Arne Sorenson on why Marriott's success is never final

Lifetime achievement awards are normally reserved for those past their prime or in the twilight of their careers. Short of his 60th birthday, Arne Sorenson, the CEO of Marriott International, is anywhere but near the finish line. In just a week's time, Sorenson will be awarded the IHIF Lifetime Achievement Award, an honor to be sure, but when you hear him talk about the hospitality industry, you know he has a lot more to accomplish as Marriott's leader.

We caught up with him prior to the conference to discuss all things hotel (not just Marriott's monumental acquisition of Starwood—don't worry, we do), from technology and start-ups in the hospitality space to brand development and the issues of the day—political, economic and societal—that are impacting the hotel business. 

Marriott has a long, storied history of being an innovator and continual improvement is part of its ethos. As Sorenson points out below, one of Marriott's core values is “Success is never final.” But success is fought for, and that's just one of the ways Sorenson is helping lead and shape the future of Marriott.

1. Marriott’s merger with Starwood dominated hospitality discussion this year, and rightfully so: It had so many elements that made it intriguing—from the amount of brands covered to Chinese capital also chasing it. In your estimation, why do you think a deal of this magnitude is so revolutionary for consumers, hotel owners and management companies and what are the future implications of it?

It was revolutionary and I think that’s because it upended conventional industry wisdom about consumer choice. In the past, many thought the way to attract consumer loyalty was to concentrate on a small collection of brands. But consumers actually want more options. They may love a certain brand for business travel, but when they’re looking to book for the family they want to be able to explore different kinds of experiences and for a romantic getaway, different still. When one company can give them a comprehensive portfolio of brands all over the world and offer rewards for each trip, that will create loyalty.
We knew this and had been expanding our portfolio, but this merger accelerated that goal in a significant and impactful way. Now, we can offer the right brand in the right place for every trip.

2. The hospitality industry operates in this mutable globally connected world—constantly disrupted with the likes of OTAs, home-sharing and inconstant customer tastes. As the CEO of a sprawling global hotel company, how do these variables impact the way you lead Marriott?

It’s true, more than ever we are operating in a disruptive environment. The simple answer to this question is that we create disruptions—or, as I like to call them, innovations—of our own. This is a concept that is built into Marriott’s company culture. One of our core values is “Success is never final.” If you look at the history of Marriott, it’s clear that we have always—literally from the very start—embraced innovation. The merger is a good example of this kind of thinking. Our scale now allows us, for instance, to offer more rewards to customers, more benefits for booking direct, more opportunities to attract the best talent and better negotiating leverage for contracts with OTAs.
We are applying the same mindset at the brand level. For instance, our Element brand is piloting a new guestroom design with a communal room in the center of four guest rooms, allowing travelers to share a kitchen, dining room and lounge area. The intent is to provide more collaborative space for groups who would like to spend time together in a more private setting.

Many jurisdictions are recognizing the increase in home-sharing companies and are creating fair rules so they are subject to taxes and regulation like the rest of the lodging industry, which creates a more level playing field. We’ve always done well on that field.

3. Asia capital buying up trophy assets and large portfolios was ubiquitous in 2016. Do you see this trend abating, growing, finding new segments of investment and how does it impact your business?

This appears to be a trend that will continue to grow. Our asset-light strategy will allow us to continue to partner with hotel developers around the world.

4) 2016 had so many storylines within the hotel industry. In your estimation, what—excluding your acquisition of Starwood—was the biggest of them and how or will it carry over into 2017?

We are seeing new options for everything from the way a traveler books—this is why we prioritized direct bookings and created our Member Rates program—to where people might travel—think Cuba. I think we can expect to see this trend continue in 2017.

We’re also seeing a lot of focus on technology to provide a more seamless and customized experience for travelers—and that’s something that we are very focused on.
Of course, our industry this year will be greatly affected by the new political leadership in the U.S. and elsewhere. The Brexit vote was probably the most talked about international issue preceding the U.S. presidential election, and both came as nothing less than a shock for the global travel community. We are paying close attention to the policy debates over travel, visa restrictions and immigration reforms. 

5. In leading a global publicly traded company, there are many factors you must take into account, none more than your customers’ and employees' safety in these turbulent times, marked by the constant threat of terrorism—the likes we’ve recently seen in Paris and Berlin. How do you account for this persistent risk and what precautions do you take?

We know that today’s travelers are more concerned than ever about their safety and security. Security has always been a top priority. Security procedures and risk assessments at our properties are reviewed often and our associates have been trained to assess and respond appropriately to threatening situations. Our hotels work closely with local, state, federal and international authorities. Because each property is unique, individual security measures are tailored to each hotel.
More broadly, we are advocating for changes to our global travel security procedures. Most countries, including the U.S., still rely on antiquated paper passport systems. Estimates are that 1.8 billion international trips will be taken by 2030. In order to move that many people, the vast majority of whom have good intentions, we need a more rational, streamlined and secure system. Through public and private partnerships, as well as cross border cooperation, we can do a better job of collecting and sharing relevant, accurate information. It is only through collaboration, not isolationism, and smart use of reliable technology that the global community can manage tomorrow’s threats.

6. While industry consolidation has been a recurrent theme, the OTA market is ostensibly a duopoly between Expedia and Priceline. Distribution and control of product is another constant topic, with you and others employing measures to cajole customers to book direct. What is the ultimate end game here: Is it a constant struggle with OTAs or can a common ground be reached that is equitable for both the intermediaries and the hotel companies?

We value OTAs. They often bring us new customers, infrequent leisure travelers for instance, that we then have the opportunity to impress and turn into loyalty members. That said, it’s a commission business. Our preference is to have guests book direct, especially members so they can take advantage of all the benefits of our loyalty programs for a truly memorable experience. To help incentivize that behavior, we created our exclusive Member Rates program, which provides the best rate for a room.

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7) Technology and enhancing the customer experience is so pivotal for a hospitality company nowadays. Marriott recently launched an incubator program called TestBED to find and accelerate tech start-ups. Why did you feel this was needed and what have been the early returns?

This gets back to our core value that “Success is never final.” TestBED is a great example of how Marriott Hotels is tapping into the wealth of talent in start-up communities. These collaborations allow us to test products nimbly while gathering real-time customer feedback that we can immediately act against.
The TestBED program has two products in two of our European hotels. One is an in-room voice activated personal assistant that uses a combination of artificial intelligence and human ingenuity—we call it Dazzl. The other is a location-based mobile platform that enables professionals to connect and network. That’s called Jambo.
I also love the example of Marriott Hotels’ M Beta program at the Charlotte Marriott City Center in North Carolina. We are testing many new ideas in food & beverage, registration, guest room design and meeting concepts. We’ve placed buttons throughout the hotel so guests can register their reactions to each new idea. The real-time data is sent to a digital board that is accessible by staff and that we’ll use to determine broader changes ahead.

8) Wall Street typically judges hotel companies and their stock price on the back of net unit additions. How will the Starwood deal allow you to be accretive in this regard and what does Marriott’s growth look like for 2017 across all its now 30 brands? 

With the leading loyalty platform and 30 brands, Marriott is very attractive to owners, and we’re seeing that translate to growth around the globe. Our organic growth over the last couple of years has been about 90,000 to 95,000 new rooms signed each year for the legacy Marriott brands alone. Obviously, the pace of that signing will depend on economic conditions around the world. 2016 was fairly anemic from an economic perspective, but we're still proceeding at the kind of pace that we did last year. The Marriott and Starwood development teams continued their great work in the quarter, delivering a combined global pipeline of nearly 420,000 rooms, over half of which are outside North America. Given this strong development pipeline, we anticipate 6-percent worldwide net room additions in 2017.

9) In consummating the deal for Starwood, what has been the reaction from your legacy Marriott owners and what, conversely, was the reaction from Starwood-brand owners?

Owners are generally pleased with how we are integrating. We continue to look for efficiencies that provide cost savings, for example combining back-of-house systems and increasing our purchasing power with other shared services. These moves and others will ultimately benefit our owners.

10) In Europe, we are seeing a quasi erosion of the EU when you take into account the Brexit, the referendum in Italy and a somewhat worrisome trend of nativism. How do you foresee your interests and business in Europe being impacted from this political and social volatility?

We do expect that some uncertainty about hotel investment in the European market will remain. On the upside, our European portfolio doubled in size following the Starwood acquisition and we expect additional growth over the next few years. Additionally, the drop in currency exchange rates has made London and a few other European destinations more affordable for leisure travelers to some extent. Of course, Brexit could have implications for our ability to staff our UK hotels, which needs to be worked out. The Schengen visa system, a universal visa that allows travel throughout Europe, has come under fire and we’re hopeful that the appropriate safeguards can be put in place to be responsive to security needs but maintain the core benefits of Schengen in promoting travel to and within Europe.

11) The hotel industry faces some serious challenges ahead: a new President in the White House, slower economic growth in China, increasing security challenges, political turmoil—all of which can hinder growth and prosperity. What is your sense of all this moving forward and how can the collective hotel industry overcome it all?

Everyone is watching to see what happens in Europe and the U.S. These are unprecedented times, yes, and it’s just too early to tell what’s going to happen. While travel is still among the top things people with disposable income want to do, we are watching cautiously. At Marriott, we will continue to focus on welcoming our guests and providing unforgettable experiences while also supporting safer, smarter, more accessible travel around the world. The travel industry has been tested before; it is resilient. We’ve faced bad times in the past and we’ve recovered. The industry is up for the test.

IHIF is March 6-8 at the InterContinental Berlin.