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The sales of clothing and of foods are the two main businesses in M&S, in both cases the firm’s products has been positioned at what can be described as the top end of the mass market, more recently M & S entered the financial services market offering its own store card but also insurance and management of unit trusts.
Now, I already counted the operating margins between financial services and the retailing businesses from the data of table two.
As you can see, generally, the operating margin of financial services was much higher than retailing businesses, even the lowest operating margin in financial services was higher than the highest margin of retailing business.
Why it was so mush difference?
I analysis it because for the financial services, it focus on the human resources, whatever how many cases have been done, the wages still have to pay stable. It was depend on how many employees worked.
But for the retailing business, there were focus on raw material, machines and working labour as well. The distribution was more complicated than financial services.
- Kay was skeptical that M & S could achieve the same result as they had in retailing what evidence in the case (a) supports (b) does not support this argument?
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When key’s books was published he was sceptical of this venture into the new business because he thought that that the distinctive capabilities, such as relations to suppliers, which M & S brought to its clothing and food businesses would not give any competitive advantages in the financial services business.
- To supports about Kay was skeptical that M&S could achieve the sane results in financial services as they had in retailing: From table 3, we can see that unit trusts and life assurance increase rapidly, it still has potential to enhance the markets. As the operating margins were counted above, we can see there was a higher margin in financial services.
- To not support this argument: From the data of table 3, account card holder and personal lending were stable, even a little fallen behind. It means the market maybe mature and won’t much change in the future. In table two, even though the operating margin of financial service was high, but compare the amount of turnover and operating profit with retailing business, financial service just a small amount.
4. In what way could the data presented in Table 4 be seen as problematic for 4Kay’s argument that ‘architecture’ was a fundamental source of competitive advantage for M&S?
Kay (1993) argued the success of M&S was founded in large part on a capability. This term is defined as Network of Relational Contracts, within or around the firm. There are fundamental aspects of ‘architecture’ identified by Kay were 1) the relationship between the firm and suppliers 2) with its workforce. Such relational contract is based on the long-term co-operative relations between firm and workforces. This gave M&S fundamental source of competitive advantage on retailing in the mass market.
As Table 4 showed, there was a gap between 1998 to 1999 on UK and overseas turnover and operating profit. As above said, M&S is supported to have steady relationship with their suppliers. But according to case study, it says in1999, the senior management changed their strategy, one of them is about they tried to reduce source of its clothing suppliers from 60% to 10% from 1999 to 2004.That mean they did not have properly relationship with its suppliers. This is one of problem form table 4. One thing I found after calculating the operating margins, overseas branch could not have same percentage as UK branch, but from Kay’s definition is supported to have same percentage on both branches.
Table 4 Marks and Spencer retailing turnover and operating profiting by location 1997-2002
5. What problems might arise with a shift in strategic emphasis towards food as a higher profile core business?
As we known, the second major part of the M&S retail business is sale of food. Also it was known as a pioneer by producing high quality chilled convenience foods. But in recent years, many others supermarket are doing similar this kind of organic food, but selling them at a slightly low price, such as Tesco and Sainsbury.
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If they move to focus on their food business, they probably will offer more high quality organic food. But organic food has shorter self-keeping, they could not keep them on shelf for long time, also the cost base of these organic foods is higher than others. Therefore, that mean more organic food does not guarantee a higher turnover.
In addition, there are lots of competitions on making higher quality food for M&S. Such as Waitrose, they are offering higher quality food as well. Also Sainsbury and other supermarket are trying to make good quality food to sell them in lower price. Therefore, Food business also does not count as much as turnover as clothing business
- According to case study, there is an evidence form competition commission investigation of supermarket, it says Tesco gave an estimate of the proportion of supermarkets revenues derived from ‘One Stop Shopping’. Tesco used a definition of the ‘One Stop Shopping’ as a trip which accounted for 60% of the shopper’s weekly grocery expenditure. One this criteria, it estimated that One Stop Shopping accounted for 72%-78% of revenues at Asda, Morrison, Sainsbury, and Tesco but 38% for M&S.
Therefore, we found people prefer to spend much more money on food buying from Tesco etc. That mean even if they focus on food business it might not help their business at all. They need properly strategy for their food business if they regard it as high profile core business.
6. In what sense did the 1999 Annual Review and Summary Financial Statement present a contradictory view of the way in which M&S should relate to its suppliers? (Relate your answer to Kay’s concept of ‘external architecture’).
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According to case study, in the Greenbury contribution to 1999 Annual Review and Summary Financial Statement, he argued that there was a need to change ‘ the way we buy goods’ and that this would include ‘pursing cost saving’ and that company was adopting a policy of sourcing ‘more goods abroad’.
According to Kay (1993) concept of external architecture, it is relations with other enterprise particularly suppliers of good and service. Meanwhile, it is based on where firms share knowledge or establish fast response times on the basis of series of relational contracts between or among them. However, in this case study again, after 1999 they have been reducing source of its clothing suppliers from 60% to 10%. It shows M&S is trying to find more low cost source suppliers from aboard instead of keeping high source suppliers from UK. If the M&S need some source urgently, they could not got get them as much as they want from UK suppliers, also they will pay for much higher price for getting those source. Therefore it is changing way with their suppliers from Kay’ external architecture.
7. The UK is characterised by a capital marker where it is relatively easy to launch takeovers; some commentators believe that it is difficult to operate a strategy of promoting ‘architecture’ in this context, outline the evidence in the case which supports such arguments.
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According to case study, it points out Kay thought that the distinctive capabilities, such as relations to suppliers, which M&S brought to its clothing and food business, would not give any competitive advantages in the Financial Service Business.
Table 2: Marks and Spencer Turnover and operating profit margin by business, 1997-2005 (by percentage)
As table 2 shown, financial business margins was less than half of retailing margins in 1997 and 1998, from 1999 financial service was getting lower than 20%. Till to 2004, it was more than 50%.In 2005, financial service is doing the most compare pervious years.
In UK capital market is relatively easy to launch takeover so that it is very difficult to maintain this type of management. In addition, in recent years, M&S is getting lost lot of shareholder. The quality of M&S is getting a bit goes down. If M&S want to promote their ‘architecture’, they should find a right strategy.
8. What criticism could be reasonably leveled at Stuart Rose’s claim that expected cost saving in the next two financial years would translate into increased profitability at M&S? In what ways can these criticisms be related to the data shown in Table 6?
In 1999 Annual Review and Summary Financial Statement Marks & Spencer Chief executive Stuart Rose said there was a need to change the ‘way we buy goods’ and that would include ‘pursuing cost savings’ which means purchasing costs. And that the company was adopting a policy of sourcing ‘mores goods abroad’. Stuart Rose’s presentation of strategy in July 2004 approach was the company should seek cost saving which he estimated could reduce cost by 240 million in 2004 and 2005 and 320 million in 2006 and 2007. This approach was central to his short term strategy for improving profitability. This could contribute to cost reductions which would mean that higher profit could be achieved with a basically flat turn over.
This table shows in turnover, cost saving and gross profit in Marks & Spencer. As you can seethe turnover has been decreased by 3.28% from 2004 to 2005. Different as Stuart mention, cost of sale also 2.41% reduced. So if we calculate the purchase cost according to this table64.65% in 2004, 65.23 %in 2005 on purchasing. It is obviously increased. Consequently 4.86% of profit decreased. Eventually he could not translate into increased profitability at Marks & Spencer.
9. In what sense could the approach taken to closure of outlets in mainland Europe be seen as abandoning a policy of ‘internal’ architecture?
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Marks & Spencer’s strategy linked to Kay’s ‘internal architecture’. Internal architecture is a structure relationship between the fir and employee and among the members and among themselves. There is a high degree of job security. It concerned with creating the basis for long term co-operate relation between firm and workforce. Marks & Spencer used to emphasis on internal architecture. For example Marks & Spencer was seen as exchanging job security for employee that commitment in case of internal architecture. But internal aspects of architecture a major controversy at Marks & Spencer decision, taken in March 2001 to close the firm’s retail outlet in mainland in Europe. There are the progresses for their decision.
- March 2001
28th March; announce via telephone discussion with members of the Works Council
29th March ; only notice to representatives of the work force that close the firm’s retail outlets in mainland Europe (38 stores, 18 in France)
April 2001; the company was ordered to suspend redundancy plans and restart the process and to pay a fine
End of 2002; completed the closure of its stores in mainland Europe
It was decision without discussion with workforce. It has been ignored job security so that the contract is not a relational any more which means reliable relationship and potent corporate culture of the past are associated with organisation is no longer exist.
10. In what sense was the agreement with George Davis involve a departure from a policy of ‘external architecture’ and ‘relational contracting’?
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In 2001 George Davis involved a departure from a policy of ‘external architecture’ and ‘relational contracting’. The mean by external architecture is the firm’s relation with his suppliers and is characterised by long term business relationship. It is relations with other enterprises particularly suppliers of good and services.
Moreover, relational contract represent the terms of the relationship are not written down and often cannot be precisely articulated and be termed an implicit contract. Especially relational contract do not obtain spot contract.
George Davis has become supplier the ‘Per Una’ range to company (Sep 2001). In this arrangement George Davis control all aspects of the merchandising and marketing to the cloth in this range. Part of the strategic change presented by Stuart Rose included a buyout of Davis’ interest in the Per Una brand. According to Telegraph report (2005), … Stuart Rose, Marks & Spencer's embattled chief executive, is in urgent talks with George Davies to persuade him not to walk away from Per Una. Mr Davies' original contract had always been shrouded in mystery, and, during the takeover battle, Mr Rose was forced to admit that M&S did not actually own Per Una. Previously, it had always been assumed the reverse was true. The George Davis decides to continue working with the company because a secure long term relationship with suppliers in return for their responsiveness.
Conclusion
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Marks & Spencer has generally implemented the Architecture and Competitive advantage effectively, which is manifested by its good financial performance whilst keeping continually low good relationship with workforce and suppliers. The crisis of Marks & Spencer stemmed initially from the decline in corporate profitability after 1998. In the past 1998 period Marks & Spencer has made major changes to its senior management. Chairman has been changed to sir Richard Greenbury involve his strategy, Marks & Spencer would not give any competitive advantage in the financial service business. There have been further major changes n 2004 with Stuart Rose becoming chief executive. There have been frequent discussions of the means of restoring operating profits in the company.
Marks & Spencer is still struggling promoting their architecture. The company strategy could not translate into increased profitability. But Marks & Spencer is one of successful company in UK. They organized long term relationship both within the firm and between its members, a commitment to a sharing of the rewards of collective achievement. These can derive that levels of competition are bound to rise, which furthermore may cause complications for Marks & Spencer sustaining success and leadership in the future.
WORDS COUNT：2498
Bibliography
KAY, J. (1993) Foundations of Corporate Success, Oxford University Press
Grant ,R (2002)Contemporary Strategy Analysis, 4th edition, Blackwell
Ate Rankine(2005,July 30),‘Rose puts pressure on Per una founder to stick with M&S’, Available: ( Access 2005, Nov 15)
‘Marks and Spencer’, Available: (Access 2005, Nov 17)
‘M&S - Marks and Spencer Details’, Available:
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