Opinion From the Window Seat Arne Sorenson, commission cuts and chaos theory By Arnie Weissmann / April 02, 2018 Share 1 -- Marriott CEO Arne Sorenson was on a flight to Beijing a couple of years ago, reading some documents relating to Ritz-Carlton, when a Chinese millennial interrupted and asked, "Are you with Ritz-Carlton?""Yeah, sort of," Sorenson replied.The young man opened his laptop and displayed 18 files of notes he had created about the 18 Ritz-Carltons at which he had stayed during the previous year and a half. (The man also had, to Sorenson's relief, a much smaller number of files on Four Seasons and Mandarin Oriental hotels.)Sorenson related the story earlier this month when interviewed by NYC & Company CEO Fred Dixon during the organization's annual meeting. Sorenson was illustrating what a mistake it can be to think about all millennials as a monolithic block with easily identifiable preferences."Here's a roughly 30-year-old who loves the traditionally defined luxury of a Ritz-Carlton. To say that because he's 30, he's going to love the luxury of an Edition or other lifestyle hotel is going to miss it."Sorenson added: "It's harder and harder to pinpoint guests."The proliferation of preferences among demographics underlies the proliferation of portfolio brands. "We have to accept that we're going to have our own internal disruption," he said. "Moxy was a classic example. It started in Europe four years ago as an effort to reinvent the economy space, which one of our executives described as having been 'underdemolished.'"Sorenson uses himself as another example of the counterintuitive guest. "I'm going to be 60 this year, and I like a great experience," he said. "But I don't necessarily want to be pampered in a luxury hotel. I'd just as soon have a bit more chaos."If Sorenson likes chaos, he's got the right job. Brand proliferation aside, there are the rumblings of anti-travel sentiment found in the rise of nativism and a growing focus on overtourism. Competition from home-sharing platforms is only gaining strength, and there's a lot riding on successfully merging Marriott's brands with the former Starwood's and delivering on the promise that partisans of both are going to like a newly branded loyalty program.The profession of affection for even "a bit" of chaos, coming from the leader of a brand that was built on pledges of consistency, demonstrates how far hospitality has evolved in the past 10 years.I've always felt that one of Sorenson's strengths is his ability to leverage his calm demeanor in service of the imposition of order on potentially chaotic situations. But perhaps a more textured accounting of his worldview came through when he talked about preferring the "grittiness" of New York City to blander urban environments ("Too often when you go to a new city, it looks like Pleasantville. It's just too perfect. There doesn't seem to be enough variety."), coupled with his characterization of New York as "the most successful city in the world."Too much sameness is not only uninspiring to Sorenson, it's a threat. "We're not out of the woods" when it comes to sentiments that gave rise to the proposed travel ban in the U.S. and to nationalistic sentiments around the world, he said. While acknowledging the need for security and consensus on immigration policy, he asserted, "There are different versions of 'exclude the foreigner,' and some are really ugly. It's something we need to examine and understand; we ignore it at our peril."But there's not a single person I've met, even among people who you might think of as a prototypical 'Trumpian,' who doesn't feel better with diverse friendships."His comments suggest he believes that the complexities and challenges of running the largest hotel company actually increase the likelihood of its success. A bit of chaos might not only make life interesting on a personal level, it could also be as necessary an ingredient for success as a deep understanding of the underlying economic order that must prevail in any large enterprise.Which brings us to group commission cuts. Sorenson made his comments the same week that Hilton announced it was joining Marriott in reducing group commissions from 10% to 7%."There's not an intermediary that loves what we've done" in this regard, Sorenson acknowledged. "Basically, what we saw is that if you look at [the preceding] 10-year period, the dollars spent on group commissions have quintupled, or sextupled. Look at the profit margin in operations of a full-service New York City hotel. That 10 points in group commissions is likely more than the percentage of cash flow to the owner. What are the things we can do in order to make hotels economically viable long term? Well, we've got to look at every expense item, and this is one of those expense items we've got to look at."On the surface, the challenge of commission costs rising faster than profits was addressed by shifting the burden to intermediaries and, with it, disrupting a long-standing model. While that move has brought more than a bit of chaos to meetings planners and agencies specializing in groups, it is not without risk to Marriott and Hilton. Intermediaries are not without options. Those who had exercised brand loyalty for meetings venues to certain brands in the past may also discover the virtues of diversity.