Resource Based Analysis of Marks & Spencer Plc - Essay Example

Resource Based Analysis Marks & Spencer Plc Content 1.0 Part 1: Introduction 1.1 Objectives 1.2 Introduction 1.3 Capabilities, strategy, competitive advantage RBV 1.4 Limitations of the RBV 2.0 Part 2: Analysis of Resources and capabilities 2.1 Marks & Spencer plc resources 2.2 Marks & Spencer plc capabilities 3.0 Part 3: analysis and evaluation of Marks & Spencer plc Competencies, Core competencies, Competitive advantage and Dynamic Capabilities 3.1 Competencies 3.2 Core Competencies – C.C 3.3 Plc Competitive Advantage 3.4 Dynamic Capabilities 4.0 Part 4: Evaluating Marks & Spencer plc’s strategic capability using relevant tools and frameworks 4.1 Ratio analysis 4.2 Value chain 4.3 VRIN 5.0 Part 5: Conclusions and Recommendations 1.0 Part 1: Introduction 1.1 Objectives This paper seeks to undertake a Resource Based Analysis of Marks & Spencer plc. The analysis will include the capabilities, strategy, competitive advantage and resource-based view of the company by utilizing appropriate tools and frameworks such as ratio analysis, value chain and VRIN to identify and evaluate the extent to which Marks & Spencer plc has a sustainable competitive advantage. 1.2 Introduction Marks & Spencer plc is retailer which is based in UK and has 703 stores in the UL alone and not less than 361 of other stores in over 42 countries worldwide. The product produced by this company are diversified ranging from food production which takes more than 500 stores in the UK to general merchandise trading in areas such as home ownership areas an clothing. Its clothing stores are the leading retailers in the UK market and specialize in providing women’s wears, lingerie, and menswear. Their food stores are also leading in the UK market due providing fresh foods which are of high quality. The marketing and distribution of their products into the various markets and stores is done by utilizing the service of huge wholesalers, online stores and through telephone. The company’s stocks are registered in the London stocks exchange (M&S website). This paper will first assess the importance of capabilities and how they contribute to the competitive advantage of the organisation. Then, analyse Marks & Spencer plc resources and capabilities using ratio analysis, value chain and VRIN. 1.3 Capabilities, Strategy, Competitive Advantage and resource-based view Resource-based view (RBV) is a business model which holds that business can attain massive competitive advantage over the rival businesses by utilizing their resources and capabilities properly in alignment with the environment of the business (Acedo, et al, 2006). This implies that the business should possess resources and capabilities which are superior to those of their rivals in order to attain competitive advantage over them. This will prevent the rival businesses from replicating the resources and capabilities of the company thus declining their competitive advantage. Capabilities are used in resource-based view to indicate the ability of a firm to apply its resources effectively and efficiently with the sole aim of gaining competitive advantage over the market (Anderson & Paine, 1975). Strategies of a company are formulated to address the future productivity of the company. Strategies are formulated to address any occurrences and incidences in the market and how to respond to changes in the market due to pressures or influences which appear from time to time in the market. The first strategy utilized by M&S was brand name. According to Kapferer, (1992, p31), ‘The brand is where the company’s identity lies’. Their strategies are divided into; competitive strategy, corporate strategy and directions of development. The company is mindful of transforming their strategies into actions so as to benefit the company. The strategies have been very influential in building a good relationship with the suppliers and producing marketable products widely (Porter, 2006). Competitive advantage is the tendency of business to perform well in the market which is intensified with competition and be able to sustain its profits over its rivals. Many businesses formulate different strategies in order to gain completive advantage over those of the rival companies. Competitive advantage is mostly identified with regards to; cost advantage and differentiation advantage. This enables the business to offer the same benefits to the customers as the rival business but at a lower price while deriving more benefits from the business. This translates into superior value to the market ad mega profits for the business (Left, 2001). 1.4 Limitations of RBV The resource-based view has been criticized largely because of its limitations. The limitations are as follows. Lack of managerial implications, Infinite regression, It has a very limited applicability, Difficulty in achieving sustained competitive advantage, The indeterminate nature of the value of a resource unable to provide a useful theory, It’s not a theory of the firm, and The resource has been defined in a way which makes in difficult to work. 2.0 Part 2: Analysis of Resources and capabilities 2.1 Resources Marks and Spencer plc has invested in strategically valuable resources which make sense only when they have been strategically organized into the market context. The three types of resources can be seen in the intangible resources such as brand. Although the brand of the company is intangible, it is considered the best resource since it ensures marketability of products. Physical resources such as equipment and plant are also resources which enhances production of products. Updated plants and equipment in M&S enable them to produce quality brands. The last resource has to do with organizational capabilities which are a resource embedded in M&S’s organizational culture and capabilities such as value chain. Supply chains and managerial capabilities (Simon & Hitt, 2003). The strategic organization of resources in this company provides a dynamic interplay between scarcities, demand and appropriateness of the products in the market since the three forces are very influential in determining the value the product will attract in the market. Thus, M&S organizes its resources strategically to interplay because they recognize the fact that the value of their products is determined not by only one resource in insolation but through their interplay (Teece, Pisano & Shuen, 1997). 2.2 Capabilities Mark and Spencer plc capabilities can be evaluated by looking at how efficient the company is, in utilizing its resources. The resources in Mark and Spencer plc are utilized efficiently to ensure that they establish a competitive advantage over their rivals in the market by appealing to differentiation of products. Their capabilities can be seen in their ability to establish very string relationships with their supplies which affords them high-quality delivery of resources at all times. They have also developed a unique brand name and customer loyalty which enables them to market their products with ease since they are already known in the market (Kapferer, 1992). They are able to bring their products to the market at the right time through strategic market analysis which allows them to release trending products faster than any of their rival companies. For instance, in their cloth store, they have the capability to produce fashion clothes and release them into the market before other retailers can do the same. This allows them to build customers loyalty since they appear to be the pace setters in the fashion industry. The management of the company also allows them to effectively control the operations of their approximately 500 food and 350 nonfood independent suppliers in the food stores. 3.0 Part 3: analysis and evaluation of Competencies, Core competencies, Competitive advantage and Dynamic Capabilities 3.1 Competencies Competencies in Mark and Spencer plc is evident both at a personal level of its employees and management personnel and also at various levels of operations. With regards to competencies in the operations of the company, the company strategically organizes and combines its capabilities and resources in an innovative manner considering the market situations in way which results to distinctive competencies. This kind of competency in the company helps them to activate their creativity, quality, customer awareness and efficiency into their production. This capability helps this company to attain its status in the market and competitive advantage (Alvarez & Busenitz, 2001). The personal in the company have their own competencies which they contribute towards the competencies of the company. Advertisement of posts in the company requires that the personnel possess technical and business competencies which are related to the job level they plan to undertake in the company. This allows the company to get competent employees which facilitate the competencies if the company. Marks & Spencer achieves this through regular competency profiling in the company to identify the gap in skills and experiences of the existing employees with an aim to recruiting them to fill the gap. Technical competencies in this accompany regard areas of operations such as sales management, team management and financial management while business competencies is aligned to areas of operations such as influencing capacities, communication, business leadership and decision-making (Johnson & Scholes, 1999). 3.2 Core Competencies According to Pearson, (1999, p170), core competencies are defined as ‘… a combination of capabilities such as advanced technologies and superior management skills, which provide a firm with a leadership position in the development of core products.’ Core competencies in Mark and Spencer plc developed due to their abilities to develop an overt market presence by building a strong brand name. The brand name of M&C is globally recognized as it was targeted since the inception of the company. The management of the company invested heavily their resources and personnel to enable them to establish a presence in the market by marketing string brand name. Another core competency in the company results from their ability to have excellent quality control of all their stores especially their food stores. Since they are consumables, it is required that the quality of the food be of high quality and fresh at all time. Despite the fact that the stores are over 500 in the UK, they have been able to ensure high quality and fresh foods every day. The customers in the company also enjoy good customer service. This ensures the company’s core competencies since good customer service leads to satisfied customers. Investing in good customer service enables the company to increased customers loyalty (Felsted, 2011b). 3.3 Competitive Advantage Competitive advantage of Marks and Spencer plc lie in being able to do better than most of their competitors. The competitive advantage is manifested in their resources and capabilities. They have superior resources and strong capabilities which are essential in pushing their products higher in the market and producing quality products. The company has been able to offer affordable prices to their customers than most of its competitors. Thy have installed customers base especially in the UK, the brand is recognized worldwide and has a good reputation with both the customers and investors. M&S patents, trademarks and brand equity also help in adding a competitive advantage over their competitors (Barney, 2001b). Marks and Spencer plc has several capabilities that enable them to manage many stores and compete strategically in the market. Their capability rests in their own value chain retail. Their capabilities are witnessed by their ability to offer so many products in the market at the same time and offering high quality products for that. Another capability is their strong management which is characterized by diverse skills and experiences to drive the company to global markets. Mark and spencer has widely cultivated a very good relationship with all their suppliers especially in the UK. Suppliers are very important for this company because, raw materials influence the quality of the products produced. Furthermore, timely supplies mean reliability of the company. The relationship with their suppliers has seen a very good relationship develop over time leading to up to standard delivery (Barney, 1991). 3.4 Dynamic Capabilities Dynamic capabilities are the ability of the business to be able to renew its capabilities and re-organize its resources so as to be consistent with the changes in its environment. The process of change include adapting, integrating, reconfiguring of skills from both internal and external environments, resources and functional competencies. Resources are modified or extended depending on the nature of the change intended (Adner & Helfat, 2003). Dynamic capabilities are essential in understanding how businesses evolve and change completely over time due to changes in their environment, the market or changes interests and preferences of customers. Marks and Spencer plc has gone through dynamic capabilities to regenerate its capabilities and competencies after suffering from decreasing market shares and declining profits in the 1990s. Although the dynamic capabilities of former years had been very successful, 1990s presented very stiff competition to the company thus they needed highly regenerative dynamic capabilities. This was achieved by Stuart Rose as the new CEO who came up with new ideas and transformed the company by creating a new mix of dynamic capabilities. The new mix of dynamic capabilities involved refreshing the resources, changing the procedures of buying suppliers and establishing collaborative relationship with the suppliers. This helped to transform the profitability and raise the market share of the company (Burdett, 2011). 4.0 Part 4: Evaluating Marks & Spencer plc’s strategic capability using relevant tools and frameworks 4.1 Ratio analysis The ratios of Marks & Spencer plc are analyzed to indicate the financial position of the company and the trend in its growth and profitability over time (Evans, 2011). This paper will utilize the financial indicator of the company during three months which have been randomly picked from the London stock exchange database.                                                                                           (Figure in £m)  Particulars 28-Mar-09 03-Apr-10 02-Aprl-11 Revenue 9062.1 9536.6 9740.3 PAT 506.8 523.00 598.6 Debt-equity ratio 2.46 2.27 1.74 ROE 24.13% 23.93% 22.36% Basic EPS 32.3p 33.5p 38.8p Dividend per share 17.8p 15p 17 p Dividend Yield 6.70% 4% 5.00% P/E Ratio 9.5 11.3 9.7 Source: London stocks exchange The ration analysis presented above reveals that: The company’s revenue is on the increasing trends with the growth rate over the shown period being 2.61%. The profit is also increasing with the increase in revenue. The net profit growth rate has been registered at 14.46% after tax. Debt-equity ratios are declining due to the strengthening vale and net worth of the company which consequently decreases the interest burden. Return on equity is increasing thus increasing the competitive edge of the company since it will increase the profits. Return on equity has increased by 20% in this case which is a positive sign. Basic EPS has increased significantly leading to increase in Dividend per share paid to the shareholders. This in turn increases the capital of the company. The P/E ratio has significantly remained the same over the three months which implies that the investors are satisfied with the running of the company. 4.2 Value chain Value chain in Marks & Spencer PLC is a source of its competitive advantage. According to Johnson and Scholes, (2002), “The value chain describes the activities within and around the organization which together create a product or service”. Marks & Spencer activities and operations are devised with a view to offer to the customers the best products in the best way possible. This helps in fostering a competitive advantage in the market while increasing their profitability. Value chain in Marks & Spencer is seen in the endeavors of the company to offer fashionable high quality clothes in high quality fabrics which are marketed at affordable prices. The packaging of the clothes and the distribution is one in a manner which enhances that they reach the customer in satisfying way. Delivery of the products in much emphasized with up-to-date delivering strategies. The food stores also package and deliver their products to the customers in a way which ensures they reach the customers while still fresh and in good quality with a presentable packaging (Felsted, 2011a). Value chain is also appreciated in improved procedures on the inbound logistics so as to manage the many stores, suppliers are also appreciated through establishment of good relationships, the layout of the stores are made attractive to appeal to the customers and other procedures which are meant to improve the impact on the value chain of Marks & Spencer plc. 4.3 VRIN This framework was proposed by Barney (1991). This model seeks to ascertain whether the resources of a company are the source of their competitive advantage. If the resources are positively the source of the completive advantage, them they should be; Valuable – this implies that those resources which attract the company a competitive advantage over their rival companies should have valuable resources over those of their rival companies. The resources used at M&S are valuable since they utilize updated technology and equipment in their production. Rare – the resource used in the company has to be scarce in its accessibilities such that its application in one company gives it a competitive edge over the other rival companies. While demand for the resource is high, the supply should be low. Inimitable – the resources should not be easy to imitate. Nonsubstitutable – the resources should be unique and not easy to be substituted with other resources with the same efficiency. Utilizing this model in M&S supply-chain, we can imperatively deduce that it is both rare and inimitable as it has a streamlined distribution process which is not common in other rival company. This enables them to prepare a fresh food which has not been frozen to retain their freshness but prepare them fresh from the source. 5.0 Part 5: Conclusions and Recommendations This paper has served to provide more insights into the competitive advantage of a business using tools and frameworks of analysis. This analysis has concluded that: Resources and capabilities are utilized by a firm in resource- based view to increase the competitive advantage of a firm in the market. Competitive advantage can either be on cost advantage or differentiation advantage. Core competencies enable the business to increased customers loyalty and consequently, brand loyalty thus increased sales. Mark and Spencer plc has utilized dynamic capabilities to rejuvenate the production of the business after experiencing low productivity or other negative effects. Recommendation The following recommendations were made; Resource- based view should be utilized in business since it is very successful in increasing competitive advantage of the business. Resources and capabilities should be organized properly to allow the business to maximize the competitive advantage. Firms should seek to provide high quality products at low prices. The resources of the firm should be unique, rare, valuable, and nonsubstitutable. 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