strategic development

INTRODUCTION

Marks and Spencer (hereinafter called M&S) is one of UK's leading retailers of clothes, food, home products and financial services (Kippenberger 1997). M&S has a record of success and profitability since its establishment with well known reputation for its innovative, quality products and reasonable price which offers customers value for their money. M&S sales and services been declined in mid to late 1990s. The purpose of this report to identify the key drivers that made M&S falls in their performance.

The external environment scanning is concerned with the forces and factors that impact upon M&S. However, analysing those forces and factors will assist M&S in identifying the change in the environment, is often referred to as the macro-environment, planning in how to cope with such a change, and being ahead of the competitors in the adaptation to the new environment and the response to the market demands. PESTEL framework and Porters Five Forces model are the techniques that author uses to identify and analyse the problems that M&S experienced in the mid to late 90's. Then the author carries out an internal analysis of the organisation's resources and competences. Resource audit, value chain and SWOT analysis are the techniques to examine the activity of the M&S in order to reveal what was the basis of their competitive advantage. Furthermore, the author uses the cultural web analysis in order to identify what were the main cultural features of M&S until the mid 90's. And discusses were the resistance to cultural change originated and what aspects need to be changed. Finally the author identifies and evaluates the strategic choices available to M&S by using BCG matrix, Strategy Clock and Ansoff model techniques. A brief conclusion and recommendations for the strategy of M&S for the next 3 years will follow.

EXTERNAL MACRO-ENVIRONMENT

PESTEL Analysis

Fahey and Narayanan (1986) argue "that macro-environmental conditions set the fundamental context in which industries operate" (Fahey and Narayanan, 1986). The Political, Economic, Social, Technological, Environmental, Legal (PESTEL) framework shall be used in order to identify the changes in the external environment that caused decline in the M&S performance in the mid to late 1990's.

Political

European Committee decision to permit free flow of trade among themselves and other countries under foreign trade regulations makes companies to import their products over time easier than before. M&S competitors took advantage of its higher cost structure and bit off some its market share.

Economic

M&S competitors are specialised in niche markets and consumers' focus which make them to provide a much better consumers satisfaction. They prefer to import their products from abroad for cost savings, this fact puts M&S in a cost disadvantage for a perceived "higher quality".

Social

Consumers' concept in the marketplace has changed; they do not sense British products as of high quality. There is a shift in demand for more fashionable clothing. Moreover the price sensitivity of the majority of the consumers has increased leaving M&S in a less competitive position.

Technological

Media played major role of communicating new fashions to the customers. This knowledge can be communicated to the designers and producers, so a manufacturer in Thailand or China can be aware of the current fashion trends in UK. Technology theses days are even more quickly copied than before. Moreover due to the transportation speed a shipment of stock from a country in far Asia will only take a few days instead of a preview time period of over a month.

Environmental (Ecological)

Selling products produced by suppliers has a much greater affect on the environment on how these products are used and disposed by consumers. Retailers use a huge range of raw materials to produce their goods. Because of this, it is critical to manage the use of these materials sensitively and pay proper regard to how they affect natural habitats and bio-diversity.

Legal

Offering customers high standards of quality product are essential to meet their requirements. M&S are known for delivering world class quality products.

Porters Five Forces Model

This model was developed by Michael E. Porter in 1980. This model is used to identify the sources of competition in the retailing industry (anon, 2004a; anon, 2004b). These forces as described as follows:

Bargaining Power of Suppliers

More than 90 per cent of M&S suppliers were British. M&S bought directly from a few UK suppliers all their stock that they manufacture which created a situation where the supplier was reliant on M&S and vice versa. The problem of this approach is that overseas suppliers produced products on lower cost. The bargaining power of suppliers is quite low when it has concentrated purchasers. When the sales declined rapidly in late 1990s, M&S outsourced globally to reduce its cost similar to its competitors which resulted a lower bargaining power of its UK suppliers.

Bargaining Power of Buyers

In general, bargaining power of buyers is high. Customers seeking classical clothing became price sensitive and some others seeking high image became fashion sensitive. M&S competitors were more customers focused which took away its potential customers. In addition UK consumers were not willing to pay a premium price for supporting British products. M&S had misread its target market, therefore a consumer oriented strategy is needed instead product oriented strategy.

Threat of Entrants (Barriers to Entry)

In the retailing clothing sector M&S faced a competition both in the higher and lower ends of its market. ASDA with its own brand name George and Matalan are offering high quality clothes at low prices. Both companies' clothes have a classical style, which attracted UK consumers who were traditional customers of M&S. In addition, stores like Gap, Oasis, Next BHS, Top Man & Zara offered high quality clothes of latest fashions that attracted the fashion orientated younger customers. Further more, Tesco and Sainsburys offer their own high quality range food that was ...

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Threat of Entrants (Barriers to Entry)

Threat of Substitutes

The threat of substitutes is high. In the cloths retail sector after the mid 1990s there has been a great increase of retailers operating with foreign imports. Consumers are prepared to pay a premium for a label or they can buy similar products with lower price.

Competitive Rivalry

M&S operates in a very competitive environment. Its competitors are more customers orientated and more in tune with the needs and the demands of the customers. Such as on cloths sector, Next & Gap have exploited the demand for young people and in food sector, Tesco and Sainsbury have developed its ranges of ready cooked meals.

In UK there are no exit or entry barriers but the market is mature and therefore there is no bounce for a new company, or a company from abroad to come and compete in these markets. In contrast M&S experienced Exit barriers when under the France law they were not permitted to close their France stores and make their employees redundant with just a week's notice. (Ralph, 1996; anon, 2004c).

INTERNAL ANALYSIS

Auditing the Resources of Marks & Spencer

Physical

M&S own 375 UK stores, 155 stores managed under franchise in 28 territories and the US supermarket group, Kings Super Markets (anon, 2004d). This indicates their strength. But all M&S stores were identical in procedures, layout, design and image which lead to limitation of changes according to local changes based on environment, lifestyle and geographical location.

Human

M&S has loyal, friendly, hardworking and experienced staff. Knowledge management was not handled in a right way due to Greenbury's style of top-down management structure. No skills in buying or outsourcing according to consumers needs. No good communication between the head quarter and stores due to M&S bureaucratic culture.

Financial

M&S profits were declining from 1998 until 2000. This indicates that M&S did not have a healthy sign of its level of cash availability which made M&S to stop its expansion programme in Europe and America. But in general M&S has good financial resources.

Intangible

Customer loyalty decreased due to change of market fashion and products low costs. M&S brand 'St Michael' as a of high quality standards was undervalued. M&S did not have a knowledge management system such as customer and suppliers data base.

Value Chain Analysis

In order to investigate Marks & Spencer performance in the mid to late 90s by value chain model the author examines each section individually (Appendix I).

SWOT

"SWOT's objective is to recommend strategies that ensure the best alignment between external environment and internal situation" (Andrews, 1980, Christensen et al., 1982 in Mintzberg, p. 36-37; Hax & Majluf, 1996, p.27; CSUN strategic planning leadership retreat, April 1997; Hill & Jones, 1992, p. 14 cited in anon, 2004e). To evaluate the strategy followed by Greenbury SWOT analysis is used to identify the strengths, weaknesses, opportunities and threats in order to identify how M&S can increase its performance and regain again a high market share.

Strengths

Excellent and quality products.

Excellent relationship with its employees. Its employees treated better and paid more than sales assistants in other organisation.

M&S is the high street giant, has stores all over high streets in UK.

M&S is mature and profitable company beside this it has large slice of the market share of many retail sectors and is a leader in others. This indicates its financial strength.

M&S has reputation of quality and value associated with the brands 'St Michael', 'Per Una' & 'M&S'.

Long term relationship with suppliers.

Weaknesses

M&S was reliant on particular British suppliers comparing with its competitors who use overseas suppliers for lower cost products.

Old & classical fashion image, grey and navy colour cloths were used on autumn 1998 (anon, 2001). Hanging on to traditional colours in M&S clothing range is putting the company at a disadvantage. Market surveys need to be conducted in a more effective way to find out the exact demand of the customers, being the most important factor in any business.

Lack of clear marketing strategy. Advertising has been poor and M&S neither has offering sales to its customers especially during Christmas and Easter period comparing with others.

Not customer focus, its reputation for womenswear was built on underwear, jumpers and skirts. M&S focused on customers who their age from 35-44 years old, neglecting the younger and children ages consumers (Barnes, 2004).

Poor customer services, no fitting rooms, less sales assistants and no credit or loyalty cards facilities.

Technology is poor, M&S not able to provide an accurate readings of its stock in each of its stores.

Top-down management system restricted store managers to respond to local customers needs.

No wide knowledge about the market for the younger generation.

All ranges of cloths were not segregated neither display probably.

Bureaucratic culture organisation.

Lost focus on local market by reaching every where in the world like Europe and America under the expansion programme.

Opportunities

Keeping in line with the competitors, M&S must enter the e-business in an effective way. While offering the customers the option of shopping from the comfort of their homes, it should also address the problem of operating stores in high cost localities.

Rapid changes in technology. M&S needs to keep ahead of its competitors.

Focus on the cloths market segment by age, such as young men's, women's and children clothing.

Products diversity such as food, customers are interested more in international dishes such as Indian & Chinese.

Threats

Intense competitions such as Gap, Oasis, Nest, Bhs, Top Shop, Zara, Asda, Sainsbury & Tesco.

Clothing industry is mature and market not saturated which indicates that customers are always looking for new fashionable cloths.

Internet technology enables consumers to shop from home.

Expansion into international markets has proved to be less successful for M&S.

Cultural Web Analysis

The Paradigm

The core competency is high quality "British" products at a reasonable price i.e. value for money.

The M&S Formula for success.

Top-down management control system, bureaucratic culture, changed to decision making environment that wasn't weight down by hierarchy.

Until late 1990's all CEOs were either family or all life employee in M&S but in 2000 for the first time the company appointed someone from outside to that position of Chairman.

Stories

Michel marks set up his first "penny bazaar" on in the late 1880s.

Tom Spencer, a cashier of Mark's supplier became a partner and M&S grew since then.

Reputation for the quality.

Symbols

'M&S' & 'St Michael' brands.

Head Office in London.

Executives have a high status and prestige.

Store on most of UK high street.

Power Structures

Head office has the power of designing the stores, training the staff, goods logistics, quality standards, finance, etc.

Simon Marks and Richard Greenbury are autocratic approach people.

Control Systems

Top-down management system.

Reward system by prompting their life employees to become mangers and executives. Few of top management positions were appointed to outsiders.

Rituals and Routines

Specialist buyers in the head office decide cloths ranges instead of getting the feedback from stores mangers.

Buying quality products, British, for reasonable price.

Organisational Structures

Hierarchical and centralised structure.

STRATEGIC CHOICES

Strategic choices available to M&S are concerned about its future and how to respond to external and internal pressures.

Corporate-Level Strategy (BCG Matrix)

BCG Martix is used to conceive the balance of the portfolio of the businesses in terms of relationship between market share and market growth. It is a company in a market that has slow growth and its market share is continuously shrinking. The industry in which M&S operate is mature and market is likely to be stable so it is more difficult to gain market share. It's assumed that M&S is a decline phase organisation (Stockport, 2000).

Business-Level Strategy (Strategy Clock)

M&S competitors in the growth stage trying to gain market share, it is necessary to invest in order to regain its market share and dominance. This can be done by reducing the product and service prices lower than competitors and spend high amounts on advertising and selling. Using the strategy clock model, the hybrid strategy is the best option for M&S to achieve differentiation and a price lower than its competitors (Johnson and Scholes, 2002).

Strategy Development Directions (Ansoff Model)

Peter Salsbury took the company mainly into a strategy of market penetration but did not have immediate success for M&S. Strategic direction followed under Salsbury is analysed (refer to Appendix II). It was definitely the foundations from which Vandevelde was to build upon. Vandevelde came to M&S and outlined the following objectives for its strategy for the year:

1. Creating clear profit centres

2. Creating a customer-facing organisation

3. Restoring overseas profitability

4. Building the financial services sector

Strategic direction followed under Vandevelde

Vandevelde also decided to follow mainly a market penetration strategy as he wanted to give new life to the domestic brand then move overseas. Main areas of Vandevelde's Market Penetration Strategy were:

Increased amount of staff which made the shopping experience more enjoyable and easier.

New corporate identity which stopped customers being confused and repositioned the brand all over the organization to fit with the new image.

Changes to the look of stores, uniforms, packaging and labelling to fit with this new image.

Stores were specifically tailored based on customer profiles and lifestyle patterns when sending out stock to stores.

He also split the organisation into five main operating divisions. This facilitates the company in being able to recognise which areas are performing well and ensures customer focus through each unit by having dedicated selling and buying teams. This allowed the first and second objectives to be more attainable.

However at the end of 2000 M&S "disclosed its plans to offer clothes at a discounted price of 30 % in factory outlet malls". This conflicts with their strategy of differentiation as Porter (1980) contends that a company must choose to follow one or the other and may result in direction being lost. Another possible outcome of the introduction of this type of mall would be that it would erode the quality of the brand name and in turn deplete the number of 'loyal' customers.

Complete withdrawal from overseas markets to cut losses and concentrate on domestic brand. This meant that the third objective was not to be met.

It is important to develop a new brand name which is capable of competing with low-cost products from China and Thailand. Lower ratio of profit from the "other" M&S brand can be overcome with higher bulk turnover. M&S brought in George Davies, the founder on Next and the creator of the 'Gerorge at Asda' clothing range to design new range of clothes.

CONCLUSION

After mid 1990s M&S began to experience internal problems such as information flow breakdown and together with the fact that top management was concerned with international expansion M&S was drifted away from its core values such as consumer care and customer satisfaction. M&S failed to recognise that consumers were becoming wiser and its competitions much stronger. Most of consumers consider M&S to be old fashioned company, this image has to be changed to be in line with the market demand and regain its lost customers to other competitors. Based on the analyses, the author feels that M&S requires to be reorganized in various departments especially in Sales & Marketing and HRM departments.

RECOMMENDATION

In order to regain competitive advantage, Luc Vandevelde should consider the following list of recommendations as 3 years plan (1st year to refocus the business, 2nd year to derive it and 3rd year to expand it):

1st YEAR STRATEGY PLAN:

Define Vision and Mission Statement within the framework of organization's philosophy.

M&S Company Vision & Mission: "To be a socially responsible and profitable, by providing new quality products in the area of Cloths, Food, Home and Financial Services. M&S strive to serve customers better than the competitors, achieving customer satisfaction by adding value through quality products and services and continuous improvement through its resources. M&S aims to maintain a healthy working environment that rewards achievements and increase competencies. As Individuals, we aim to maintain good citizenship and the courage for innovation and trust".

Regain Clothing Market Share

M&S needs to change its corporate culture to be customer oriented and dedicated to customer satisfaction by encouraging the decision making environment that was not weight down by hierarchy, i.e. low hierarchal and decentralised structure.

M&S markets products for both the sexes. However, the management of the company is predominantly male. It would be advisable to achieve a gender balance in the management hierarchy and who understand customers well.

To consider Bottom-UP planning from business units but within central guide lines.

Communication is essential process, "the ritualistic Saturday morning headquarter meetings to exchange ideas and review, and company executives' commitment to visiting stores, talking to customers, and soliciting suggestions from employees" (Thompson, Strickland and Gambles, 2004).

Introduce a new corporate image and implement a large promotional campaign. Advertising in News Papers, TV, and Satellite channels is essential to keep up with M&S competitors.

M&S needs to carry out intense market research to identify the customers' needs for styles and products.

In order to cash in on its "brand loyalty", M&S must develop an effective customer opinion and feedback system, preferably through the internet, being more convenient. Feedback received from the loyal customers must be considered seriously.

M&S need to focus on the top end of the clothing market but deliver stylish cloths, beautifully made with fantastic value.

M&S focuses on its core customers, slightly old 35-55 but neglecting the younger ages comparing with its competitors. M&S should enter this market segment either by starting new business or by acquiring another company such as Next who is well known for stylish clothes for children and younger aged consumers.

M&S should acquire Goerge Davies brand "Per Una" if it has excellent performance.

M&S should show its innovation and create the fashion of the future.

Searching on how the consumer's shopping experience can improve stores environment, by changing the lay out, design, separating cloths and food to make the stores more attractive and enjoyable. This will attract new customers and improve customer satisfaction.

Understand and treat each store as individual SBU.

Improve the supply chain efficiencies

M&S has to exploit technology in its stores by introducing hand held communicators 'pda' to track the cloths from the distribution onto the sales floor which helps to know exactly what is in the store from stock availability and ensure the right items will be delivered the next day similar to Next.

M&S to utilise the E-commerce, the use of web-based ordering system should reduce costs.

Further more, the latest market trends knowledge can be communicated to the designers and producers through media, so a manufacturer aboard can be aware of the current fashion trends in UK and deliver it fast to keep ahead of its competitors similar to Zara's concept.

Develop Employees Skills

M&S needs to introduce training programme to have innovative staff. A centralised training centre would be an ideal way to train store supervisors and section managers on sales & services similar to Channel & World Disney concept.

Furthermore hiring young motivated staff in addition to experienced staff would increase M&S competences.

2nd YEAR STRATEGY PLAN:

Maintain and Increase Market Share by 1 to 2% for Food & Strengthen its Financial Services.

M&S to maintain high quality foodstuff introducing ready-cooked meals such as Indian, Chinese and Italian. M&S also needs to reach customers by expanding its food stores.

Introduce loyalty and credit cards facility to customers.

Introduce cash banking facility at the tills similar to Tesco & Sainsbury (personnel experience in late 1990s).

3rd YEAR STRATEGY PLAN:

Develop Home Business Unit

Home sector, M&S needs to focus on things they know well to have competitive advantage to increase their market share. Providing stylish furniture with low cost and expands the home stores will be the ideal method.

REFERANCES

Barnes R. (2004) Your M&S Makes Debut to Back Womens's Range, Marketing (UK), Business Source Premier, p3, 1/3p, 1c

Fahey, L. and V.K. Narayanan (1986) Macroenvironmental Analysis for Strategic

Management, St. Paul, MN: West Publishing Company.

Johnson, G. and Scholes, K. (2002) Exploring Corporate Strategy, 6th edition, Harlow: Pearson Education Limited, England.

Kippenberger T. (1997) Marks & Spencer: A Revolutionary in Retailing, The Antidote, Emerald Group Publishing Limited, v2 n6 p32-36

Ralph D. (1996) Strategic Managerial & Organisational Planning, 2nd edition, Pitman Publishing.

Stockport G.J. (2000) Developing Skills in strategic transformation, European journal of innovation management v3 n1 p45-52

Thompson, A. A., Strickland A. J., and Gambles, J. (2004) Crafting and Executing Strategy: The Quest for Competitive Advantage: Concepts and Cases, 14th edition, Mcgraw-Hill, UK

Anonymous (2001) Marks & Spencer [Video Cassette], Available: Channel 4 TV Programme [2004, July].

Anonymous (2004a) Porter's Five Forces: , A Model for Industrial Analysis [Online], Available: http://www.quickmba.com/strategy/porter.shtml [2004, Oct].

Anonymous (2004b) Strategic : Planning, Porter's Five Forces Model [Online], Available: http://www.des.calstate.edu/basicmodels.html [2004, Oct].

Anonymous (2004c) Marks and Spencer [Online], Available: http://www.veryard.com/comanies/mks.html [2004, Oct].

Anonymous (2004d) Marks and Spencer, The Company [Online], Available: http://www2.marksandspencer.com/thecompany/ [2004, Oct].

Anonymous (2004e) Strategic Planning, Basic Models [Online], Available:

http://www.des.calstate.edu/basicmodels.html

APPENDIX I

M&S Value Chain Analysis

PRIMARY ACTIVITIES

Inbound Logistics

M&S was using only British suppliers in order to produce the quality products whilst most other retailers sourced goods from overseas to keep costs down.

Operations

Refurbishment programme caused disruption and worse effect on the customers. The cloths were not managed and displayed well, such as work and casual style cloths in the same place (Johnson and Scholes2002; anon, 2001). M&S did not have a loyalty and credit cards facility at the time when almost every other retailer did.

Outbound Logistics

M&S stores location were situated in prime locations so that its full range of products could be stocked at city central locations.

Marketing and sales

M&S had poor marketing plan, especially when it stated that its products is available to everyone which was wrong because of their focus on classical and wearable fashions only. A good example of this argument when M&S produced a controversial television advertisement featuring a blurred image of a rather large naked woman.

Services

M&S had poor services in the shop floor due to Geenbury cost control by reducing the sales assistance in stores. M&S did not have fitting rooms and no body listen to customer comments (anon, 2001). M&S customer satisfaction survey results prove the same (Johnson and Scholes2002).

SUPPORT ACTIVITIES

Firm Infrastructure

Bad due to centralization structure of the company. The store managers follow the head office direction on the products lay out and store design.

Technology Development

Poor comparing with its competitors like Zara who has in their stores hand held communicators 'pdf' which enables them to know exactly what is in the store and ensure the right items will be delivered the next day.

Human Resource Management

No training programme to innovate the staff and develop their skills. Senior executives could not communicate directly with Greenbury on the customer satisfaction results because the fear. Most of sales assistances in the stores were old ladies and all dressed in gray and navy color.

Procurement

H&R recruitment and products procurement were done locally.

APPENDIX II

Strategic direction followed under Peter Salsbury

Peter Salsbury took the company mainly into a strategy of market penetration but . This is evident in the following points;

Withdrawal from most of their international markets as a corrective measure for very poor planning of strategy in the previous years.

M&S bought 19 Littlewoods stores for a price of £192m on the grounds that they were in prime locations. They bought these stores with the intention of refurbishing them completely and at the same time refurbishing their own stores at a cost of £100m. This had a disastrous effect on custom and pushed their sales and profits down which affected the share price.

In April 1999 they launched a large promotional campaign and new clothing and food ranges.

In September 1999 they decided to source overseas to reduce costs.

M&S decided to diversify into home and Internet shopping in response to customer trends.

M&S established a new department responsible for identifying new business opportunity.