- M & S continued with its risk aversive formula long after the rules of competition changed. It ignored the market changes. Greenbury, who was heading the firm in the 1990's, when trouble began to erupt, used to focus on day to day operations and didn't focus on the long term strategy for the company. It neither understood nor tailored the offerings to the various growing market segments.
- Even though the majority of the customers were women, and much of the merchandise was womenswear, the decision makers were dominated by men.
- M & S tried to expand in the international market in a big way. But it didn't give importance to the fact that Europe, America, Canada were entirely different from England. It failed to give respect to the new foreign environment
- M & S built its reputation on the basics, the essentials, and didn't work on fashions. This worked for them in the beginning, but by late 1990's it began to lose out to its competitors, The Gap, Oasis, Next, at the top end and Matalan, Asda etc at the bottom end. In the value food market, Tesco and Sainsbury began competing with them. It was only in 2001, did they bring in a designer to design its new range of clothes. They stopped understanding or reacting to the customer's needs.
- M & S did not have a customer loyalty card, when almost all its competitors had one.
In the following report we obtain the chance to analyze, as referred in the introduction, the PEST analysis of M&S and Porter’s five forces model of industry analysis.
PEST Analysis
Through the PEST analysis the external macro environment is explored.
Here factors pertaining to the political, economical socio-cultural and technological aspects are looked into.
Political
The stability of the present labour government, its taxation policies, anti monopolistic policies, the employment laws and the formation of the competition commission, are having a direct impact on the retail industry as well as M & S. Mergers and acquisitions are not encouraged and therefore thoroughly investigated. Because of the presence of the strong trade unions the companies are not in a position to introduce “operation simplification” just as the legendary Marks could introduce it in Marks and Spencer, immediately after the Second world war.
As such firms have had to adapt to wage rises and have been forced to find other ways to lower costs. Supermarkets such as Tesco have in the past reduced costs by exploiting suppliers by taking advantage of their strong buyer’s bargaining power. Farmers in particular have been the subject of such exploitation though the government’s competition commission has since attempted to repair the situation by introducing a code of practice.
Economic
Corporation tax is currently 30% for large firms. Tax credit is allowed for research and development. Inflation and interest rates are at reasonable level with positive indicators in GNP growth rate. Even though recessionary trends are speculated about its drastic effects are not yet detectably seen in the economy. Of course the economy show signs of weakening.
The underlying rate of inflation was 2.3% for March 2002. The Bank of England is attempting to keep inflation below 2.5% and hopes to prevent a rise in interest rates. A rise in interest rates will complicate any financing decisions and may delay any long-term investments as it will increase the cost of debt as such alternative forms of investment such as equity become a more desirable form of investment though historically equity finance is rarely used for financing long term objectives due to the fact that it can be very costly and will weaken shareholder control.
For the past two years the prediction of an impending downturn has emerged large though this has not happened. Many economists predict an forthcoming recession. If that prediction is proved correct, history dictates that, in times of recession, consumers will be more price sensitive and less likely to purchase high priced goods due to a lack of disposable income.
Socio-cultural
Current trends suggest that over the last 10 years there has been a large rise in the popularity of bulk buying, with food items in particular being bought in bulk. Moreover there has been an increase in demand for convenient foods such as sandwiches and microwave meals.
The impact of September 11th in conjunction with the rise of charity initiatives suggest that many people are likely to adopt a more sympathetic view to world problems and therefore greater importance is likely to be placed on corporate responsibility and charity initiatives. Although Tesco and Gap practices in the past have been deemed irresponsible and yet their profit was not negatively affected.
Technological
The ever-increasing popularity of the Internet and the introduction of broadband technology has resulted in many firms now offering online services allowing for home shopping.
The use of intricate computer systems has enabled firms to automate and accelerate many procedures previously done by hand. Linked system have also enabled easier account collection, statistical analysis and identification of demographic data
Porter’s Five Model Industry Analysis
The widely accepted and commonly used Porter’s five model industry analysis rests upon the industry dynamics which in turn are influenced by the forces of macro and micro environments.
This analysis is not one of activity alone but an on-going process. These forces exercise relative power at a point of time and it is really important to identify which of these five forces are the key forces at operation and develop a strategy to position itself to take advantage of the opportunities and over come the threats.
Because of the dynamic nature of these forces the analysis is to be repeated on an on-going basis so as to deprive of the potential competitors to overtake, regain, sustain and improve the market share and growth as the situation demands.
Porter’s 5 forces model suggests that when buyers exert a high degree of choice and are able to choose from a variety of substitute’s product quality, price, product differentiation and branding are likely to become prevalent factors as concerns the success of a firm. As such this is likely to be common within the market M&S operates as there is a high degree of competition incurred in direct and indirect forms meaning buyers (customers) will have a high degree of choice thus firms must cater to this in the manners outlined above. Additionally the inconsistent nature of the fashion industry i.e. product life cycle is low due to ever changing fashion trends means that a quick and efficient response to customer demand can critically affect the degree of success a firm experiences. Additionally an awareness of future environmental conditions can be of vital importance to a firm’s success as the importance of price, product quality branding and differentiation can vary greatly within different circumstances. I.e. during a period of recession price becomes a prevailing factor, which is likely to dictate customer choice. Whereas, during a period of wealth, quality and brand, become dominant factors.
Problems of M&S' Organizational Culture
Structure, culture and strategy are interrelated. Accordingly, these three main aspects need to be discussed in more detail:
Problems with Strategy
First of all, it was believed by the former top management that quality had to be high while prices needed to be affordable. This belief was essential for strategy making because it implied which actions had to be taken to achieve these aims. Such a strategy is however problematic to implement because as Porter 5 notes, it leads to a situation of "stuck in the middle" which means that companies should either be low cost or product led. Achieving both is to some extent contradictory in his view and can therefore help to explain the inability of M&S to achieve sustained competitive advantage.
Problems with Culture and Structure
Secondly, an important belief was that control should be in the hands of top management which had been exercised by the successors of the founder. The case shows that Greenbury always tried to run the business on his behalf and rejected delegating responsibilities. This approach can be named "top down" which means that information flow from top management to the shop floor. This has several disadvantages: it fosters autocracy and managerialism, it does not take advantage of the sales staffs' experiences who know best what customers demand, it leads to bureaucratic structures which hamper flexibility and quick decision making, and it discourages lower managers to make critical suggestions because of Greenbury's habit to think that his decisions are hardly fallible.
Competitive Advantage
M & S could attain competitive advantage by developing and implementing these distinctive resources capabilities and competences. The strategies adopted after the great fall of 1998 enabled M & S to regain its lost territory.
The competitive advantage of M & S can be explained in terms of its reputation for quality, its special relationships with its suppliers and its customers. M & S has a very exacting but mutually profitable relationship with the suppliers.
It demands high quality at reasonable cost and flexibility in return for large volume of business. Its relationship with the customers is based upon its reputation for good service, refunds, exchange of goods and high quality value for money goods. Real competitive advantages take longer to build and last longer. M & S has the best brands on high street. The customer associates with the company with dependability and value for money. The employees are always a privileged lot resulting in their high involvement and commitment. At the end result it has a performance that is superior to most of its high street competitors.
