Marks and Spencer Company - Term Paper Example

? Marks & Spencer Company Analysis Management Assignment 17 April, Word Count: 3000 Company Analysis The company Marks and Spencer (M&S) is a classic example of humble beginnings touching the skies of success. The company rose from a stall in the late 1880s to becoming the largest clothing retailer in the United Kingdom. But like all companies, M&S also had its ups and downs because staying in the top lead is not an easy game in today’s ever-growing and constantly changing market. Business Environment & Strategic Capability Analysis The analysis of business environment is an important procedure done regularly by the companies. As the market is changing and including more and more firms in the business scenario, a proper screening of the environment is part and parcel of a firm’s success. ‘It is essential for a business enterprise to keep itself aware of surrounding environment because the success of business depends to a great extent on its awareness about surrounding environment’ (Jain et al. 2010, p.84) PESTLE Analysis In order to analyze the business environment for M&S we will first use the PESTLE analysis. ‘Political, economic, social, technological, legal and environmental (PESTLE) analysis is an analytical tool for assessing the impact of external contexts.’ (Basu 2011, p.21) a. Political The UK retailer is faced with the changing setup in terms of the political environment. Although the company enjoys a fairly stable government with stable policies regarding the economy and the retail business as a whole, but changes have been brought into the system due to the recent terror vibes. However the efficient UK government has tapped this issue with proper security plans. The company is a part of the system where the tax net is not too high as compared to other countries. Also the international trade agreement with China for instance has been relaxed with the new double tax treaty that reduces taxes, thus facilitating opportunities of global trade. b. Economic The economy in which Marks and Spencer is operating is one of the largest economies of the world with a loose monetary policy and a stable employment scenario. The company does face the risks of sudden financial upheavals like the 2007-2009 financial crises that originated in the US mortgage market but influenced the entire world especially the larger economies. So M&S have to keep a continuous check on the global outlook and the UK’s economic indicators and their trends in order to fully capitalize on the economy. c. Social In terms of the social factors M&S has to analyze the local environment as well as the foreign territories in which the company operates. The company needs to take into account the youth as they are the lucrative target market for clothing and apparel. Its loyal customer base is now in the age bracket of 50 plus years. It needs to analyze the UK’s youth for their lifestyle which is independent and trendy and portray such vibes in their clothing line. d. Technological The company faces a technological lag as compared to its competitor. The company did not use the plastic money till the 2003 and had no loyalty card schemes for its customers. The company started these cards and schemes along with vouchers and reward points in 2003 much later than its competitors. The technological advances are the most speedy ones these days, with companies using technology in terms of product availability in the form of online deliveries for better customer service etc. M&S needs to keep on adapting to the technological change in order to compete well with the rivals. Also UK like other big economies is witnessing an era of online shopping frenzy and this hype needs to be catered through proper implementation of correct design of customer friendly website and the accompanying distribution strategy. e. Legal The laws in the UK are always changing for the better. M&S keep a check on all the new legislations through yearly training. Health and Safety laws, Packaging laws, commercial laws etc have to be maintained in full profile so as to maintain a sound legal outlook. M&S started their ‘behind the name’ theme in order to reflect the fair trade practices which the firm had undergone as a part of the legal requirement. f. Environmental Marks and Spencer was the first retailer to make school shoes from recycle material reflecting the importance of the environmental well-being. With more and more firms joining the ‘go-green’ banner, the company also has its five year plan to become environmentally equip with lesser CO emissions, better waste strategies and an environment friendly way of doing business. Porter’s Five Forces Model ‘Once the boundaries of the industry have been identified, the task facing managers is to analyze competitive forces in the industry environment to identify opportunities and threat.’ (Hills & Jones 2008, p45) This analysis is done through Porter’s Five Forces Model (see appendix A1). a. Bargain power of buyer - High The bargain power of buyers for M&S is high with the youth wanting to buy what they feel suits them and have many competitors to choose from along with the different fashions that keep changing on regular basis. b. Bargain power of supplier - Low The bargain power of supplier is low because of the stringent quality control and laws regarding the suppliers for M&S. c. Threat of new entrants - Low The threat of new entrants is low due to the high capital requirements and a strong and loyal supplier network. Also the M&S being the largest retailer in UK shows that the barriers to entry are high. d. Threat of Substitute - High The threat of substitutes is high as new fashion and changing styles give customers a wide variety to choose from. Also in the food segment giants like Tesco and Sainsbury are offering affordable prices to beat the competition. e. Rivalry among competitors - High The rivalry among competitors is high with names like Next, Oasis, and Gap fighting for the top position. In the food segment M&S also faces fierce competition due to competitor innovations and the generic nature of the product. Resource & Competencies Analysis The resources of a company are its strategic capabilities which translate into activities and operations of the firm. The downturn of the M&S took place as they were not managing their resources i.e. financial, human, physical and intangible resources efficiently. The reduction of the sales staff in the stores resulted in the poor customer services which the company higher-ups were deliberately ignoring. The physical resources in terms of store setup and shelving of clothes were generating customer dissatisfaction. The financial resources were deployed in areas of internet shopping, Littlewoods store purchases etc rather than the needed market research and present M&S stores up-gradations. ‘Strategic capabilities are the resources and competencies of an organization that enable it to compete successfully.’ (Jeffs 2008, p55) M&S have deployed their resources in a very stringent manner with the specific suppliers supplying under the set conditions. The company had clothing as its main focus but further diversified into food and home products, and also took on financial services in their product portfolio. The resource and competencies analysis for the company is as follows: a. Threshold resources The resources required for the existence of a firm are labeled as the threshold resources. M&S have specific suppliers and will not deviate from their laws regarding the quality of their supplies. The suppliers and their efficient production are M&S threshold resources. These suppliers are easy to be reached by the competitors so the resource is easy to imitate but is necessary for the existence of M&S. Also the relationship of M&S with the suppliers is strong and loyal. b. Unique resources The resources providing the competitive edge lie in this category. For M&S the brand image is the company's difficult to imitate resource. With the image showing high quality, fair trade and a good value of money it is a unique resource for M&S. c. Threshold competencies The activities required to keep the firm in the market are threshold competencies. The M&S has friendly service, simple procedures, and good human resources with the organization working as a family is the activities keeping the company in business. d. Core competencies The activities required to give the firm an edge over others are its core competencies. The autocratic nature of the firm hierarchical structure lacked core competencies at the very top. One thing that can be considered a core competency was the fact that there was no disagreement at the top of the hierarchy but M&S needs to work on its unique activities in order to kill the competition and get its ?1 billion glory back. The company has an autocratic structure which can help in the times of economic downturn. Its brand loyal target market helps the company arise quickly from the dips. Its fair trade aligns the company with the legal framework. However M&S needs to align its activities with the environment in a more efficient manner in order to prevent the dips in growth and share prices. Performance Appraisal – 2008 and onwards The performance of M&S has shown mixed trend, being the largest retailer in the UK with a network of more than 500 outlets the company has not shown its monopoly in the market as was the expectation of the analysts. ‘Strategic initiatives are the means through which a vision is translated into practice.’ (Brache & Bodley 2006, p6) The company believed in high product quality, reasonable prices, efficient and designated suppliers and simple procedure. The different strategic initiatives undertaken by the company resulted in mixed responses of successes and failures. In the late 90s M&S decided to cut cost through reducing the number of full-time sales assistance this lead to failure for the M&S as it decreased the quality resulting in low service at the outlets. The company used basics and year round appeal for its clothing which led to decrease in demand by the fashion conscious target market. The company entered into a joint venture ‘Per Una’ later buying it which led to adding a designer’s name to its apparel. The addition of simply food was a successful decision to diversify from the clothing line. Corporate Social Responsibility was also included as a part of the reporting and then introducing carrier bags etc proved to be a success. However reverting back to the same CEO being a Chair in 2008 was a failure as it raised concern over the laws. Generic Strategy of M&S Analyzing the company in-terms of Porter’s generic strategy matrix (see appendix A2) reveals that M&S use the Focus Differentiation as their competitive advantage. ‘Focus is where a company concentrates on a market area, or to deliver niche market and product.’(Burtonshaw-Gun 2011) M&S caters to the high end of the market segment with products having strong brand image and high quality. This strategy differentiated M&S from its rivals in both clothing and food arena. Market Entry Strategy (Ansoff Matrix) The marketing entry strategy of M&S can be analyzed using the Ansoff matrix (see appendix A3). ‘The ansoff matrix defines two key factors: what is sold and who is it sold to.’ (Stone 2001, p50) M&S uses the market penetration strategy for its food and clothing segment. The company targets the same high end market with a present product of high quality. In terms of its financial services the market entry strategy is diversification i.e. introducing a completely new product in nature to a new target market. Portfolio Management The BCG (for Boston Consulting Group) matrix provides a framework for evaluating the relative performance in which a diversified organization operates.’ (Griffin 2011, p255) M&S have a portfolio of three segments, clothing, food and financial services. The company started as a clothing retailer and moved on to add ‘simply food’ to its product category. Also the company has financial services in its product portfolio which has not been established completely. The positioning of the products according to the BCG matrix (see appendix A4) has placed the products in the following category: Clothing & Apparel – Cash cow Food – Cash cow Financial services – Dog The cash cow shows a low market growth but a high relative market share and so both segments of M&S food and clothing fall in this part of the matrix. The financial services are new and right now they are in the low growth and low market share zone of the matrix. TOWS Analysis ‘The TOWS is a conceptual framework for systematic analysis that facilitates matching the external threats and opportunities with the internal weaknesses and strength of the organization’ (Koontz & Weihrich 2007, p107) The TOWS analysis gives the best possible strategy the company should follow and other strategic option for the firm (see appendix A5a) The TOWS matrix for M&S is provided in the appendix A5b which gives different strategic option for M&S. The company can use its strong brand image and environment friendly activities to attract the youth. Also decentralization will help the firm reduce administrative costs. The use of efficient website and entering into more joint ventures will also be beneficial for the long-term success of M&S. Financial Numerals The financial picture of the firm since 2008 is shown in the appendix A6. The operating profit has shown a decreasing trend and the figure for the net margin is also decreasing over the years due to the performance and economic downturn. The graph also shows that the earning per share figure is increasing indicating a good future for the firm. In terms of the efficiency ratio the sales to inventory turnover as well as the asset to sales ratio both showed a decreasing trend. Also in the profitability ratios the return on sales, assets and equity showed a downward slope. The past of M&S had its ups and down however as mentioned earlier an increasing EPS shows investor confidence in the future of the company. Potential Future Strategy The future of M&S promises good picture of the firm’s profit and share price provided the firm uses appropriate tools and strategic option for its business and operations. The company must keep in mind its changing macro and micro environment. Flexibility both in terms of operations and hierarchy is the demand for the future. The top down culture of the organization can only lead to resentment among the employees which should be resolved through a more bottom up approach and open communication strategy. The company also needs to work on its core competencies in order to better fight the rising competition in the future. Cost saving through market extensions is the demand of the future (see appendix A7) The company should expand its business in order to produce increased choice for customers and increase its customer base through online purchases and through foreign operations. The company should explore countries other than UK in order to increase its future target market base and hence sales. A Porter’s Diamond model for India (see appendix A8) shows feasibility of M&S clothing in the country. In India the company would enjoy the benefits of low cost labor and cheap raw materials. The population of the country will support the influx of M&S clothing line due to its large size and high demand for good quality clothing. The general concept of clothing from the west appeals to the youth of the country making it more suitable for the company to operate in the country. Therefore, M&S can utilize this market opportunity through its high quality and established brand image. The company can extend its business in other countries too depending upon the feasibility but these extensions should not go out of hand and should be well managed in order to generate success. Research and Development strategy for the company is a requirement of the future. The company needs to increase its research activities in order to explore and understand the trends and requirement of the target market and use it to reflect in their clothing line. In terms of the success criteria the strategy will be suitable for M&S as it will provide an insight to the consumer choices. This increased research and development efforts are projected to increase returns due to increased size of the potential target market. Outsourcing is another strategy that will prove to be a success for M&S future endeavors. The future is all about technological advancements and there are firms specializing in the IT sector. The company should outsource its web designing and operations to a firm specializing in this field. Due to the increase customer awareness and increase usage, the target market requires an efficient and functional website that delivers just about anywhere in the world and fast. Another profitable growth strategy for the future is entering into joint ventures like ‘Per Una’. The company has a good experience with its previous joint venture and entering into another one will be beneficial for adding the fashion element in the company’s clothing line. Fashion designers have fresh ideas and can help achieve what the company has been trying for quiet a while now: brand image with a fashion sense. The generic clothing line needs to add a dash of fashion for it to create the desired magic. Therefore, Marks and Spencer can extend in global markets and with their market penetration strategy can reap profits at international levels. In terms of the local market the company should increase its research and development activities in order to better understand its target market and include all age groups as its customers. The efficient and fast website with a professional touch will boost sales as the future is all about technology with online shopping being an integral part of it. The brand image of the company can be well complimented with the fashion statement of famous designer to bring the desired amount of tinge into the clothing line of the company. M&S promises a future of increased profits and high share prices through proper planning and sound strategic practices. . References Basu, R (2011). Fit Sigma: A Lean Approach to Building Sustainable Quality Beyond Six Sigma. West Sussex: John Wiley & Sons, Ltd. p.21. Brache, A & Bodley-Scott, S (2006) Implementation: How to Transform Strategic Initiatives into Blockbuster Results. New York: The McGraw Hill Company. p6. Botten, N (2007). CIMA Official Learning System Management Accounting Business Strategy. Oxford: CIMA Publishing. p264. Burtonshaw-Gun, S (2011). Essential Tools for Operations Management: Tools, Models and Approaches for Managers and Consultants. West Sussex: John Wiley & Sons Inc. Griffin, R (2011). Management. 10th ed. Mason: South-Western Cengage Learning. p255. Hill, C & Jones, G (2008) Strategic Management - An integrated Approach. 8th Ed. New York: Cengage Learning Inc. p.45. Jain, T., Trehan, M., Trehan, R. (2010) Business Environment. 2nd Ed. New Delhi: V.K. (India) Enterprise, p.84 Jeffs, C (2008). Strategic Management. London: SAGE Publications Ltd. p55. Key performance measures (2011) Your M&S, Available: http://annualreport.marksandspencer.com/financial-statements/key-performance-measures.aspx Last accessed: 17th April, 2012 Koontz, H & Weihrich, H (2007) Essentials Of Management - An International Perspective. 8th ed. New Delhi: Tata McGraw Hill Publishing Company Ltd. p107. Marks & Spencer Group (2011) Redmayne Bartley, Available: http://www.redmayne.co.uk/research/securitydetails/financials.htm?tkr=MKS Last accessed: 12th April, 2012 Stone, P (2001). Make Marketing Work for You: Boost Your Profits with Proven Marketing Techniques. Oxford: How to Books Ltd. p50. Appendix A1: Porter’s Five Forces Model (Hill & Jones 2008, p45) A2: Porter’s Generic Model (Botton 2007, p264) A3: Ansoff Matrix (Stone 2001, p50) A4: BCG Matrix (Griffin 2011, p255) A5a: TOWS Analysis (Koontz & Weihrich 2007, p107) A5b: TOWS for M&S Internal strengths (S) Strong brand presence High quality product Year round usability for the clothing Per Una Friendly service at outlet M&S direct, website for online converge CSR policies Environment friendly – recycling and reduction in CO emissions Internal weaknesses (W) Too simplified operating procedure Autocratic structure Hierarchy Lack fashion styling Expensive than rivals External opportunities (O) Increasing brand awareness of the youth Increasing the advertising to attract the youth Including all age groups in the target market Increasing trends of working from home SO Strategy Using the strong brand presence to attract the youth segment Using the environment friendly activities as advertising tools to attract the youth WO Strategy Reducing hierarchy and promoting telecommuting in order to cut costs in terms of administrative expenses External threats (T) Economic downturn to further hit the market Increase of unemployment rates for youth Technological advances e.g. internet shopping ST Strategy Using website to facilitate online purchases in economic downturn WT Strategy Entering into more joint ventures with famous designers to improve the fashion statement of the company while keeping profits in the sluggish economic conditions as well A6: Financial Data The graphs have been plotted using the key performance measures of M&S (http://annualreport.marksandspencer.com) Ratio calculations for M&S can be seen as follows: Data (In ?million)           Assets Equity sales inventory Net profit 2011 7344 2677 9740 685 598 2010 7153 2185 9535 613 523 2009 7258 2082 9062 536 507 2008 7161 1957 9022 489 812 (www.redmayne.co.uk) Efficiency ratios   Sales to Inventory turnover Asset to sales ratio Net sales/Inventory Total asset/total sales 2011 14.2 0.75 2010 15.6 0.75 2009 16.9 0.80 2008 18.4 0.79 Profitability ratios Return on Sales Return on Assets Return on equity Net profit/sales Net profit / assets Net profit/ equity 2011 6% 8% 22% 2010 5% 7% 24% 2009 6% 7% 24% 2008 9% 11% 41% A7: Suitability, Feasibility and Acceptability Model Strategy Suitability Feasibility Acceptability External Factors Internal Factors Financial risk and return / stakeholders Entering in New Markets e.g. India (Market Extensions) -Low cost of production in the sub-continent -High fashion sense and demand -High brand image -Strong HR -Environment friendly appeal Operations/ project with positive NPV and IRR should be undertaken Increase research & Development Changing trends and fashions Research & Development Budgeting available Increased returns due to larger target market Outsourcing -Speedy Technological advances -Specialization in website design and control required -M&S direct established in 2003 -Higher expected profits due to increased sales Joint Venture -Availing synergies -Prior experience ‘Per Una’ -Greater returns due to fresh ideas A8: Porter’s Diamond Model for India Bibliography Karlof, B (1994). Key Business Concepts: A Concise Guide. London: Routledge. Kossowski, A (2003). Strategic Management: Porter’s Model of Generic Competitive Strategies - Theory & Analysis. Norderstedt: Auflage. Lester, A (2009). Growth Management: Two Hats Are Better Than One. Hampshire: Palgrave Macmillan. Mollona, E (2010). Computational Analysis of Firms' Organization and Strategic Behavior. New York: Routledge. Orcullo, N (2007). Fundamentals of Strategic Management' 2007 Ed. Manila: Rex Book Store Inc. Porter, M (1998). Competitive Advantage: Creating and Sustaining Superior Performance: with a introduction. New York: The Free Press. Sengupta, N & Bhattacharya, M (2006) Managing Change In Organizations. New Delhi: Prentice-Hall of India Private Ltd. Walker, G (2004). Modern Competitive Strategy. New York: The McGraw Hill Companies Inc. Read More