E. Rivalry among existing firms
- It seemed that existing firms in the clothing industry do not compete as intensely as firms in other industries. In relation to segment 1 and 2, M&S suffers more from the competition of segment 3.
- Competition in segment 3 comes from two aspects. Price-sensitivity feature of segment 3 is very likely to lead to a price battle which will finally squeeze out profits. A number of firms competing in segment 3 will erode M&S’ market share.
Further problem areas which need to be considered are in particular:
A. Market
- M&S is tied to a generalized view of the market due to a lack of proper segmentation. It might not need segmentation in early year since people had similar requirements and very few competitors could challenge its market leadership. However things have changed. Strong competitors emerged and different products have been required by customers. M&S’ failure to segment the market and to differentiate products resulted in shifting customers’ interests to other brands. Consequently M&S’ market share has been eroded.
- M&S must target a segment or prioritize some segments. Different marketing strategies should be raised for each different segment so as to shield itself from competition.
B. Customers
- Demand and Competition are the determinants of industry profit. Therefore, understanding, stimulating or even creating demand is of great importance for profitability.
- Understanding customer preferences and trends was deemed as a major reason of previous success. However, survey results of customer satisfaction in the late 1990s revealed that customers were more and more dissatisfied with product or service. This resulted from the fact, as frequently reported, that M&S no longer understood or reacted to its customer’s needs.
- As technology develops and people care more and more about clothing fashion rather than only quality or price, the life cycle of the products in this industry tends to be short. That means, if the company does not pay sufficient attention to collect information from customers, products might be outdated soon. This would then require a swift managing change including new designs, new concepts and new materials to meet customer’s needs.
- In addition to the product itself, value-added service is also an important part. The value of the product or service to customers should be created to appeal to customers. Furthermore, well working long-term relationships need to be established between the company and customers. This should greatly help to maintain them and to increase their loyalty to the brand. Salsbury’s proposal of customer-focused approach should be appreciated. Unfortunately, the fact not to segregate different items and to deal with customer complains poorly reveals that this approach seemed not to be implemented very well.
3. Stakeholder Influence
Strategy making takes place in a political context, so the impact stakeholders will be considered in this section. These stakeholders are most of all:
- Employees
- Senior managers (excluding Salesbury)
- Salesbury
- Customers
- Suppliers
- Competitors
These individuals or groups can next be placed in a power/interest matrix which helps to analyse their potential influence on strategy. Having done that, ways can be found to reposition them if necessary (see illustration 3 on the next page).
Illustration 3 Repositioning Main Stakeholders
The analysis implies that it is most important to shift the individuals or groups in box one to boxes where their impact on strategy is weaker:
- In the case of competitors, their power has grown because of M&S’ inability to position itself clearly in the market. By enforcing Vandevelde’s new strategies their potential power should decrease leading to a shift in box two.
- Salesbury’s influence is probably still strong because of his position and tradition in the company. However, outside pressure already forced him to accept Vandevelde. Increasing this pressure over time through PR and positive customer perception of the company may decrease Salesbury’s power gradually over time leading to a shift in box two.
- The power of suppliers used to be high because M&S only sourced from a few British suppliers. Their interest in the company was high too because M&S was a major buyer. Their power already has been shifted to box two when Vandevelde started to purchase goods from Asian suppliers.
In summary it can be said that a new strategy has to take the political context into account represented by M&S’s main stakeholders if future strategies want to be implemented successfully.
4. Strategy Development
The true strength of an organisation comes to the forth during changing environment. When the environment is static, the organisation knows its capabilities, and it devices its strategies accordingly. A successful organisation is one that can adapt itself according to the changing environment, by finding new capabilities and changing strategies. This interdependence between environment, strategy and organizational capabilities is shown in the following illustration:
Illustration 4 Interdependence of Main Factors
This is where M & S stumbled. Till 1990's M & S rode on a success wave because the environment hadn't changed and they weren't forced to face unpleasant tasks. But when the rules of competition changed, it failed to adapt itself, hence the mighty fall from everyone's favourite to one at which everyone looked at with wariness. In expanding laterally, it failed to focus.
When analysing the history of M&S’ strategy the following points have to be considered:
M & S was known for the family atmosphere, feeling of camaraderie, and the top management within the family. It had an inward looking culture- of ‘growing your own tree’. Almost all the top management had come up through the lines in the organisation. There was no fresh blood, ideas to infuse life in the organisation. It was only as late as 2000, that a person from outside the organisation was appointed to the top post, Luc Vandevelde, who brought with him a new strategy, quite different from the existing one. He began changing the entire outlook of the organisation from inward looking to outwards.
- M & S had a top down management approach, which seldom worked. All the stores were similar in layout, design etc, leaving no scope for modifications based on the local environment. The individual stores were allocated merchandise dependent on the floor space. Stores of the same size were sent the same clothes. It failed to understand that customer tastes are different, will change according to the lifestyle and the demographic characteristics.
- M & S always had the same UK based suppliers, because they felt that these suppliers could provide them with the highest quality goods. They also believed that the customers were patriotic. They gave scant regard when the costs escalated and competitors started buying its merchandise from low cost countries.
- 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.
5. The Organizational Culture of M&S
5.1 Understanding the Cultural Context
The culture of the M&S plays in important role if the company’s performance wants to be understood. Only when the culture of an organization is analyzed, it is actually possible to understand its strategy, as Watson (2002) points out.
When speaking of organizational culture we speak of a general set of meanings that is shared by all members and that defines the way people have to think and behave. The roots of these shared beliefs trace back to the founders of M&S and are personified in the case study in the behaviour of the senior management such as Greenbury and Salesbury. So, in order to understand M&S culture, it is essential to understand the impact senior management had made on the rest of the company. This interrelation can be seen below:
Illustration 5 Impact of Senior Management on Organizational Culture
When analysing the case, the following list of main beliefs and values can be found that has to be adopted by all members of M&S:
- Quality has to be offered at reasonable prices
- Relationships with suppliers on a personal basis are essential
- Control of the organisation should be exercised top-down
- Employees are promoted internally
- The company grows from within and can build upon its long lasting reputation
5.2 Problems of M&S’ Organizational Culture
Structure, culture and strategy are interrelated. Accordingly, these three main aspects need to be discussed in more detail:
A. 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 (1985) 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.
B. 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, it discourages lower managers to make critical suggestions because of Greenbury’s habit to think that his decisions are hardly fallible.
Lastly because all managers were promoted internally, such an approach led over time to a closed inward looking system which fairly ignored external change. Appointing managers solely on the basis of this system implies the danger that new innovative ideas from outside, essential for creating strategies leading to sustained competitive advantage are not fostered.
Culture is the product of a long time period, people get used to it because it offers direction. So, change strategies might lead to resistance because new ways of doing things have to be adopted. Furthermore, knowing now about the impact Greenbury, Salesbury and their predecessors have made on M&S culture it gets clear how difficult it is for the new CEO Luc Vandevelde to achieve a turnaround.
6. Strategic Capabilities
In this part, we will examine the resources and competences of M&S using the following model:
Illustration 6 Resources and Competences of an Organization
A. Threshold Resources
Threshold resources are requirements needed for existing in the market. M&S, as a retailer, has nearly 300 stores, in which there are experienced staffs serving different customers. The company has long-time suppliers, which are essential to assurance the high quality of products. Furthermore, as a listed company, the organization has enough financial sources to fund its operation.
B. Unique resources
Unique resources are crucial to underpin the competitive advantage. M&S, which has long history in the market, has unique brand awareness. Most of the people in the U.K. know the company. The brand of „St Michael“ is deemed as the symbol of trust and quality. Facing the decrease in performance, the company reacted by employing an experienced CEO, Luc Vandevelde, who has an outstanding performance in the industry. He emphasizes on building a flatter company structure to improve the decision-making environment and to improve customer relationships.
C. Threshold competences
Threshold competences are competences, which are essential to stay in the industry. M&S provide retail services along with financial services, domestically and globally. Facing the intensive competition, the company has to adjust its purchasing systems and starting global sourcing to reduce the cost of sales. M&S charges rents for each individual store, in order to make store managers more accountable for their branches’ performance. In addition, they group the stores on the basis of demographic characteristics and lifestyle pattern instead of allocating merchandise depending on floor space.
D. Core competences
Core competences are activities or processes that critically underpin an organization’s competitive advantage. There is no clear core competence held by M&S, but the new CEO thrives to it up in order to recover the market share. He emphasized on building a flatter company structure to improve the decision-making environment. Another point is that he wanted to create a customer oriented organization.
In general, the analysis outlined shows that M&S has enough threshold resources and competences, and even some unique resources. But unfortunately, the company has not any proved core competence at the moment. In the past, the company did have some unexampled competitive advantages, which resulted in M&S’ dominant status in the industry. In recent years, there have been huge changes in both the macro and the micro environments. But the company did not develop their capabilities to follow the changes. It is no surprise that M&S lost market share. Now the main problem for the management is how to utilize and combine all the resources and competences to develop new competitive advantages.
7. Recommendations for Future Strategies
So far the report has highlighted M&S’ major areas of concern. Having done that, we will now take our analysis one step further and provide a list of recommendations for M&S’ management which we think are important to recognize in order to regain sustained competitive advantage:
- Macro and micro environment change have great impact on the performance of companies. Sticking to previous stubborn strategies and ignoring rapid environment change will only disadvantage the company. An open-minded and flexible management, with capability of reacting swiftly to the environment and competitors’ strategy change, is crucial for the survive and success of the company.
- Strategy development takes place in a political organizational environment that is influenced by a series of stakeholders, each of them with different levels of interest and power. In the past, strategy making was done by the top management which paid little attention to the potential impact of stakeholders. It is highly likely that this contributed to the poor performance of the company. In the future, stakeholder mapping should assist the strategy developing process leading to a more transparent picture of potential influences.
- The importance of culture has to be considered when changes are planned in restructuring the organization or when new strategies are considered due to their interrelation. The challenge of the new top management is to achieve a ‘fit’ between these forces. This can only be done gradually over the long-term because rapid changes might lead to resistance among M&S’ employees.
- The resources and competences of companies are the primary determinants of their strategies. M&S should hold core competences to form their competitive advantages in the industry. Accordingly, M&S should build its own core competence by utilizing and combining its resources and competences, especially unique resources, such as brand name and image. Flatter organization structure and customer-closeness will help M&S to react quickly and to serve customers better.
- Lastly, M & S should consider the following suggestions:
- To conduct market research to find what really current customers want.
- To segment the markets scientifically.
- Understand and treat each store as individual SBU.
- To separate the food and clothing divisions into separate stores.
- Find cheaper suppliers for the clothing range.
- To introduce a new loyalty card for its customers.
- To have more women in its top management who understands customers well.
8. Conclusion
The report analysed the main problem areas of M&S, starting by looking at the broader business environment and then focusing more on the organization itself.
By doing so the report highlighted potential risks first of all which were presented to the reader in more detail.
However, stressing which areas are most problematic for competitive advantage form only the basis for strategy development. Thus the authors combined their results at the end of the report to provide a list of useful recommendations which should help to regain sustained competitive advantage in the near future.
Johnson, G. / Scholes, K. (2002), Exploring Corporate Strategy, 6th edition, Harlow: Prentice Hall, pp. 97-102.
This analysis will only concentrate on the main stakeholders mentioned in the case, thus it will not cover groups such as local or state government, unions etc. which do have an influence but which is marginally in this context.
Watson, T.J. (2002), Organising and Managing Work, Harlow: Prentice Hall, p. 222-5.
Porter, M. (1980), Competitive Strategy, Oxford: The Free Press.
