Food Retail Division of Marks and Spencer - Essay Example

? Marks and Spencer Executive Summary This report involves the study of the food retail division of Marks and Spencer; a company headquartered in London, England, United Kingdom. The company specialises in clothing, home ware and food retail division. However, this study focuses only on the food retail division. The company’s performance has been analysed through balanced scorecard by focusing on the financial perspective, customer perspective, an internal business perspective as well as innovations and learning perspective. The analysis has been carried out using Key performance indicators (KPI) and has been outlined in the appendices. The balance scorecard and the strategy map formulated can serve as an effective tool for the company to predict its effective future plan. This study contains suitable recommendations based on the key parameters used for the purpose of analysis which can serve as benchmark for the company to improve its financial and non-financial performances. Table of Contents Table of Contents 3 1. Introduction 4 2. Vision and Strategy 4 3. Balanced Scorecard for Marks and Spencer PLC 5 3.1. Financial perspective 6 3.2. Customer perspective 6 3.3. Internal business perspective 7 3.4. Learning and innovation perspective 8 4. Strategy Map 8 5. Recommendations 9 6. Critical Discussion and Evaluation 10 Reference List 10 Appendices 12 1. Introduction Marks and Spencer (M&S) Group PLC is an international retailer headquartered in London, England, United Kingdom. It is listed as a holding company of the Marks and Spencer Group of companies. Its varied line of products includes clothing (both Men’s wear and Women’s wear), home ware as well as food. Its clothing division alone includes 731 shops across the United Kingdom. Its presence is not only limited to the domestic circuit. The company enjoys an unprecedented level of presence around the globe having 387 stores in 43 territories across Europe, the Middle East and Asia (Reuters, 2013). This report will primarily involve the analysis of the food retail section of Marks and Spencer thereby identifying its vision and strategy. Henceforth, a balanced scorecard and a strategy map will be designed in order to align business activities of the company to its identified vision and strategy as well as to explain each parameter used for the analysis and their significance towards the company’s goals and targets. 2. Vision and Strategy Marks and Spencer’s vision is to set a benchmark on the basis of which everything else is evaluated. In order to stay true to the vision, they have laid down subsequent strategies which when followed will help the company to grow from strength to strength. Their primary aim is to become truly international, multichannel retailer whereby they can make their long range of products and services easily accessible to people all around the globe. Apart from providing quality products, they also aim to deliver exceptional value as well as high quality services to their customers. Their penchant to stay at the forefront of innovations in both general merchandising and food section is a significant factor giving them the recognition of a truly world class company. As far as Marks and Spencer’s strategies to improve its food retail section are concerned, they have been moderately successful in 2011 as well as in 2012 with their sales increasing by 4.1% in 2011 from what it was in 2010 (Marks and Spencer, 2011). This growth in sales owed to the fact that customers expected the company to come up with innovative products and this expectation in return resulted in an appreciation in the number of customers of M&S. Their strategy is to grow their food business by focusing primarily on their core strengths which are convenience, freshness and speciality. Convenience of shopping is another area that the company is currently working on for improving the way customers find and choose things in the store. This aim led them to come up with the clearer signage scheme. M&S also want their stores to be easily accessible to 95% of the UK population (Marks and Spencer, 2012). Marks and Spencer launched Plan A in the year 2007 to cater to the need of creating an environment friendly organizing. The primary strategies of the plan were: to improve carbon efficiency in order to reduce greenhouse gas emissions and the costs pertaining to it; and to stop sending operational wastes to landfill (Marks and Spencer, 2011). Fig: 1 – PLAN A outline (Source: Marks and Spencer, 2010, p. 6) 3. Balanced Scorecard for Marks and Spencer PLC A balanced scorecard is an efficient tool for strategic planning and management system used extensively by government, businesses and industries as well as by non profit organizations all over the world in order to coordinate the business activities with the strategy and vision of an organization. This is done in order to bring upon improvement in internal and external communications in an organization as well as to keep track of its performance so as to keep it in sync with the strategic goals (Balance Scorecard Institute, 2013). Fig: 2 – Balanced Score Card (Source: Balance Scorecard Institute, 2013) 3.1. Financial perspective It is evident from appendix 1 that, Marks and Spencer relies heavily on the cash flow generated from its business operations. Its primary focus is to increase its operating profit which is the profit earned by the company’s core business operations. In order to achieve its goal it has to emphasize on increasing its customer base thereby improving on their quality of products and services. Secondly their focus should be to increase the dividend payout every year in order to retain the shareholder’s trust in the company. This can be done by paying the excess cash that the company has, as dividends to the shareholders when there are no opportunities of immediate investment. The company should maintain a stable dividend payout ratio as a decrease in the amount of dividends paid is not perceived well by the investors. Thirdly, as far as the profitability of the company is concerned, its primary target should be to minimize the cost of commodities purchased in order to increase the operating profit. This can be done by better management of promotions and wastes in order to mitigate the commodity price rise. Lastly, the company’s focus should be to maintain an optimum liquidity position in order to reduce the risk of insolvency. In order to achieve this, the company’s primary targets should be to increase their revenue and reduce their over reliability over debt. On the other hand the company can think of borrowing debts but only if they have profitable investment opportunities. The company should also emphasize on increasing its revenue in order to finance its projects from internal sources and thus reducing their dependency on external sources. 3.2. Customer perspective According to appendix 2, Marks and Spencer’s one of the most important concerns is to ensure that all M&S products are safe for consumption. The key performance indicators (KPI) to ensure that the company’s strategies are in line with their idea of maintaining optimum level of food safety are, the satisfaction level of customers, customer loyalty and the number of customers lost. The company should have rigorous controls and processing of food as well as robust governance of food supply base in order to ensure healthy and safe food consumption. Moreover, Marks and Spencer’s plan is to enhance and have more distinctive M&S brands and sub brands in order to address customer specific needs. Their success in this particular parameter will depend of KPIs such as annual sales per customer, satisfied customer index (%), and the number of customers. Their primary target in this particular field is to enable customers to choose from the wide range of M&S products. This can be achieved by reaching a wider customer base through focus groups, online review systems, in – house customer insight and effective marketing campaigns. And lastly the company aims to have an effective store allocation system whereby they can make shopping more convenient and stores more easily accessible to their customers. Their target is to make M&S outlets easily accessible to 95% of the UK population (Marks and Spencer, 2012). In order to fulfil this objective, the management must ensure proper allocation of stores according to demographics and provide the optimal mix of products to suit the dynamic needs of their customers. 3.3. Internal business perspective In order to attain worldwide recognition the company has come up with certain strategies from an internal business perspective. As is evident from appendix 3, the company has come up with an international range planner which is a robust framework to ensure cost effective ways of inputs. The target to be achieved from this plan is to buy more efficiently and tailor products better to suit local markets. The KPI to evaluate this plan is customer growth which will give an indication of the nature of this plan and how successful it is. To ensure the success of this plan the company has to come up with an efficient marketing strategy. Secondly, Marks and Spencer’s main emphasize is in establishing a multichannel business whereby they can sell products to different countries in their local currency. There primary target behind this business idea is to manage and build a robust platform which will offer a more customised multi channel experience for customers. The company should set up more tailored websites in the upcoming years in order to meet the growing customer needs. Lastly and perhaps the most important strategy that the company has laid down is Plan A in 2007 with a view of reducing carbon emission. The KPI to determine the success of this plan is Carbon emission report. The company’s core objective behind this plan is to become world’s major retailer from the view point of sustainability by 2015 (Marks and Spencer, 2013). In order to achieve this stature, Marks and Spencer must focus on improving carbon efficiency as well as store energy efficiency. 3.4. Learning and innovation perspective Marks and Spencer is a company which always strives for innovation and as such is evident from the balance score card representing the innovation and learning perspective depicted in appendix 4. With a target to cater to customers’ changing food habits, the company came up with an innovative product called the ‘Taste Italia’ – a wide range of Italian food. Customer satisfaction is one KPI which can determine how successful this innovation is. One way to ensure further innovation is to introduce a new and wide range of M&S food products according to the customers’ needs. Another area of innovation that the company specialises in is Gluten free product. This product appeals to the growing number of customers who are looking to reduce meat consumption. The KPIs depicting the success of this product are customer satisfaction as well as Employee knowledge (which describe how knowledgeable the employees are in terms of Gluten free product). The more knowledge the employees possess, number of customers will be able to make informed decision thereby achieving optimum level of customer satisfaction. One way to ensure the fulfilment of this objective is to come up with efficient promotion strategies. Marks and Spencers another area of innovation is quick food solutions which caters to entertain and impress the time - pressed customers. The KPIs critical to this plan are Delivery reliability and or speed, process time. The sole target behind this innovation is to entertain customers having limited time to enjoy food both at home and at M&S outlets. The company must focus on improving the delivery reliability and or speed as well as process time. 4. Strategy Map According to Kaplan and Norton (2004), the strategy of an organization represents the methods laid down which it intends to adopt in order to generate value for the shareholders. And thus a strategy map incorporates parameters used in the balanced scorecard analysis, which are critical to the performance of an organization. It depicts a visual framework which establishes connections between the four perspectives of balanced framework which are: Financial perspective, Customer perspective, internal business perspective, and Learning and innovation perspective. It depicts the cause – and – effect relationship between a firm’s intangible assets and their resultant outcomes (Euler, 2013). Appendix 5 depicts the visual framework outlining the cross relations between the balance scorecard parameters of Marks and Spencers from all the four perspectives. As is evident from the strategy map, it can be clearly noted that, there is a connection between the company’s cash flow and the equity dividends paid to the shareholders as the company pays dividends to its shareholders from the excess that they retain when there are no investment opportunities. This in turn is related to the profitability of the firm, as excess cash paid as dividends is no longer available to the company in order to invest into prospective business opportunities and thus it affects the profitability of the firm. In such context, it can be said that higher the profits, better is the stability of the company and that’s how these two parameters are correlated. A stable company also ensures the formation of a robust framework to establish cost effective ways of inputs in order to maximize profit from operations. Moreover, Marks and Spencer’s primary strategy should be to make shopping convenient for its core customers so as to address their specific needs while also making sure that all M&S products are safe for consumption. This establishes a cross relationship between the three parameters mentioned above. In addition to that, introducing a wide range of food products is also an effective approach towards ensuring convenient shopping. Increasing healthy eating ranges is a way of keeping track of the safety of the products being produced as well as it satisfies the need of health conscious customers. The goal of addressing core customer’s specific needs must cater to entertain and impress the time – pressed customers. This is one way also ensures convenient shopping. 5. Recommendations After the thorough analysis of balanced scorecard and the formation of a strategy map, the recommendations that can be drawn to ensure consistent growth of the organizations are quite a few. Marks and Spencer should emphasize on increasing their customer base by improving the quality of service & products offered by them which in return will increase their operating cash generating excess cash flow. In that way the company can choose to pay excess cash as dividends or invest them in profitable projects. Either way the company is ensuring its stability by maintaining a stable dividend payout ratio or generating profit through investments. The company should reduce their dependency on borrowings as that might pose the risk of insolvency if the company fails to meet its long term obligations. To satisfy its growing customer base, M&S should opt for rigorous controls and processing of food as well as robust governance of food supply base so as to ensure the safety of the food products. They should reach out to more customers through different marketing strategy in order to address core customer specific needs. Proper allocation of stores not only in the UK but also in other parts of the world is necessary in order to ensure a consistent growth of the company’s operations. M&S should obtain efficient marketing strategy in order to avail cost effective ways of inputs so as to increase their profitability by maximizing output. More tailored websites specific to customer needs should be launched, in addition to the websites they already have, so as to making shopping more convenient for their customers. They should also emphasize on improving carbon efficiency and improve store energy efficiency. Being at the forefront of innovation, M&S should introduce a wide range of food products to cater to customers’ changing food habits. Their focus should be on improving their delivery reliability and or speed and processing time in order to provide time efficient services to customers having limited time to enjoy food both at home and at M&S outlets. In conclusion, it can be said that balance scorecard and strategy map depicts a visual framework which represents a company’s performance. It helps the company to analyse its performance and compare it to its peer organizations thereby pointing out the areas of improvement and work on it. 6. Critical Discussion and Evaluation The Balance scorecard is a very critical tool when it comes to performance evaluation of an organization. Its usage is not only limited to performance evaluation, but it also helps a company to identify its goals, visions and lay down appropriate strategies. As has been opted in this report, the balance scorecard for M&S will act as a guidance tool which will help the company to align its financial objectives, customer needs, internal business plans, and innovation in order to transform its vision into reality. In addition to that, the balance scorecard analysis can also be used as a benchmark in case of performance evaluation. Reference List Balance Scorecard Institute., 2013. Balanced Scorecard Basics. [online] Available at: [Accessed 16 September 2013]. Basic college accounting., 2009a. Examples Of Customer Perspectives Key Performance Indicators in a Balanced Scorecard. [online] Available at: [Accessed: 17 September 2013]. Basic college accounting., 2009b. Examples Of Financial Perspectives Key Performance Indicators in a Balanced Scorecard. [online] Available at: [Accessed 17 September 2013]. BSC Designer., 2013. List of sample KPIs in 5 perspectives of BSC. [online] Available at: [Accessed 17 September 2013] Euler., 2013. The Balanced Scorecard and strategy maps. [online] Available at: [Accessed 17 September 2013] Kaplan, R.S. and Norton, D. P., 2004. The strategy map: guide to aligning intangible assets. Strategy and Leadership, 32(5), pp. 10 – 17 [online] Available at: [Accessed 17 September 2013]. Marks & Spencer., 2010. Our Plan A Commitments. [online] Available at: [Accessed 16 September 2013]. Marks and Spencer., 2011. Annual Report and Financial Statements 2011. [online] Available at: [Accessed 16 September 2013]. Marks and Spencer., 2012. Annual Report and Financial Statements 2012. [Online] Available at: [Accessed 16 September 2013]. Marks and Spencer., 2013. The M&S Way. [online] Available at: [Accessed 16 September 2013]. Reuters., 2013. Marks and Spencer Group PLC (MKS.L). [online] Available at: [Accessed 16 September 2013]. Sawang, S., 2011. Key Performance Indicators for Innovation Implementation: Perception vs.Actual Usage. Asia Pacific Management Review, 16(1), pp. 23–29 [online] Available at: [Accessed 17 September 2013]. Appendices Appendix: 1 - Financial perspective of Marks and Spencer PLC Marks and Spencer PLC: Financial Perspective All Financial Goals are for the corporation as a whole GOAL Key Performance Indicator (KPI) (Basic college accounting., 2009b) Target Initiative or ACTION Cash flow Operating Cash Cash flow generated from activities To increase cash flow generated from activities Increase their customer base by improving their quality of products and services Shareholders To pay dividends Equity dividends paid, Dividend payout ratio To increase dividend payout in order to retain shareholder’s trust Emphasize on maintaining a stable dividend payout ratio as decrease in the amount of dividends paid is not perceived well by the investors Profitability Profit from Operations Gross profit, Net sales Increase operating profit Better management of promotion and wastes in order to mitigate commodity price increases Solvency Company’s stability Liquidity, debt to equity ratio, revenue Increase revenue, reduce over reliability on debt Borrowing debts and investing them in profitable business opportunities (positive NPV investments), emphasize on increasing the revenue in order to finance its projects from internal source Appendix: 2 – Customer perspective of Marks and Spencer PLC Marks and Spencer PLC: Financial Perspective All Customer Goals are for the corporation as a whole GOAL KPI (Basic college accounting., 2009a) Target Initiative or ACTION Food safety To ensure that all M&S products are safe for consumption Customer loyalty, customer satisfaction, number of customers To ensure healthy and safe food consumption Rigorous controls and processing of food, robust governance of food supply base Enhanced and more distinctive M&S brands and sub brands To address core customer specific needs Annual sales per customer, satisfied customer index (%), number of customers To enable customers to choose from the growing list of M&S products Reach customers through focus groups, online reviews, in – house customer insight, effective marketing campaigns Store allocation Convenient shopping Number of visits per contact with customers, customer satisfaction To make stores easily accessible to 95% of the UK population Proper allocation of stores according to demographics provide the optimal mix of products to suit customer needs Appendix: 3 – Internal business perspective of Marks and Spencer PLC Marks and Spencer PLC: Financial Perspective All Internal businesses are for the corporation as a whole GOAL KPI (BSC Designer, 2013) Target (Marks and Spencer, 2013) Initiative or ACTION International Range Planner Robust framework to ensure cost effective ways of inputs Customer growth To buy more efficiently and tailor product better to suit local markets Efficient marketing strategy Multi channel business Convenient shopping Customer feedback Build and manage a new platform to offer a more customised multi channel experience for customers Set up further tailored websites for specific local markets Plan A Reduce CO2 emissions CO2 emission report To become a major retailer from the view point of sustainability by 2015 Improve Carbon efficiency and improve store energy efficiency Appendix: 4 – Innovation and learning perspective of Marks and Spencer PLC Marks and Spencer PLC: Financial Perspective All innovations and learning are for the corporation as a whole GOAL KPI (Sawang, 2011) Target Initiative or ACTION Taste Italia Introducing a wide range of food products Customer satisfaction To cater to customers’ changing food habits Introduce a wide range of food products Gluten free product Increase healthy eating ranges Customer satisfaction. Employee knowledge To appeal to the growing number of customers who are looking to reduce meat consumption Efficient promotions and recruitment of qualified employees Quick food solutions To entertain and impress the time - pressed customers Delivery reliability and or speed. Process time To entertain customers having limited time to enjoy food during parties both at home or at M&S outlets Improve delivery reliability and or speed and process time Appendix: 5 – The strategy map of Marks and Spencer PLC Financial Perspective Customer Perspective Internal Business Perspective Innovation and Learning Perspective Operating Cash To ensure that all M&S products are safe for consumption A robust framework to ensure cost effective ways of inputs Introducing a wide range of food products To pay dividends To address core customer specific needs Convenient shopping Increase healthy eating ranges Profit from Operations Convenient shopping Reduce CO2 emissions To entertain and impress the time - pressed customers Company’s stability Read More