Dewhurst Major Supplier for Mark & Spencer Company - Essay Example

THE MARKS AND SPENCER CASE Introduction Marks & Spencer has existed since 1884 (when it was founded as a market stall by Marks); it became a partnership in 1894 when Spencer - a clerk for a clothing company, Dewhurst, which is still a major supplier for M&S - joined him. They moved in food in 1931; opened their first European store (in Paris) in 1975; and went into finance with their charge card in 1985. Their group turnover is 8bn, on which they make 1bn profit (a very high profit/turnover ratio compared to other retail stores). They have 68,000 employees, and serve 15m customers per week. Their UK business provides 90% of their turnover, half from food and half from other sources. Their finance division is currently tiny, but growing rapidly. 300 out of 379 stores are in the UK; their European stores are run as franchises; they also have US subsidiaries under different names. They sell 35% of the UK lingerie market, 25% of men's suits, and 50% of chilled ready meals. For more than half a century Marks & Spencer was the epitome of enlightened capitalism, dominating the British high street and providing shoppers with quality and value clothing unrivalled by competitors. Then in November 1998, profits began to fall and an attempted boardroom coup rocked the company to its core as a tale of ambition, treachery and incompetence unfolded. Within a few months the Press declared open season on what had been its favourite retailer and suddenly the company that had been unable to do any wrong, could do no right. New management and armies of consultants have worked frantically to reverse the trend and in the autumn of 2001, George Davies the creator of Next, launched a new range of fashionable clothes to tempt shoppers back. Whether or not he succeeds, Marks & Spencer may never regain its former status. Role of Marks & Spencer's organizational culture in Fostering or impending paradigmatic change Organization culture: It is the 'basic assumptions and beliefs that are shared by members of an organization, that operate unconsciously and define in a basic taken-for granted fashion an organization's view of itself and its environment'. Such taken-for-granted assumption are also likely to exist at the organizational level-the organizational paradigm-and can be especially important as an influence on the development of organizational strategy. The 80's saw a massive growth of interest in culture and symbolism in organisations by practitioners as well as academics. Culture and symbolism is about meaning and imagery. They are terms used to highlight the softer' features of organisation. The patterning of action within organisation is treated as a web of meanings and symbols rather than as a hard' structure or system. The key to both understanding organisations and to controlling organisations is seen to lie in their analysis as cultures (e.g. values, myths, ceremonies, etc.). The explanation of why people act as they do may lie not in a combination of "objective" and "subjective" factors, but in a network of meanings which constitute a "world taken for granted" (Schutz, (1964) by the participants. Indeed, "objective" factors, such as technology and market structure, are literally meaningful only in terms of the sense that is attached to them by those who are concerned and the end to which they are related... Organisations do not react to their environment, their members do. People act in terms of their own and not the observer's definition of the situation' (Silverman's, 1970) A key for sustainability of all organization is to change and evolve continuously to match with its environment out side its window in which it operates. Until the late 1990s M&S have been very successful. It worked to achieve this esteem by applying a structured formula to all its operations and maintained it by establishing a set of fundamental principles, which were held as core to the organization and used in all of its business activities since its birth. Their paradigm help them in the past but the same paradigm didn't worked in the present and they went through a strategic drift. Marks & Spencer's Culture from its birth to its fall in the late 90s (Their way of doing things) M&S always used British suppliers, neglecting the cost saving they could do if buying from overseas. It had specialist buyers operated from the central buying office from where it was distributed to stores, an aged old formula. The store managers followed central direction on merchandising, layout, and store design, training and so on. All their stores were identical leading to a consistency of image but it also meant conformity, with very little local discretion. There were severe restrictions on how a store manager could respond to local needs of customers. It was not interested to cater to current fashion and trends. According to Richard Greenbury, the chief executive from 1991, " I think that the simple answer is that we followed absolutely and totally the principles of the business with which I was embued. I was the business with the aid of my colleagues based upon the very long-standing, and proven ways of running it". (Johnson & Scholes, 2001). These commitments from the very top to M & S way of doing things had been evident since the time of Simon Marks and for all its succeeding chief executives. The BBC's money programme on 1st November 2000 reported that, since it was known that Richard Greenbury did not want M & S to be at the cutting edge of fashion, buyers concentrated on the types of product they knew he would like- classic, wearable fashions. The same programme also reported on the problems of centralized authority; in one occasion Greenbury had decided that to control costs there would be fewer full-time sales assistance in stores which led to an inability in stores to meet the service levels required by M&S. It also meant that there was sometimes little or no disagreement with policies sent from the above, so that decisions remain unchallenged even when executives or store managers were concerned about the negative effect of the decision. Almost all M & S managers were promoted internally without keeping in mind the suitability of positions. A culture that had been established, and continually reinforced, since the creation of M & S. It was believed that the culture was also strongly reinforced by Greenbury and not helped by his autocratic approach. Therefore these monotonous ways, combined with a hierarchy system with an unchanged and outdated way of doing business, lead to decreasing customer satisfaction and it even lead to lack of honest communication between the senior executives and the chief executive, who felt that the chief might be annoyed with the unsuitability of his plans for the stores, which actually lead to harming the organization itself. Analyst commented that M & S had continued too long with traditional risk-aversive formula and ignored the change in the market place. Therefore it can be concluded that the role of Marks & Spencer's organizational culture in fostering paradigmatic change was not very satisfying, which lead to the fall of the organization in the late 1990s due to huge inequality between the organizations paradigm and their operating environment. But since 2000 with the appointment of the new chairman "Luc Vandevelde" the company is trying hard to keep up with time and regain its position in the market with implementation of new strategies, which were unthinkable in the past. It can be added that M&S is going through the state of flux in their strategy development. Evaluation of the most appropriate tools for analysing the environment facing Marks & Spencer in the 21st century. There can't be a single tool that can be used to analyze the full spectrum of the environment of an organization in which it performs, a proper balance of tools can be used to analyze its environment. The following tools can be used to analyze Marks & Spencer's business environment. Environmental influences and trends can be thought of as being in layers around an organization. The most general layer is the macro-environment where an understanding of political, economical, social, technological, environmental and legal (PESTEL) can provide an overall picture of the variety of forces at work around the organization. It is very important that an organization considers its environment before beginning the marketing process. In fact, environmental analysis should be continuous and feed all aspects of planning. The organization's marketing environment is made up from: 1. The internal environment e.g. staff (or internal customers), office technology, wages and finance, etc. 2. The microenvironment e.g. our external customers, agents and distributors, suppliers, our competitors, etc. 3. The macro-environment e.g. Political (and legal) forces, Economic forces, socio-cultural forces, and Technological forces. These are known as PEST factors. Political Factors The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. One must consider issues such as: How stable is the political environment Will government policy influence laws that regulate or tax your business What is the government's position on marketing ethics What is the government's policy on the economy Marks & Spencer is based in U.K., which has a very stable political scenario, which is very helpful for them, as described above that an unstable government can have unpleasant effect on businesses. Therefore M&S is not facing any current problem due to politics. Economic Factors Marketers need to consider the state of a trading economy in the short and long-terms. This is especially true when planning for international marketing. You need to look at: Interest rates, the level of inflation Employment level per capita, and Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so on. Marks & Spencer's current economic environment in U.K. is favorable as because of low level of interest rate which signals a healthy economy that in turn means more disposable income, which is beneficial for any industry. But M&S needs to consider more in to fashion as younger generation 18-35 mainly uses their disposable income on clothing so M&S needs to focus more here. Socio-cultural Factors The social and cultural influences on business vary from country to country, region to region. It is very important that such factors are considered. Factors include: What are attitudes to foreign products and services Does language impact upon the diffusion of products onto markets How much time do consumers have for leisure What are the roles of men and women within society How long are the population living Are the older generations wealthy Marks & Spencer has outlays in different part of the U.K. as well as in some other parts of the world (recently they opened a store in Bombay, India) therefore they are in vast and diverse sociocultural arena. It is important for M&S to adapt to these changes in customers taste from region to region and be able to cater according to the regional taste will hold the key to success. Technological Factors Technology is vital for competitive advantage, and is a major driver of globalization. Consider the following points: Does technology allow for products and services to be made more cheaply and to a better standard of quality Do the technologies offer consumers and businesses more innovative products and services such as Internet banking, new generation mobile telephones, etc How is distribution changed by new technologies e.g. books via the Internet, flight tickets, auctions, etc The answer to these questions is yes. Marks & Spencer's competitors are more advanced in use of technology compare to them, for example M&S did not have a loyalty card or internet shopping option when almost other retailer had. This technological backwardness can affect in gaining competitive advantage. Though recently M&S have started using technology to increase its potential. Roger Routledge, Corporate IT Architect for Marks & Spencer, explains: "For a retailer like Marks & Spencer, getting product to customers as effectively as possible literally puts millions of pounds on the balance sheet. This is why we decided to use technology to integrate our entire supply chain, from supplier to retail outlet, through companies and industries worldwide." (www document) Use of Poter's Five Force analysis Marks & Spencer's business environment. Analyzing the environment - Five Forces Analysis Five forces analysis helps the marketer to contrast a competitive environment. It has similarities with other tools for environmental audit, such as PEST analysis, Five forces looks at five key areas namely the threat of entry, the power of buyers, the power of suppliers, the threat of substitutes, and competitive rivalry. The threat of entry. Threat of entry depends on the extent to which there are barriers to entry. It is unlikely for Marks & Spencer to have a new entrant in its sector due to high cost of entry and maintenance in the clothing market, which is unlikely to be meet by new small sectors or organizations. M&S is experienced in its field, which has given them easy access to distribution channels; they also have cost advantage on new entrants due to knowledge in its field. The power of buyers Marks & Spencer preferred using only British suppliers. This often led to the situation where the supplier was reliant on M&S as they bought up all the stock the supplier could manufacture. This has given M&S power on their suppliers, as they were dependent on them. The power of suppliers Marks & Spencer's dependency only on British suppliers also meant that M&S came to be reliant on particular suppliers. Which gave enough power to the suppliers over M&S. The threat of substitutes Substitution reduces demand for a particular 'class' of products as customer's switch to the alternatives. M&S faced some amount of threat from Tesco and Sensbury's when they moved into offering added value foods, which had been pioneered by M&S. Competitive Rivalry This is most likely to be high where entry is likely; there is the threat of substitute products, and suppliers and buyers in the market attempt to control. This is why it is always seen in the center of the diagram. M&S do have the threat of competitive rivalry as other companies enter into its market with similar quality goods with affordable similar price and up-to-date fashion. For example Gap, Oasis and Next has started offering similarly priced goods, yet more design focused with up-to-date fashions. Using SWOT on Marks & Spencer's environment. SWOT Analysis: SWOT analysis is a tool for auditing an organization and its environment. It is the first stage of planning and helps marketers to focus on key issues. Once key issues have been identified, they feed into marketing objectives. It can be used in conjunction with other tools for audit and analysis, such as PEST analysis and Porter's Five-Forces analysis. SWOT stands for strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are internal factors. A word of caution, SWOT analysis can be very subjective. So its better not to rely on it too much. Two people rarely come-up with the same final version of SWOT. So it is better use as guide and not a prescription. SWOT analysis on Marks & Spencer To analyze M&S's environment using SWOT the following points can be described: Strengths M&S were renowned for their attention to detail in terms of supplier control, merchandise and store layout. The success M&S under Simon Marks was often attributed his understanding of customer preferences and trends. To provide highest standards of quality. To encourage suppliers to use the most modern and efficient production techniques. Weakness It stocked generic clothing range with wide appeal to the public: buyers often had to make choices, which would outlast the fashion and trends seen in other high street retailers. This lagging behind in case of introducing up-to-dated fashionable clothing to keep pace with the environment actually made them vulnerable to their competitors. They always used British suppliers believing that it would give them highest quality actually made them weak to challenge the competitors in its environment who were using overseas suppliers to keep the costs down which gave the competitors cost advantage on M&S. Opportunities To survive in today's world globalization is important. M&S have a wide opportunity to go global to improve and expand its business. They also have the opportunity to include more overseas supplier, which will actually give them cost advantage, as suppliers then can be available on a local level. Before they are able to take these opportunities they need to fix themselves up more strongly in U.K. first. They also have the opportunity to use available technology to improve their functioning and to gain competitive advantage. Threats They are in strong competition with Gap, Oasis and next, who are offering similarly priced products yet more fashionable. M&S is also in some amount of competition from discount stores like Matalan, and "George" range at Asda. M&S is also in threat from Tesco and Seinsbury's who moved into offering added value foods, which had been pioneered by M&S. Competitive Scope and Value Chain The argument of Porter (1985) was that the lowest cost producer in either a broad or narrow competitive scope: Delivers acceptable quality but produces the product or services with lower costs than competitors. Sustains this cost gap. Achieves above-average profits from industry-average prices. Effective management is the key determinants of costs, which can be achieved with Proper and strong value chain management. Individual organizations are a part of a bigger 'system' resource activities and processes that link organizations together. Which is known as value chain. It is all about where activities are located in the value chain, how they are performed and managed and how they are linked together will determine the value that the customer receives in the final product. The value chain describes the activities within and around the organization which together creat a product or service (Johnson and Scholes, 2002) It is the cost of these value activities and the value that they deliver that determines whether or not best products or services are developed. In turn this underpins competitiveness. To improve profitability and foster competitive advantage Marks & Spencer should focus on delivering goods to its customer in the best possible way. i.e. the customer should receive a product that should satisfy him completely ie to deliver a up-to-dated, fashionable, high quality garment to the customer at an affordable competitive price. To achieve this M&S needs to improve its strategy in relation to its inbound logistics, operations, suppliers, store designing, layout etc. The warehouse should be clear of old stocks to make space for new up-to-dated stocks, they also needs to look at improving in packaging and related issues. M&S also needs to consider more overseas supplier to save cost in buying which will in turn help them in delivering its customer at a cheaper rate. M&S should also consider the store designing in a way that should give space and comfort to the customer while browsing, for example clothes should be displayed in range and categorized according to different age group. Apart from these M&S should also consider more use of technology to facilitate its internal official functions that will intern help in smooth and fast running of its services to its suppliers as well as to its customers. There is no doubt that they have already taken major steps towards it, for example IT department in M&S have around 650 staff (two-thirds in house, one-third outsourced). Their computers possess a combined power of 1700 MIPS, with a storage capacity of 8.7 terabytes. The company is dependent on the data they collect, so mirror all their data to ensure full disaster recovery. Their core is an IBM OS/390 mainframe; their desktops and portables are standardized on Windows NT. Key features of these: The environments are converging: mainframes are great for processing data but have a lousy user interface, while NT is the other way around Component-based development is crucial: buying large chunks of functionality from commercial suppliers and plugging them together Server-centric, browser-based applications: PCs completely standardized so that they can be updated quickly (but they are not interested in network computers) Intelligent/knowledgeable infrastructure is key - providing a global directory structure, supplying knowledge as well as connection. Most software at M&S is bespoke, so component transition is hard: encapsulation is crucial. Therefore there is no doubt that they have improved a lot but they still need to do more. M&S should also look at improving its existing infrastructure in finance, quality control, and information management. Conclusion Marks & Spencer is a good current example where a substantial gap between reality and perception is now seriously questioned by the shopper. For forty years, Marks & Spencer has been setting standards in customer service; affordable quality of merchandise and overall customer appeal and the perceived value of its goods were high. Now, rivals have matched Marks & Spencer in all these areas, therefore to compete and survive the challenge and the competition Marks & Spencer will have to change its strategy of doing business. There is no doubt that they have already taken steps but now it's the time to present an old wine in a new bottle. Bibliography David, Fred R. Strategic Management, 1995, Prentice Hall,Inc. Hitt, Michale A. Competitiveness and Globalization: theory and cases, 1996, West Publishing Company Pearce, John A. Stratigic Management: formulation, implementation and control, 1991, Richard D.Irwin, Inc. Johnson,G. Scholes,K, Exploring Corporate Strategy, 2002, Pearsons Education Limited. Read More