Assessment Question
Should Otto keep all 21 of its brands or prune its portfolio?
To answer this question, read the case study below and apply the 6-step rational decisionmaking model.
Is the 6-step rational decision-making model the most appropriate? Explain your reasons.
Identify any ambiguities or biases from a management perspective.
Assessment Instructions
As this is an academic case study, you must provide no less than six (6) academic references. You are required to reference your work using the Harvard referencing system. Please refer to the Case Study rubric in your Engage class to ensure you understand the marking criteria on which you will be assessed.
Case Study:
The business-casual dress code had Troy Freeman stumped. As the long-time CEO of Otto Hotels & Resorts, now the second-largest lodging company in the world, he’d packed for hundreds of work trips before, but suits were his go-to. Without them as an option, he was having a much harder time. His flight was leaving first thing in the morning for Carmel, where he would meet his newly expanded executive team for an offsite to discuss the company’s portfolio strategy. The facilitator, Caroline Dvorjak , was a marketing professor and a seasoned consultant.
Otto had just finished a $9 billion acquisition of Beekman Hotels, which meant it now had nearly 4,800 hotels and just over a million rooms in 100 countries. Like most of the big hoteliers, however, Otto owned few of those properties; instead it franchised and managed them, with the bulk of the real estate owned by independent companies that licensed Otto’s brands. The addition of Beekman’s eight brands had increased the number now under Otto’s umbrella to 21. The question on everyone’s mind, especially investors’, was how Troy would manage this much larger portfolio, given the overlap between existing and acquired brands in terms of positioning, price tier, and geography.
During the deal discussions, Otto’s board had encouraged Troy to remain noncommittal about its post-merger strategy. He’d once commented on an earnings call that Otto “probably” didn’t need all Decision Making for Managers the brands but quickly added that there were no plans to prune soon. Still, people were speculating, and now, with the acquisition work behind them, it was time for management to make some decisions.
Troy shooed his dog, Tanker, off the bed so that he could take a look at the clothes he’d laid out. “Too much here, Tank,” he said aloud. Then he laughed. He needed to streamline his wardrobe to attend a meeting where he would work out how to do the same with Otto’s brands.
Troy’s phone buzzed, and he saw it was an e-mail from Meena Nair, Otto’s CFO. Caroline had asked all 12 of the executives invited to the offsite to send one-page summaries of their opinions on the portfolio question to the group—the idea was to short-circuit the backroom politics that typically arise in such situations—and here was Meena’s. Though Troy knew where she generally stood, he was eager to see what more she had to say.
In an eloquent argument for retaining all 21 brands, she referred to the Four Seasons and Regent merger. She said it was possible for each Otto brand to stay in its own “swim lane.” Changes would be costly, and Otto could deliver on the promises of the merger without them. She and her team projected $200 million in annual cost savings; greater negotiating power with online travel agencies such as Expedia and Priceline; and the ability to boost both revenue by cross-selling brands and occupancy rates, by leveraging a larger reservations system. No pruning necessary.
And yet she seemed to be in the minority in this debate. Kent Brockman, Otto’s CMO, and Khalil Salem, the brand manager for Piper, Otto’s largest and most profitable brand, had sent statements supporting a shake-up a few hours earlier.
Troy sat on the bed, and the dog jumped up. “What do you think, Tank?” Troy asked. “Can I fiteverything?”
Tanker wagged his tail, and Troy folded all the polos, khakis, and blazers into his suitcase.
A Bigger Bucket
As soon as Troy passed through security the next morning, he saw Kent and Khalil in the line at Starbucks. He hadn’t realized they were on his flight but was pleasantly surprised. They waved him over.
“Did you do your homework?” Khalil teased, pointing to his phone. “We didn’t get your statement.”
“I think we have enough opinions to go around,” Troy replied, “so I’m still Switzerland—at least for now.”
Decision Making for Managers
Khalil and Kent had been close allies ever since Khalil’s ascension to the top of Piper, five years earlier. When Caroline had mentioned wanting to avoid politicking, Troy had immediately thought of these two. They’d always seen the acquisition as a way to grow Otto’s existing brands. “I guess you know where we all stand anyway,” Kent said. “Meena wants to save costs. Rick and the other Beekman folks want to save their brands.” He was referring to Rick Guerrero, the manager for Evenstar, Beekman’s largest chain, which had the most overlap with Piper and was therefore a target for absorption. Rick had indeed defended his brand but also said he would be willing to take a step down and work for Khalil and Piper if that’s what it came to.
