These operating tenets had matched the external environment in 1990s perfectly and gained M&S the support of British producers, consumers, and workers. It is a matter of record that for some shopping at M&S is a real tradition as typical by the following comments taken from shoppers at the flagship Oxford Street store: “It's where my mother used to buy all my underwear –tome it is a total institution”; “I don't live in this country any more, so that when I come to Britain, I look forward to going to M&S.”
Competitive advantages:
Before the first recession, the company had moved into the nation's living rooms, kitchens and personal finances. It was in these areas that Marks and Spencer had had such an enviable record for so long. They had the best brand on the High Street. Not just for their customers, who associated the company with total dependability and value for money: but also for their staff, for whom the firm had always been a preferred employer. The external architecture of Marks and Spencer’s organisation was built around an almost Japanese relationship with suppliers – detailed influence on product specification and design as part of relationships sustained over many years. The internal architecture of the company was centred round permanent employment relationships, strong organisational routines, and a shared sense that there was a Marks and Spencer way of doing things. The impressive competitive advantages and outstanding performance in retailing market had gained M&S the reputation of a leading retailer in the United Kingdom in 1990s
However, real competitive advantages take longer to build, and last longer too. Market positioning is a competitive advantage only when it is matched to competitive advantage based on brands and systems. Success today doesn’t automatically mean success tomorrow - Critical Success Factors-
change and so do the competitive advantages that under-pin them.
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. Part II Competitive environment and change in Marks & Spencer(1999-2000)
Marks and Spencer did not keep
…“pace with the tremendous changes taking place in the retail market. While our competitors strengthened, we were busy developing new stores. So when markets tightened in the second half of the year, we were hit by falling sales, loss of market share and declining profitability.”
(Peter Salsbury, Marks and Spencer Annual Review, 1999)
Introduction to the section
Having turned in record profits for 1998 and accelerated its global expansion plans, things suddenly went horribly wrong for the retailer. “Out-of-touch management, complacency in marketing and above all an ossified supply chain were subsequently identified as root causes of the retailer’s problems.”
This section will identify key strategic change drivers for M&S within its environment .It has been recognized that the monitoring of the environment is a key activity for all businesses. Here, the investigation will be taken by looking at the competition and what is happening in the competitive environment, the environment that is closest to the organization and has the most immediate impact on it. Additionally, the whole vision of reasons of M&S’ downturn will be clarified by this way. According to the outcome of full environmental analysis, the need of strategic change is imperative.
3.1 Industry life cycle
The key trends in an industry can be analysed through the concept of an industry life cycle (Mintzberg,H,James,BQ,and Ghoshal, S1998). We can identify three main phases in this cycle: emerging or growing, maturing and declining. The UK clothing market is a declining market in that the clothing industry is beset by competition from companies that have invested in hi-tech machinery leading to greater efficiency or have moved their production to factories in cheap labour cost countries to produce their products. However, most companies in this sector make only moderate profits. To expand the market share in this arena is not easy, and therefore it needs a great deal of endeavour, knowledge, as well as energy and money.
To understand M&S, it is necessary to understand the level of uncertainty and unpredictability in its environment. Uncertainty may be due to the varied nature of the environment(complexity ), due to its instability and susceptibility to rapid and major changes(dynamism) ,or due to the availability of its resources (richness).
●Complexity. The clothing retail industry is dependent on hundreds of factors in the PEST environment and in the competitive environment. So the industry is very complex for analysis.
●Dynamism concerns the extent and speed of changes in an industry. Because of the fierce competition and fast fashion swift, the industry is a dynamic one.
●Richness concerns the availability of resources, such as skilled labor, money, and raw material. The clothing retail industry is a rich one as a whole.
3.2 PEST - Analysis
This analysis is a helpful tool to take a closer look at the general environment. Although the PEST analysis rely on past events and experience, it can be used as a forecast of the future (Wilson and Gilligan, 1998).
Political factors
The political environment is good. The government is stable and reliable, even if Britain fails to achieve total agreement with some EU policies from time to time. At the present no EU directives are known which will have a direct effect on the UK clothing retail industry in the near future.
Due to the EU membership a trend can be seen towards stricter environmental protection legislation. This may have a direct or indirect effect on M&S.
Economic factors
Looking at the economic environment, it is somewhat tricky since on the one hand there is the strong sterling compared to the Euro. Euroland encourages imports and endeavours to hold domestic prices at an attractive level. But on the other hand it is difficult for the UK to be competitive outside its boundaries because of the high pound sterling exchange rate against the Euro.
Another issue is the falling unemployment rate. For M&S it means higher expenditure on wages, as well as greater difficulties in recruiting good employees.
Social factors
Speaking of the socio-cultural future it should be mentioned that people retire earlier these days, as well as working shorter hours. This means they have time to compare prices in the High Street and the quality of goods and services from retailers. But as a result, they spend more time in the shops. These are reasons why retailers with high quality and high price as well as discount shops have good record of performance whilst M&S, a mid-level one is not so successful.
Another impact of more shopping time is that fashion becomes more and more important to clothing sales, and hence that M&S’ non-customer focused strategy made them out of fashion is a critical reason for their poor performance in the market. It is obvious that rising consumer expectations are a key driver of change
Another issue these days are the "Green environmental issues". Because people are better informed and therefore this awareness of environmental issues challenges him to care. He wants more than just a product. So one problem in the clothing retail sector could be child labour. Marks & Spencer had been accused of using child labor in Indonesia in 1999. But once the customers becomes aware of such practices, companies get into real trouble if they do not respond immediately.
Technological factors
Another issue is the speed of technological transfers which also has an impact on the industry - it is not comparable with the fast growing internet business - but nevertheless it is important. New technology allows new products to be developed, e.g. Lycra®, Supplex® or other synthetic material. Existing materials can be produced quicker and cheaper. Adopting these technologies can be a decisive factor as to whether a company is ahead of his competitors or whether it lags behind.
SWOT - Analysis
The SWOT analysis examines the organisation′s external environment and also explores the internal environment (Lynch, R 1997). This requires listing and analysing the main strengths of business, its weakness and the likely threats and opportunities it will be facing in the future (Doyle, P 1998).
Organisational Strength
The strength of M&S is their products with high and consistent quality, well designed attractive exactly to specification Under the brand name ‘St Michael’ a sign of quality , strong supplier control – UK-based suppliers, and customer loyalty.
Organisational Weakness
The company’s weakness is as following: Ignore changes in the market place few changes in its methods of operation;Inward looking; bureaucratic culture; centralized authority autocratic leadership.
All these weaknesses block the way of customer-focused approach which is vital for a business to survive in such a fast changing world.
Environmental opportunities
Marks & Spencer has exploited the mail order and B2B markets. These fashionable shopping styles could be a great opportunity to increase market share. They can use their knowledge and experience over the years to grasp the opportunities.
Environmental threats
A threat is the low market growth and the strong competition. Some companies are very aggressive in their attempts to gain market share or to maintain it. To reach their aim they are offering high street products manufactured in third world low labor cost areas at dumping prices.
Another threat is polarization of customer’s behavior addressed in PEST analysis.
- Competitive Analysis
The most useful model for examining the immediate interface between an organization and its environment is one developed by Michael Porter(1970). The objective of such an analysis is to investigate how the organisation needs too form its strategy in order to develop opportunities in its environment and protect itself against competition and other threats (Lynch, R 1997).
Porter′s Five Forces Model
Bargaining power of suppliers
M&S effectively ‘tie’ their suppliers by taking most of what they (the supplier) produce.
However, M&S’ enormous domestic purchases produce high cost which weakens its competitive capability in the globalised purchase context.
Bargaining power of customers
So far as the customer is concerned he has probably the most power because it is he who buys the product and spends his money. The only way to attract consumers to buy a company′s products instead of the competition′s, is to add value, such as label, style, price or quality. The customer decides which product he likes - not the company.
Threat of new entrants to the industry
A threat to M&S is the new competitors entering the market. Maybe not the small ones because there is a lot of capital needed to go head to head with M&S - the threat comes more from the big labels, department stores or chain companies outside the UK. additionally, US catalogue retailers are venturing into the UK market.
Threat of substitute products or services
A pullover can be a substitute for a jacket, or trousers for skirts, but since M&S is provider of all these items anyway so the impact of a substitute is limited. However the threat in this market is that M&S fails to note these trends. The Customers would substitute M&S with a trendier company if their products are not stylish, interesting or mainstream enough to attract customers or the timing is wrong.
Rivalry among current competitors
There exist a huge number of clothes retailer in the UK approximately over 25,000 combined with other outlets make them more than 45,000. This indicates a high rivalry between competitors. In this phase of the market cycle where there is more or less no growth, competition is often price-based and therefore very aggressive. To build customer loyalty with price cutting strategies is very difficult if not impossible. That means consumers are looking for the best offer with regard to price, service and quality. If M&S wants to increase market share it must take sales from its competitors and that increases rivalry. So it is a kind of price spiral where companies have to cut prices to sell their products. This leads to decreasing margins and probably to less competitors. This can be seen in the grocery shopping sector where competition was such though that only a few big companies survived. Another issue are the high export exit tariffs. If a company like Marks & Spencer wants to leave the UK market it means they have to sell all their branches and get rid of most of their employees. This causes a lot of problems in terms of the relevant trade unions, bad publicity or cost for developing a social viability plan. These are some reasons why companies mostly stay in their known marketplace instead of leaving them for new opportunities.
- Evaluating the change drivers
3.5.1 The rising consumer expectation as a key driver of change for M&S .
Pre 1999, M&S relatively low perceived need for change. The definition of fashion in the UK has changed. Traditionalists would suggest that the twice yearly ranges launched by UK and continental fashion houses epitomize fashion. However, more recently innovative retailers and manufacturers have transformed these traditional patterns to create a seasonality, style and image appropriate to their customer base. Fashion in this context encompasses the following added value features:
• A lifestyle concept, that enables the consumer to embrace similar taste and style
in all aspects of their consumerism including household goods, clothing and
accessories;
• An element of change, so that each consumer can follow trends without losing
individuality;
• An appropriateness to market level, enabling all consumers to embrace fashion,
without sacrificing value, quality or frequency of purchase, according to their
budget and lifestyle.
Some of the UK’s most successful fashion retailers include Oasis, French
Connection, Next and New Look. Therefore M&S didn’t pay attention to the change of the fashion. It only meets the requirement of the old generation. Feedback from the shop floor was ignored. As the increase of the shopping time of consumers and their disposable income, customer-focused service and the rapid fashion reaction will help M&S keep the leading position in the UK clothing retail market.
- Adding value as an alternative driver of change
After the environment analysis through SWOT,PEST and Porter’s five forces model, it obviously that M&S is experiencing a more competitive and changing environment which forces it to react its environment timely and efficiently. To analyze the specific activities through which firms can create a competitive advantage, it is useful to model the firm as a chain of value-creating activities. Michael Porter identified a set of interrelated generic activities common to a wide range of firms. The resulting model is known as the value chain and is depicted below:
The goal of these activities is to create value that exceeds the cost of providing the product or service, thus generating a profit margin.
Part Ⅲ Change Evaluation and Recovery (Post- 1999)
‘We are a different and more focused business today. We have completed the re-structuring of the company, we are pursuing a clear strategy and with this announcement we are putting in place the right leadership structure.’
Luc Vandevelde, 2002 Announcement
Introductions to the Part
Heraclitus said it is doubly impossible to step into the same river twice which can be the same in current business situation. The changing nature of the general business environment offers organisations both opportunities and threats. After having analysed the competitive environment, it is necessary to develop strategies, and then implement actions to put the strategy into practice to cope with the change. In this section, several theories will be addressed to evaluate the change of M&S.
3.1 Types of Strategic Change
Strategic change can take many different types, all of which have their place within a successful company. Certain types of change are more useful in certain situations than others. The diagram below shows the different types of change in a matrix with the management roles for those changes.
Source: Adapted from Balogun and Hailey, Exploring Strategic Change, 1999
Up until the late ‘90s, the strategic change within M&S was purely realignment and incremental. Management had a tendency to let the organisation run its own course and only interfere and cause change if something had gone wrong. This type of change is perfectly acceptable when a company is profitable, has a strong market presence and is successful. This point may be against Pugh’s opinion (1997) that ‘Change is most likely to be acceptable to people who are successful and confident’. However, the fact is that.
Occasionally something dramatic will occur which requires a more serious change than simply an incremental tuning or adaptation. This appears to have been the case with M&S during 90s however the changes made were still largely only incremental when it appeared to outside observers that more striking changes were required. It is more important to analyse why changes were not made and therefore why the crisis could not possibly have been averted.
To understand why no major changes were made until the damage had already been done, it is necessary to examine the sensemaking for change and resistance to change within M&S.
3.2 Sensemaking for Change and Resistance to Change
Weick (1995) argued that sensemaking is tested to the extreme when people encounter an event whose occurrence is so implausible that they hesitate to report it and for fear they will not be believed. Sensemaking is an ongoing process and has a social dynamic. Organisation who fails to recognize this will miss a constant substrate that shapes interpretations and interpreting.
Organisational change affects all stakeholders, but it is likely to have an immediate and profound impact on the way of manager’s sensemaking and their willing to accept the change.
Complacency has already been mentioned as a possible cause of the problems experienced by M&S in the past few years and one of the main reasons why this is a problem is because it causes and extremely lax attitude to any problems. There is quite often a problem of the ‘if it works then why change it’ attitude which causes manager to stick with the current system instead of experimenting with something new. Resistance to change can normally be attributed to the organisation becoming trapped in its own paradigm. This is evident in M&S because of the fact that the organisation did not have culture that included processes for change; and therefore unable to change without a dramatic and forced movement. In that situation what needs to be done is to ‘unfreeze’ (Lewin, 1973) the paradigm, there by allowing the organisation to change and move one, quite often creating a paradigm shift to allow the organisation to be more competitive. As can be seen, this is fairly major step for an organisation to take and therefore requires extensive change management.
When the crisis became evident around the end of ’97, Sir Greenbury as the CEO, who had worked his way up the company’s hierarchy for most of his life, had an extremely high internal resistance to change because he wanted things run the way they always had been, and the way he was used to. This was one of the main contributing factors to the lack of planned big bang change on behalf of M&S before the crisis became evident.
Another theory that could explain why he did not make the necessary major changes is that they fell into the Zone of Uncomfortable Debate (Bowman, 1994). This causes the problems that fall into this zone to be ignored or excluded because they question some of the more sensitive aspects of the organisation.
3.3 Changes for Recovery
Salebury outlined his recovery program to shareholders in the 1999 Annual Report that M&S must
‘create clear profit centres with simpler management structures, faster decision-making and distinct targets for shareholder value…must restore profitability overseas by reorganizing out local businesses to serve their local customers... must build on the success of out financial services business.’
The real big bang changes mentioned below were applied by M&S after 1999 to fit the dynamically changed environment.
3.3.1 Organisation Structure Change
M&S lay off 160 mangers to flatten the management structure and recruited the first outsider CEO - Lue Vanderelde. All directors have a service contract with M&S to operate the new 5 organisation division: UK retails, international retail, financial services, property and returns. Several 3rd party change agents (McKinsey, Kearney…) were invited to analyse its structure and help it change to a learning organisation. M&S conducted action-research to raise organisations profile and business awareness.
3.3.2 Supply Chain Change
Group stores are rearranged on the basis of demographic characteristics and lifestyle patterns to eliminate duplication and increase transparency. M&S re-established much closer working relationships with its supply partners by introducing collaborative approach, i.e. work closely with partners on design and development. It gave up the high-cost driven supply chain policy, ‘pure UK-made’. By the end of 2002, 75% of its clothing and general merchandise are from abroad.
3.3.3 Marketing Strategy Change
Since 1999, M&S launched several large-scale promotional campaigns such as dealing with two Football Clubs and signing contract with David Beckham to put his name to a range of boys’ ware. It also commissioned a new corporate imagine and new collection of clothes designed exclusively for M&S: Per Una. At meantime, customers can find discounted clothes in factory outlet markets.
More shop floor staffs can be found to give advice to customers. In 2003, its ‘One Community Programme’ brings customers, local charities and employees together, winning lots of attention and social recognition. More importantly, it developed the M&S store card as an essential partner to the growth of retail sales and linkage with loyal customers.
On the other hand, M&S is withdrawing from European and America to focus more on domestic market. The remaining overseas stores set up own strategies tailored to the local market.
3.3.4 Finance Change
M&S restructured balance sheet, raising £794m from the property portfolio through sale and leaseback, securitisation and the disposal of other properties as well as £719m from two public Eurobonds. It completed the changes to capital structure. It growths the credit business; and faster rates of growth of non-credit areas, which may involve bringing in external partners. The benefits to trading profit from the closure of the European subsidiaries and the changes to direct will be about £50m in a full year. M&S remains highly cash generative and have a balance sheet structure which will create greater value for shareholders in the future.
3.4 Result and Criticise
M&S research shows customers are highly aware of the changes taking place and find the stores brighter, more modern and easier to browse around, with eye-catching and inviting displays. Local media are always very supportive of the changes taking place at stores up and down the country. Of course the success of renewals and launches is also very much down to the hard work and support of the stores’ greatest assets, people. Importantly, the renewals lead to sales increases, which more than cover the costs of the work.
On the capital market, M&S returned £2 billion to shareholders by the end of March 2002. In the 12 months to 30 March 2002, sales from continuing operations were up by 3.8% and corresponding Group operating profits by 30.8%. As the FTSE 100 shares fell by 11% in 2001, M&S shares rose by 35% from 186p to 251p. Customers are coming back, buying more and telling others.
However, change is a continuous process. M&S need to consider change not as an occasional one-off event but a continual way of existing in the present business context. It is a long way to become a successful learning organisation.
The definition of the problem is not a mechanical process, it requires insight and originality. Alternative definitions of the problem may well take the organisation in completely different directions.
Financial Times (2001) argued that ‘in a deeper sense the problem is not that M & S changed too little, but that it changed too much.’ Marks and Spencer is right to go back to basics. But it will learn that competitive advantage is more easily run down than built up. Recovery need time and endeavour. Big bang change may make bad worse.
Another argument is ‘is it wise to withdraw from overseas retail markets?’ Today’s world is fast changing and competitive global village. Market share is the crucial strength for a company’s future growth. Observers see Wal-Mat, Zara, Next and so on are all expanding themselves to every corner of the world. Loss is nothing, losing customer is everything.
Conclusion and Recommendation
Reference:
Martin Christopher and Helen Peck of Cranfield School of Management, Cranfield University Bedford, United Kingdom. MOVING MOUNTAINS AT MARKS & SPENCER
Bibliography
Books
Lynch, R (1997), Corporate Strategy, Financial Times Management, London
Wilson and Gilligan (1998), Strategic Marketing Management, 2nd edition, Butterwoth Heinemann, Oxford
Doyle, P (1998), Marketing Management and Strategy, 2nd edition, Financial Times Prentice Hall, Harlow
Financial Services
Wright Investor Service (www.wisi.com)
Hoover′s Online (www.hoovers.com)
Hemscott.Net Group Plc (www.hemscott.net)
Key Note - Market Information
Lands′ End, Inc., Annual Report January 2000 (www.landsend.com)
NEXT Plc, Annual Report January 2000 (www.next.co.uk)
Figures
1. Wright Investor Service
2. Anonymous, (April 27th 2000), `Big MacCurrencies′, The Economist
3. Porter, M (1980), Competitive Strategy, Free Press
Papers
Anonymous, (October 14th, 2000), `Next forges ahead with expansion plans′, The Guardian
Anonymous, (September 6th, 2000), `M&S in drive to expand e-commerce′, Financial Times
Arlidge, J (May 14th, 2000), `Britannia′s brand-new start′, The Guardian
Finch, J (October 18th, 2000), `Debenhams fight back′, The Guardian
Finch, J (March 24th, 2000), `Shopping unlimited′, The Guardian
Hassan, M (1988), Starting and operating a new small business, Cabrillo College, Watsonville
Milne, S (October 27th, 1999), `M&S target of child labour claim′, The Guardian
(Mintzberg,H,James,BQ,and Ghoshal,S1998),The Strategy Process,Revised European edn,pp233-252.
Miscellaneous
www.businessonline.org/info/mission.html
www.debenhams.co.uk
www.marksandspencer.co.uk
www.savethechildren.org
Balogun J. et al (1999). Exploring Strategic Change. London: Prentice Hall
Weick, K. (1995). Sensemaking in Organizations. California: Sage Publications
Lewin, K. (1973). Resolving Social Conflicts. London: Souvenir Press
Faulkner, D. & Bowman, C., (1994) The Essence of Competitive Strategy. Hemel Hempstead: Prentice Hall
De Nardi-Cole, Sarah Marie (1998), "Marks and Spencer," in International Retailing, Brenda Sternquist, eds., New York: Fairchild Publications, 159-166.
Economist, The (1998), "Poor Marks," (November 21), 68.
Financial Times (1999), "Angst in Their Pants," Weekend FT, June (37), 7-10.
Hohnson, Gerry and Scholes, Kevan (2002), “Exploring Corporate Strategy” 6th edition, Essex: Pearson Education Limited,421,432
