Marriott International Inc. is a hospitality industry player which has been dealing with risk and uncertainty within the last six months. The American entity manages a wide portfolio of hotels globally. It has 30 constituent brands and more than 7000 physical properties across 131 nations. The pandemic has negatively impacted the international brand. The virus has caused travel restrictions and bans, and this scenario has led to a decrease in the number of international tourists staying in its hotels. In addition, in-person gatherings have been limited, leading to a decrease in the number of conferences and meeting the brand hosts. Quarantines, lock-downs, and cancellation of events have led to a significant reduction in room occupancy. The virus has led to an increment in its business risk given the increase in its financial losses in 2020 ("Marriott International reports fourth quarter 2020 results," 2021). Other risks caused by the pandemic include business disruption risk, credit risk, and financial risk. The pandemic has also considerably increased the level of uncertainty in the travel and hospitality industry.
Evaluation of Recent Risk and Uncertainty Reduction Efforts
Marriott International Inc. has implemented various strategies aimed at addressing risks such as business, financial, credit, and business disruption risks and uncertainties. Some efforts have started yielding positive results, while others are yet to reveal any outcomes. A major effort that has yielded positive results is the increase in properties listed under the Homes & Villas platform, which allows customers to enjoy a private-residence alternative to the brand’s typical hotel rooms. The brand launched the vacation home booking initiative in 2019 to compete with Airbnb. The disruption in Marriott’s normal hotel business in 2020 by the pandemic prompted the brand to strengthen its focus on the Homes & Villas platform. Marriott increased the number of properties under the platform by more than 150 percent (Hinote, 2021). As of February 2021, the brand had more than 20,000 properties in 240 locations on the major continents globally. There has been substantial demand for the property lodging service similar to that offered by Airbnb since such properties are managed professionally by housing management firms. In addition, the private residential property offers comfort, cleanliness, and privacy for family members in the current coronavirus environment. According to the entity’s executives, there has been a strong demand for premium residences, that is, those ranging from $100 to $500 per night. The focus on the Home & Villas platform has led to positive outcomes in terms of bookings. The brand saw an increment of 500 percent in the number of bookings from May to December 2020 compared to a similar period in 2019 despite the travel restrictions caused by the coronavirus (Hinote, 2021). Further growth is expected to be realized in 2021 due to the increase in the demand for private residence rental services in the COVID-19 environment. The projected increase in bookings means an increase in revenue, and for this reason, such a move is a prudent way of dealing with risks and uncertainty.
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Another effort that has resulted in positive outcomes is associated with the introduction of flexible cancellation. The coronavirus caused a decrease in the customer’s booking window in 2020. Most individuals booked fifty-five days out, while there was an increment to forty percent of the bookings in the number of travelers booking six to thirty days out (Hinote, 2021). Marriott introduced a ten-day flexible cancellation for customers using the Airbnb-like private residence services. This move increased the customers' confidence level since they could book without losing their cash if they opted to cancel the booking. The new promotion became so popular that the entity decided to extend it to June 2021. Marriott Bonvoy members have used the offering considerably since its launch. They have been redeeming millions of points for staying and receiving millions of points for reservations. For instance, one member redeemed more than ten million points for a twenty-one-day stay in a property located in Lake Tahoe (Hinote, 2021). Overall, the flexible cancellation offering has pushed more customers towards the entity’s Home &Villas services.
Marriott’s new partnership with Verizon Media has allowed the company to deal with business disruption risks effectively. In 2020, the hospitality brand partnered with the telecommunications entity in creating a browse, shop, and purchase marketing strategy that allowed it to identify travelers and encourage them to book the entity’s properties (Rifilato, 2021). The campaign emphasized the entity’s commitment to cleanliness and sanitization in light of the coronavirus. The campaign drove considerable incremental traffic to Marriott’s website and allowed it to realize a return on investment similar to that realized before the pandemic. In this case, the partnership allowed the international brand to continue with its hospitality business in light of the virus.
Improving Risk Management
Marriott International Inc. should improve its risk management to minimize the devastating effects of business, financial, credit, and business disruption risks on its financial performance. The entity can improve risk management by ensuring involvement, flexibility, and remote cooperation of appropriate team members. It should ensure that the team in charge of identifying, assessing, and managing risk comprises C-suite executives, business unit managers, and functional leaders. Such individuals, compared to employees, have extensive experience in dealing with risks. Marriott has operations spread across different continents and, for this reason, it should ensure constant communication among team members. The travel restrictions due to the pandemic mean that Marriott should ensure flexibility in terms of how team members are engaged in the risk management process. It should allow its team members to work remotely. When a team member identifies a risk that would have a damaging impact on Marriott and whose probability is high, the team should react as quickly as possible with the team members allowed to plan activities and engage with each other. Tasks should be created, and deadlines should be assigned. Remote working will affect the speed and effectiveness of the team's response. Marriott should improve its risk management process by using risk management software, for instance, Easy Project. The software offers special functions for all specific risk management phases in addition to the required project management tools, including Gantt charts, WBS mind maps, Zoom integration, and checklists with deadlines. The risk management software will allow Marriott to manage risks effectively and streamline its operations for enhanced operational performance.
Adverse Selection Problem
Marriott is facing an adverse selection problem in terms of its Home & Villas service. Under the Home & Villas platform, Marriott has tasked property management entities and hotel owners such as TurnKey Vacation Rentals, LaCure, Veeve, Reserva Conchal, and Mainsail Lodging to manage premium homes for Marriott’s customers. The international brand trusts that the property management entities and hotel owners will provide Marriott's customers with 24/7 support, high-speed Wi-Fi, and family-friendly conveniences (Hinote, 2021). Marriott uses the guest services provided by the property management entities and hotel owners to serve its customers. However, in such a scenario, the property management entities and hotel owners have more information about the premium homes and hotel services offered to Marriott’s customers. Such a situation has created an adverse selection problem for Marriott since it typically enters into an agreement with property management entities and hotel owners who may not willingly disclose all the information regarding the premium homes and hotel offerings.
Marriott should bridge the information gap by having its own team of employees inspect the hotels or premium home properties to ensure Marriott knows as much as possible. Such a solution would ensure that trust is established between the two parties.
Moral Hazard Problem Reduction Efforts
Marriott deals with the moral hazard problem by conducting audits annually, implementing policies to discourage immoral behavior, and regular monitoring. The international brand is aware that its managers are incentivized to go against the owners' interests due to the separation of ownership (Kiefer et al., 2017) . It uses independent auditors to audit its financial records to ensure they conform to US GAAP. Such audits act as an effective deterrent with regard to perpetrating fraud. In this case, the entity's shareholders can have complete oversight of the managers' practices. Resultantly, the moral hazard problem is alleviated. The entity has established policies that discourage employees and managers from engaging in immoral acts, including fraud or bribery. The actions of the managers are constantly evaluated to ensure they abide by the entity's policies. If a manager violates a policy, the entity has a right to dismiss or take the culprit to court. Regular monitoring keeps the managers in check.
Firms in the hospitality industry deal with the moral hazard problem by offering numerous incentives to managers, including weekly pay, hotel discounts, free life insurance, paid vacation, paid sick time, bonus pay, stock purchase plan, and performance bonus. Such perks are designed to discourage managers from engaging in unethical behavior. In addition, firms are keen to conduct regular performance evaluations to keep managers on their toes with regard to running operations.
Principal-Agent Problem
Marriott's key principal-agent problem is the conflict of interest between managers and shareholders. Marriot's shareholders favor a high net income since it means a high dividend for them. On the other hand, the entity's managers are keen on paying themselves high salaries since they believe that their rank justifies such remuneration (Kiefer et al., 2017) . In this case, there is a conflict of interest since both parties cannot be satisfied. When managers pay themselves high salaries, it means an increase in total costs and, in effect, a reduction in net income. Consequently, there is a reduction in the dividends paid to stockholders. The entity aligns its incentives with business goals. If business goals are not met, the entity adjusts the incentives paid to executives. For instance, the entity suspended the CEO's incentives from March 2020 to December 2020 since business objectives associated with profitability were not being met (Wiley, 2020). The alignment of incentives with business goals is effective since it can reduce costs and increase profitability.
Organizational Structure
Marriott utilizes a matrix organizational structure given that it combines both the functional and divisional entity structures. The entity operates in numerous countries and, for this reason, the matrix structure is used to achieve local diversification and global uniformity. Each continental region has an executive in charge of it and every region possesses a functional division, with every hotel controlling its own functional structure. The structure allows Marriott to meet the diverse needs of travelers globally. The matrix structure can be improved by ensuring that projects are steered together. Teams should include employees from different functional units. In this sense, individuals from all organizational units will share responsibility. Moreover, the team members' interactions will ensure that the necessary trust is built.
References
Hinote, A. (2021). Fast growth at Homes & Villas by Marriott International . VRM intel. https://vrmintel.com/fast-growth-at-homes-villas-by-marriott-international/ .
Kiefer, M., Jones, E. A., & Adams, A. T. (2017). Shareholders and managers as principal-agent hierarchies and cooperative teams. Qualitative Research in Financial Markets , 9 (1), 48-71. https://doi.org/10.1108/QRFM-04-2016-0014
Marriott International reports fourth quarter 2020 results . (2021). Marriott International. https://news.marriott.com/news/2021/02/18/marriott-international-reports-fourth-quarter-2020-results .
Rifilato, T. (2021). Marriott adapts to the new normal by partnering with Verizon Media . ADEXCHANGER. https://www.adexchanger.com/data-exchanges/marriott-adapts-to-the-new-normal-by-partnering-with-verizon/.
Wiley, M. (2020). Marriott announces CEO Arne Sorenson's salary will be suspended for the rest of the year and senior executives' salaries will be reduced by 50% as the coronavirus ravages the hospitality industry . BUSINESSINSIDER. https://www.businessinsider.com/marriott-suspends-reduces-top-executive-salaries-due-to-coronavirus-2020-3?IR=T .
