Market Performance of Marks & Spencer - Essay Example

Marks & Spencer PLC Marks and Spencer PLC (M & S) is known as an international retailer with 718 locations. The Group has a worldwide reputation, selling items in 34 countries. "The company was always considered to have a great management support that helped in its growth. But the last years, M&S's managers seem to fail on their strategic decisions, leading the group to lower and lower sales and profits" (Marks and Spencer PLC, n.d.). Sales decline was 4.8 % in 2000. The tools and frameworks applied to marketing in the UK do not differ to those used to market products in other countries. Identifying these issues and assessing their effect on strategy provides the basis for the M&S to analyse the causes of sales decrease and possibility to develop a new strategic plan in order to obtain a strong market position. Internal analysis is concerned with providing management with a detailed understanding of the business, how effective its current strategies are and how effectively it has deployed its resources in support of its strategies (Johnson, Scholes, 1998). Marketing strategy provides firms with the framework for planning their business activities to develop and sustain competitive advantage. A large number of tools and systems have been developed by marketing managers and theorists to assist this process, these falling into three main generic categories: defining market opportunities, fitting the capabilities of the firm to the identified opportunities and the 'marketing mix' - the strategies adopted and implemented by the firm including product, price, promotion and distribution issues. Form the environmental perspective, the end of 1990s was marked by the changes on the European market which altered many of the parameters of competition and thus enforced a period of reassessment and adaptation. The opening up of the market and the resultant increased competition has widened the perspective of the planning framework with profound implications. The threat was that the removal of physical barriers to trade and the new-found freedom of movement around the European market have served to catalyse European expansion and in so doing raise the degree of European trade. According to the market servey 2000, M&S faced decline in its operations during this period, and had to close some retail store in Europe and aroud the country. To explore the results of decline McKinsey 7-S Model can be used. This model was proposed by Robert Waterman and explained: "it is not enough to think about strategy implementation as a matter only of strategy and structure" (McKinsey 7-S Model, n.d.) Taking into account the McKinsey 7-S Model which is based on the interrelationship of strategy formulation and implementation, it is possible to say that a strategy developed by agers of M&S was a effective for world's integration failed at the stage of implementation. The 7-S views culture as correlation of: strategy, structure, systems, style, staff, skills and shared values. According to Waterman "If a 7-S analysis suggests that strategy implementation will be difficult, managers either can search for other strategic options, or go ahead but concentrate special attention on the problems of execution suggested by the framework" (McKinsey 7-S Model, n.d.). In general, corporate culture is the pattern of values, norms, beliefs, attitudes and assumptions that may not have been articulated but shape the ways in which people behave and things get done. Values refer to what is believed to be important about how people and the organizations behave. Norms are the unwritten rules of behaviour (Cole, 1990). Communication, employed by M&S, is affected by internal and external environment, by the nature of the task and technology. For example, difficulties in communication arose with production systems where workers were stationed continuously at a particular point with limited freedom of movement. Even when opportunities exist for interaction with colleagues, physical conditions may limit effective communication. The term organizational climate is sometimes confused with culture and there has been much debate on what distinguishes the concept of climate from that of culture (Johnson, Scholes, 1998). In the analysis of this issue, it is possible to say that culture in M&S had the appropriate structure of organizations, which was rooted in the values, beliefs and assumptions held by organizational members. It is easiest to regard organizational climate as how people perceive (see and feel about) the culture existing in their organization. While involvement was highly desirable, there were situations when management had to carry out the analysis and determine the actions required without the initial participation of employees. In M&S the strategic process was based on the process of decision-making which means formulation of overall strategies for operations, typically involving interrelated areas of responsibility within operations management, and the making of decisions in these areas in pursuit of these strategies within the broader business context. Culture support and reinforcement programmes in M&S were aimed to preserve and underpin what was good and functional about the present culture. The most powerful primary mechanisms for culture embedding and reinforcement were: what leaders pay attention to, measure and control; leaders' reactions to critical incidents and crises; deliberate role modelling, teaching and coaching by leaders; criteria for allocation of rewards and status; criteria for recruitment, selection, promotion and commitment. The main mistake of M&S was that to company pay attention to internal cultural norms and values, but did not analyse the external cultural differences of the countries it located its stores. Many problems associated with the relationships between people of different cultures arise from variations in norms and values. At its deepest level, however, culture comprises a set of basic assumptions that operate automatically to enable groups of people to solve the problems of daily life without thinking about them. In this way, culture is that which causes one group of people to act collectively in a way that is different from another group of people. For international retailer compny like M&S, the key advantages of convergence are that ideas and techniques developed in one cultural or national setting may be transferred to another and used effectively. Belief in the transferability of techniques has led management to turn elsewhere for solutions to problems. These variables shape the values and hence the behaviour of people operating in work organizations and enable us to explain differences in the way different countries conduct their business affairs. They may also explain why work systems developed in one country will not work in another. For example, American workers disliked the work system which placed a great deal of emphasis on group work. The 'culture-specific' hypothesis claims that cultural influences in different societies will result in different styles of organization behaviour and different patterns of organization structure, as well as variations of influence in the business environment, such as the role of the state or trade unions. As a result, the policies of multinational corporations may well need to vary in different countries and managers operating out of their home environment need specific training in cultural differences (Griffith, Hu, Ryans, 2000). The other problem lies in the facts that no specific competitive strategy is guaranteed to achieve success. M&S having successfully implemented one of Porter's competitive strategies had found that they could not sustain the strategy. Each of the generic strategies has its risks. For one thing, cost leadership can be imitated by competitors, especially when market of goods changes rapidly. M&S tried to follow differentiation which was imitated by the competition, but it was less important to buyers. And it was one of the reasons led to a decline in global market. Therefore the immediate challenge for M&S was needed to ensure sensitivity to local market needs, which in some instances meant adaptation. As markets are dynamic, with changes in economic conditions, political influences and consumer behaviour constantly shaping and reshaping demand and supply conditions, marketing strategy needs to be flexible and responsive, but M&S followed the "old" strategy and was not flexible to the changing economic conditions. "the executive chairman Luc Vandevelde asked shareholders to be patient as the new management transforms the group from a traditional retailer into a multi-channel retailer with unique customer understanding (Marks and Spencer PLC. Case study, (n.d). According to the theoretical framework, competitive advantage depends on three key issues: the environment in which the firm operates, the resources of the firm and the decisions made by the organisation's management. Along with the geographic environment which dictates economic, political, legal, social and cultural factors, the competitive environment is a key element in any analysis of market opportunities. Porter (1985) asserts that a profound understanding of the industry (which includes all the firms competing within the industry) lies at the centre of the establishment of competitive strategy. He identifies five key factors: the threat of new entrants, which embraces barriers to market entry; the threat of substitute products or services, which dictates the boundaries of the market; the rivalry among existing competitors, in other words, the changing strategies and consequent levels of performance; the bargaining power of buyers; the bargaining power of suppliers, both of which dictate the position of power of the firm in the chain of economic exchange. M&S did not take into account that the removal of barriers to entry created additional competitive pressure. On the global market, barriers to entry can take a number forms. The size of the investment required by a business wishing to enter industry will be an important determinant of the extent new entrants. In this case, M&S was subject to a complex regulate framework whereas others was less so. Still, even if it is possible to predict the needs of customer it is difficult to predict a new entry. M&S was one of those firms which had a great start with strategic leadership policy, but failed, primarily because of the short-sighted strategy. Rivalry among existing firms was also changing in response to developments in competition. The relative ease with which M&S emerges in a large market, suggests that the threat to existing M&S was not essential because company has a strong brand image, but at the end of 1990s it failed with price differentiation policy. It increased competition and resulted in a highly volatile market. M&S faced considerable competition from the large number of other companies. For this very reason "The Company will return to selling only own brand products and brands exclusive to M&S so it can guarantee customers the quality, value and service they have come to expect. Central to the recovery plan is the delivery of significant improvements in product appeal, availability and value thereby rebuilding the relationships with core M&S customers" (Marks and Spencer PLC. Case study(n.d). So, the threat of substitution was not predicted by M&S as well. It is known that a substitution occurs where a consumer is able to replace the product with a different type of product performing the same service or satisfying similar needs. Price competition, backed by improved efficiency, are likely to feature highly as firms fight for survival in markets faced with over-capacity. Within rapidly changing environment this kind of development ensures that long-term survivors are those firms who are more competitive and are better able to satisfy consumer needs and adapt to the new competitive environment. M&S was not able to sustain market leadership in Europe, the USA and the UK and could not "win" the price competition. A period of rationalisation, while painful for firms who fail to react successfully to the new competitive challenge, is an essential part of raised profile in the world economic order, promoting competitive firms with the capacity to thrive on a global scale. Administrative and legal environment was very favourable for M&S in the UK and Europe and did not influence the market activities of M&S. There were no specific regulations governing the goals and structures of the industry, and there is no constitutional restrictions or legislative mandate that restricts leadership of retail stores. The social environment includes general forces that do not directly touch on the short-run activities of the organization but that can, and often do, influence its long-run decisions. Economic forces regulate the exchange of materials, money, energy, and information. Political-legal forces allocate power and provide constraining and protecting laws and regulations. Socio-cultural forces regulate the values, mores, and customs of society. From the state perspective the business area in Europe and the UK where M&S operates is very attractive for other businesses which wants to replace M&S. In the longer term, following the expected period of rationalisation, remaining industry players will be those who have attained a high degree of efficiency. It is likely at this point that competition will be more technology and differentiation driven than based on price as firms attempt to preserve profit margins within the industry. M&S management did not account this aspect of marketing strategy and did not pay enough attention to service and products quality. According to the theoretical framework three important elements of competitive strategy include: competitive performance, competitive potential and the management process. The critical feature of the model is the inter-dependence between the three elements. Basically, firms set themselves performance goals which are seen as attainable, and which shape the strategies followed by the organisation. In many cases this involves setting targets for profitability and market share (Sterman, 2000). The achievement of these goals is dependent on investing in an appropriate set of critical resources to create the potential for doing business and ensure that performance targets can be sustained in the long term. For example, this includes investing in R&D to create new technologies, cost cutting programmes to ensure that business is conducted efficiently and investing in new plant and equipment to ensure that production efficiency is maximised. There is quite clearly, then, a relationship between performance and potential; it is essential for the firm to generate profits for reinvestment in the business if it is to keep up with dynamic changes in the market. This may involve it creating new technologies which keep it one step ahead of the competition or matching the technologies of competitors. Failure to keep abreast of new developments resulted in ultimate failure as the market moved forward but M&S did not. Ultimately it can be argued that management is the critical change agent and it is here that the success or failure of the firm depends. Taking a global view of the challenges facing the firm, focusing on key areas of the business and commercialising technologies all play a role in the management function (Johnson, Scholes, 1998). Because the market has moved on and M&S has not, there was a gap between the skills required to compete in the market and those possessed by the firms. In these situation M&S faced with four distinct options: to build up the resources required to compete in the market by closing the gap between the firm's competencies and the assets required to compete. In this case, the best collusions for M&S which attempts to close the gap between its skills and those required to compete in the new internal market are likely to be those who are planning for competitiveness and are actively involved in re-investing profits in new critical assets. M&S may choose to concentrate on its core strengths and rationalise its portfolio, focus its activities on a particular geographic area or centre on a particular user segment. M&S, like those in the competitive group described above, as a result of being able to adapt to changing competitive demands, is likely to survive in the long term. Unfortunately as M&S lacked the ability and resources to adapt to the changes and who therefore chose to maximise short-term profitability at the expense of sustainable competitive advantage it was not able to compete on the global market. An examination of how strategy is formed gives useful insights into the nature of strategy itself. SWOT is normally associated with more rational approaches to strategy formulation but perhaps its greatest contribution lies in providing the management strategist and student of business a broad framework for analysing the position of a firm at a particular moment in time (Sterman, 2000). It can also be useful in the development of a number of strategic options which attempt to tackle opportunities and threats, build on corporate strengths and avoid weaknesses. An important consideration is that for most management there is a choice of strategy. The strength of M&S was that it's goods obtained a very competitive position on the global market. The company was ruled by the management team which was able to raise the price level and gain more or less strong market position. At the very beginning the opportunities included high potential to growth and profitability of the company, and professional management team, customer loyalty and excellent service. On the other hand, there had been a lot of threats and weaknesses that were not taken into account by M&S and prevented the stores from rapid growth. The situation suggested that decreasing consumption and increasing competition could cause the decrease in prices. The failure was caused by negligence of the company's management team. The other cause of the decline was that M&S market is a very fragmented in terms of supply, with a large number of smaller operators being characteristic. The majority of businesses offer goods to a relatively small geographical area, particularly in the retail segment. A frequent complaint is marketing's preoccupation with short-term thinking, and an almost total lack of 'strategic thinking', or considering the longer-term implications of external and internal influences on the organization. Another complaint is that marketing plans consist largely of numbers, which bear little relationship to, and offer little insight into, current market position, key opportunities and threats, significant trends and issues, or indeed, how to meet sales targets. Financial objectives, while being essential measures of the desired performance of a company, are of scant practical help, since they say nothing about how the results are to be achieved. M&S characterised as a 'global' retailer contained a degree of adaptation in order that it met local consumer and competitive requirements. Alternatively with an adapted approach, which involves products being developed on an individual market-by-market basis, the duplication of effort in product development, production, distribution and promotion resulted in many functions failing to achieve an optimal scale. However, by tailoring products to individual market needs M&S failed to raise its performance in each market it served as it was not able to better satisfy local needs and sensitised company strategy to local cultural differences. Generally M&S has an aim to achieve certain standards, or levels, on these dimensions, and operations managers will be influential in attempting to achieve these standards. Normally M&S will not aim to maximize customer service in all three areas. Using a selection of operations change techniques the organization has a possibility to achieve benefits improving the performance of operations. The changes can be incremental or major in their nature, but each type provides specific advantages to deliver customer satisfaction. The new plan proposed by management team suggests "in order to be more customer oriented, some stores in big cities will be opened 24 hours per day" (Marks and Spencer PLC. Case study n.d). One way in which M&S can deal with the low quality problem was to centralize their administrative activities and consolidate their supply-chain management. M&S will succeeded in reducing costs in the next few years of the decade by improving its ordering and supply control systems. It can be seen to encompass both the value delivered to the customer by the supplying organization, and the value received by the supplying organization from the customer (the return on investment). This return on investment, in its broadest sense, includes the actual business profit generated by the customer relationship, and the wider customer insight gained from it. Clearly, the revenue-producing capacity of the organization depends on the accuracy with which it is able to define and meet customer need. For M&S training is necessary to ensure an adequate supply of staff who are technically and socially competent, and capable of career advancement into specialist departments or management positions. The ability to motivate and inspire employees is now a core competence for M&S. Much of management behaviour is culturally determined and that the key to successful international management lies in the understanding of these cultural differences. For example, in countries such as the USA, Switzerland and Germany, the prevailing culture is much more universalistic and rules are applied irrespective of the situation. On the other hand, cultures such as Malaysia and Indonesia tend to apply rules in a much more particularistic fashion and personal relationships can be more important in some situations than the rules governing conduct. Bear in mind the information mentioned above it is evident that new M&S strategy should include the determination of the basic long-term goals concerns the conceptualization of coherent and attainable strategic objectives. Without objectives, nothing else can happen. The adoption of courses of action refers to the actions taken to arrive at the objectives that have been previously set. The allocation of resources refers to the fact that there is likely to be a cost associated with the actions required to achieve the objectives. References 1. Cole, G.A. 1990. Management: Theory and Practice. Third edition, DP Publications. 2. Griffith, D. A., Hu, M. Y. and Ryans, J. K. Jr. 2000, "Process standardization across intra- and intercultural relationships". International Business Studies, 31, pp. 303-24. 3. Johnson, G., Scholes, K. 1998. Exploring Corporate Strategy. Hemel Hempstead: Prentice Hall. 4. Marks and Spencer PLC. Case study (n.d.) Available from: www.econ.upf.edu/docs/case_studies/16.doc -[Accessed 16 Aug 2005] 5. Marks and Spencer PLC. Marks & Spencer Reduces Loss, Achieves ROI of 415% Using Visual Studio .NET 2002. Available from: http://www.microsoft.com/resources/casestudies/CaseStudy.aspCaseStudyID=12376 [Accessed 16 Aug 2005] 6. Mc Kinsey 7-S model. (n.d.) Available from: members.tripod.com/infbprpros/mckinsey7.html [Accessed 16 Aug 2005] 7. Porter M.E. 1985.Competitive Advantage. New York, Free Press. 8. Sterman, J. D., 2000. Business Dynamics: Systems Thinking and Modeling for a Complex World, Irwin McGraw-Hill, New York. Read More