Marks & Spencer plc - Research Paper Example

Strategic Management Introduction Marks & Spencer is one of the UK's foremost retailers of clothing, foods, home ware and financial services, boasting a weekly customer base of 10 million in over 300 UK stores. Marks & Spencer operate in 30 countries worldwide, and has a group turnover in excess of £8 billion. It has specific values, missions and visions. It’s main vision is ‘to be the standard against which all others are measured’, it’s main mission is ‘to make inspirational quality accessible to all’, and it’s main values are quality, service, innovation and trust. (www.marksandspencer.co.uk). By the end of 1998 though, there was evidence of a crisis occurring. Until the late 1990's Marks & Spencer plc was hugely successful in terms of profit and market share. Since then it has been a company in decline-a company seemingly losing its position and place in its industry. Customers and media pulled together to assist senior management partake in an internal audit to identify the problems and see if they could come to a solution. The purpose of this assignment is to use Strategic Management theories and frameworks to analyze the decline of the Company. The strategic management theories analysis is contained with McKinsey 7-S model and is a valuable tool to initiate change processes and to give the company direction., coming after the proposal to reverse the decline of Marks & Spencer and before some assumption . (Joisce, Ted (2002), Marketing Planning Lecture Notes – 14/10/02, Mission, Objectives, Strategy, Tactics) Conclusions will be drawn from the McKinsey 7-S model analysis, which will attempt to review Marks Spencer ’s strategic position and identify the reason why decline. Also, Marks & Spencer’s recent marketing activities will be critically analyzed in order to ascertain what improvements should be made in the future . This assignment will attempt to determine why Marks & Spencer nearly collapsed and what they could do in terms of success and failure as part of their recovery programme. 7-S Theory The 7-S-Model is better known as McKinsey 7-S. This is because the two persons who developed this model, Tom Peters and Robert Waterman, have been consultants at McKinsey & Co at that time. Thy published their 7-S-Model in their article “Structure Is Not Organization” (1980) and in their books “The Art of Japanese Management” (1981) and “In Search of Excellence” (1982).   The model starts on the premise that an organization is not just Structure, but consists of seven elements:   Those seven elements are distinguished in so called hard S’s and soft S’s. The hard elements (green circles) are feasible and easy to identify. They can be found in strategy statements, corporate plans, organizational charts and other documentations. The four soft S’s however, are hardly feasible. They are difficult to describe since capabilities, values and elements of corporate culture are continuously developing and changing. They are highly determined by the people at work in the organization. Therefore it is much more difficult to plan or to influence the characteristics of the soft elements. Although the soft factors are below the surface, they can have a great impact of the hard Structures, Strategies and Systems of the organization. Description（Waterman, R. Jr., Peters, T. and Phillips, J.R. “Structure Is Not Organisation” in Business Horizons, 23,3 June 1980. 14-26.） The Hard S’s   Strategy Actions a company plans in response to or anticipation of changes in its external environment. Structure Basis for specialization and co-ordination influenced primarily by strategy and by organization size and diversity. Systems Formal and informal procedures that support the strategy and structure. (Systems are more powerful than they are given credit) The Soft S’s   Style / Culture The culture of the organization, consisting of two components: ·       Organizational Culture: the dominant values and beliefs, and norms, which develop over time and become relatively enduring features of organizational life. ·       Management Style: more a matter of what managers do than what they say; How do a company’s managers spend their time? What are they focusing attention on? Symbolism – the creation and maintenance (or sometimes deconstruction) of meaning is a fundamental responsibility of managers. Staff The people/human resource management – processes used to develop managers, socialization processes, ways of shaping basic values of management cadre, ways of introducing young recruits to the company, ways of helping to manage the careers of employees Skills The distinctive competences – what the company does best, ways of expanding or shifting competences Shared Values / Superordinate Goals Guiding concepts, fundamental ideas around which a business is built – must be simple, usually stated at abstract level, have great meaning inside the organization even though outsiders may not see or understand them.   Effective organizations achieve a fit between these seven elements. This criterion is the origin of the other name of the model: Diagnostic Model for Organizational Effectiveness. In change processes, many organizations focus their efforts on the hard S’s, Strategy, Structure and Systems. They care less for the soft S’s, Skills, Staff, Style and Shared Values. Analysis of 7-S of Marks & Spencer Competitive Strategy Recently , it was reported by Marks & Spencer that there has been a drop in clothing sales of 8.5% and food sales 1.7%. In phase two of the competitive strategies, M&S continue expanding their food business while exploiting new opportunities in financial services. The Positioning Game(2005) suggested some months ago that the group needs to make a marketing decision about its food versus clothing businesses. There has been little indication of action in this direction and I predict further declines in trading until it changes. Some corporate brands can hold together a variety of subsidiary products. For M&S, it should be one idea, one brand. Food is one brand and clothing is another (or in M&S's case, consider selling clothing to Philip Green or someone who knows how to make money in this field). M&S's endorsed approach (company and individual brand e.g. M&S clothing) has a number of negative effects which led to the decline of market share : First of all , Bad news in one business impacts the other. This is particularly important for M&S since the media delight in reporting problems in either business division in recent years. They have become an example of marketing strategy that has lost its way. Secondly , The two businesses require very different strategies to succeed. You don't sell food in the same way that you sell clothes. But as soon as you start a strategy in one division, the market will tend to assume it applies to both divisions because of the commonality in name. Of course M&S will never re-brand its divisions. It believes (possibly correctly) that there is still too much brand equity in the M&S label. But this is declining rapidly. Corporate Culture Corporate culture refers to the system of shared values and beliefs about how the organization should be managed. It includes values, assumptions, mores, customs, and behavioral norms that guide organizational actions. Shared values act as glue that binds organizational members together. Organizational culture acts as a general system for guiding the actions of organizational members. Change in strategy often requires new tasks and activities to be performed. For many of these activities, the organization does not have explicit rules. In performing these activities, members turn to the organizational culture as a source of guidance. In this sense, culture is a very valuable tool for implementation of strategies (Barney, 1986; Schwartz and Davis, 1981). Besides simplifying strategy implementation, organizational cultures also influence performance. Several studies have found excellent companies to possess strong cultures that give their firms a competitive advantage. Excellent companies possess cultures that facilitate customer orientation, strong corporate identity, innovativeness, high quality, and cost minimization (Deal and Kennedy, 1981; Peters and Waterman, 1982). Other studies have suggested that the success of Japanese firms is attributable to their unique management cultures (Ouch, 1981; Pascale and Athos, 1981). There is a corporate culture statement which comes from annual report of Marks& Spencer 2004 , it is said that "We aim to be a good corporate citizen, helping to improve the quality of life in our communities and sharing our success through the commitment of time, skills and cash donations." However , it seems that the quality of life is not as good as we expect . According to the report by BBC (2004) , it said that most customer think the price is too expensive , and they will choose other shops to purchase ,and also the quality is very satisfied. Strategic Leadership Because of the decline of Marks & Spencer , the chairmen of M&S claimed that he gave up 81,300,00 bonus . ( reported by BBC ,2003) It is claimed by chairman of M&S (March, 2005) that “our new leadership structure is the culmination of a two-and-a-half year process that has brought the company to the threshold of a new phase of growth. Along the way, each step has been carefully put in place and each has provided a solid foundation for the next.” Recovery proposal If I was a Strategic Management Consultant, there are some plans which could used to recover the situation of decline in the following paragraphs . First of all , the first plan is to focus on UK . The first element is to focus the entire organization on our UK business, with a mission to make inspirational quality accessible to all. This is the heart of the Company, and it's vital M&S get it right. M&S should only sell our own brand. We've tried selling other company's brands - Orange mobile phones, for example - but it's clear that there's very little or no extra value in buying such products from Marks & Spencer. Everything from M&S must be distinctive and must conform to the Company's uniquely high standards.The way to ensure that is to re-take command of our supply chain -- another of Marks & Spencer's traditional strengths. In the past, one reason we were able to offer such innovative, high-quality, competitively priced products was our unique, direct relationships with our suppliers. We now know that returning to this kind of partnership will help us, once again, to provide the products and value our customers want. Furthermore, Marks & Spencer will only operate in sectors of the market where it has real scale and authority. In food, for example, we have just under four per cent of the total UK market, but up to 30 per cent in our chosen categories - including such fast-growing sectors as ready meals and prepared foods. Every one of our products must - and will - exhibit the quality, value and innovation for which Marks & Spencer used to be famous. That's 'quality' reinterpreted for the times in which we live. In the past, 'quality' meant clothes you could wear for years and years. Today's customers are more sophisticated ... more discriminating. They still want quality clothes that last, but they also emphasize other criteria such as style and fit. We must satisfy these aspirations as well as the more traditional demands. In restoring these fundamentals, we're also making our stores more attractive and easier to shop in, while focusing more sharply on our classically stylish, core customers. At the same time, we're strengthening the retail business by building on the great asset we have in Marks & Spencer Financial Services.' Secondly , to Sell or Close loss-making businesses could be also a good plan . In order to concentrate totally on restoring our UK business, we could no longer afford to support non-core activities , nor continue to subsidies loss-making businesses. We're therefore selling Brooks Brothers and Kings Super Markets in the US. We've also closed our direct clothing catalogue operations. In addition, we've announced our proposal to close our subsidiary stores in Continental Europe. Now, despite what you may have heard, our business in Europe was not a success. In the last three years it's lost nearly £100 million, with losses of £34 million in the last 12 months. Our stores were too big, and we hadn't properly understood the markets before we invested in them. The only solution now is to admit our previous mistakes and stem the losses. This conclusion was hard to reach because we knew that we'd have to cause distress to our loyal people in those stores. But the fact is, we don't have a sustainable business in our current circumstances. We're now in the process of consulting our staff -- as indeed we always intended to do. The plain fact is that we have to restructure in the interests of our 60,000 UK employees and our 400,000 shareholders. We have to reduce the complexity of M&S so we can focus all our attention on that part of the business on which our success really depends. There is no alternative if we want the Company to succeed. So there you have the first two elements of the plan - focusing on the UK and selling loss-making business. Thirdly, it should Change the Capital Structure to recover the decline . 'The third element is to change our capital structure to improve one of the key financial criteria on which investors base their decisions -- namely, return on equity. Return on equity and assets has traditionally been low for Marks & Spencer. One of the main reasons is that M&S owns an unusually large proportion of its property … and returns are lower in property than they are in retailing. It realize that the assets and give the money back, so that you can invest it as you like. For this reason, we've decided to sell or securities those properties that we do not really need to own. This doesn't mean that we're selling or closing stores. Our customers won't see any difference, whether we own or rent the property in which we operate. However , none of this means anything unless customers and shareholders see real changes. There's a new energy and momentum as we move from strategy to action and you'll notice the difference in our products and stores in the coming months. There is bound to be a time lag between implementing these improvements - which we're doing as fast as we can - and starting to see significant movement in sales and profits. As has been shown , the proposal would be succeed, because it focuses the entire organization on the three things that matter most to our customers - our products, our stores and our people. As we move to implementation, the results could be expected under each of those headings.' Product 'In terms of products, we're building on our knowledge and understanding to provide exactly what our customers want. To do that - as I mentioned earlier - we're focusing our teams on the classically stylish, core customer. That's not to say we're turning our back on our younger shoppers. These will be served by Per Ulna supplied by George Davies -- products made exclusively for us and according to our standards, but in such a way that doesn't distract our own people from the core Marks & Spencer customer. Two weeks ago, the fashion press was invited to see our autumn clothing collection. Everyone who came was impressed. Although we still have some way to go, we're rediscovering our strengths ... superior style, quality and value, good-looking clothes that fit and wear well. That's what you - and all our customers -- have said they want.' First of all , the expectation is store .After products, the plan addresses M&S stores. According to the annual report of M&S 2005 ，it is claimed by chairman that “Last year we showed you a video of Fosse Park - one of 25 stores we refurbished as part of our 'new concept' last year. This year we're taking the most effective elements of these stores and applying them to a further 100 locations - 60 by October and the rest by March. In total, the changes will extend to around two-thirds of our space, so most of our customers will notice the difference. I hope you'll feel excited by what you find when you walk in. If you're enthused as customers, you should also be excited as shareholders because you'll know we're getting it right.” The chairman also pronounced that “We're also looking for new ways to meet customers' needs. Yesterday we opened the first of a new, small store format in Surbiton. This caters exclusively for customers who want to buy our prepared food products more conveniently, and it's called 'Marks & Spencer Simply Food'. There's another opening in Twickenham next week. In the coming year, we'll be testing these and other ideas to help make our products more accessible, to more customers, more often.” Therefore , products ... stores ... and crucially, our people.' People By annual report 2005 , the chairman said that “In the last couple of weeks, we've announced a new head of women's wear to complete the clothing team for our UK Retail business. This year we've also appointed a new Creative Director for Clothing, new heads of design for men's wear and children's wear, and new heads for stores and foods. I'm pleased to say we're able to recruit top talent because good people do want to be part of this turnaround team. Our leaders are now working to motivate their teams, restore their confidence and get everyone lined up behind the changes.” Marks & Spencer's employees are some of the most skilled and dedicated in the industry. When all 60,000 are pulling together to provide what our customers want, they can exercise a powerful influence on our results. Marks& Spencer would benefit even more when we move our head office to Paddington Basin. There are good economic reasons for that , however , it is expected to have a positive effect on the whole culture, and the way they work together to meet their customers' needs.' Changing Attitudes It seems that M&S is focusing hard on these three simple components - products, stores and people. As you see above , that everything the proposal do is covered by the press -- and that what they've said has not always been positive! As long as the negative comments are directed at M&S and do not influence customers' and employees' attitudes which is not that important . However, the most important thing which is to see words like 'beleaguered' or 'ailing retailer' applied to Marks & Spencer. Let's not forget, Marks & Spencer is still a fantastic business. It remain the biggest clothing brand in the UK by a huge margin. Ten million customers a week come into the stores which is still one of the best known, best trusted, retail brands in the world. M&S have a very special place in the nation's affections, the most loyal customers and a tide of goodwill that wants us to succeed. Constant criticism makes life a whole lot harder for the employee who are out there serving their customers every day. It also affects their customers' behavior and therefore does slow down the recovery. In the past year, M&S has put in place a strong leadership team. This team has developed a robust plan and is making very good progress in its implementation. And also ,they are doing everything possible to improve the value of other investment in Marks & Spencer. As it mentioned at the beginning , all of customer would have a common interest in seeing this Company recover. According to the speech of chairman in March, 2004, he said that “I'm asking now for your continued loyalty and support for the 60,000 employees who are working very hard to get it right for our customers ... and for our 400,000 shareholders who've supported us through this difficult time and are wanting us to return their Company to health. Despite our troubles, the qualities that made us great are still there and waiting to be reapplied in today's marketplace. If such a company were to be offered to investors for the first time, I'm pretty sure you'd want to buy the shares. So take heart. Profits and value will return as we get back to what we do best and restore the fundamental strengths of this great business.” Conclusion In sum , although there is a crisis of Marks&Spencer to face recently , there is still big possibilities to recover from the decline of market share and customers , as long as they could correct some strategies they used in the past with the updating of business world. Today's changes are the last piece as we move from recovery to growth. The team is right, and the timing is right, to ensure that Marks & Spencer continues to develop in the best interests of its customers, its staff, its suppliers and its shareholders. 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