PEST Analysis of Marks & Spencer - Case Study Example

PEST Analysis Terms of Reference This report is an examination of the Political, Economic, Socio-Cultural and Technological situation being faced by Marks & Spencer (M&S). The report is geared towards those who are stakeholders in the organisation and also contains recommendations for the management of the company which they can use to improve their present situation. Procedure Getting information about Marks & Spencer was not too difficult since it is one of the premier organisations in the UK. There are many reports, published articles and case studies about the company of which the report produced by Martin Christopher and Helen Peck at the Cranfield School of Management, Cranfield University is quite valuable since it provides essential insights into the operations and workings of the company. Additionally, other news sources and information provided by various stations helps in understanding the present social, economic and political situation which can affect the running of the company. The company’s own website is quite reflective of how it changes depending on the occasion and the need of the day (M&S, 2007). In fact, getting information about the PEST analysis and the application of the analysis itself can be considered a greater task for this project. Findings The findings on Marks and Spencer are written as description and history of the company followed by the explanation of the PEST analysis and why it would be useful for the organisation. With that, an in depth PEST analysis is made for M&S and its present situation as a business to finally give positive recommendations for the company to improve its future situation based on the political, economical, socio-cultural and technological changes which are present or coming soon. The Nature of the Company Marks and Spencer is a publicly traded company which is mainly in the retail business and caters to nearly all segments of the retail market. Its particular focus is on the clothing and food sectors but it also stocks other goods for its clients. For Marks and Spencer, the history which can be told is of Michael Marks and the way in which he established the company for the first time by expanding and developing the line of products which was sold for one penny apiece (M&S, 2007). Another person which was added to the mix was Mr. Spencer who was a cashier for a supplier of the company but eventually rose within the ranks to become a partner of Mr. Michael Marks to make the company be named Marks & Spencer (Christopher and Peck, 2003). The take over of the son from the father establishes another historical tradition in the company which supports the idea of promoting from within since Simon Marks was the one who replaced the founder of the company in terms of management. His influence on the company also led to the establishment of the St. Michael brand which was considered an upscale brand for many years (Christopher and Peck, 2003). A feeling of camaraderie and fellowship is also prevalent in the company since this was the atmosphere the store was born into and this feeling is always important for a company which runs like a family business (ONeill and Kramar, 1999). The company was able to create effective control mechanisms because it could train, retain and develop many individuals who joined the company at lower ends and then rose within the ranks to many top positions within the company. A long term commitment with the company meant that only the stars of the business would come to the top (Wilson, 1999). Marks and Spencer was offering these individuals a career rather than a summer job or a part time work position and could control how they functioned within the company. However, even if they rose to the position of management within a store, they could not control what was to be offered for sale on the basis of local demands since the home office managers had the power to decide that (Christopher and Peck, 2003). Similarly, the input from family members who controlled and governed the company also established the control mechanism of working with insiders rather than individuals who come from the outside of the company. This certainly helped in maintaining and reinforcing the cultural architecture that M&S was used to rather than to bring about any change that could have allowed the company to meet the demands of new customers or the rapidly changing tastes of its present customer base. However, as recommended by Welch (2005) not responding to changing scenarios can be painful in the long run and so M&S has to continually realise the changes in the market situation which can be quite well understood with a PEST analysis. What is a PEST analysis? The PEST Analysis for a company leads to a better understanding of the big picture which the company has to see for establishing future strategy and direction. PEST Analysis is a an easy to apply, simply and often used tool that helps in understanding the Political, Economic, Socio-cultural and Technological situation in which a company is placed (MindTools, 2007). Importance for a Company By using a PEST Analysis, the company can align its strategy with what is going on in the real world and understand the changes which may be coming in the future that affect the business in a positive or negative manner. This helps in getting a great deal of certainty about understanding that what the company is doing presently is in line with the market trends and that they might be a step ahead of the competition (MindTools, 2007). At the same time, the company may realise that certain actions are completely out of sync with that which is going on in the rest of the world and such activities have to be reduced or stopped altogether. Most importantly, PEST is a very good tool if the company is planning to expand into new markets or to start operations in a different country where all elements of the PEST analysis could be very different from the home base (MindTools, 2007). Analysis of the impact of the external macro environment on M&S Using the PEST analysis on Marks & Spencer also means analysing several different markets where the company operates as well as the home market which is very important for the company. As recommended by Flint (2003), “Theres no place like home. No matter how exciting China is, no matter how exciting it is to acquire foreign companies, the heart of the business is always at home. He who doesnt protect his home market first is a loser (Flint, 2003, Pg. 114)”. Political For the UK market, the political situation for Marks and Spencer is quite stable and the support given to various businesses by the UK government is quite helpful for the political situation of the company. However, the EU has recently created a consolidated legislative situation for the company in terms of the food business. The 2006 Food Hygiene Legislation came into being after several years of developing food safety laws and many different amendments to the same laws. The common market and the formation of the EU meant that laws across different nations had to be consolidated with laws that affect the processes by which food is produced across the EU (Jean, 2006). There are three significant regulations which make up the new laws i.e. regulation (EC) 852/2004 on the cleanliness of food, regulation (EC) 853/2004 which gives very specific laws for the origins of animals that are to be used in food products and regulation (EC) 854/2004 that gives the rules for the official controls on meat or dairy products of animal origin intended for human consumption. Prior to these regulations, the idea of food safety on farms or on other locations where meat and dairy products were being produced was not very cleat but the consolidation of these laws means that primary producers are also given the responsibility of producing clean food (Food.gov, 2006). Similarly, the legislations preventing trace elements and contaminants were not adequate for the continual maintenance of public health (Berg and Licht, 2002). While the legislation creates new laws, it also comes with Directive 2004/41 that repeals the previous EU legislation and with some exceptions, creates amendments for the legislation that still exists (Food.gov, 2006). The laws find their justification in the fact that all food businesses have to be registered with the required authorities such as the environmental health department, the meat hygiene service or other authorities which are connected with their business. These laws can even have severe effects on the prices of raw materials or the price paid to producers for their supplies (Huxley, 2006). It can be said that including producers in the food chain is rather an extreme measure but the legislation justifies this by saying that the intent of the law is to ensure the safety of food from all possible angles (Ecologist, 2006). Therefore, the conditions of the production of animals which are to be used in food products also have to be brought under rules and regulations (Food.gov, 2006). With this, the governing body aims to prevent, eliminate or at the very least control the various pathogens and harmful bacteria which can contaminate the food supply. This is certainly important for the consumer as well as Marks & Spencer. Viruses such as the Bird Flu Virus or the Mad Cow Disease have often scared many individuals out of eating meat and have even caused panic in the agricultural sectors of the economy. The motivation of the laws may have been political since it shows how the government seeks to prevent the outbreak of such diseases by ensuring that laws are in place to prevent them. At the same time, the economic effects of having these laws in place can not be denied since a stable market for food products across the EU is very desirable for M&S. Economic Situation In the early nineties, the company had a significant opportunity to revamp and capitalise on the classic image of the Marks & Spencer brand name which it did not and lost a chance to break into new global markets which were coming up for the rest of the clothing industry (Christopher and Peck, 2003). Internationally Developing markets and even local opportunities such as online sales, cross promotions, loyalty cards and other means of retaining customers and repeat sales were not utilised affectively which meant that the in the present economic situation, the company has to acquire new customers or simply continue to appeal to them on the basis of the M&S brand. International expansion and improvements in sales for growing markets is still a significant opportunity for the company since the emerging markets of the Pacific Rim as well as locations in South East Asian countries can serve to add up to the profits. As we know today, these markets have become very important and those who entered them early have a clear advantage over those who did not (Welch, 2005). Although the company entered the American market as Brooks Brothers, it could not capture the market figures it needed for stable placement. Similarly, the European expansion plans can be seen as an opportunity that was more or less lost in the 90s (Christopher and Peck, 2003). However, M&S is currently profitable and recently gave out a dividend of 9.2p per share in 2006 which is up from 7.5p in 2005. The total dividend increase from 2005 to 2006 shows a rise of 15.7 (M&S, 2007). As a mature company in a very late stage of its cycle, the economic situation certainly demands that Marks and Spencer reinvent itself on a regular basis as it opens up to the global markets. It is expected that the economic conditions in South Asian countries as well as those in the Pacific Rim will continue to improve and therefore M&S should place itself as an appreciable brand in those locations. Socio-Cultural Analysis The biggest threat which the company presently faces is competition coming from America in the shape of retail chain stores such as GAP and others in the same league which provided quality service and reasonable prices (Christopher and Peck, 2003). Similarly, in the retail food industry, competition from giant suppliers such as Tesco and others is hurting the sales for Marks and Spencer. Most importantly, technology and environmental changes in the industry were not kept up with because the company did not optimise its supply chain nor did it introduce online shopping for its customers till late (Marks, 2005). The reason for this is simple because Marks and Spencer had simply been left behind in a time that was moving forward and since the company could not see how the customer had changed, they did not know how to change themselves. However, the new corporate image of the company contains elements of recognising changing cultural conditions since the target of the image change is mainly new customers. The stores have stopped using the classic green bags and the St. Michael brand was downgraded by the company. In fact, to retain present customers as well as to attract new customers the company changed everything that it could possibly change including the uniforms worn by the staff. For existing customers, M&S developed their haute couture range and the products themselves came to be sourced almost exclusively from Asian manufacturers. Luc Vandevelde (The former CEO of the company) accepted that the company had lost its path with the customers and need to change itself and its outlook based on the new culture coming up in the world. With a need for this change he further divided M&S into five different segments to better focus on product development. Recognising cultural differences, Marks and Spencer moved out of markets it could not compete which eventually led to legal complications in France and financial difficulties in North America (Christopher and Peck, 2003). Using the culture of sales and discounts which has been popular in the UK for some time (Storey, 1999), Factory outlet malls is one area into which Marks and Spencer stepped in by using them as a diversified outlet for their products. Although the competition had been doing the same for years, M&S took this step only after Luc Vandevelde became the chairman of the company. Similarly, Marks and Spencer produced a new classic look which was certain to appeal to its core customers who were used to getting a certain level of product quality and basics from Marks and Spencer. As long as that image of cultural acceptance and the presence of a root market where the products sold by Marks and Spencer continue to be appreciated, the company should remain quite happy. Technological Environment Perhaps the biggest change in the technological environment for retails has been the advent of RFID for tracking and locating goods within the supply chain. Companies such as Wal-Mart have already made RFID tags a necessity for their suppliers and producers but others are still on the fence about it (McClenahen, 2005). M&S can certainly benefit from using these tools to optimize its supply chain especially in the food business where tracking of food items being shipped by air to preserve their freshness is essential. Similarly, technology can also play a big role in the process of selling as well as the manufacturing of the company’s clothing lines. With the use of e-marketplaces and other tools of communication, the company can significantly change the way it acquires the goods it wishes to sell around the world and this can be done by creating an online portal for its suppliers much as Covisint has done for the automobile industry (Rayport and Jaworski, 2000). Conclusion While Marks and Spencer has made significant advances in improving its condition from just a few years ago, developments in the political situation with new regulations for food sellers as well as the technological changes which are affecting the retail industry are very important issues which need to still be managed by the company. Cultural issues and Economic issues appear to be lesser problems for the company since the cultural changes which are coming up do not appear to have any negative effect on the company since it has recognised the change and seen the profits which result from having a positive cultural understanding. In the long run, the economic development of the Asian market will be very important for Marks and Spencer and since brands such as GAP and other clothing suppliers have already entered markets in many Asian countries, M&S will have to move fast in order to capitalise in those regions. Luckily, the brand recognition of Marks and Spencer is quite high around the world therefore if the company does decide to go more into the Asian markets it would be likely that the audience is receptive. Recommendations to improve future performance While the supply chain for the company has changed significantly because of a changed focus on suppliers from abroad, the company might be able to bring future improvements in optimising its supply chain if it uses tools such as RFID and online tracking for its supplies (McClenahen, 2005). It should try to acquire more customers from the internet and diversify further into home shopping (Rayport and Jaworski, 2000). While things such as online shopping and a number of goods from the company are already available on the website of the company the selection could certainly be improved. The company needs to have structural changes in place when it expands deeper in the Asian markets while maintaining a hold on the local market. Since the company is clearly interested in volume sales as well as repeat business, it has to compete on price and quality in much the same way and using the same tactics that other manufactures and sellers of ready made clothing have to employ. However, they must also maintain their brand image and levels of quality that other sellers can not. The might entail careful manipulation of the brand since to be seen as an expensive brand in the market is certainly a good thing but to be seen as outrageously expensive brand which has no room for younger buyers is to be placed out of the volume game quite quickly. Marks and Spencer’s placement as a food retailer is also shaky, since the price competition from value brands and lager markets will certainly hamper its efforts to break their stronghold. However, this can be tackled with complying with EU food legislations before other sellers take the advantage of being the first movers. Overall, it seems that the PEST analysis for M&S shows that the company is on the way to being more in line with social and economic elements but the political and technological elements might need a bit of work before they are aligned with the strategy of the company. Knowing that Marks & Spencer has successfully reinvented itself several times in the past, I feel that it can certainly handle those challenges which are presented by the future. Works Cited Berg, T. and Licht, D. 2002, ‘International legislation on trace elements as contaminants in food’, Food Additives & Contaminants, vol. 19, no. 10, pp. 916-927 Christopher, M. and Peck, H. 2003, ‘Moving Mountains at Marks and Spencer’, [Online] Available at: www.cscmp.org/Downloads/CaseStudy/ms.pdf Ecologist, 2006. ‘EU Sets Dioxin and PCB Levels for Food and Feed’, Ecologist, vol. 36, no. 2, pp. 12. Flint, J. 2003, ‘Rules of the Game’, Forbes, vol. 172, no. 9, pp. 114-115. Food.gov. 2006, ‘Background to the 2006 food hygiene legislation’, [Online] Available at: http://www.food.gov.uk/foodindustry/regulation/europeleg Huxley, R. 2006, ‘EU funds boost local food sector by 50%’, Farmers Weekly, vol. 145, no. 24, pp. 18-19 Jean, M. 2006, ‘The food industry and health’, Lancet, vol. 368, no. 9546, pp. 1490. M&S. (Marks & Spencer). 2007, ‘The Company’, [Online] Available at: http://www2.marksandspencer.com/thecompany/index.shtml Marks, P. 2005. ‘Fashion industry covets iPod factor’. New Scientist; vol. 186, no. 2502, pp. 26-26. McClenahen, J. 2005, ‘Wal-Mart’s big gamble’, Industry Week, vol. 254, no. 4, pp. 42-49. MindTools. 2007, ‘PEST Analysis: Understanding "Big Picture" Forces of Change’, [Online] Available at: http://www.mindtools.com/pages/article/newTMC_09.htm ONeill, G. and Kramar, R. 1999, Human Resources Management, Allen & Unwin. Rayport, J and Jaworski, B. 2000, e-Commerce, McGraw-Hill. Storey, J. 1999, Cultural Consumption and everyday life, Arnold. Welch, J. 2005. Winning. Harper-Collins. Wilson, J. 1999, Human Resource Development: Training for Individuals & Organizations. Kogan Page. Read More