysis

Rapid Market Growth

Weak Competitive

Position

Quadrant II

Market development Market penetration Product development Horizontal integration Divestiture Liquidation

Quadrant I

Market development Market penetration Product development Forward integration Backward integration Horizontal integration Related diversification Strong

Competitive Position

Quadrant III

Retrenchment Related diversification Unrelated diversification Divestiture Liquidation

Quadrant IV

Related diversification Conglomerate diversification Joint Ventures

Slow Market Growth

Analysis:

The competitive position of Marriott international is strong and the industry has rapid market growth (about 7%, search from internet and the reference is mentioned in appendix) so Marriott international falls in 1st quadrant and which tell that Marriott international is in an excellent strategic position and should continued its strategy on market penetration, market development, product development as they seems appropriate strategies. As Marriott international have excessive resources they should also consider on backward, forward or horizontal integration and it can also take advantage of external opportunities to in several areas.

Quantitative Strategic Planning Matrix (QSPM):

AS = Attractiveness Score; TAS = Total Attractiveness Score

Strategic AlternativeLaunch new low cost brand worldwide to cater the low or medium income level population(product development)

Open new franchises or hotels in Asia, Middle East(Market development)

Key factors Weight AS TAS AS TASOpportunities1. Environmentally and family orientation.

0.03 1 0.03 2 0.06

2. Decrease cost of real estate in U.S: there is gradually decrease in the cost of the real estate in America due to the recession.

0.05 3 0.15 1 0.05

3. Eco-tourism: Now days the trend of eco-tourism is developing.

0.02 - -

4. Emerging Asian travel and tourism markets

0.06 2 0.12 4 0.24

5. Improving hospitality market in U.S: North America the single largest market of Marriott showing signs of normalcy after recessionary turbulence.

0.04 3 0.12 1 0.04

6. Rising income: Owing to the rise in income levels, people have more spare money to spend, which is expected to enhance leisure tourism.

0.05 2 0.10 4 0.20

7. Economic growth: it is noted that there has been economic growth of about 2.9% per year so it’s an opportunity for the Marriott to increase its business worldwide.

0.07 2 0.14 3 0.21

8. Population growth: there has been population growth of 310 million which allows Marriott to extend its business.

0.045 3 0.135 4 0.18

9. Franchising: there is 0.035 2 0.07 4 0.14

opportunity for the Marriott to increase its franchises in the different countries around the globe.10. Emerging markets: in order to offset the negative impact of such a challenging business environment and to capitalize on the opportunities present in emerging markets a number of hotels have turned to them.

0.05 1 0.05 2 0.10

Threats1. Vulnerability to terrorists attacks raise security and safety concerns.

0.05 2 0.10 4 0.20

2. Timeshare business vulnerable in a dismal capital and credit market

0.05 - - - -

3. Fragmented and intensely competitive lodging industry.

0.09 2 0.18 3 0.27

4. Labor issues: Some of the company’s union contracts in New York, Chicago, Boston, and many other major cities are set near to expire.

0.05 - - - -

5. Rising interest rates: The US has seen 17 successive interest rate hikes over the past few years leading to the current high of 5.25%. Inflation fears in US may see another raise in the short-term.

0.04 - - - -

6. High labor cost in America 0.07 _ _ _ _7. Economic recession: recession hits worldwide which affects the hotel industry.

0.08 3 0.24 4 0.32

8. Political instability: there is political instability in various countries.

0.04 - - - -

9. Increase of real estate in Asia. 0.05 2 0.10 4 0.2010. Economy brand development: The rapid growth achieved by economy hotel brands in the last three years.

0.03 - - - -

1

Strengths1. Large expanse of brands: Marriott international have large expanse of brands which includes; the Ritz-Carlton, JW Marriott etc.

0.10 4 0.40 2 0.10

2. Geographic presence: Marriott is one of the key players in lodging and hospitality industry with operations spanning 68countries around the globe

0.10 2 0.20 4 0.40

3. Global leader in the hotel market: Marriott international is the leader in the global hotels market with a near 5% value share in 2007 and a large geographic presence.

0.10 - - - -

4. Excellent strategies to attract and retain the customers: Marriott international have the excellent strategies to attract the customers and retain the customers through price, quality, satisfaction etc.

0.05 - - - -

5. Eco-friendly: Marriott international is adopting the trend of eco friendly tourism to prevent the nature and the environment.

0.04 - - - -

6. High revenue and growth rate: Marriott international generates the high revenue between 2004-2006 from $10.1 billion to $12.16 billion and enjoy the high growth rate

0.05 3 0.15 4 0.20

7. IT solutions: Marriott international is upgrading its properties with technology that responds to the needs of business and leisure travelers.

0.02 - - - -

8. Franchising: Marriott international have large no of franchisees over 60 countries which facilitate the rapid

0.04 1 0.04 3 0.12

expansion of its portfolio.9. Strong presence in all the segments: The Company has presence in all the segments: luxury, upper moderate, moderate and lower moderate price segments.

0.10 _ _ _ _

10. Higher brand recognition and recall makes the company priority choice for clients: Marriott is one of the leading hotel and leisure companies known for its strong brand portfolio in all the major segments and market.

0.07 - - - -

Weaknesses1. Focus on US instead of international establishments (over reliance on US market)

0.04 3 0.12 4 0.16

2. Over dependence on luxury brands: Marriott international primarily focus on the luxury products but there is large population which cannot afford the luxuries.

0.04 4 0.16 1 0.04

3. Terrorism threats: Marriott international is being targeted by the terrorists and the extremists.

0.04 1 0.04 3 0.12

4. Lack of low cost lifestyle brand: Marriott international does not have a low cost lifestyle brand product portfolio like aloft from Starwood and hotel indigo from IHG.

0.03 4 0.09 1 0.03

5. Courtyard brand: the courtyard brand of the Marriott international is maturing and losing its core business customers.

0.02 - - - -

6. Business model which has the potential to dilute the brand perception and limit the revenue growth.

0.02 - - - -

7. High leverage combined with downgrade in rating will affect the future capital generation and

0.03 _ _ _ _

expansion projects: The Company has substantial debt to equity ratio. The ratio increased from 0.7 in 2006 to 2.24 in2008 and stood at 2.01 in 2009.8. Weak financial performance affecting the company’s expansion plans: Marriott registered weak financial performance in the FY2009 due to the slowdown in the economy and the lodging industry. The company’s revenues declined by almost 15.3% in 2009 compared to the previous fiscal.

0.02 3 0.06 4 0.08

9. Operating income decrease: Marriott international faces the loss of $76 million in 2006 due to high oil prices.

0.04 - - -

10. Low gross margins: Marriott international have low gross margin of 13.6% where as Hilton has 30%.

0.05 - - -

1Total 2.795 3.46

(The range for attractiveness Scores is 1= not attractive, 2= somewhat attractive, 3= reasonably attractive and 4= highly attractive.)

Analysis:

Two alternative strategies selected in QSPM are:

1. Launch new low cost brand worldwide to cater the low or medium income level population (product development).

2. Open new franchises or hotels in Asia, Middle East (Market development)

As the Total Attractiveness Score of second strategy “Open new franchises or hotels in Asia, Middle East (Market development)” so select this strategy.

Recommendations:

Marriott international mainly focus on the US as North America is its main market for the business so instead of focusing mainly on US it should also focus on the other countries as they have great potential also.

Marriott international primarily focus on the luxury products but there is large population which cannot afford the luxuries so it should introduce a low cost brand to cater the low and middle level income population.

Marriott international is being targeted by the terrorists and the extremist so they have to tighten the security of their hotels in order to provide the safe environment to its customers,

Marriot international should have to focus on the improvement of its courtyard brand as it is maturing and losing its core business customers.

Marriot international should have to follow the business model which emphasizes on managing and franchising hotels, rather than owning them. The company operated 46% of its hotel rooms under management agreements, 52% under franchise agreements, and only 2 % were owned or leased as of December, 2009. But, as compared to this, only 33.6% of the revenue in FY2009 were earned through franchise and management agreements while 66.4% from owned or timeshare sales and service.

Marriott international should make joint ventures in other high risk countries and use the local’s name.

Marriott international needs to pursue market development in Asia with new brands that extend its new World.

Marriott international should see to restructuring to reduce cost and increase efficiency. Marriott international should slowly depart from time-share hotels as its not performing

well and going in losses.

Marriott international should hire, train and support the localities where it operates in to win the hearts and minds to increase its international and local customers.

Marriott international should use relationship with its employees to temporarily reduce salary to be more competitive.

Marriott international should focus on the eco-tourism and apply eco-friendly efforts as it became the rising trend.

References:

Case study from book, Strategic Management 12th edition by Fred R. David

http://hmghotels.wordpress.com/2011/05/28/news-economy-hotel-industry-

expecting-robust-growth-in-2011-and-2012/

http://www.hotelnewsnow.com/articles.aspx/7487/Hilton-Marriott-market-leaders-

in-US-BDRC