Another factor that worked in M&S’s favor is majority of the consumers were not fashion conscious as they are today. Thus, M&S was able to design and sell what they thought was best for the consumer – the “classic wearable clothes”.
To the contrary, starting early 90’s the operating environment changed. With globalization consumers demands and preferences changed, competition started to kick in. But, M&S continued with their success formula and kept oblivious to the changing environment.
Strategic Drift and the organization’s culture
Over the years M&S had developed a culture around the way things were done and how its competencies were built. This was one of M&S’s key strengths which led to its success in the past. M&S’s culture can be analyzed with the aid of the cultural web as follows.
Stories : CEO preferred classic wearable clothes, Reputation for quality,
The thickness of the carpet represented the status of the occupant
Symbols : M&S logo, St. Micheals brand name, Male dominant management cadre
Power Structure : Autocratic learership, Top down management, Power is centered at head office, Male dominant
Organisational Structure : Highly hierarchical and tall structure, Operations are centralized
Control system : Insist on conformity, long service was rewarded with promotions, no system to evaluate individual store performances
Rituals and routines : “Head office knows best”, a generalized view of the market
Paradigm : “We know best”, “We are the best”
The cultural web on M&S indicates that it had a culture that largely revolved around the thinking that they was the best in the market and their way of doing things has proven to be the best.
This culture can be seen to be a reflection of taken for granted fashion and suffers from a rigid thinking that ‘head office knows best’. This is evident in the way M&S has been operating in terms of centralized buying, over dependency on British suppliers, the identical store layout and of course the inherent lack of interest in catering to the latest fashions and trends. M&S had been embedded in their traditional risk-averse formula and ignored the dynamism of a changing environment. Whilst their competitors forged ahead, the fundamental problem at M&S was their culture which did not foster change. In a changing environment M&S failed to align their strategy with changes in environment putting M&S through a strategic drift.
It is evident that M&S did not have a culture that fostered change, and such resistance to change is due to the organization being rapt in its paradigm. What M&S needed to withstand these problems they were facing was a shift in the paradigm, which would have been difficult to achieve given the nature of the organizations culture.
M&S, being the leader in the market during their peak, never considered their competition; with booming sales and profits, they did not see the need. M&S became complacent as they did not feel external pressures. However as the environment changed, competitors identified such changes and were more market driven, offering consumers what they wanted. M&S began to face severe competition in all their business segments from the top end with competition from brands such as Next and Gap and from supermarket chain such as Asda, who were offering consumers similar offerings as M&S did. M&S failed to take into account the changing needs, tastes and fashions of its consumers and continued to operate with a rigid, arrogant culture of giving consumers what the management though consumers wanted. M&S were locked in their belief that customers still preferred ‘classic wearable clothes’.
- Lack of communication between head office and stores
M&S centralized buying department made decisions of what each store should stock. Given the homogeneous nature of store layout and design, the store managers has no input with regard to buying decisions. This meant that though individual store managers received feedback from customers on their tastes and preferences, it made no difference to the way M&S purchased their stocks. This again is due to the ‘head office knows best’ culture strongly embedded at M&S.
- Strict Hierarchy and in-bred top management
High degrees of control are evident at M&S with bureaucratic top down control in place. Since the company was so driven by its senior management most of whom were appointed based on their length of time in the company, which also lead to the company being run the way it was since these individuals have grown within the company operating in the culture they are used to.
Strict hierarchy meant that conformity was essential, which led to a lack of innovation and idea generation from the M & S employees. Top management had a say in key decisions, and ‘doing the things we are used to’ attitude had set in.
In an environment that is changing and one that is dynamic in nature it was important for M&S to have kept abreast to a diversity of ideas and innovations because customers became more demanding. Instead M&S’s deeply rooted culture and traditional way of doing business did not encourage innovation and idea generation from their employees who were also feared giving their ideas as they did not want to ‘anger’ the management. This contributed significantly to their downfall.
- Failed cost cutting initiatives and improper inventory management
With profits declining, M&S decided to implement cost cutting measures. While competitors sourced raw materials from overseas suppliers to bring down costs, M&S cut the number of staff in their stores which eventually led to other issues such as customer dissatisfaction as there was less staff to service customers. M&S could have looked at other means of cutting costs such as shifting to overseas suppliers for their raw material purchases rather than insisting on buying from British suppliers, and incurring a higher price in doing so.
Further, M&S had to stock the large number of outlets they had. Not having realized their issues with declining sales, led to large stocks being retained due to declining sales especially during Christmas. This translated into huge losses.
- Improper resource Management
Being one of the largest retail chains, M&S had a large number of outlets, which seemed to have worked well for them in terms of establishing a strong presence and brand name in the market. However, during their stage of declining profits, the company went on to acquire 19 Littlewoods stores and refurbish their existing stores. This decision from the management can be heavily questioned, since the capital involved in the acquisition may have been used to strengthen other aspects of the business such as their marketing efforts for instance. But the practice in the organization did not encourage employees to question management decisions.
When analyzing the M&S’s performance in terms of market share and profit generation and most importantly the misalignment of its strategy and the environment during early 90’s to early 2000, it can be clearly related to the four phases of strategic drift.
(Source: Exploring Corporate Strategy: 8th Edition)
Unsuccessful remedial measure
In 2000, Luc Vandevelde was appointed as the CEO of M&S. This was the first time in the history of M&S that a person outside the industry was hired. This was a major change for M&S and the way it operated. Upon his appointment, Vandevelde brought about some changes that were deemed to lift M&S out of their current situation. Having brought about some positive changes, M&S still hadn’t overcome their problems.
The root of the problems that threatened M&S’s profitability was its culture and resistance to acknowledge the changes in the operating environment. This eventually led M&S to a state of complacency and a negligent attitude to resolving issues. Despite trying to bring about changes to the culture, the old values and beliefs that had been deeply embedded in the way things worked were still to a greater extent believed in.
Elements such as tradition and formality still exist despite a restructuring effort where the organization has been de-layered. Much of this still remain, and will continue to do so till M&S goes through a complete transformation process. M&S also underwent a restructuring exercise where layers of management were cut, decentralization was introduced and the core products were departmentalized. However, M&S failed to see if their culture supported such a restructuring process. As good as decentralization seemed given their problems of a centralized buying function, one may question store managers ability to make buying decisions, since they have been used to following a parent – child type of culture in the past.
M&S had a firmly established brand name which was synonymous with high quality due to its ‘buy British’ policy. During the turbulent time, when M&S faced a loss of sales, market share and a falling share price, instead of focusing on rebuilding market share and facing the problem at hand, M&S went on a restructuring process. Further, the decision to acquire the 19 Littlewoods sores is questionable as it came at a time of falling profits when in fact that capital could have been put to better use in terms of strengthening their core competence. Further, Vandevelde made a decision to pull out of America and Europe, in an effort to focus on revising the business in the UK. However, this may have received negative publicity resulting in the M&S brand name being tarnished further.
M&S’s human resource management system of promoting within also meant that though changes were taking place, it was by the same people that contributed to a strong culture, especially one that was resistant to change. M&S failed to determine if their employees were ready for the change.
It was time M&S underwent a paradigm shift, where they could move from a more traditional “we know best” and “why change things if they are working well” attitude to one that embraces changing environments and keeps in line with changing customer needs and actually pay heed to competition thereby strengthen their bottom lines.
References
Johnson, G., Scholes, K., & Whittington, R. (2007). Exploring Corporate Strategy.Prentice Hall, Financial Times.