Managing for Competative Advantage: The of Marks & Spencer - Case Study Example

INTRODUCTION The management team of Marks & Spencer has gone through a significant change during the last few years as a consequence of deteriorating position of the company in the competitive retail market. The company seems to be far away form the point of success and profitability it proudly witnessed about a decade ago, which has led to a radical shift in its management structure. This paper demonstrates a review of the Marks and Spencer's competitive advantage in the market in terms of the performance and approach of the previous as well as the new management team that has been fulfilling the company's leadership responsibility for about two years. The review also includes an evaluation of the performance of both the management teams through financial and non-financial parameters, and finally gauges the true competitive position of M&S in the market. Question 1: THE TWO MANAGEMENT TEAMS AND THE COMPETITIVE ADVANTAGE OF THE COMPANY . Myners and Rose assumed control of the company's leadership by replacing the team of Vandevelde and Holmes. There seem to be significant distinction in the approaches of both the management teams in restoring the M&S competitive advantage. The main focus of the previous management had been on the enhancement of clothing market share and Roger Holmes (Annual Review 2003, p3) highlighted the three major domains of their efforts as furthering amelioration in the stronger clothing categories (women formal wear), following the growth chances in low share clothing categories (men's wear) and finally revolutionising the weak categories (children wear). However despite all these efforts, the previous management ended up in losing its significant market share in the clothing market, in particular womenswear which used to the core area of the company's business and profits (Annual Review 2003, p6). The entire focus of the new management team, however, seemed more strictly on the price and product innovation and improvement. They approached to regain the company's lost market share and competitive position through price benchmarking and product innovation to provide more value to the customers and consequently to win in the competitive environment (Annual Review 2005, p4). Marketing The previous management utilised marketing and advertisement in the course of various product campaigns (Annual Review 2004, p8). The company's marketing tactics also underwent change under the new management, which emphasised clearly on a unified M&S brand rather than focusing on a vast range of sub-brands. It focused on strengthening and bringing together the various M&S brands and reflected its traditional relationship with core customers in its marketing and advertisement campaigns (Annual Review 2005, p5). Human Resources Human resources and people management has been the core issue concerning both the management teams. The previous management was however less focused in its strategies to develop the M&S people. Furthermore, in the process of store refurbishment and improvement, the previous team (Annual Review 2004, p5) indicated an intention to lay off about 1000 workers in order to control costs. This could have led to a decline in employee morale and performance. The new management focused on a people amelioration approach, it further took care of its human resources in a much-enhanced manner through proper and evident training, rewarding, developing and listening strategies (Annual Review 2006, p17) to improve employee performance and motivation levels. . Operations The former management team posed great emphasis on opening new stores and carrying out renovation in the older ones making them look more contemporary and convenient so as to win more customers in the competitive marketplace (Annual Review 2004, p16). Furthermore, it also identified the need for ameliorating the supply chain management and sourcing of products to win a competitive edge in the market (Annual Review 2004, p9). The new management team came with a sharpened approach to revolutionising store environment, enhancing shopping experience and strengthening relations with suppliers, while shutting down major operations started by the previous management viz., the Lifestore project and a second store in Thurrock (Annual Review 2005, p13). Financial Management In terms of the management of finance, the previous management introduced renovations, refurbishments and renewals to the business such as a huge investment in &more cards to encourage customers to shop more. Such efforts reduced the company's profits and led it to face a crunch for money (Annual Review 2004, p15). The new management team, on the other hand, worked to cut down costs and improved savings through effective negotiations with suppliers, managing stocks properly and also by minimising waste (Annual Review 2005, p5). This emphasises a trenchant approach of the new management in improving the company's liquidity as well as a resistance to investment. Question 2: EVALUATION OF THE SUCCESS (OR OTHERWISE) OF EACH TEAM An evaluation of success or failure in the performance of the two management teams to reinstate and reassert the company's competitive advantage is done below with the help of different parameters. Financial Performance Under the management of old team, the company's turnover was up by 3.5% in the year 2004 as compared to that of the year 2003 and the net profit after tax surged by about 2%. While the new management's performance caused the total revenue to decline by about 6% and consequently the net profit decreased by about 6% in the year 2006 (as compared to the figures in 2004) (Annual Review 2003, 2004, 2006) (see appendix I). The financial measures to gauge the performance of the previous and new management teams are as follows: Net Profit Margin: The company's net profit margin ratio under the previous management team rose up to 6.6% in 2004 from 6.3% in 2003. It shows that the company lost about 93% of its total sales revenue in meeting its various production, distribution, selling and operating expenses etc. This net profit margin further increased to 6.7% in 2006 under the new management (see appendix I). Return On Assets: The return on asset ratio indicates the returns or profits generated after utilising the financial resources of the company determine the company's financial performance throughout the year (Meigs & Meigs, 1993). The previous management utilised the company's assets to generate a return of 7.5% in 2003, which slightly declined to 7.4% in 2004. The new management yielded a return of 9.9% on the company's assets in 2006 (see appendix I). Earnings Per Share: "Common shareholders and potential investors in common stock first look at a company's earning record" (Meigs & Meigs, p934, 1993). Under the previous management the company's earning per share was 21.8p in the year 2003, which increased to 24.2p in 2004. On the other hand, the new management's performance procured an EPS of about 29.1p per share in 2005, which further jumped to 31.4p in 2006 (see appendix I). Dividends Per Share: The dividend per share is of importance to the shareholders who are interested in the company's potential to pay dividends (Mcmenamin, 1999). The performance of old management team yielded dividend per share of 10.5p in 2003 and 11.5p in 2004 to the shareholders. The new management procured a dividend per share of 12.1p in 2005, which further increased to 14.0p in 2006. This suggests that the new management performed much better than the older one in terms of providing more value and returns to the shareholders (see appendix I). Performance For Clothing Market Share: The market share of Marks and Spencer in clothing area declined under the previous management consistently and reached at 11% in the year 2004 (Annual Review 2004, p6). The new management's performance caused the market share to tumble by 0.5% and reach at 10.5% in 2005 (Annual Review 2005, p7), and in the year 2006 it further tumbled to 10.2% (Annual Review 2005, p9). It therefore reflects that the new management has not been able to outperform the older one in increasing the company's clothing market share, which has been the core area of M&S business and competition (see appendix II). Question 3: THE TWO MANAGEMENT TEAMS AND THE ISSUES FACED BY MARKS & SPENCER Both the management teams endeavoured to identify and tackle the issues encountered in the 'M&S/Zara Summary Of Issues Case Study' as reflected clearly in the company's annual reviews for the given four years. The issues presented in the case study are: The Declining Profitability Declining profitability happens to be an issue that has been consistently aggravating in the company under the management of both the teams. The issue seems to have exacerbated during the management of new team. As mentioned above, the company's net profit after tax surged by about 2% in the year 2004. While the new management's performance caused the net profit to plunge by about 6% in the year 2006 (as compared to the figures in 2004) (Annual Reviews 2003, p21; 2004, p20; 2006, p23). It therefore indicates that both the management have thus far remained unsuccessful in reinforcing the profitability position of the company. Loss Of Market Share In Clothing This issue has also been of the same significance during the management of both the teams. The company's market share in clothing declined consistently under the management of old team, and it has continued to tumble under the new management (see appendix II). Hence, Marks and Spencer has been perpetually losing its market share in the category that happens to be the core area of its whole business. The two management teams seemed to recognise the problem and took their specific stances to improve the company's position, but the issue has remained consistent throughout. However, the new team has probably taken the right path; to introduce changes in price, product and store environment suiting the needs and taste of its customers (Annual Review 2005, p4). Slowing Growth In All Product Sectors In the year 2004, when the old team used to be in the company's management position, M&S witnessed a decline in the growth of clothing area mainly due to womenswear and childrenswear, a plunge in home area due to price repositioning, and a tumbling growth in food are despite an increase in the market's overall growth (Annual Review 2004, p6, p10, p12). In the year 2006, the new management claimed to have slightly improved the growth in clothing area in the second half of the year and a strong growth in specific food areas. This reflects that the new management has been more successful in addressing the product growth issue in company. Question 4: THE CURRENT COMPETITIVE POSITION OF MARKS & SPENCER Having answered the above three questions, the most important issue confronting M&S is its current competitive stance and its progression towards the position it used to occupy a few decades ago. It is a known truth that the company has long been losing its competitive advantage and its market share in the key areas of its business. The company's management and strategies also underwent a radical change during the last few years for the purpose of accelerating the company's advancement towards regaining its previous successful position among the competitors. The above review reflects and compares the approaches of both the management teams as well as evaluates their overall success in reaching the goal of reinforcing the company's competitive position. It is evident from the review that the financial position of M&S has remained almost the same as before. Although the new management company has taken several radical transforming steps to revolutionise the company's competitive position, it has remained entirely helpless in improving its profitability as well as sales. It has even ended up at procuring lesser profits for the company than even the previous management did. The growth in company's key areas has improved significantly, particularly in clothing and food areas. This carries remarkable prospects for the company's future success. However, the market share of M&S in all the major product areas has been on a consistent decline. The company should further strengthen its focus on improving the clothing sales through product innovation and carefully fulfilling the customers' needs for change, style and individuality. Beating the competitors in the clothing area goes for a vigorous drive for innovation, even before they could conceive it. Kandampully and Duddy (1999, p54) reckons that, "firms are thus required to think both a customer and on behalf of the customer, developing the products and services that tomorrow's customers want before they become a reality". The same notion applies to the competitive position of Marks and Spencer. The remarkable step taken by the new management team is to reinforce its decades old potent relationship with its customers through its marketing and advertising campaigns during the year. M&S is the national brand with a proven historic record of success through consistently high quality and value. It is a competitive advantage that needs attention of management to project this image of M&S in the minds of the customers. This can rightly have an impact on the customers to revisit the store and shop even more with a feeling of long term bonding with the company. To state that the company is right on the course of profitability observed in the beginning of the previous decade is evidently not appropriate. Despite all the efforts exerted on the part of the new management, the company has failed to do well on the profitability front. However, it is certain that once the right strategy is devised at the right time with particular focus on results, the profitability is sure to follow. The stances taken by the new management are worth lauding, but the real outcomes are to be seen in the upcoming years. CONCLUSION As the above review and analysis corroborates, the company is facing a critical time concerning its competitive position in the market. It has been gradually losing its competitive advantage it used to occupy previously for several reasons and it is the high time for the company to accelerate its rebounding process before it is too late. To conclude, it can be said that it has just been two years since the new management took over the company's leadership. Hence, it is too before time to comment on whether on not it will lead to the company's success in future. It is however imperative to observe the approach of new management in identifying current and potential problems as well as the strategies it implements to removing the obstacles in restoring the company's competitive advantage. References Kandampully, J. and Duddy R. (1999), "Competitive Advantage Through Anticipation, Innovation And Relationships", Management Decision, Vol. 37, No. 1, pp. 51-56 Meigs & Meigs (1993), "Accounting: The Basis For Business Decision Making", Mc Graw Hill: New York, p934 Mcmenamin, J. (1999), "Financial Management: An Introduction", Routledge, London Appendix APPENDIX- I - Financial Performance 2003 2004 2005 2006 Net Profit Margin Profit After Tax x100 = 506.9 552.3 355.0 520.6 Sales 8,019.1 8,301.5 7,490.5 7,797.7 6.3% 6.6% 4.7% 6.7% Return On Assets Profit After Tax x100 = 506.9 552.3 355.0 520.6 Total Assets 6710 7376 4,867.3 5,210.5 7.5% 7.4% 7.3% 9.9% Earning Per Share 21.8p 24.2p 29.1p 31.4p Dividend Per Share 10.5p 11.5p 12.1p 14.0p (Annual Review 2003, p21-23); (Annual Review 2004, p20-22); (Annual Review 2005, p21-22); (Annual Review 2006, p23-24) APPENDIX -II- Clothing Market Share 2003 2004 2005 2006 Over 11% 11% (-0.2%) 10.5% (-0.5%) 10.2% (-0.3%) Source: (Annual Review 2003, p5); (Annual Review 2004, p6); (Annual Review 2005, p7); (Annual Review 2006, p9) Read More