Marks and Spencer
International Business Management
2133 words
26.01.2007
"M&S has been widely recognized as one of the best-managed companies in Europe" (Tse, 1985, p.1). This statement from 1985 shows the excellent reputation, M&S once enjoyed. Today, however, people frequently associate the term "failure" to this company.
This essay is to examine the origins of M&S's success and show the basis of their competitive advantage. The question why they suffered the downturn in performance in the late 1990s arose is to be answered and their competitive strategy analysed. Afterwards the change in initiatives mounted since the departure of Richard Greenbury, a former chief executive officer of M&S's, will be evaluated and the main problems of the start of the 2000s described.
In 1884 Michael Marks founded the "Penny Bazaar" in Leeds from which no item was more expensive than a penny. About a decade later Tom Spencer joined Marks in a partnership. In 1926 they changed the status of the company to a public one (Whitehead, 1994). Today fashion, which was M&S's core business, food, financial services and home furnishings are the fields they are active in.
M&S had three major concerns about the management. Those were "Quality", "Value for Money" and "Human Relations" (Tse, 1985, p. 6). So they managed to establish a reputation for high reliability and good quality at a reasonable price. Furthermore M&S were renowned for the way they treated their staff. Staff were employed only after certain special criteria had been met. Not only high salaries but also a variety of services offered to M&S employees contributed to a real family atmosphere. This company culture was absolutely unique. From the three general concerns M&S developed a number of principles they sought to follow. All in all it can be said that M&S focused on the costumers and understood and responded to their demands. They thus created a solid external costumer image. (Tse, 1985).
Michael Porter's five forces help understanding of the competitive advantage M&S had (Johnson and Scholes, 1993).
When it comes to the threat of entry, one of the most important strengths can be seen. M&S was simply unique in its nature. Copied from concepts Simon Marks, the son of Michael Marks, observed in the United States, M&S were the first ones to sell a variety of products from different fields under one roof (Collier published in Johnson et al., 2006). This differentiation connected with the reliability and quality the company was famous for, probably deterred potential competitors from entering the market.
Concerning the bargaining power of the costumers, it can be said that although there were competitors for the individual products M&S's costumers trusted on the brand St Michael. M&S's service was also unique. Their refund policy allowed customers to bring back items they were not happy with without mentioning a reason. The bargaining power of the suppliers was of equal importance. Up to 90% of the suppliers were British, and British products were perceived to be high quality products. M&S chose their suppliers carefully and in the case of delays or inferior quality they ended the cooperation immediately. The suppliers were to work exclusively for M&S, which on the one hand was a very important deal for the individual supplier and on the other hand sets M&S in a very powerful position (Collier published in Johnson et al., 2006).
M&S were not free of a threat of substitutes, however their reputation for quality made people buy St Michael products. As far as competitive rivalry is concerned it has to be stressed that there were competitors, mainly in specialised fields, but M&S benefited from their good reputation and did thus not fear them.
One theory that can be applied on the example of M&S is the "Wheel of Retailing". In accordance with it new retail businesses often enter the market as "low cost/low price businesses". During their growing process they improve and expand their services and consequently ...
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M&S were not free of a threat of substitutes, however their reputation for quality made people buy St Michael products. As far as competitive rivalry is concerned it has to be stressed that there were competitors, mainly in specialised fields, but M&S benefited from their good reputation and did thus not fear them.
One theory that can be applied on the example of M&S is the "Wheel of Retailing". In accordance with it new retail businesses often enter the market as "low cost/low price businesses". During their growing process they improve and expand their services and consequently need to raise prices. This is the point when they become vulnerable to new entrants (McNair cited by Davies, 1999).
The factors responsible for the downturn in performance M&S suffered in the late 1990s can be separated into internal and external factors. Among the internal factors contributing to the downturn is, first of all, the reliance on the management paradigm as well as on the brand St Michael. Decisions were made on experience and the board relied on the success without regarding the dynamics of the environment. Another weak point was the centralised management. The strict regulations of the top down management disabled the individual stores to make changes even when problems were recognised. Furthermore, the management board was criticised for being too much concerned about themselves and their positions to realise what was happening to M&S's image. Internal political rumblings also lead to the downturn and the human resource management was considered as a strong, monolithic and inward-looking culture (Mellahi et al., 2002).
But also M&S's environment was in a period of change. New competitors were entering the market. Stores like Next or Oasis offered clothing at similar prices and quality but more fashionable. Furthermore discounters, for instance Primark, Peacocks and Matalan beat M&S's prices by far (Mellahi et al, 2002).
Another mistake was that M&S adapted too late to the card-based economy. Whereas credit cards were accepted by a majority of competitors M&S refused to take this step for a long time. Generally, M&S did not realise the entire technological development, one of the most important external changes M&S did not respond to (Mellahi et al, 2002)..
Earlier M&S did not need to invest in enormous advertisement campaigns; however, they failed to realise the increasing importance of advertising, which grew with the number of competitors (Mellahi et al, 2002).
That fact that M&S stuck to their British suppliers also contributed to the price disadvantage. As trading with China has become much easier, most of the competitors had their products manufactured abroad for very low prices (Mellahi et al., 2002).
It can be summarised that M&S failed to understand and to react to its dynamic environment. They did not question their own strategy and re-evaluated it too late.
According to Michael Porter, there are three generic strategies that a company can employ to gain a competitive advantage over its competitors. The one M&S had applied successfully over a long time is the focus strategy (Johnson and Scholes, 1993). It concentrates on narrow and distinctive sectors; they set had a focus on differentiation which arose naturally. Usually companies try to develop differentiation artificially to distance themselves from competitors. As differentiation in the case of M&S developed naturally without artificial pushing Tse name them as "par excellence" example for this strategy. (Tse, 1985, p. 64)
The following citation given by Tse (1985, p. 64) sums up the efficiency of this strategy in one sentence:
"The secret of success of Marks and Spencer's differentiation strategy lies in the fact that is has clearly identified a genuine need on the part of the customers and has set and achieved such high standards in satisfying this need that it becomes extremely difficult for its competitors"
One sub-strategy of M&S is the internationalisation strategy. In the early 1990s M&S started to perform under the name of Brooks Brothers in the United States of America and set up 22 Canada-based stores as joint ventures. One important aspect of this internationalisation strategy is that M&S decided to apply the same corporate strategy in all stores, irrespective of the domestic demands (Collier published in Johnson et al., 2006).
Furthermore M&S sought to follow a one-brand strategy. Products got famous under the name of St Michael, which had been attributed to high quality by customers (Tse, 1985).
In 1998 Richard Greenbury departed from his position as Chief Executive Officer and was replaced by Peter Salsbury. One important measure the latter took was taking advantage of outside consultants (Vincent, 1999). As mentioned above, M&S's major problem was that they ignored their environment. Due to outside consultants, a more neutral evaluation of the internal and external situation of the company was to be achieved.
Moreover a chain of discount stores for stock clearance was intended to be established (Milmo, 2000). This idea, however, was not properly thought out. They overlooked how these stores might be perceived by their quality-focused customers. They were aware of paying a certain price for a certain quality. If the very same quality was sold for half of the original price after one season, people would doubt M&S's price policy and feel betrayed.
Furthermore, new brands were launched to attract a larger variety of customers. At the beginning, this also caused customer confusion. The range of products in the stores seemed to be randomly mixed and customers stated that young and trendy fashion could be found next to old people's clothing. Fortunately M&S recognised this problem and distinguished its brand by different colour. Thus the customer could find what he was looking for at one glance (Collier published in Johnson et al., 2006).
In addition prices were cut by 5% on average (Vincent, 1999). This can be evaluated as a good measure. The price reduction enables M&S to compete with their competitors. A more decisive step in becoming more competitive was replacing most of the British suppliers by Asian ones (Collier published in Johnson et al., 2006). This measure was not well perceived by the public. Although the change of suppliers cut cost enormously, it cut numerous jobs as well and the British clothing industry was strongly affected.
Moreover the company's hierarchy was flattened as the strict top-down management seemed to have contributed to a large extend to M&S's downturn (Collier published in Johnson et al., 2006).
Another problematic factor was the M&S's purchase of 19 Littlewood stores in locations to complement the existing M&S stores. They were to be refurbished, as well as the M&S stores. This resulted in disruptions, which had a particularly negative effect on the costumers (Collier published in Johnson et al., 2006).
The establishment of the Customer's Insight Unit can be evaluated as a step forward to overcome the crisis. The CIU quickly revealed that one in five of M&S's clothing items was inappropriate for the local market (Collier published in Johnson et al., 2006).
In the beginning of 2000 Luc Vandevelde became the new CEO, the first one M&S's history, who was not a family member. As M&S shares lost value again, new problems had to be identified and resolved. A major reason was the failure of the internationalisation. In 24 out of the 25 years M&S was active abroad, they noted losses (). Therefore 38 stores were withdrawn from Europe and America and the Hong Kong based stores were sold to franchises. The worst press was made in France where 1,700 jobs were lost due to closures. The French government accused M&S of "manifestly illegal trouble making" (Collier published in Johnson et al., 2006, p. 972). Vandevelde was strongly criticised as earlier he had worked for the French group Promodé and therefore was to be aware of the French legislation. Furthermore acquisition rumours strained M&S's reputation. Philip Green, Tesco and American Pensions Funds were just some of the names being discussed to take over M&S. (Collier published in Johnson et al., 2006)
In order to solve the crisis of the early 2000s, M&S intended to stabilize their position on the UK market. They further developed the homeware departments in the existing M&S stores and moreover dedicated satellite outlets in-out-of town locations. Then they expanded their "Simply Food" program to high traffic areas, such as motorway stations, and leveraged its financial services (Collier published in Johnson et al., 2006).
M&S implemented particular changes in their supply chain. They understood that making decisions in accordance with the various demographic needs was more effective than just making them on the basis of the existing floor space (Collier published in Johnson et al., 2006). This was probably the most important approach to setting the focus back on the customer.
In Spring 2004, when M&S headquarters were moved from Baker Street to Paddington, the public finally understood that M&S wanted a change and was to take action (Collier published in Johnson et al., 2006).
All in all, it can be said that M&S is a unique company that had enjoyed an excellent reputation due to its fundamental understanding of customer needs and permanent focus on quality. It can be cited as prime example in various respects. However, times changed, and M&S failed to realise its changing environment, to which the old strategies they stuck to were not appropriate any more. Although M&S finally understood the core problems leading to the failure and attempts to solve the crisis have been made, the company has still not regained its brilliant position and will still have to work hard to withstand competition.
Reference List
Davies, G. (1999) 'The Evolution of Marks and Spencer', The Service Industry Journal, Vol. 19 (3), pp. 60-73, Manchester
Johnson, G., Scholes, K. (1993) Exploring Corporate Strategy - Text and Cases, 3rd ed., Prentice Hall International Ltd, Hertfortshire
Collier, N. (2006) 'Marks and Spencer' in Johnson, G., Scholes, K. and Whittington, R. (2006) Exploring Corporate Strategy - Text and Cases, 7th ed., pp. 966-978, Pearson Education Ltd, Harlow
Mellahi, K., Jackson, P. and Sparks, L. (2002) 'An Exploratory Study into Failure in Successful Organizations: The Case of Marks & Spencer', British Academy of Management, Vol. 13, pp. 15-29, Loughborough
Pettinger, R. (1996) Introduction to Corporate Strategy, Macmillan Press, London
Tse, K. K. (1985) Marks & Spencer - Anatomy of Britain's most efficiently managed company, Pergamon Press, Oxford
Vincent,
Whitehead, M. (1994) Marks & Spencer - Britain's Leading Retailer: Quality and Value Worldwide, Management Decision, Vol. 32 (3), pp. 38-41, MCB University Press, Manchester