Sustainable Corporate Strategy - Marks and Spencer - Case Study Example

 Sustainable Corporate Strategy - Marks and Spencer TABLE OF CONTENTS Page 1 Abstract 3 2 Introduction 4 3 Strategy 4 4 Social Response Capitalism 5 5 Early Strategies 6 6 Revised Strategies 7 7 Sustaining Strategies 8 8 Positioning Strategy 8 9 Recommendations 11 10 Bibliography 1 Abstract The case of Marks & Spencer has been analyzed and it was discovered that its fall from grace and subsequent recovery were caused by a loss of direction that was corrected through a Positioning strategy that has since become stabilized and is now a sustainable as a strategy. It was also shown that a sustainable strategy is the outcome of stakeholders satisfaction. The concepts of strategy and how it can become strategy have been discussed highlighting the M&S case and it has been recommended that to make this a sustained strategy, equal importance must be given to the implementation process. 2 Introduction Mark & Spencer (M&S) is the second largest retail chain store in the UK and has a market share of 11.1% in clothing and 4.3% in food. It has 760 stores in UK and 30 countries around the world. (Annual Report) M&S profits peaked in 1998 when it crossed the £ 1 billion mark that year. It was the highest achieved by a UK retail chain. From then until 2003 it was downhill. In 2004 a new CEO Rose took over the reins and M&S slowly but surely got back to making higher profits every year since, although they are still far from the billion pounds they made in 1998. (see Appendix 1) The cause of the steep fall post 1998 was its poor strategy and it was a change in strategy again that has seen reversal of the lean period. 3 Strategy The heart of strategy lies in its competitive advantage (Porter M.E. 1980). When a firm becomes different by offering value, quality and some attributes through which it offers some uniqueness then it will become an above average performer in its industry. But to arrive at this stage the firm must make difficult choices. It has been stated by Hamel and Prahalad that companies that desist from competing for future market opportunities are doomed and forgo corporate value creation that they had achieved in the past. (Hamel and Prahalad). Growth is dependant on momentum and it is an integral part of business strategy. Growth is also a very difficult decision as it involves investments; and an investment may become wasteful or a burden if there is no adequate return in a reasonable period of time. Management therefore strives to formulate strategies for differentiation and growth, and the result of this is sustainable Corporate strategy. While the management may succeed in formally carving out a strategy, its realization is possible only when the stakeholders are involved and are benefited. 4 Social Response Capitalism Business today comprises of several stakeholders ranging from stockholders, suppliers, employees, customers. government and the local communities. The interest of each stakeholder is vital for the success of a business. Organizations today do not exist for just their owners but for the society at large. Capital now has a broader social outlook. Ownership through shareholding does not give any priority to the shareholders and unless there is more equitable distribution of benefits the company will stagnate and may even fail altogether. Thus where the stockholder expects compensation through profits and high value of its holdings, the others also need and want their share which may not be just valued in monetary terms. Return or value for stakeholders is normally judged through performance which is a result of how the company is managed or governed. Good governance increases performance and is transparent and can be observed by all. Companies need to have strategies to get these results. Miller and Ahrens (1993) argue that while Adam Smith (1776) proclaimed that owning property was an individual right, and therefore they are the only ones to decide its use, in modern times such property owned by stockholders is in the hands of the managers who decide on its use for the benefit of not just the owners but other stakeholders as well since their decisions effect thousands of people. It follows that the people demand strategies that benefit them and social issues become part of this function. Such pressures emanate from different stakeholders, including shareholders, especially when they are institutional stockholders. (McWilliams and Siegel, 2001). In fact for the management at one end there are basic economic concerns like productivity and efficiency which are devoid of social issues, and at the other end are social welfare concerns, even if they are at the expense of profits. (Miller and Ahrens, 1993). The middle path therefore appears to be the contractual theory of the firm that holds that the assets of the firm arise out of the contribution of all stakeholders and so the company arises from the property rights and right of contract of every corporate constituency, not just stockholders (Boatright, 1999).. Leaders are therefore expected to communicate shared values to all stakeholders to form a common ground for social responsibilities of the business. These visions then should be then translated into actions. 5 Early Strategies Several major factors affected profits of M&S. Profits are the barometer of public support and financial performance. Rivals had switched to source their products from abroad at cheaper prices while M&S continued with the costly UK suppliers. As a result margins came under pressure, sales became stagnant and profits plummeted. From a high of a billion pounds in 1998, the profits fell to a low of 145 million in 2001. M&S were forced to curtail their dependence on UK suppliers and resort to other means for sustenance. (see Appendix 1). The suppliers as stakeholders had great power. The second factor was the company policy not to accept credit cards. This had become a universal phenomenon and denial was luring younger and more mobile customers away to other rival outlets that offered this facility. The customer as stakeholder was dissatisfied. The third factor was that M&S had abandoned its high street image and had gone for low end products like rivals were doing and it suffered an image loss. The top management erred in it strategy. It was earlier known for quality of its products and it was no longer a leader in that segment. The shareholder as stakeholder was affected by poor performance. 6 Revised Strategies This forced a serious rethinking in the boardroom and led to a total revamp of both control and strategy of the company. A new post of Chairman as well as a new one for a CEO, as against a combined post, were created and have since seen the company’s fortune turn around. M&S, chastened by the serious erosion in customer loyalty and profits decided to revert to its roots. The stakeholders had to be cared for. It introduced a new range of classical clothing for women and it was reported by Jess Cartner-Morley, the Guardian fashion editor, in 2001, that M&S has resorted to regain the title of Britain’s best loved store: Women’s Institute Chic, and has abandoned attempts to compete with Top Shop (Arcadia), Hennes, Zara and Mango who dealt in cheap catwalk copies. They decided to go back to their core customer, the highly fashion and style conscious woman. In 2004 it changed the top management and Stuart Rose was inducted as CEO. He has since then transformed the company as can be seen from the financial results. The profits went zooming from £145 millions in 2001 to £745 million in 2006. The dividend soared to 18.3 p in 2007 Balance Sheet (Chairman’s Foreward) and the EPS rose to 34.4 p in April 2006 from zero in March 2003. (Appendix1) By 2007 UK general merchandize sales recorded a 2,9% year on year increase suggesting that M&S sales have been better than rivals, despite the vagaries of weather that have affected every retailer in the country, including M&S. Analysts are of opinion that M&S have probably done better than the rest as the latest figures of the rest have yet to come in. 7 Sustaining Strategy According to Porter M.E. (1985), the heart of a strategy is to have competitive advantage over its rivals and to achieve it the firm or company has to make a choice. For profitability and cost effectiveness it must offer its customers quality, value and comparable features in its products. Beyond this there must be some unique attribute that can lure customers and offer them value for money. It must also focus on its chosen segments for offering this advantage. This makes the firm structurally balanced between the five forces of power; buyers, suppliers, rivals, potential new entrants and substitutes. When achieved, the strategy becomes sustainable as all stakeholders are benefited by it. 8 Positioning as Strategy The Green movement has gained worldwide momentum and the consumer is becoming more acutely aware of the damage to environment. The Greenhouse effect of climate change is no longer a fiction but a fact. In some parts of the world carbon emissions have already reached alarming levels. Therefore the consumer is favouring companies who are consciously offering environment friendly products and activities. M&S were at a loss to recover their lost glory and needed a new strategy to reposition themselves as leaders in the retail market. There was nothing more terrifying than the Greenhouse effect that was being touted around the world. They took up this gauntlet and considered this as their salvation; and they were right. They hit the bull’s eye. Corporate strategies have been divided into Five Ps by Mintzberg and they are Plan, Ploy, Position, Pattern and Perspective. While each is a separate type of strategy with its attendant qualifications, yet they are usually present in all strategies to some degree. The real difference lies in the fact that one of them will be dominant and others will play a supportive role. (Mintzberg 1987). M&S have positioned themselves as an eco-friendly company that is committed to reducing the carbon emission that its stores produce and willed on themselves to have a 100 point well thought out eco-plan called Plan A, at a great investment to tell their customers that they have a unique proposition. It has extended this strategy to its suppliers as well and is now converting to green policies in a big way. (see Appendix 2). This new strategy was formulated after taking views from several stakeholders including customers, employees, shareholders, government regulators and NGO’s. This resulted in £ 200 million Plan A. (M&S Annual Report) Their Corporate Social Responsibility Report (CSR) for 2006 states that they have achieved 22 targets they set for themselves and support their enthusiastic efforts towards this objective and highlights the various visible and calculable results of their efforts. (CSR). The highlight is the reduction in carbon emission (106,000 tonnes) they achieved in 2007 over 2006 figures. (CO2 emissions). For positioning themselves they further decided to shift their focus to food and hence the emphasis now came to be on wider variety in new eco-friendly packaging that was now offered to the customer. This meant they had to change the layouts of their stores to offer more legroom to the customers and better displays. M&S undertook to standardize their store layouts all over the world. While this provides better ambience and larger spaces for customers, it is also an attempt to form a recognizable pattern to give it some distinction and recognition. This aspect has a dual role. It is a Positioning exercise with an aim to providing an eco-friendly environment at its stores. This pattern registers well with the customers who then sub-consciously accept it as a standard by which they judge and evaluate other outlets. This is a very subtle way of adding value to their stated objectives. M&S also found that the centre of power that lay with the Chairman who also doubled up as CEO was not in tune with changing demographics and customer preferences. In late 1998 and 1999 the younger customers had different outlook and the earlier values and vision of the last fifty years required a change to suit the mood of the customer as well as the financial market. The company was advised to change its drab outlook and to bring in fresh blood. In 2001 Roger Holmes was made CEO, and in 2002 Luc Vedervelde was appointed Chairman & and he commenced restructuring the company. By 2004 the exercise was frustrating as closure of some European branches, sale of some properties and a continuance of earlier policies did not quite work out and the plunging share prices indicated the shareholders displeasure. Desperation turned to despair, business strategy was unfocussed; and in true fashion both the Chairman and the CEO were replaced in May that year. Paul Myners took over as Chairman and Stuart Rose took over as CEO. Restructuring was replaced by Positioning as strategy and it worked. In 2007, Lord Burns, the latest Chairman reported that the company was well on its way to attaining the eminent position that it had in 1997-98 riding on the new positioning strategies. 9 Recommendation Having achieved a turnaround, the time is opportune for M&S to consolidate its gains. It must continue to serve all its stakeholders and sustain through strong Implementation of Plan A. It cannot and must not shy away from the social and societal causes it has undertaken and must report all attempts, endeavors and results transparently to all its stakeholders. It has a long way to go, but is on a firm footing now as all its stakeholders, specially the shareholders are rallying around it and it must capitalize on it. Mintzberg and Quinn (1991) state that strategy implementation is conducted under four headings; structure, system, culture and power. Structure is the organizations hierarchy, systems refers to administrative processes, culture can be described as the way things are done in the organization and power means the power of individuals and groups and the delegation of authority for carrying out functions. It is recommended that M&S pay special attention to implementation procedures by regular monitoring of achievements and modifying needs as it goes along the road to further success. 10 Bibliography Boatright, J. R. (1999), Ethics and the Conduct of Business, Third Edition, Prentice Hall, Upper Saddle River, N.J.. Chairman’s Foreward 2007 avaialable at: http://www.marksandspencer.com/gp/node/n/43436031/202-7927409-1015818?ie=UTF8&mnSBrand=core CO2 emissions, Annual Report pdf. Available at: http://www.marksandspencer.com/gp/node/n/43436031/202-7927409-1015818?ie=UTF8&mnSBrand=core CSR , How We do Business pdf. Available at: http://www.marksandspencer.com/gp/node/n/43436031/202-7927409-1015818?ie=UTF8&mnSBrand=core Hamel, Gary. and Prahalad, C.K., The Core Competence of the Corporation. Harvard Business Review, May-June, 1990. Hamel, Gary. and Prahalad, C.K., Competing for the Future, Harvard Business Review, May-June, 1996. How we do Business pdf, Plan A, 100 Commitments available at: M&S Annual Report pdf available at: http://www.marksandspencer.com/gp/node/n/43436031/202-7927409-1015818?ie=UTF8&mnSBrand=core McWilliams, A., and Siegel, D. (2001), “Corporate social responsibility: a theory of the firm perspective,” Academy of Management Review, Vol. 26 No. 1, pp. 117-127. Miller, F.D., and Ahrens, J. (1993), “The social responsibility of corporations,” in White, T.I. (Ed), Business Ethics: A Philosophical Reader, Prentice Hall, Upper Saddle River, NJ, pp. 187-204 Mintzberg, Henry., THE STRATEGY CONCEPT I: FIVE Ps FOR STRATEGY Mintzberg, Henry California Management Review; Fall 1987; 30, 1; ABI/INFORM Global Minzberg, H. and Quinn J., The Strategy Process – Concepts, Context and Cases. Prentice Hall international, 1991. Porter, M.E,.Competitive Strategy, Techniques for Analysing Industries and Competitors, The Free Press, NY 1980 Smith, Adams., The Wealth of Nations, 1776 The Guardian available at: http://www.guardian.co.uk/Archive/Article/0,4273,4211977,00.html accessed on 2 Nov 07 The Guardian available at: http://business.guardian.co.uk/story/0,,2123321,00.html accessed on 2 Nov 07 1 Appendix 1 Until 1999 M&S' financial year ended on 31 March. Since then, the company has changed to reporting for 52 or 53 week periods, ending on variable dates. Year ended Turnover (£ M) Profit before tax (£ M) Net profit (£ M) Basic eps (p) 1 April 2006 7,797.7 745.7 520.6 31.4 2 April 2005 7,490.5 505.1 355.0 29.1 3 April 2004 8,301.5 781.6 552.3 24.2 29 March 2003 8,019.1 677.5 480.5 20.7 30 March 2002 8,135.4 335.9 153 5.4 31 March 2001 8,075.7 145.5 2.8 0.0 1 April 2000 8,195.5 417.5 258.7 9.0 31 March 1999 8,224.0 546.1 372.1 13.0 31 March 1998 8,243.3 1,155.0 815.9 28.6 31 March 1997 7,841.9 1,102.1 746.6 26.7 31 March 1996 7,233.7 965.8 652.6 455.8 2 Plan A PLAN A Plan A is our five-year, 100-point plan to tackle some of the biggest challenges facing our business and our world. Climate Change We aim to make our UK and Republic of Ireland operations carbon neutral in five years. We will minimise energy use, maximise the use of renewables and offset only as a last resort. Waste We’ll reduce packaging by 25%, find new ways to recycle and stop sending waste to landfill from our stores, offices and warehouses. Sustainable Raw Materials From fish to forests, our goal is to make sure our key raw materials come from the most sustainable sources available. Fair Partner By being a fair partner, we’ll help improve the lives of hundreds of thousands of people in our worldwide supply chain and local communities. Health We’ll help customers and employees choose healthier lifestyles through healthy food ranges and clear labelling. To find out more visit www.marksandspencer.com/PlanA Read More