The business-casual dress code had Rick Wilson stumped.

As the longtime CEO of Regency Hotels &

Resorts, now the second-largest lodging company in the world, he’d packed for hundreds of work
trips before, but without suits 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 off-site to discuss the company’s portfolio strategy. The facilitator, Roxane
Jones, was a marketing professor and a seasoned consultant.

Regency had just finished a $9 billion acquisition of Beekman Hotels, which meant it now had nearly
4,800 hotels and slightly more than a million rooms in 100 countries. Like most of the big hoteliers,
however, Regency owned few of those properties; instead it franchised and managed them, with
the bulk of the real estate owned by independent companies that licensed Regency’s brands. The
addition of Beekman’s eight brands had increased the number now under Regency’s umbrella to 21.
The question on everyone’s mind, especially investors’, was how Rick 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, Regency’s board had encouraged Rick to remain noncommittal about
the company’s post-merger strategy. He’d once commented on an earnings call that Regency
“probably” didn’t need all the brands but had quickly added that it had 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.

Rick 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 Regency’s brands.

Rick’s phone buzzed, and he saw it was an e-mail from Meena Nair, Regency’s CFO. Roxane had
asked all 12 of the executives invited to the off-site 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 Rick 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 Regency brand to stay in its own “swim lane.” Changes
would be costly, and Regency 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. Bob Brockman, Regency’s CMO, and Joe
Salem, the brand manager for Piper, Regency’s largest and most profitable brand, had sent
statements supporting a shake-up a few hours earlier.
Rick sat on the bed, and the dog jumped up. “Whaddaya think, Tank?” Rick asked. “Can I fit
everything?”

Tanker wagged his tail, and Rick folded all the polos, khakis, and blazers into his suitcase.

A Bigger Bucket

As soon as Rick passed through security the next morning, he saw Bob and Joe in the line at
Starbucks. He hadn’t realized they were on his flight but was pleasantly surprised. They waved him
over, and Joe pointed to his phone. “Did you do your homework?” he said, teasing. “We didn’t get
your statement.”

“I think we have enough opinions to go around,” Rick replied, “so I’m still Switzerland—at least for
now.”

Joe and Bob had been close allies ever since Joe’s ascension to the top of Piper, five years earlier.
When Roxane had mentioned wanting to avoid politicking, Rick had immediately thought of these
two. They’d always seen the acquisition as a way to grow Regency’s existing brands.

“I guess you know where we all stand anyway,” Bob 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 Joe and Piper if that’s what it came to.

“But,” Bob continued, “Meena’s Four Seasons analogy doesn’t really hold water. Regent played in
the same price tier but in entirely different geographies. The situation wasn’t nearly as complex as
ours. And it did rebrand as Four Seasons over time.”

Joe jumped in. “For me, it’s really a resource question. Right now we’re putting our resources into
21 different buckets. What if we put them into just 15—or 10? We’d be able to do a lot more with
the successful brands.”

“Or do you just want a bigger bucket?” Rick asked, smiling.

“Yes, of course I do. But I swear this isn’t just about Piper. It’s about all of Regency. If you look at how
most of Beekman’s brands are doing, it isn’t pretty. If we bring them in as is, they’ll dilute the
portfolio. It’s time to put them out of their misery.”

“And give you their properties?” Rick asked. He was getting annoyed. Regency wouldn’t have
acquired Beekman to get a collection of sorry, underperforming brands.

“Yes, exactly! Or we can sell Beekman’s weaker brands and use the money to support the stronger
ones.”
“That’s possible,” said Rick, trying to keep his voice measured, “but what if the new owners compete
with us and steal market share?”

Bob seemed to sense Rick’s irritation and piped up: “I don’t think either of us would argue that we
should get rid of all Beekman’s brands, right?” Joe nodded. “They have some good flags. It’s just too
difficult to manage that many. ‘Swim lanes’ might make sense from a financial standpoint but not in
the eyes of our customers. Our research shows that most people don’t distinguish between brands.
Piper or Evenstar—it’s all the same to them.”

“OK,” Rick said, “let’s wrap up the lobbying efforts for now. We can debate this with the group later.
I’m going to get a coffee and read the Journal.”

Joe clearly had more to say, but he took the hint.

In Carmel

The seats people chose at the conference table reflected where they stood on the portfolio issue.
The Beekman managers were all on one side. They had a personal stake in the decision, of course—
they wanted to keep their jobs—but they’d also made good business cases against pruning, arguing
that it would cut off consequential income streams. Meena sat with them, right next to Rick.

On the other side were Bob, Joe, other managers from Regency, and Daisy Dineen, its COO, who
supported streamlining to simplify her team’s job.

Roxane kicked off the meeting by asking people to summarize some of their main points while she
wrote keywords on a whiteboard.

“We need a brand architecture that isn’t confusing to customers, hotel owners, or even our own
employees,” said Daisy. “What we’ve got is a mess.”

“What we’ve got is scale, which is exactly what we wanted from this deal,” Meena responded. “But
I’m glad you brought up owners. We haven’t yet talked about the impact on them.” Rick and his
colleagues nodded, and Roxane encouraged her to elaborate. “There are only so many places we
can open another Piper,” Meena said. In some cases, Regency had given owners of Piper hotels
exclusive rights to certain markets, and those contracts prevented it from flying another Piper flag
in those areas.

Rick spoke up. “Yes, we’ve heard from lots of nervous owners. If we discontinue the Evenstar
brand, they might discontinue their affiliation with us and defect to Hilton, or another competitor.
We will lose properties.”

The room was quiet for a moment. Everyone knew this was a sore point for Rick and the board. The
reason for buying Beekman was to scale quickly, and losing hotels would defeat that purpose.
Regency needed to retain as many properties as possible.
“I think owners will be clamoring to stay,” Bob countered. “They’ll save on procurement,
reservations, and agency fees and, ultimately, have greater pricing power, because we control much
of the room inventory in their markets.”

“Those are the upsides we’ve touted, but we haven’t realized them yet,” Meena said.

“It’s early,” Rick said.

“OK then, let’s talk about the stock price,” she continued. “The latest research shows that in most
situations, portfolio slimming hurts value.”

“But investors have responded incredibly well to the purchase,” Bob said. Indeed, the sector was up
80% since the close of the deal, with Regency leading the way. “They’re clearly not concerned about
consolidation.”

“Right,” Joe added. “Besides, those are consumer packaged goods studies—totally different
scenario.”

“I wouldn’t say it’s irrelevant, though,” Roxane said, stepping into the fray. “We should learn from
other industries. That said, there’s evidence to support both sides here: cases indicating that it’s a
huge mistake to eliminate brands worth millions of dollars and ones showing that when you try to
run a portfolio as big and overlapping as yours, it inevitably leads to failure. The research won’t make
the decision for you.”

“I guess we knew that,” Rick said.

“One thing the research shows for sure, though, is that it’s better to make a decision soon,” Roxane
continued. “Investors are waiting to see where you go with this, and you have a passionate team”—
this prompted laughter— “that needs its marching orders.”

They all nodded, but Rick wondered if everyone would support whatever call he made.

“So,” Bob said. “Are you still Switzerland? Or are you ready to take a stand?”

Question: What is the best strategy in this scenario for managing the brand portfolio?