Marriott International, Inc. (MAR) Earnings Call Transcript & Summary

I am happy to introduce you to David Kepron, former Vice President, Design Strategy at Marriott International. David is a recognized expert, bringing over 20 years of retail design expertise to the making of meaningful customer connection and hotel properties around the world. He is also a recognized author of the book Retail (r)Evolution. Today, he will be presenting: Be Creative. Be Brave. If you have any questions for David, please enter them in the session Q&A on the right-hand side.

Good morning and welcome to ISG's Xperience Summit Virtualization. As an architect, artist, educator and author, over the past 30 years, I've always believed that our goal is to create new pathways to Alice's rabbit hole, to make sure that the experience places that we create are full of magic and are remarkable. And to make sure that they're in [ viewable ] story because story creates context and meaning. So to start, what I'd like to do is tell you a short story. On the evening of March 11, a group of workers gathered in a forest clearing outside the city. They had been practicing their maneuvers for some time, carrying out drills in deserted industrial buildings and isolated clearings deep in the forest under the secrecy of shadows well after midnight. Tonight was no practice session. Other skirmishes had erupted over the past 2 years, but this night would mark a turning points in hostilities. Their protracted battle was with authorities whom they saw as being unsympathetic to their plight and unscrupulous business owners who are motivated by greed and their unrelenting exploitation of workers. The economic downturn driven by an extended war with a neighboring country, rising taxes and an influx of immigrants fomented anger. Standard of living was abysmal and fears continued to grow that jobs were being taken away by cheap foreign labor. Government spies were lurking everywhere and rebel meetings were a dangerous place to be given that armed cavalrymen were gathering up people from the streets and imprisoning them on suspicion of conspiracy. The rebels had sent letters to business owners demanding reparations, pay increases and the abolishment of horrendous working conditions where physical punishment was often used to keep workers demoralized, but on the production line. Unanswered, this group had decided that they would launch an assault. As darkness enveloped the town, they marched on a textile factory destroying 63 machines and then vanishing into the woods from which they emerged. Over the next few weeks, an additional 200 machines were left in ruins. And in the subsequent 12 months, the rebels ransacked factories, flattening thousands of machines and destroying on average about 175 a month. The government had passed legislation, sentencing workers to a 14-year exile on Australia. And when that didn't work, they passed the bill called The Destruction of Stocking Frames, etc. Act, making the destruction of machinery a capital offense for which dozens were sent to the gallows. The time was 1811 and 1812. The leader of this rebel group was Ned Ludd, but he was in fact a totally fictitious character. There had been somebody by the name of Ludd in the late 1700s who had destroyed the machine when asked to straighten his needles by a building owner or a factory owner. But this was one of the first insurrections against the growth of technology in the industrial revolution in England. The Luddites then became the original rage against the machine, and the poster children for those who want to slow the pace of change. As technology grew, they wanted to hold back progress, resist innovations and change the way that we do business. In the end, the pace of change was upon them. And as industrial revolutions moved on, the new technologies brought factory workers into different experiences and weaving was made faster and labor less expensive. These weavers were, of course, afraid for their livelihood, and they had every right to be. They were in a place where the technologies that they had relied on for years and years were being replaced. Interestingly, though, most of the things that they were rebelling against had existed for years. Like many of these brands that we now have in our technology spaces, the service that they're offering remains pretty much the same. But the way that we're providing those services to our customers and our guests have fundamentally changed in the face of technology. Whole Foods has been delivering food for years. We've got people from one place to the other. And Uber is doing that in a different way. We've created coffee and coffee bars for years and premium coffee goes back for hundreds of years. And you might argue that 23andMe and knowing what your genetic genealogy is, is something that's pretty new. But if you had a shaman in your village, you would be pretty sure to know that he'd know where you are and where you're likely going in your next life. But all of this really rest on this idea of Moore's Law, which I'm sure you're all familiar with. That the number of transistors on an integrated circuit doubles about every 2 years. And the interesting thing about that is if you look at some of the technology advancements over the past 100 years in the States, we had the counting machine that was responsible for the 1890's census, a totally manual machine. We had Turing's Robinson machine that cracked the enigma code of the Nazis and helped us win the second world war. There was a CBS vacuum tube machine that predicted Eisenhower's win. And we had transistors that were able to help us put men on the moon. The interesting thing about all of these technologies is that they follow a very clearly articulated exponential growth curve that we all should understand that technology and the pace of change is not linear. It's exponential. You might even say sometimes, the present circumstances that we live in, many things that lived in the margin of our experience online meetings, the zoomification of our engagement processes with our other colleagues, those kinds of things have always existed there. But now what's changed is the exponent in this exponential change. Things that were just in the recent past, slightly on the margin, have now been thrust forward and now are becoming things that are in our everyday experience. What's fascinating to me is that all of those technologies now can exist in a chip this small, something that can be lost in a bowl of rice. And it's remarkable how that's happened. We now have something called the Summit computer, created by the U.S. Department of Energy. This computer is unusual in that what it can do is 200 quadrillion calculations per second. Give you a sense of what that means is that if you ask every human on earth to do a calculation for a second, it would take about 305 days to do what this computer can do in just 1 second. Thought of another way, what it means is that if you ask 1 human to do what this machine can do in 1 second, it would take about 2.3 trillion days or about 6.5-or-so billion years. What this computer can do in 1 second would take a human pretty much half the time of what we know as the known universe. Now if you look at Ray Kurzweil and those kinds of futurists who are talking about the pace of change, what we will begin to understand is that in this next 100 years, we won't have just 100 years of change. We're likely to have something more like 20,000 years of change in this next 100 years. And I think that puts us in a very intriguing spot. At a certain point, what I think we're going to find is these deltas between large technology changes continue to occur. We're going to continually find ourselves in the in between moving from one reality to another with few or maybe no eddies in which we can catch our breath. That's going to be something that's going to be hard for us as humans to keep up with, unless, of course, you believe in the world of the singularity, which is about 2045, 2050, we will have to become physically augmented to be able to stay in pace with the rate of computer and technology change. Well, of course, that means if you're looking at your customer trying to find out where they is, you'll be in a continual Where's Waldo search. Every time you think you found him, he will, of course, then just move off to another area because he will be continually in a fluid process of experience searching. And you'll have to determine whether or not the Waldo that you're going to look for is the true real embody Waldo or maybe just the one that's in the cloud. The proxy of a digital manufactured one that was left behind at a trail of ones and zeros in the digisphere. It will be hard to know, but one thing will be for sure. If your strategy is to continue to incrementally connect to your guests, to build links in the bridge to get across that chasm between you and who your guest is, you're always going to be behind. As I build 1 link, they've moved 3 further away. As I build the next one, they'll have move 7 and so on and so on. Of course, what this means is that the way we think about our business also has to fundamentally change. I've been in a lot of meetings where I'm trying to push innovation into, let's say, hotel rooms and other experienced places. And I'll sit across the table and my clients, who we love, will say, so tell me, is that thing you're going to do give me a $2 ADR lift, a $2 lift in average daily rate. And I look at him and say, God, I don't know because I'm sure that the spreadsheet that you're using to calculate ROI on this $500 room investment likely doesn't include things like return on innovation, return on creativity, return on novelty, return on experience and return on emotion. All things which are very hard to quantify, but nevertheless, in an experienced economy become key differentiators and key success metrics, though hard to put numbers around. I think what this means, of course, is that as you're talking to businesses and talking to your clients, you have to remember that in times of rapid change, experience just might be our worst enemy. And so I love this clip by Kennedy. [Presentation]

I've always loved that clip. And the reason I love it is for that one segment that he makes, where he says, "We choose to go to the moon, not because it's easy, but because it's hard." And the rigor that you have to put into the process of transformation and searching for some goals slightly beyond your ability to get there is extraordinary and something that we should always keep in mind. I'm talking about cultural icons. Of course, you can't get away from talking about people like Yoda. In the world of the Luddites, I'm quite sure that they were afraid of technology. I'm quite sure that they were concerned for their families and their livelihood and things like this. But one thing is for sure, that if they live in a place of fear, they weren't able to find a sense of resiliency and flexibility and agility to deal with the pace of change and the things that were upon them, they were going to be in dire straits. So to -- in the words of Yoda, and I'll try this one. "Fear is the path to the dark side. Fear leads to anger, anger leads to hate. Hate leads to suffering." I tried to do Kennedy before in another conference, and it was quite funny and, well, actually, I can do Yoda so I thought I'd throw that in. But what I think this really suggests is that what we need to do is think about a shift in mindset. We can no longer rely on traditional ways of thinking about the ways that we've done things. We have to really begin to shift and be more agile and flexible because if we're in a place of constant change, we will need to be continually changing. So I believe -- and as great Marcel Proust's quote that says, "The only true voyage, the only bath in the fountain of youth, would not be to visit strange lands but to possess new eyes, and then to see the universe through those eyes." Our job as creators of experience places is to continually look at things through new eyes and then experience the world around us through those new glasses. What this means for many is moving from a growth mindset, or from a fixed mindset into a growth mindset. Carol Dweck was one of the original authors on this particular subject. She said, the interesting thing about developing a growth mindset versus a fixed mindset was that when you pull creativity researches, what you actually determine is that the #1 ingredient for creative achievement is exactly what you get when you develop a growth mindset that gives you a sense of perseverance and resiliency that is produced by changing the way you think about the circumstances that you're in. So here's a small chart of things that you might want to know about the difference between fixed mindsets and growth mindsets. We don't need to read them all now. But one thing I will do is look at some of those key items of a person with growth mindset. They embrace challenges and they persist in the face of setbacks. Their efforts, and they see effort as a path to mastery rather than just being drudgery. They learn from criticism, and they find lessons and inspiration in those things. And they reach ever higher and higher levels of achievement. The key really here is that a person who has a growth mindset develops and lives with a greater sense of freewill. I am quite sure that back in the early 1800s, many Luddites were not living in a world of a growth mindset. They were very much in this fixed mindset where they might have seen challenges and avoided them and have tried to develop ways of dealing with them that were less than productive. I think what this means is that we're now continue talking about the idea of sensory-based, but digitally-mediated experiences. If technology continues to develop, what does that mean in terms of how we begin to experience places? How can we engage with technology in a productive growth mindset way to develop places that are remarkable? So if we want to look at the idea of the growth of technology, still being able to provide sensory base but very digitally-mediated experiences, we have some extraordinary opportunities now that we've never had before. I remember back in the early 2000s, when the world of dotcom era was upon us that there was a lot of concern from retailers that no one was going to go shopping anymore. Everyone would sit at home on their computer, they buy everything from there. Well, we know that hasn't actually happened. So we know technology is not going to do away with embodied interactions, but I think we have some extraordinary opportunities. Check out this video. [Presentation]

Now what I'm hoping that you noticed there is that although those experiences were highly digital, they were also highly physical. People were in places together, they're residential community, they were touching things. They were moving things. The activity of their body was helping narrate or drive the story forward, though it was being mediated by a digital experience. This is an intriguing opportunity because it asks us to question where customer experience actually is. As an architect, I was schooled to believe that customer experience is out there. It's in the places that we go, it's in the things we touch, that we buy, the architecture, the lighting. And in that place where people gather. But in fact, customer experience is entirely in our body and in our mind. Without those things, we don't have experience. And I believe in an idea called ontological design. An ontological design suggests that the things we make, in turn, make us. That our body is reacting with the environment around us in a way that physically changes the neural structures in our head, that rewire ourselves for certain experiences and that we become, in some way, those experiences that we live. What we know, though, is that people who then engage in physically-based experiences have a much greater lift in brand adoption. Martin Lindstrom suggests that increase in brand impact can be almost 70% when you begin to engage more senses. So this might suggest that every place has to be like the Amazon's fierce, an extraordinary experience where you can feel the humidity in the air, the sound of birds. It's actually really impressive. The strange dichotomy is that it's created by this guy who actually wants to send products to your house by drones and keep you away from humans and whose ultimate goal is to get us away from earth and put us on Mars and who's on his way, by the way, to becoming the first trillionaire in human history. But Jeff Bezos' idea is actually intriguing because it does root us in the idea that sensory-based, deeply-embodied experiences are fundamental to how we feel and how we feel good about ourselves in the places that we work and play and shop and eat, et cetera. But maybe you can't do Amazon's fierce. So you have a smaller scenario like a SENSIKS Sensory Reality pod. That through VR and AR and sound and lights and micro atomized sense, you have a sense of being in a place. So touching more senses as you're sitting there, but you're still pretty isolated. You could also have this piece of technology that was recently published, where it uses a process called electrophoresis to move chemicals onto your tongue that give you a sense of taste of different -- you could be tasting chocolate cake or it could be ice cream or it could be a great steak. But this is actually intriguing because it talks to the idea of feeling through the screen, something we haven't yet been able to do. And we're one step closer to that, through technologies like this or through technologies like Haptics, where what we have to remember is that our largest sense organ, the thing that draws in most of our sensory input is not our eyes, though they're critical, but it's actually our skin. So check out what Ford has done with the idea of Haptics. [Presentation]

Now there isn't a time where I haven't seen that in the past number of presentations where it doesn't profoundly affect me. That's the kind of thing that we can do using technology to drive and heighten experience. We can let blind people see. So we don't need to be afraid of the use of technology taking us away from ourselves or the environment trends because we have extraordinary opportunities to embrace technology in the ways that we've never embraced it before. Let's take the idea of digital overlays for a minute. Digital can be integrated with existing architecture. It used to be that buildings were created forever. They were supposed to last literally for all time, whether they were created for Pharaohs or whether they were created for empires or whether they were created to give a sense of permanence to the ethereal nature of God. Now I can stand in front of Notre-Dame Cathedral, with my, Ben, 15-year old son, and marvel at the architecture and its detail. But for him, there is no sense of context that actually gives that building any meaning to him. He doesn't really understand the history and the culture at the time. What it took and how many years it took to create that building. And so it becomes an Instagramable moment, something you capture on the screen, pack it into your phone and go on to the next opportunity. We see things like this now every single day around the kitchen table, saying good night before we drift off to sleep or sitting on the couch, engaging. Now when I was a kid, I used to go out and play. I played with friends. We never had technology like this, but what's missing here? The people would say, well, the iPads are missing or the iPhone is missing. That's true, too. But what's really missing is the connection. And I think at the root of all of brand engagement is the idea of an embodied empathic relationship that drives the connection between me and the brand or me and the product. I think we have a challenge because it means that in my son's cohort of emerging guest, they're much more apt to be living the world of appreciating monuments into the world of living in moments. And that suggests some both scary ideas and some great opportunities for us to consider. Let's think about this for a second. When I was at Marriott, we took about 18 years from the beginning of the design of a new building, 5 years in construction, 7 years after it was open to come back and change soft goods and then 7 years later to come back and change soft goods and case goods. Let's say, give or take, about 18 or 19 years. There's nothing in my son's life that lives for more than 18 minutes. And yet, we still keep on creating product that at the very day we start is going to be outdated, certainly outdated, if you consider the pace of change being exponential. And even having that exponent tweaked up a notch. So why do we keep on doing that? We have these monuments that we now live in, but what if we were able to do things like this. [Presentation]

Now imagine taking existing architecture and overlaying a tapestry of digital content. That fundamentally changes the experience, drives up the level of sensory interaction. It doesn't diminish what already existed. That would be tragic. But it augments it in a way that makes it captivating for an emerging guests, an emerging cohort for whom experience seeking is the way they determine relationships with the brands that they want to engage with. That is interesting, but it's also an appliqué, it's like we painted on the existing building. As interesting as it is, we can take that a step further in embracing digital technology and begin to look at AI-based renewed architecture and data visualization. And then you have someone like Refik Anadol, who I find to be an extraordinary example, the new Da Vinci he's being called. What Refik suggests is that he now has relationships with not the great patrons of the renaissance, but the great data creators or providers of our modern era. And he literally takes the brush, he says, and puts it inside the machine's consciousness and tries to paint with algorithms, AI or data. This offers up some super interesting ideas because it suggests that maybe architecture doesn't have to be static. Maybe architecture can change. What if the building reacted with me and the data collected through that experience was transformed into visualizations that changed my perception of how that architecture was being experienced. It suggests that buildings can form or change or transform and keep in pace, maybe with the pace of change. Maybe all you need is a data set, an algorithm and a projection system. The projection systems will change. Technology will get better. There's no doubt. The algorithm, well, that can change, too, because it will change through machine learning, whereas the machine is fed data sets, it also learns the repetitive nature of certain sets and the kinds of people who are engaging in the place. And then you have the data. And the data because it's being used by multiple people all the time, well, it also will change. So that means that any one time, in any one day, with any one experience or person experience in this place, it can be different. Now we're moving to a place where data can be transformed into personalized experiences where architecture can change and keep in pace with my expectation sets about how brand experience should unfold. Checkout this video by Refik Anadol. [Presentation]

Some of you are undoubtedly sitting there and trying to understand what that was. What that was is Refik Anadol capturing memories of humans by setting EEG machine on their heads and measuring brain waves and capturing data. And then taking those data sets and translating them into that digital representation. Now that was a large, very high depth virtual display or digital display. But you can see how -- if that kind of content with rapid environment, you would have some pretty extraordinary opportunities to take data and transform it into architectural experience. If you haven't seen our tech house in New York and in Miami and in Washington, D.C., I encourage you to go places like that because that's what these data visualization artists are doing, taking 1s and 0s and turning them into places of extraordinary experience and that are very remarkable. All right. So the pace of change is changing. It's moving faster and faster. But how do you remain relevant to my young son who is an emerging guest and who lives in a digitally-enabled world? What do we do to keep in pace of change with him? Listen to these 3 girls talk about what it means to be relevant. [Presentation]

Thanks to Ira Glass and This American Life for that clip. They are 3 months into high school, and there's a lot of stake right now. There's a lot of stake right now in terms of how we decide we want to move forward in the engagement world where this particular cohort believes that being relevant is whether people like their Facebook post or their Instagram stories. It's an interesting challenge. But what it means though is -- and I think the girls missed it, he said that, he said, "and you're the product." As people become more facile with creating stories and digital content on their own handheld devices, they become different kinds of consumers. They're no longer simply people who go shop and buy, they're media creators. And being media creators signals a complete change in how we need to think about their expectations about wanting to do things with brands. And what it means, of course, is it's the brand of me. And what's relevant to them is not what I create in the corporate headquarters and pump out into the market. We have yellow sweaters this season. I hope you like it. If you don't come back next and we'll have blue. And that's not the world my kids live in. My kids live in a world that is continually in the flow of change, the ephemeral nature of things that move in and out of them. They connect to brands for a short period of time, and it's okay with them, that they go away. But in the end, what's most relevant is them. And that is understandable. We do often see ourselves as the epicenter of the universe, and we are concerned often about our own worlds. But this is a different kind of case for this growing cohort or with an emerging cohort of guests. As an example, I started to follow my son, Ben, on Instagram when he was 12 years old. He got on Instagram pretty early. And to be honest, I thought he was really pretty talented as a 12-year old. And we'd go for a walk in the forest. And this is Ben's Instagram page that he was using at the age of 12. We'd go for a walk in the forest, and I would take pictures of squirrels and sunsets and leaves and flowers and I post those to Instagram, and they were quint, a representation of the things I saw. Ben would come back and he would post things like this. And I would look at them and I'd go, "Dude, like what forest were you in? Because I don't remember that." But the idea here is that experience as lived wasn't quite as interesting maybe as experienced as maybe wished to have been lived over a re-representation of that story that for him became unique, not because he went and watched the forest, but that he portrayed that through a story that he created on his own. Being involved in the writing of a narrative is far more impactful than simply being a third person observer of a brand narrative unfold. So as we move to engage a guest and what will be more relevant will be using digital technologies to engage them in the collaborative relationship of story making. The thing that I started off by saying was most important because context and meaning are driven by story. So what will be relevant will be a guest's ability to work with brands to create the narrative because like I said, writing the story and the narrative and participating in that ritual of the brand experience is far more impactful and longer-lasting than simply hearing about it or simply seeing something unfold and participating only as a third-party observer. What I think what we need to do is move from talking about technology. So moving to a place where we start talking about tech and empathy. The use of technology in the service of empathic extension, how can I use technology to drive the engagement process forward with my guest where what I'm ultimately doing is creating deeper relationships. Empathic connections that have more meaning because they are at the core of who we are as human beings, empathic social beings who want to be in relationship. We, as designers of experience places have our jobs cut out for us. But the good news about it working within the context of the pace of change, such as it is today, is that we don't need to be on our toes. We'll need to be producing experiences that do better or do battle rather, with those experiences that are better than real, those things where I can fly in my digital space or where the laws of physics simply don't apply. When I have to compete with that, it puts me into a different kind of design challenge, one that says, "I need to step up my game." So let's just talk about design just for a second as closing. If I say the word chair to you, you're likely to see any of these 3 chairs. You might likely not see this chair, and I'm quite certain that you probably don't think of this chair. But if you really want to understand the power of design and driving experience and connecting to something that's bigger than yourself, then understand how the design of the throne at St. Peters is not just a chair. It does the same functional thing. It sits some ones butt in a chair. But the person who sits in that chair has a direct relationship with God. Design in this case is everything. And as we move to creating experiences that are transcended, design will become ever more important. Look, change is inevitable. We're seeing that around us all day now. I thought I had 2020 all figured out, and then we had the COVID pandemic, and that's changed everything. Transformation, however, is not. Change was upon the Luddites, but they didn't have a good time transforming. In fact, I would suggest they probably didn't transform. 2 years after their insurgence started, they were crushed by the government and the pace of change rumbled on, and industrial revolution took over most of Europe and in North America and the world. The challenge here is that transformation cannot be done as an act of will and cannot be done by stopping the pace of change, breaking machines and saying, halt, that doesn't work. Transformation can only be done as an act of love. So my friends. I think the true test will not be how we muddle through the mundane. But how we navigate the unknown, the in between, the uncharted and mysterious, where wonder replaces fear and our passion for discovery propels us forward without knowing the certainty of our destination. There has never been a time in human history that maybe this is so acutely felt by a lot of people. The idea, though, is that we have to be creative, and we have to be brave because bravery is not the absence of fear. Bravery is the idea that we recognize fear, and we go with it, and we embrace the fear and just do it anyway. On that note, I say thank you. And I'd like to encourage you to listen in to the next level experiences on podcast, my new venture that will be launching in July 2020. There will be great dialogues on DATA, which is an acronym for design, architecture, technology and the arts. I hope you enjoy the rest of the conference, and we'll talk to you soon.