Mark & Spencer's Plan A Strategy: Serving Stakeholder Groups Interests - Term Paper Example

Mark & Spencers Plan A Strategy: Serving Stakeholder Groups’ Interests Company overview Marks & Spencer (M&S from here on) is among the leading retail companies in the UK, with a 125 history and a wealth of experience. Aside from its domestic outlets, it has also established its presence in 41 countries and territories worldwide. Its product offerings are just about equally divided between general merchandise (which includes clothing and home products and accessories on the one hand, and food on the other. In the UK, M&S maintains its top position in the garment retail business, cornering 11% market share; it leads in womenswear, lingerie, and menswear, and is expanding in the kidswear and home business areas. The company has also acquired a 3.8% share of the market for high quality food, including fresh produce, groceries, partly-prepared and read meals, and ample wine selection featuring several award-winning wines (M&S Annual Report 2010). The company’s workforce numbers 76,000, manning more than 690 stores in the UK alone, and an additional 320 owned and franchised outlets internationally. Aside from its brick-and-mortar stores, the firm also has an e-commerce “Shop Your Way” facility that may be accessed by customers through the company website. This virtual store, the M&S Direct, generates sales of roughly ₤500 million. Supporting this multi-channel approach (stores, online or over the phone) is a value chain system which consistently delivers the same high level of service that customers have come to expect (M&S Annual Report, 2010). M&S’s Plan A The Company anchors its operations on five core values: Quality, Value, Service, Innovation and Trust. The way it does business is defined in its Plan A, the Company’s blueprint for sustainability. Commenced in 2007, it is a five-year eco and ethical plan originally conceived for the company to reduce its environmental impact, develop sustainable products and services and advance the lives of people residing in communities where it has a presence. In 2010 the plan was revised to include all the firm’s employees and customers; in the next five years until 2015, M&S aims to become the world’s most sustainable retail company (M&S Annual Report 2010). The 2007 version of Plan A was quite ambitious and was lauded by Greenpeace, WWF, and at least thirty other green associations as one of the most aggressive sustainability plans ever conceived (Richens, 2009; M&S Plan A 2010). Plan A promised to attain 100 goals within the five years to 2012; these goals have been extended in the 2010 version to 180 goals, to be attained by the year 2015 (M&S Plan A website, 2011). There are five pillars that comprise Plan A. These are Climate Change, Waste, Sustainable Raw Materials, Fair Partner, and Health. Under “Climate Change” the company aims to make all UK and Irish operations carbon neutral as of the original target deadline in 2012. This is expected to be accomplished through maximisation of renewable energy in the company’s operations, and using offsetting as a matter of last resort. The firm extends this goal to its customers and suppliers by encouraging and helping them reduce their carbon emissions also. There are 29 stated commitments under this pillar. Under “Waste” the firm seeks to significantly lessen the amount of carrier bags and packaging it currently uses, and is exploring new ways of recycling what it uses. By 2012, it commits to ensure that none of its clothing or packaging is relegated to landfills. Under this pillar, the company has specified 18 commitments. The pillar “Sustainable Raw Materials” aims for the materials the firm uses everyday in its business to come only from the most sustainable sources, whether these materials are used for fresh food or fabric, or construction of its shops. There are 20 commitments specified under this pillar. “Fair Partner” is designated as the fourth pillar of Plan A. Under this component, the international influence of the M&S brand is recognized as a potential asset by which the firm may exert its leadership in sustainability. The firm aims to set new trading standards which are intended to improve the lives and communities of its stakeholders. There are 21 goals under this pillar. Finally, under “Health” the firm aims to provide customers with healthy eating options, so the company has expanded its lineup of healthy foods. The firm has also introduced what it terms a clearer “traffic light” labelling system on food packaging in order to provide advisory to customers in making informed choices on food purchases. M&S aims to continue working with staff and customers and on the basis of their suggestions and feedback, to enable them to develop and maintain a healthier lifestyle. In this pillar, the firm has identified and committed to 12 goals. All in all, there are 100 commitments across the five pillars (M&S Plan A Website, 2011). As of 2010, 62 of the original commitments had been accomplished, another 30 are well on their way towards completion, and only 8 still present challenges contemplating their original deadline in 2012 (M&S Plan A-2010). Among the sources of challenges posed to the successful completion of the original 2012 targets are the following: first, the UK government has revised the rules for reporting renewable electricity thus affecting M&S compliance efforts. The Company is thus working in conjunction with BRE/Pure in arriving at the best methods to attain carbon neutral emissions by 2012. Second, the Company’s business travel emissions continue to rise despite the “Green” travel policy it adopted. Third, the Company is encountering difficulty in measuring its own use of water since at many locations, the stores needed to rely on bill estimates. Fourth, it is proving more difficult than anticipated to arrive at a useful set of metrics for sustainable farming. Fifth, the definition and measurement of the wide range of regional foods sourced by the company has been unexpectedly difficult. Finally, there has been a continued decline in the sales of organic food because of the economic recession and poor business climate, despite the firm’s best efforts to introduce new products (“M&S How We Do Business Report”, 2010, p. 2). The diagram in Appendix A is a graphic presentation culled from the Company’s sustainability report, of the conceptualized Plan A 2007-2012 with its 100 goals, and its revised version Plan A 2010-2015 with its additional 80 goals. Customer stakeholder group Favorable impact on customers: The customers comprise the stakeholder group most affected by Plan A, since the firm’s CRM establishes a strong link between its products and services and what it perceives the customers want. Integral to Plan A is the engagement of customers in the sustainability efforts of the firm, by creating imperatives to lower emission levels, lessen waste and eat healthy. The company also provides its customers with avenues by which they could practice good community citizenship by contributing clothing they no longer wear. M&S encourages their customers to do so through its Clothes Exchange programme with Oxfam. All of these should be seen by customers as opportunities to participate in creating a greener, better, less wasteful community. Foremost among the beneficial effect on customers would be the development of trust between the customer and the stores. As a retail business, M&S provides for the basic personal needs of its customers, in terms of clothing, food, and home needs. Therefore, a customer would need to repose trust in the quality of products in the stores they shop from, since these products impact on their families and home life. Since M&S stores are located worldwide, customers are assured of the same reliable quality anywhere in the world Unfavorable impact on customers: However, M&S takes a gamble that customers will be willing to make such a drastic change in lifestyle and habits, because after all, while a firm may change directions in five years, an individual’s attitudes are more ingrained, and he may find M&S’s unusual impositions intrusive in matters he is accustomed to. This is to be expected, particularly since M&S is a high street retailer whose customers who may find Plan A compliance too much of an effort, which may motivate them to simply switch stores. Customers who feel that they are unnecessarily imposed upon may prefer to transfer to competitor outlets that do not demand too much effort from them. Favorable impact by customers: Consistent with the EVR congruency framework, a match is created by Plan A between M&S’s strength in its industry leadership, coupled with the opportunity provided by the high quality perception accorded the brand. In this match, customers play a crucial role so that competitors are forced to abide by the standards set by M&S. When customers have experienced the superior services afforded by M&S, there is a normal tendency to prefer this Company, which rival firms are therefore compelled to imitate. The consumer’s power of choice therefore works in favour of M&S if the felt that M&S truly catered to their preferences. Under the pillar “Partners” the firm aims to use its industry leadership and brand strength to establish new sustainability standards it hopes will be adopted by the industry in general Unfavorable impact by customers: Seldom are consumer’s preferences homogeneous, however; most of the time, different segments of society require different things, and no company can please all potential customers. M&S’s Plan A is the same; for instance, the company may push for what it views as more healthy foods; unfortunately, healthy is a matter of degree and even opinion. Many consumers who are avowed vegetarians take an active stand against meat products. It is not unusual for consumer groups to mount negative publicity campaigns particularly against businesses viewed to be merely interested in profit-making. This is nothing new in the case of M&S; there was a time when this Company was criticized by consumer groups because of their coffee allegedly from unethical sources. Therefore, in the case of food products, it is possible that consumer groups may take issue against meat, or no-meat, or pesticides used on vegetables, and so forth. M&S needs to maximize its sales, thus the need not only to stock one kind of food, but a variety to cater to as many individuals of the target market are possible. Suppliers stakeholder group Favorable impact on suppliers. The suppliers are also significantly affected by Plan A, also because the plan calls for their compliance with sustainability targets. In general, suppliers should find this helpful in themselves being motivated to attain sustainability, in preparation for some future time when such measure may be imposed mandatorily. Unlike customers, suppliers realize financial benefit from their commercial ties with M&S, and therefore would take the extra effort to comply. M&S is right to impose upon suppliers, since its supply chain is estimated to emit greenhouse gases ten times greater than M&S itself. Furthermore, M&S’s “Partners” pillar is most appropriately applied to its suppliers, since the sustainability of the raw materials and services afforded M&S also affects the products and services the Company offers its end users. Should suppliers comply with M&S standards of sustainability which are concededly the most stringent so far, there is little doubt that they would be compliant with sustainability requirements which their other clientele may wish them to achieve. Unfavorable impact on suppliers. Compliance, however, may entail significant cost to the suppliers, in the sense that greener shops and plants and new equipment and processes may be needed (Richens, 2009). Given the shortness of the time duration, the suppliers may have to spend large amounts to upgrade in such a short time, creating a burden to the supplier which may impact into its financial viability. If the costs would resort to severe enough losses, M&S may suffer the loss of some of its good suppliers. Favorable impact by suppliers. There is particular advantage to the Company in the match created between its competencies by virtue of geographical expansion, coupled with opportunities to enter into large, emerging markets (India and China), and the threat of rising costs. M&S’s third pillar, “Sustainable Raw Materials” allows for the exploration of new sources of raw materials, or even new raw materials, in its various host locations. The growing pool of suppliers also increases the firm’s bargaining power against its suppliers which would allow for it to avail of lower or more reasonable prices. This match therefore allows for the use of a company strength (international presence) to take advantage of an opportunity (expansion into new markets) while at the same time avoiding a threat (the rising costs of supplies). Unfavorable impact by suppliers. Plan A may also provide occasion for suppliers to create a disadvantage for M&S. The new conditions imposed upon suppliers are, as previously mentioned, going to entail additional costs and processes on their part. In a period of economic uncertainty, the additional expenditures, particularly those entailing substantial capital outlays, may not be a very attractive prospect for suppliers. The tendency would be to cut corners and to tend to perform a little less than full compliance. Even where unintended, cost cutting may result in efforts by the company to opt for less costly processes and supplies, in the course of which quality tolerance levels may be inadvertently breached. This becomes a real concern where cutting edge technology is required by M&S Standards, which may not yet be prevalent and therefore would represent a substantial cost not only to the company but also its suppliers. For instance, in order to meet the gold standard specified by M&S in its direct current emissions, the cost to the firm would amount to ₤ 4.5 million. Understandably, direct suppliers to M&S would have to meet similar costs in maintaining the same standard throughout the supply chain, a matter which M&S may not be able to fully monitor throughout all its direct and indirect suppliers and their suppliers, and which may therefore be compromised. Investor stakeholder group (shareholders) Favorable impact on shareholders: Finally, the shareholders or equity investors may likewise be significantly affected by the boldness of Plan A. From a legal point of view, the impact to shareholders is the most important aspect of stakeholder analysis, because there is a direct and enforceable commitment for management to act in the interests of its shareholders as agent to them. There is therefore a need to define the interests of shareholders. Modern management theory no longer limits shareholder interests to the mere realization of a target level of profit, although this remains the most important consideration. There are non-profit objectives which a firm may legitimately have which may be viewed in the interest of the business and, ultimately the investors in an indirect way. The advantage created by the M&S’s Plan A, if successful, may be the model of sustainability emulated by others, thus enhancing the company’s image and, therefore, goodwill. This may dramatically increase the value of the company when economic normalcy resumes. The appreciation in the company’s value would therefore be to the advantage of the shareholders who will see a dramatic increase in wealth, whether or not dividends are declared. The recent drop in dividends declared by M&S due to the economic recession caused a drop in the company’s share price (Jameson, 2008). This erosion would subsequently be earned back if M&S reaches its goal to become the most sustainable company in the U.K. Unfavorable impact on shareholders: The additional expenses that the company incurs as a result of Plan A will cut into profits, justifying a short-term attrition in value. Not only are suppliers expected to be impacted by costs of updating technology and assets, but also M&S itself. For sure, investors would have to foot the bill for updating, and during an economic recession this may present near-term financial tightness for the company. Already, one of its weaknesses shows problems it is having with a shortage in its pension fund (Datamonitor 2010). The M&S Annual Report for 2010 indicated that the company needed to reduce its dividend declaration for 2009; should this negative trend continue despite the increase in goodwill generated by Plan A, the firm may suffer an investment downgrade among individual investors. Favorable impact by shareholders Shareholders can have a favourable impact because of Plan A because the plan calls for the participation of all stakeholders of the firm, most importantly the support of the shareholders. Additional capital may be required to finance capital and equipment acquisitions, which broadminded shareholders will see as an opportunity to bring the Company to a higher level of sustainability. A further impact, already experience, is the approval given by shareholders to the lower dividend declaration of the Company due to the softness in the market and the additional cost of upgrading sustainability (M&S Annual Report 2010). This has advanced the legitimacy of Plan A and given the shareholders’ stamp of approval to the undertaking which in the short term affects the company’s profitability to a moderate degree. Shareholders also create an impact by allowing company image to be associated with worthy organizations such as Oxfam, Greenpeace and WWF, a matter that other, more profit-oriented firms, may find as sending the wrong signals to the competition. M&S is pioneering in this regard, and the directions provided by shareholders shows that they foresee the Company as taking a leadership position in an undertaking that will impact well into the future. The directions also demonstrate the feasibility of enabling the country to meet bilateral agreements on the environment such as the Kyoto Protocol on emissions, thereby enhancing M&S’s corporate citizenship at a national and international level. Unfavorable impact by shareholders. There will also be a segment of shareholders who may be critical of the nonprofit directions adopted by the firm by virtue of Plan A. The additional 80 goals adopted by the company midway into the first five year plan may be pointed out as additional cost not agreed upon by the shareholders in 2007. The additional financial implications on the company, should the weak economy persist, would be continued reduction in the value of the firm, impacting negatively on shareholders’ interests. Concerned investors may use this as a reason to enforce their legal right to bring management to account pursuant to securities legislation (Company Act 2006). While this is presently a remote possibility, it causes management to be on guard for any action that may be interpreted as abuse of authority. Conclusion Plan A is a bold sustainability initiative that had been recognized by numerous international awards since its inception in 2007. The Plan embodies the Company’s five core values of Quality, Value, Service, Innovation and Trust, through its five pillars, namely Climate Change, Waste, Sustainable Raw Materials, Fair Partner, and Health. These pillars have specific targets that must be achieved by the year 2012. Presently a majority of these goals have been achieved or are close to being achieved, prompting the company to set an additional 80 goals in 2010 which are targeted for a deadline in 2015. There are several goals that have presented challenges to the company, due to changes in legislation, technological difficulties, and problems that have been unresolved at present. Nevertheless, the fulfilment of at least majority of these goals would still be highly beneficial to the stakeholders of the company in the sense that the company will still succeed in its ambition to be the most sustainable company by the year 2015. Customers, suppliers, and the general community will be net beneficiaries of Plan A, while there is a possibility for shareholders to suffer a net disadvantage in the near future due to the costs of attaining sustainability. Nevertheless, the company and its investors may well attain substantial wealth creation in the long term. References: Cordes, J J & Steuerle, C E 2009 Nonprofits and Business. The Urban Institute Press, Washington, D.C. Datamonitor 2007, Nov. “Company Overview” Marks & Spencer Group, PLC SWOT Analysis, Nov2007, p4 Fiorina, C 2003 “Keynote Address”, Business for Social Responsibility Annual Conference, Los Angeles, California. Accessed 25 May 2011 from http://www.hp.com/hpinfo/execteam/speeches/fiorina/bsr2003.html Grundy, T 2003 “Chapter Five: Marks & Spencer and the business strategy gurus.” Gurus on Business Strategy, 6/1/2003, p174-192 Kotler, P & Lee, N 2005 Corporate Social Responsibility: Doing the Most Good for Your Company and Your Cause. 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