Business Strategy: Marks and Spenser, 1990-2004 - Case Study Example

Business Strategy - Marks and Spenser, 1990-2004 2007 Outline: A) Introduction: The significance of strategic management B) General discussion M&S in 1990s: Strategic Mistakes, Internal and External Impacts; 2. The Restructuring Strategy of P. Salisbury: Why It Failed; 3. Vandevelde and the Company’s Strategy in 2000-2004 C) Conclusion Foreword: This paper analysis the business strategy of Marks and Spencer, British firm operating in clothing industry and having experienced serious problems in 1990 due the inadequate strategic planning. By the example of the company’s mistakes and successes it is possible to examine the major rules of strategic management. This example also demonstrates that strategic management has become the major method of maintaining sustainable competitive advantage of business. There are certain rules to be minded in order your business strategy could become a success. The market economy requires constant monitoring and forecasting, determination of the long-term goals and the strategies of their achievement. The problem of the successful functioning and quarantining the continuous development of an enterprise is the primary one in the conditions of the market economy, which provides a dynamic, changing, unstable environment. To manage the functioning of business in such conditions the managing system should be armed with a variety of reactions that give an opportunity to adapt to the constantly changing conditions. Business Strategy, being the combination of the philosophical and operational levels of strategic management, represents the only possible method of surviving in the dynamic conditions of the global market economy. It is a general plan of the firm’s development and improvement at all the level of its functioning, including all the aspects of objectives and goals. However, this plan is not rigid and constant, but a dynamic and changing phenomenon. Due to this dynamics business strategy provides an opportunity to meet and foresee all the market requirements, through usage of unique resources and competencies. Strategy is a system of managing decisions concerning the determination of the promising directions of development, sphere, forms and methods of business activity in the conditions of the external environment, and the order of the resources distribution for the achievement of the set goals. At that the decision “tend to be of medium or long-term nature” and be directed at “the whole transformation system” and “the resources, competencies and capabilities needed” (Lowson 2003; Johnson and Scholes 2005; Slack and Lewis, 2004). Strategic management has become the major method of maintaining sustainable competitive advantage of the firms. However, there are certain rules to be minded in order your business strategy could become a success. This paper examines the business strategy of Marks and Spencer, analysing what rules are to be observed by this example. M&S in 1990s: Strategic Mistakes, Internal and External Impacts. In early 1990s Marks and Spenser started their overseas market expansion. This strategy was erroneous. Having opened stores in France, Germany, Spain and Belgium, as well as stores via joint venture in Canada and in America (operating under the name of Brook Brothers,) M&S turned out to be only one of the brands of the kind, and not the most famous one. The expansion failed, having caused great losses. At the same time the corporation started experiencing problems in the domestic market, where they implemented expansion of the floorspace and refurbishment of the old stores in the UK, which was also the result of the wrong strategic approach. The disastrous position became obvious in 1998, when the profits considerably fell, as well as share prices, and the situation was highlighted in press. In fact, the problem had been evident earlier. The customers satisfaction surveys showed decreasing rates yearly since early 1990s. However, the high executives and management of the company didn’t notice it. Things became even worse in 1999, notwithstanding the attempts of the management to improve the situation, introducing the new tactics and trying to implement the new strategic approach. The mistakes of the company are so clear today, that it is even wondrous that they couldn’t do anything. Moreover, the strategies that could have been implemented to the business had been used in hospitality industry for a decade already. Nothing is new under the moon. So what was the problem? The business strategy and management style of M&S used in 1990s were evidently old-fashioned and ill adapted to the new market environment. It could seem surprising that the company managed to hold its position in the market for such a long period. However, it can be explained easily by two things – image and reputation as represented in mass media, which became a real moving engine of the modern business. M&S were not the only one. Many firms seemed to operate more or less successfully keeping to their out-of-date strategies till the second half of the 1990s, unless it became obvious that they had entirely lost their positions. As a result, in 1990’s and early 2000s a great number of companies had to announce bankruptcy all over the world. M&S decided to fight. M&S of 1990s still used the centralized, top-down, command management, the style of leadership being dictatorship. The vast business was managed from the very top, by Greenbury, the chairman and CEO. It was he who made decisions in all the areas: supplier control, merchandise and store layout. He kept to the vision of the company as one providing unique and high quality clothing by British suppliers, in “classic, wearable fashion”, with women as the major target group. The corporative culture was characterized by strong hierarchy. It was embodied in the headquarters of the company, situated in Baker Street. The grey and imposing building, with Kremlin-like, endless corridors, and small individual offices that “reflected the status of the occupant by the thickness of the carpet”, was later described as “oppressive”. The building had no facilities for modern working practices, provided little opportunity for teamwork, high executives and directors being separated from the staff physically and psychologically. Local managers were entirely restricted in operations, which led to the loss of interest to the work, absence of creative approaches. Buyers tended to select such merchandise that chief executives would approve of. There was no inflow of “fresh blood”, all the high managerial apparatus consisting of the people who thought and viewed in the same way, keeping to the ideals that had lost their actuality long ago. Such approach to business did work through the greater part of the twentieth century, with Simon Marks as the chairman. The strategy worked in the stable environment, Marks always having had a keen feeling of what the customer wanted. However, by the time of Greenbury the customer and business environment had changed, unnoticed by M&S. Local managers did know about the situation, but nobody was going to inform the higher management while it was evidently not customary to argue the decisions and directions coming from the top. M&S used the same strategy in operating their overseas stores, without taking into account local peculiarities. The company was losing its firm grounds under the attack of rivals in domestic and overseas markets, which operated using new strategies and innovative techniques. In the UK they felt pressure on both top and bottom ends of the market. Such niche organizations as Gap, Oasis and Next offered clothing for teenagers and population of 25-35 as the target segments completed in up-to-date fashions and sold at considerably lower prices. A number of discount stores (Natalan, supermarkets, “George” range at Asda) enticed another part of M&S customers, offering essential clothing at low prices. After Tesco and Sainsbury moved into offering added value foods, M&S lost its profits in this sphere as well. There were also internal factors causing losses. The company invested huge sums into expansion programme, the money being spent on the refurbishment of the stores in the domestic and overseas markets. M&S continued buying additional stores, expanding their floorspace. At that they had no clear vision of what their customers really wanted. Their marketing strategy was entirely wrong. M&S were accused of misunderstanding of their customers’ needs, inability to read the changes in the marketplace and react to these changes. Meanwhile their competitors were constantly improving their performance and quickly reacted to all the changes. Why was it so? No doubt the problem was that M&S didn’t rely on marketing research and did not undertake any initiatives in the marketing planning. Having a generalized view of the market, M&S could not operate successfully. Their stores were situated in different parts of the country and the world, where customers had various requirements. Moreover, the customer had changed, and the managerial apparatus of the company stayed the same, with its old-fashioned tastes and views. With women being the major customer group, top management was dominated by men. Besides, Greenbury was focused on day-to-day operations and had no vision of the long-term development of the company. M&S were so self-confident and self-concentrated that they could not see further their nose. And this short sightedness is impossible in the conditions of the dynamic market we can observe for the last two decades. Thus we can conclude that the greatest mistakes of the company was absence of any appropriate dynamic operations strategy based on the market research and analysis, as well as on the proper estimation of own strengths and weaknesses and the competitors’ strategies, which didn’t allow aligning the company’s resources to the market requirements and adequate reacting to the changes. The company had no core competencies and could offer no unique products or services. The mistakes were conditioned by the inward looking corporate culture and autocratic leadership and management style. Unprofessional, outdated management, inner closure of the company with strong hierarchy and top-down management strategy, absence of public relations and a well-coordinated team of young specialists aware of new tendencies in the market and management led the company to a very dangerous position. The Restructuring Strategy of P. Salisbury: Why It Failed. When Salisbury was selected to the post of the chairman, many observers argued that perhaps it would have been preferable to take an outsider. Salisbury had specialized in womenswear which had become the failure of the company in last years. At this time M&S made several additional mistakes in marketing and expansion strategies. The acquisition of 19 Littlewoods department stores and their refurbishment cost nearly ₤300m. The company also continued refurbishment of the existing stores in the UK, improving their appearance. The double refurbishment had a bad effect on the customers and on profits. Poor marketing estimations led to the excessive purchase of sales stock, and Christmas sales were bad also. As a result the company had to sell the stock at highly discounted price in order to empty place for the new stock. European operations were no success either, a number of initiatives having brought no improvement. The company closed most of European stores. Salisbury wasn’t that bad. He realized the origin of the company’s problems. His restructuring strategy with its customer-focused approach was a good idea. It was he who proposed to split the company into three branches: UK retailer, overseas retailer and a financial service. He also understood that marketing was a weak point in M&S and planned to establish a company-wide marketing department. The mission of the company proposed by him was “We are an innovative retailer offering unique, quality products”. The goals were to move away from the beurocratic corporate culture, to reduce the losses in profits, challenge the traditional ways of operations, alter the perception of the company by the public due to creating a well-fashioned image and use more shop floor staff. The tactics were cooperation with clothing designers and design consultants in order to create a new image of the stores, launching a new clothing and foods lines, a lifestyle approach to buying and presenting products, reduction of the staff at the headquarters, removal of layers of the hierarch in several stages, creation of a flatter management structure that was to led to a higher level of managers’ accountability, establishment of a property division in order to change in rents to the individual stores. He closed six of European stores and all the stores in Canada. Further he split the company into 7 business units: lingerie, womenswear, menswear, childswear, food, home and beauty. This all did not help much. The rumours of the company’s acquisition by other firms caused another fall of share prices. The company needed money for the entire reconstruction of the shops. M&S required radical changes, and Salisbury provided only “redecoration”. It happened because his actions were answers to the problems. The decisions of the overseas stores closure were made after the stores started operating with essential losses. It was necessary to sell all the stores, to stop purchasing the new ones in domestic market and to concentrate on some particular sphere of the company’s activities. Meanwhile, Salisbury tried to make decisions in several directions: international operations, home and internet shopping, creation of a new department within the company. The inputs and losses were great, profits were small; the image of the firm had been considerably spoilt. The Platts-Gregory procedure shows that it is necessary 1) to develop an understanding of the market position and factors required by market and compare actual; 2) identify capabilities; 3) review the options of improvement. Hill’s framework of Operations Strategy formulation underlines the importance of linkage between marketing and operations. Hill proposed to formulate a strategy in five simple steps; 1) corporative objectives, 2) marketing strategy, 3) products and services improvement or development – what should be done to win the order, 4) and 5) are the operations strategy itself, including process choice and infrastructure development (In Slack and Lewis, 2004). First, Salisbury was not consecutive. Second, he didn’t distinguish priorities, didn’t carry out serious marketing research or determine exactly M&S market opposition. As a result, he dispersed his attention, efforts and the company’s money. Besides the inadequate positioning the mistake was the insufficient elaboration of brands: the range of products was too large and ill segregated, the customers still were unsatisfied with the products offered, viewing the clothing as old-fashioned. Vandevelde and the Company’s Strategy in 2000-2004 Vandevelde, invited to the post of the chairman and CEO in 2000, promised to improve the position of the company in two years. He knew ins and outs of the business strategic planning. The first strength of his was the determination of the priorities for the company. He offered the vision of M&S as a multi-format company with a customer-focused approach. To move the company closer to its target segments he advanced four major objectives to be reached in the following order: 1) to create a customer-facing organization; 2) to create clear profit centres; 3) to restore overseas profitability; 4) to build the financial service sector. He embodied his strategy in several steps. Step one: a new top management, new image of the company, development of new collections with the help of the best designers. Step two: reconstruction of the stores and new directions of business – M&S Outlet and specialized food stores (Simply Food). Step three: departure from the continental Europe and the sale of the American branch of the company. New image was a prerogative for Marks & Spencer, still considered to symbolize the conservative England. The staff restructuring was the greatest during the whole history of the company. Most of the old top managers and directors were dismissed. The headquarters were to move into a new building in Paddington in spring 2004. The new building was better facilitated for modern management techniques and working methods. Being a bright leader himself Vandevelde wanted to see talented people in the team. He offered to increase wages to some executives and to attract the best specialists and the shareholders gladly agreed to this proposition. The company was restructured into 5 operating divisions and the special marketing research department was created at last. Vandevelde gave numerous interviews strengthening the public relations of the company. Contracts were concluded with two football teams, and later with David Beckham and Victoria from Spice Girls. Haute couture fashion designers were invited to create a new clothing collection. George Davies became the trump-card of M&S. Though operating independently from M&S, Davies contributed much to the new image of the company, his collection Per Una, targeted at stylish women of 25-35, having become the real hit. Davies also introduced new methods of the store design. He fairly considered that M&S “sent too many messages”. His collection was represented in separate walled floor space and different shop fitting from the rest of the stores, being merchandized in “fashion capsules”, matching items of clothing. Vandevelde applied the differentiating strategy to the stores. They were organized in different formats and grouped on the basis of demographic characteristics and lifestyle patterns. The design of the stores was modernized and more shop floor staff was hired to provide a more personal service, which is one of the demands of the Experience Economy, as suggested by Pine and Gilmore (Pine & Gilmore, 1999). 7 business units operated, each being elaborated by its own team. M&S refused its green carrier bags, using a range of colours for each of the departments. On the other hand, Vandevelde offered to deny St Michael logo, stating that it turned attention from M&S. Another strong feature of the Vandevelde’s strategy was bringing the strategy down to the staff. He wanted everybody in the company to realize that his contribution was also important. This was a very competent step for the creation of the strategy-focused organization. Vandevelde tried to create a strong team consisting of creative and talented people. He also attempted to operate on the basis of bottom-up strategy. To give an insight into the day-to-day operations and customer’s reactions and needs to those who usually were “behind the scenes” and to lift the employee moral, he made head office staff work in local stores, helping customers. During the second stage of the restructuring of M&S, the company announced the closure of their stores in Europe and Hong Kong, and though with hardships, sold Brooks Brothers. It was necessary to establish order in the domestic market, and then it would be possible to export the products. With the same purpose M&S closed its “Direct” catalogue operations. Two new directions were started: separate food stores and discount format M&S Outlet. The efforts brought results. In 2001 the whole volume of sales grew by 7, 3%, home products sales increased by 9, 9%, and food products sales – by 6%. The profit grew by nearly 35% by the end of the year. And things went better further. On the other hand, at the beginning of the two-year strategy implementation Vandevelde was accused of not having fulfilled his promise to quickly revitalize M&S. However, Vandevelde kept to a firm position that things should be done gradually, especially in such complex cases as this one. Moreover, Vandevelde promised “evolutionary” not “revolutionary” changes, and evolution always takes time. He was consecutive in his decisions, checked the changes in situation at each of the stages and then revised the priorities to clearly understand what should be done next. From the very beginning he exactly knew where the company was and where he wanted it to come and undertook well-considered steps in the desirable direction. However, Vandevelde did not solve all the problems of the company. After his departure from the position of the chairman and CEO in 2004, commentators still argued that the company’s culture had not transformed wholly, still being rather beurocratic, and that the brands were not segregated and elaborated properly. Conclusion: The example of Marks and Spencer indicates clearly what mistakes can be done in business and what are the rules of the business strategy. It also demonstrates the significance of the strategic planning for a present day firms. Business can’t operate successfully without constant monitoring of its position and clear vision of its targets. This can be achieved due to the strategic planning. Strategic planning includes several important elements, marketing research and strategy being of high significance. Strategy is an iterative and dynamic process. It is impossible to manage business in the conditions of the today’s dynamic economy without feeling the new tendencies. Bottom-up, customer-focused dynamic strategy has become one of the elements of the successful formula of business operating today. But the components of this formula are numerous, everything matters: the image of the company, the appearance of its headquarters building and its facilitation for the modern methods of working, corporative culture, teamwork, involvement and accountability at all the levels of management, proper recruitment and presence of highly professional, creative leaders, who are able to work in team, etc. When planning the strategy of the business it is very important to clearly realize the present position of the company and the goals to be achieved. It is also necessary to make a clear mission of the business, while it should be communicated to your customers as one clear message. One is to be realistic about time framework and be ready to move in small steps, changing and adapting the initial plan to the environment, under the impact of internal and external factors. The priorities should be distinguished at each stage of the development. Proper PR and advertising are also the ingredients of the successful formula. One is to be on the cutting edge of what the customer wants, especially when it goes about business connected with fashion. References: Johnson, G. and Scholes, K., Whittington, R. 2005, Exploring Corporate Strategies, Harlow: Prentice-Hall, 7th Edition. Lowson, R. 2003, The nature of an operations strategy: combining strategic decisions from the resource-based and market-driven viewpoints, Management Decision, Vol.41, No.6, pp.538-549, MCB University Press. Pine, J. and Gilmore, J. 1999, The Experience Economy, Harvard Business School Press, Boston. Slack, N. & Lewis, M. 2004, Operations Strategy, Financial Times, Prentice Hall, Pearson Education Ltd. Read More