A New Way to Compete by Marks & Spencer - Case Study Example

MARKS & SPENCER - A New Way to Compete - Table of Contents I. Introduction ………………………………………………………………. 3 II. Types of EC Processes Used by M&S ………………………………… 4 III. Major Technological and Non-technological Limitations of EC Processes ……………………………………………………………. 5 IV. Benefits Derived from Implementing the EC Processes ……………. 6 V. Advantages of Implementing EC Processes on the Part of the Organization as a Whole, Individuals/Consumers, and the Society … 7 a. Benefits to M&S as Organization …………………………….. 7 b. Benefits to M&S’ Consumers …………………………………. 7 c. Benefits towards the Society …………………………………. 8 VI. Porter’s Competitive Forces Model ……………………………………. 9 VII. Major Business Pressures Faced by M&S ……………………………. 10 VIII. M&S’ Organizational Responses to these Pressures ………………… 10 IX. Differences between a Business Plan and a Business Model ………. 11 X. Business Models used by M&S in terms of Buying and Selling …….. 12 XI. Differences between a Revenue Model and a Value Proposition ….. 12 XII. Conclusion ………………………………………………………………… 12 Appendix I – Summary of Porter’s Competitive Forces Model ……………. 14 References ……………………………………………………………………..... 15 - 17 Introduction Marks & Spencer (M&S), a British-owned retail company, was established by Michael Marks and Thomas Spencer back in 1884. (Marks & Spencer, 2008a) Despite the tight competition in the global market, M&S has maintained its reputation as one of the largest high-priced merchandise seller of food, wine and clothing not only in the UK market but also in more than 30 countries around the world. (BBC News, 1998) Despite the economic pressure caused by globalization, the company’s annual sales has reached £8.6 billion after tax back in 2007. (Rose, 2007) In relation with the high quality, stylish clothing and home products as well as good quality food products, the company maintains a network of 2,000 suppliers around the world. For this study, the student will analyze and examine the positive impact of electronic commerce (EC). First, the student will list down the types of EC processes used by M&S followed by discussing the major technological and non-technological limitations of EC processes. Eventually, the student will explain the benefits derived from implementing EC processes aside from its advantages towards the organization as a whole, individuals, and the society. Using the Porter’s competitive forces model, the student will describe the how the use of the Internet could significantly influence the industry structure of retailers such as in the case of M&S. In the process of examining the role of the Internet towards the success of M&S, major business pressures faced by the company will be identified before discussing the organizational responses to these pressures. Prior to describing the business models used by M&S in terms of buying and selling, the student will first discuss the differences between a business plan and a business model. As part of going through the company’s earnings and revenues, the differences between a revenue model and a value proposition will be tackled. Types of EC Processes Used by M&S Among the types of EC processes that has been adopted by M&S includes: (1) consumer-to-business; (2) business-within-business; and (3) business-to-business. (McKie; Ong) Consumer-to-business, specifically the ‘selling online’ option, enables M&S’ target consumers to purchase their preferred items at a lower price straight from the company’s website. Upon paying the merchandises online, the purchased product will be delivered straight to the buyers’ stated delivery address the following day. (Marks & Spencer; Turban, King and Viehland) With the purpose of maintaining the security of M&S’ online buyers, the company provided a security system that tracks each business transaction on a real-time basis. (Turban, King and Viehland) Business-within-business includes M&S’ warehouse management, merchandising receiving, and inventory control. Using a mainframe-based warehouse management system called ‘the Multi-User Warehouse System’ (MUWS) (Turban, King and Viehland), M&S’ real-time store sales are transmitted to a data warehouse for inventory purposes. It is also the MUWS that locates where the available stock is located. Based on the actual movements of M&S merchandises, the company’s warehouse management could easily distinguish which among its existing products are saleable from non-moving items. Business-to-business is pertaining to the use of information technology that hastens the business transactions between M&S and its existing pool of suppliers. Using this type of EC allows the company to make a real-time forecasted demands which is directly transmitted to its respective suppliers. (Turban, King and Viehland) As a result, M&S enjoys the privilege of rerouting its delivery plan within a short period of time. Major Technological and Non-technological Limitations of EC Processes Implementing EC processes does not guarantee that a company will become successful because of some major technological and non-technological limitations associated with EC processes. (Epstein: p. 109) Among the technological limitation of EC processes includes the threat of fraudulent activities that occurs in the cyber world. (Muir and Oppenheim) Despite the fact that there have been cyberlaws that protects the intellectual property rights of each business, it is not a 100% that cyber thieves will be controlled (Malkawi). Aside from security problems, insufficient telecommunication bandwidth could significantly affect the real-time transfer of electronic information (Sidak). For this reason, it is possible for electronic messages to have some delays on certain occasions. Basically, there is a lack of standard when it comes to the development of EC software that is available in the market. Given that some of the EC software is not compatible with some hardware, it becomes very difficult for a company to integrate one system with another. (Li) Non-technological limitation of EC processes includes the inability of the manager(s) to develop or formulate as well as execute an effective business strategy related to the company’s business structure and systems. (Epstein: p. 109) For example: The ‘selling online’ option of M&S will require a prompt and friendly customer service who will be assigned in answering the queries of its prospective consumers. By the time a buyer has successfully placed the on-line order, customer service should immediately make a confirmation that the order has been accepted and that the purchased item will be delivered to them the following day. Despite the advantages associated with the use of EC processes, failure of manpower to use the system properly could either way result to a lot of opportunity loss on the part of M&S. For example: Some customer would appreciate a prompt feedback coming from the company. Any form of delay related to the delivery of purchased item or confirmation coming from M&S’ customer service could make the client end up cancelling the order. Benefits Derived from Implementing the EC Processes The benefits derived from implementing the EC processes does not only include the short- and long-term advantages associated with enhancing the efficiency of the company’s supply-chain management. (Epstein: p. 4) It also widens M&S’ business opportunity by extending the purchasing option to individuals who has a very busy lifestyle to go shopping in malls and optimizing its current delivery channel (Epstein: p. 89). Since the application of EC processes in M&S website enables the company to take orders 24/7, there is an increased possibility for the company’s total sales, revenue, profitability, and market shares to increase. Advantages of Implementing EC Processes on the Part of the Organization as a Whole, Individuals/Consumers, and the Society Benefits to M&S as Organization As a busines organization, M&S’ decision to implement the EC processes increases the company’s marketplace not only in the European but also in other countries. (Mitchell) Through a minimian cash outlay required in developing M&S’ EC processes, the company is able to reach millions of potential customers as well as qualified investors and international suppliers that are qualified in producing a wide-range of merchandises at a relatively much lower cost. (Karavdic and Gregory; Kleindorfer and Wu) Aside from market expansion, the use of EC enables M&S to mimimize the operational cost related to the process of each business transaction, distribution of available merchandises from the company’s warehouse to each of the company’s existing store outlets, the cost of investing on a bigger warehouse, and the cost associated with the need to purchase paper items like printed receipts. (Karavdic and Gregory) Since most of the business to suppliers and business to business transactions are done with the use of information technology, M&S is able to cut down its operational costs related to telecommunications services through the use of landline and cellular phones in making long distance calls. (Fisher; Korzeniowski) Benefits to M&S’ Consumers Aside from allowing M&S customers to view a wide-range of merchandises online, the use of EC provides the customers the benefit of purchasing their preferred items 24/7, 265 days a year. (Norum) Since M&S’ EC processes functions on a real-time basis, customers could easily receive their purchased items the following day. Basically, the use of information technology makes it possible for each store within a nation to synchronize and integrate the company’s purchasing system into a centralised department that requires lesser manpower. As a result of integrating the demand for each item gives the company the privilege to order a particular items from its supplier by bulk. Since M&S has more bargaining power over the unit cost of each item (Epstein: p. 4) aside from having a lower operational cost, the company is able to offer its online consumers a lower price as compared with purchasing the same item from M&S’ retail store outlets. Benefits towards the Society The entire society could benefit from M&S’ EC processes since more people will have the choice of working from home aside from eliminating the need for each individual to travel to nearby malls to do their shopping. (Moe and Fader; Phillips) Aside from reducing the air pollution associated with the need for consumers to drive their vehicles, consumers could enjoy the benefit of saving extra money from gasoline. Since the use of EC processes could significantly lead to consumer price deduction (Epstein: p. 4), M&S customers could have the privilege of being able to purchase more items out of their money. Since the company is not able to establish its store outlets in some remote areas, people who live far away from the city are able to purchase merchandises offered by M&S. Thus, promotes a higher standard of living of the people. Porter’s Competitive Forces Model Using the Porter’s competitive forces model, it is easier to describe how the use of the Internet could significantly influences changes within the retail industry such as in the case of M&S. Since the cost of establishing a website is no longer that expensive as compared to a decade or two ago, it is easier for anyone to enter the online retail business especially when it comes to selling garments and other similar merchandises that M&S offer its target consumers. In other words, the reduced barriers to entry trigger an increase in the number of competitors on the part of M&S. Since there are so many competitors in online markets, there is a higher risk for substitution on M&S’ products and services. Basically, M&S target consumers could easily purchase homogenous product from other websites that offer a relatively much lower cost. For this reason, the bargaining power of consumers over M&S is higher as compared with selling the M&S’ products and services from a traditional retail store outlet. Given that the use of the Internet narrows down the gap between a potential supplier and M&S, the bargaining power of M&S over its suppliers is high since the company could easily search and purchase the goods offered by other qualified suppliers at lesser cost. Despite the advantages of M&S in terms of having a better access to potential supplier, it remains a fact that the use of the Internet provides equal opportunity to all companies in terms of having access to global suppliers. For this reason, product differentiation is often negatively affected since suppliers could sell a garment design from one company to another. Although the use of the Internet enables M&S to enjoy a bigger and wider geographic market potential, the use of EC could also negatively affect the business’ profitability caused by an increasing rivalry among the existing competitors. Aside from increasing the number of M&S competitors, the use of EC reduces the product differentiation offered by two similar companies. Given that the target consumers have the privilege to look through the market prices of each similar product online, M&S and other similar companies are pressured on how they could lower down the market price of each item without sacrificing the profitability of the company. (See Appendix I – Summary of Porter’s Competitive Forces Model on page 14) Major Business Pressures Faced by M&S Since 1999, M&S have undergone different economic pressure caused by heavy competition within the retail industry. (Turban, King and Viehland) Because of high unemployment rate in Britain aside from the tight competition in domestic and global markets, M&S is still facing the challenges associated with the need to overcome the current economic stress up to the present time. (The Retail Bulletin) M&S’ Organizational Responses to these Pressures In relation to high unemployment rate in Britain as well as the tight competition in the retail industry around the world, there are three major strategy ways on how M&S responded with the business pressures. First, the company lowered the market price of its online merchandises by investing on the development of EC processes. Basically, the large sum of money saved from reducing its operational costs associated with the need to hire a lot of human resources, over-purchasing of non-moving items, high cost of warehousing, including the transportation and communication costs makes the company able to compete with the market prices offered by some of its competitors. Second, M&S expanded its potential target market by using an online selling. Aside from reaching out to potential consumers across the world, the company’s ability to successfully integrate its real-time supply chain network with its corresponding supplier(s) enabled M&S to increase the efficiency of its supply-chain management. For this reason, M&S was able to narrow down the gap between business opportunity caused by lack of sufficient product supplies and the company’s potential profit. On the part of M&S’ suppliers, these businesses had to ensure a just-in-time delivery as a way of maintaining a good business relationship with the company. Given that M&S strictly requires its active suppliers to make use of M&S’ EC system, a lot of small- and medium-scale businesses were left with no other choice but to learn to become accustomed with the technological requirements of the company. Differences between a Business Plan and a Business Model A business plan is a written document that clearly identifies the business objectives aside from providing a brief summary on how the business owner plans to execute the business goals. (aboutbizplans) On the other hand, a business model a way of conducting a business wherein the company aims to increase its revenue. In the process of generating revenue, a business model tackles issue related to the following: (1) customers’ value proposition in terms of finding the best market price for M&S products and services; (2) the target market of M&S; (3) the company’s cost structure and profitability; (4) M&S’ competitive strategy related to marketing among others; including (5) importance of developing a network between the M&S, its customers and suppliers. (Turban, Lee and King: Ch.1, p. 2) Business Models used by M&S in terms of Buying and Selling (10) The typical business model used by M&S in terms of selling includes: (1) online direct marketing; (2) Viral marketing wherein M&S’ loyal customers could spread through the word-of-mouth that their families and friends could easily purchase similar items sold in M&S store outlets at a discounted price when purchased online; and (3) electronic market places and product exchanges. On the other hand, the typical business model used by M&S in terms of buying includes value-chain integration between the company and its suppliers which aims to significantly improve the efficiency of its supply-chain management. Differences between a Revenue Model and a Value Proposition In general, a revenue model provides a useful description on how the EC processes of M&S will enable the company to earn bigger revenue in terms of sales, transaction fees, advertising costs, and subscription fees among others whereas a value proposition pertains to a long list of benefits that the company could enjoy out of using its EC processes. (Turban, Lee and King: Ch. 1, p. 2) Conclusion The use of EC processes enables M&S to improve its revenue and profitability since the company is able to reach the global markets 24/7, 365 days a year at a relatively low investment cost. Given that there are technical and non-technical limitations associated with the use of EC processes, M&S management should be focused on rendering a good and prompt customer service to prevent business opportunity loss on the part of the company. *** End *** Appendix I – Summary of Porter’s Competitive Forces Model Porter’s Competitive Forces Advantages Disadvantages Barriers to entry - Due to reduced barriers to entry, anyone can easily enter the online retail business. Threat of substitute of M&S products & Services - The use of the Internet increases M&S risk for new substitution. Bargaining power of consumers (buyers) - Increases consumers’ option to switch to other seller. Higher consumer’s bargaining power over M&S. Bargaining power of suppliers M&S’ bargaining power over supplier is higher since the company could easily search for new supplier. Internet narrows down the communication gap between potential supplier and M&S. E-commerce give all companies to have equal access to suppliers causing a reduced in product differentiation. Competitors could access M&S’ suppliers due to reduced barriers to entry. Rivalry among existing competitors Internet provides the companies with wider geographic market. Increased competition among competitors by reducing differences between two similar companies. Promotes price war caused by lesser variable costs. Increases the number of M&S competitors. Source: Porter References: "aboutbizplans." 2008. What is a Business Plan? 12 August 2008 . "BBC News." 19 May 1998. Marks & Spencer Profits Top Expectations. 12 August 2008 . Epstein, Marc J. Implementing E-Commerce Strategies: A Guide to Corporate Success after the Dot.Com Bust. Praeger, 2004. Fisher, Michael. "Using e-commerce to Deliver High Productivity." Work Study (2000): Vol. 49, No. 2, pp. 59 - 62. Karavdic, Munib and Gary Gregory. 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