Home > Sample case studies > Sample Case Study on Marks and Spencer

Sample Case Study on Marks and Spencer

Case Study on Marks and Spencer

Introduction
Marks and Spencer became a household name, first in its country of origin, the UK, and later internationally. However, the late 1990’s saw a reversal of fortune for this company. In this case study, we look at the relevant issues surrounding this decline and the initiative to turn this problem around. The topics that will be discussed include the business environment, resource and competence analysis, strategic leadership, culture, strategic options, managing change, and the future of Marks and Spencer.

Business Environment
The environment encapsulates many different influences. The difficulty is to make sense of this diversity. Identifying very many environmental influences may be possible, but it may not be of much use because no overall picture emerges of the really important influences on the organisation. Furthermore, there is the issue of the speed of change. Managers typically feel that the pace of technological change and the speed of global communications mean more and faster change now than ever before. There is also the issue of complexity. Managers like other ‘normal’ individuals try to simplify what is happening by focusing on those few aspects of the environment which have been important historically. (p.97, 98)

The strategy of an organisation is therefore, the result of decisions made about the positioning and repositioning of the organisation in terms of its strengths in relation to its markets and the forces affecting it in its wider environment. (p.40) We find that Marks and Spencer fell terribly short in revising its strengths within their wider environment, and this short-sightedness contributed to their slump.

A changing and unpredictable environment will generate a diversity of ideas and innovations because it will demand responses from organisations and they will vary. An organisation that seeks to ensure that its people are in contact with and responsive to that change is likely to generate a greater diversity of ideas and more innovation than one that does not. On the other hand, one that tries to insulate itself from its environment, like Marks and Spencer, by trying to resist market changes or rely on a particular way of doing or seeing things – sometimes known as ‘strong culture’ – will generate less ideas and innovation. (p. 52)

We see that Marks and Spencer relied heavily on the traditional way that the company did business and did not encourage innovation and idea generation amongst managers and employees. In reality, these employees feared to show thought patterns that would ‘anger’ the senior management. It is clear that the market that Marks and Spencer were in was complex, dynamic and unpredictable and encouragement of ideas and innovation would have probably saved them from the fate they endured.

Similarly, high degrees of control and strict hierarchy are likely to encourage conformity and reduce variety, so innovation is less likely the more elaborate and bureaucratic the top-own control. We see that Marks and Spencer typically was a company of this description. (For a detailed explanation, see the section on ‘Culture’).

If we look at the PESTEL Framework (Political, Economic, Socio-cultural, Technological, Environmental and Legal), we see that Economic, Socio-cultural, Environmental and Technological factors are relevant to Marks and Spencer’s problem.

Economic
Marks and Spencer had the notion of that they did not and should not have to reduce prices, either at end of range or during seasonal periods like Christmas. We see that although this strategy worked initially for them, in time, the public realized that with other stores in the market, they could not only purchase the same items that Marks and Spencer stored at lower prices, but also receive discounts from these other stores at times as mentioned above. Marks and Spencer once again did not pay attention to this sentiment of the public.

Socio-Cultural
In terms of socio-cultural factors that affected Marks and Spencer, we see that the public became more fashion conscious in the 90’s than they had ever been in terms of what Marks and Spencer provided them with, i.e. “classic, wearable fashions”. Hence people decided to shop for clothing in trendier places. As a result we see that they employed George Davies (founder of Next) and other haute couture fashion designers to design clothing exclusively for Marks and Spencer.

Environmental
In terms of the market environment, Marks and Spencer did not keep …“pace with the tremendous changes taking place in the retail market. While our competitors strengthened, we were busy developing new stores. So when markets tightened in the second half of the year, we were hit by falling sales, loss of market share and declining profitability.” (Peter Salsbury, Marks and Spencer Annual Review, 1999)

This quote, by the then CEO of Marks & Spencer, sums up the lack of focus, direction and foresight that existed at senior management level in terms of the environment.

Technological
A factor that haunted Marks and Spencer was their inability to keep up with technology. Simple schemes like buying cards for customers were not in place. This coupled with the close on to extinction EDI system that controlled communication between Marks and Spencer and their suppliers made sure they stayed at the back of the pack. However, in 1999, Marks and Spencer announced the integration of a new information system called BizTalk. There were three reasons for using BizTalk. Firstly and most importantly, the principles behind the BizTalk framework, industry standard XML, and the opportunity to avoid writing custom interfaces between each of our applications. Secondly, the BizTalk server product architecture, and its use of core products, such as MSMQ, SQL Server and MTS. And thirdly, its seamless integration into our strategic architecture based on Microsoft Windows and IBM System 390.

Marks and Spencer recognized that they needed a global supply chain to compete, and radical changes in the way they use information throughout the company. To create this, they would have to manage new richer information more quickly, optimise our stock management, and be more responsive to our retail business.

Firstly, in terms of managing information, they needed to maximize the availability of our information throughout their business. The variety, volume and frequency of that information was increasing. Using BizTalk, they were changing the way that sales information was being delivered to central systems. Rather than aggregating sales and transferring these back to the centre overnight, they would pass sales as they happen to the central systems that could act upon them. They would use the same technology to transfer event-driven information out to their stores, such as short-term promotions or red alerts. On the Internet side, they would use BizTalk to link their customer web sales into their existing back-end systems, and ultimately through to their suppliers.

Secondly, in terms of optimising stock management, they would improve their product availability, whilst reducing costs by passing sales information in near real-time to their suppliers, so that they could change what they manufacture and what they distribute. BizTalk would, over time, replace their existing batch EDI links to their 500-plus supply chain.

Thirdly, regarding being more responsive to their business, internally they leveraged their existing application developments by using BizTalk to enable true application cooperation and business process integration.

It is evident from the above that Marks and Spencer finally came to the realisation that changing just slightly enough to try to keep up with the market was no way of doing business. They needed radical change if they wanted to survive. As will be seen later in this paper, thankfully for them, this change did take place.

Resource & Competence analysis
A company’s resources are able to dictate its success. The resources available to a company underline strategic capability, as it is these resources that are deployed into the activities of the organization. It is evident from the Mark’s and Spencer’s case that there was a decline in the success of the company because it did not have adequate resources in some instances and in other was not making efficient use of the resources available to the company.
There are different types of resources including physical, human, financial and intangible resources. Human resources are the employees of the company as well as the knowledge and skills they possess. By 2000 it was reported that almost all Marks and Spencer’s managers were promoted internally meaning that no fresh ideas were brought into the company. This hardly sends a positive signal to the market or to the customer and depicts how inefficient use of human resources can lead to a company’s decline. Another example of bad human resource management was inadequate staff. To reduce costs, floor staff was kept to a minimal. This led to a decrease in customer service which is also a defining feature of the manner in which inadequate human resources can reflect poorly on any retail store and further added to the company’s decline.

With regard to financial resources, the company chose to purchase and refurbish the Littlewoods stores at the same time as the existing Marks and Spencer’s stores. This decreased available capital, which it could have used elsewhere to revive the company, such as marketing. Financial resources seemed to be deployed in the wrong areas such as home and Internet shopping, streamlining international relations in 1999 rather than to improve the existing stores or research existing markets to find where the department store was in fact lacking. Inadequate physical resources such as the initial lack of change-rooms meant customer dissatisfaction, as there was no way to try on clothing.

Customers voiced discontent at the arrangement of the clothing commenting that it was difficult to see the difference between the work and casual clothing. In this way inadequate positioning of their physical resources also led to customer dissatisfaction. With regard to its intellectual capital or its intangible resources such as the knowledge that has been captured in brands, business systems, customer databases and relationships with partners there were also discrepancies leading to a decline in profitability. Further support for the importance of resource-based strategies in retailing firms comes from the theory itself. Retailing companies tend to be social and complex, employing many people at many levels all of whom have to be well presented and pleasant and skilled in different areas (the food department, the makeup counter). Such an environment provides incentive for the emergence of distinctive and difficult to imitate intangibles (such as patented brands); the very stuff of establishing unique and sustainable competitive advantages.

Generic resource identification and analysis methods can be refined by capturing more reliably the value of resources and competences lying outside traditional company boundaries through improved management of such relationships. This framework is based on the resource-based view of the strategic management emphasising the significance of firm resources in achieving a favourable position in the market. For the framework, a distinction is made between two types of fundamental resources: 1) strategic core resources and 2) critical supporting resources The resource-based view of strategic management emphasises the significance of a firm’s unique or distinctive resources as sources of competitive advantage. The focus of strategic management research as well as strategic thinking has evolved and changed over time. According to this view, a firm should develop specific resources and capabilities so that it could create and sustain a competitive advantage.

With regard to its core competencies or the activities or processes that critically underpin the organization critical advantage, it can clearly be seen that Marks and Spencer’s failed to take advantage of theirs. What Marks and Spencer’s had firmly established was its brand name and perception of quality due to it’s British supply base yet when sales began to decline and profits began to fall, the focus was placed on competition and instead of enhancing their image and promoting their brand as one of quality.

They began to immediately restructure, changing CEOs and decreasing the efficient use of their intangible resources. This unique resource, which critically underpins competitive advantage, was underestimated. Having knowledge of the Marks and Spencer’s brand and the distinction of quality it brings, one would have thought that dealing with improving customer satisfaction and marketing, and promoting their brand would have proved more effective than total restructuring. Practically all firms base their business objectives on satisfying their customer needs. This is a valuable initial approach for aligning products, services and objectives with existing markets. It is based on the Opportunities and Threats half of a SWOT analysis. However, most firms neglect the other half of the analysis. They do not identify the sources of their Strengths and Weaknesses. For example, Marks and Spencer, by hiding problems about inadequate physical resources and a decline in profit only paved the pathway for more problems. Why do firms neglect to analyse their strengths and weaknesses? Partly because it is much easier to analyse markets that are, so to speak, “out there” than to speak about strengths and weaknesses. It is also because there are few pragmatic methods to help managers and because those that do exist do little to reduce the inherent subjectivity in managers looking at themselves.

The issues here are less to do with the markets the firm is in and more to do with the company itself. What are they good at and not so good at? What are the important differences between one firm and its competitors? We believe every firm is unique. And it is on the peculiarities that make a firm unique that sustainable competitive advantages can be based. The processes help to understand a firm’s potential and actual strengths and weaknesses. They show how managers can build a more sustainable competitive advantage by revealing the unique resources that underlie their firm’s strengths and weaknesses. Improving these resources and managing them more effectively will reinforce their strengths and ameliorate their weaknesses and thereby improve their competitive position.

Accordingly, the strategic core resources represent the core idea around which the business is built. It can be stated that without these resources a real competitive advantage cannot be created. Strategic core resources should be approached by identifying which resources among a firm’s resource collection are such factors that differentiate a firm and its product from principal competitors. The critical resources are not necessary rare for a firm. The critical supporting resources, therefore, should be approached by identifying common resources the lack of which in a firm makes it difficult to achieve or maintain a favourable position in the market. With regard to Marks and Spencer, one would argue that their critical competencies were its human resources, supply chain, physical resources.

Staff was increased by 4000 members, the supply chain was changed, physically the store was restructured. But the core competency was largely misconstrued. The primary types of the competitive advantage are cost advantage and differentiation. Marks and Spencer’s did not exploit their core competency; their differentiation in terms of their image of “quality” to their best advantage. Surely if one is promoting a product of quality one is appealing to the middle to upper class market and therefore the initial blame placed on competition is questionable. Surely discount stores are not appealing to this market nor promoting quality products. While fashion had changed to become more trendy and less classical making the likes of GAP and Oasis more competitive, Marks and Spencer’s had they been quick enough to recognise the change in the fashion could have quickly adapted but one questions whether this would have had an impact given the preconceived ideas about their clothing in any shopper’s mind.

If one were to look locally, when the fashion scene changed to be more ‘trendy’ and youthful, Woolworths, which can be viewed as the South African Marks and Spencer’s, also experienced similar problems. Having similar values with regard to conservative clothing and with a focus on quality, Woolworth’s realized that they were not the store of choice in the wakening of the more vibrant fashion trends. However, Woolworths instead of totally restructuring to combat this, began to promote their quality. They recognized their core competence of quality, and targeted their market with Woolworths – “quality for life” as well as “the Woolworth’s difference.”

It is evident therefore that Marks and Spencer’s decline can be attributed to inadequate usage of resources and well as a null exploitation of their core competency.

Strategic Leadership
Leadership is the process of influencing an organisation in its efforts towards achieving an aim or goal and thus, a leader is someone who is in a position to have influence. (Johnson & Scholes 2002:549) A strategic leader is defined as an individual upon whom strategy development and changes are seen to be dependent. (Johnson & Scholes 2002:65) They are the individuals who are personally identified with the organisation and are also central to the strategy of the organisation. In terms of change management, it is found that the management of change in an organisation is directly linked to the role of a strategic leader. The leader plays a vital role in this process. The case of Marks & Spencer revolves primarily on the management of change and thus focusing on how leadership affected this process is important.

Marks & Spencer was founded by Michael Marks and then subsequently run by his son Simon Marks. For many years thereafter the business was seen to be largely a family organisation. In a family contracted business the strategy of an organisation is usually associated more symbolically with an individual like the founder. Further, in effect, the strategy and the individual become embedded in the history and culture of that organisation (Johnson & Scholes 2002:534). This is precisely the case with Marks & Spencer. Many of the older values and traditions, as well as the strategies set by Michael and Simon Marks were followed by the subsequent leaders. In fact until the late 1970’s the board comprised only of family members and the thing to note about Marks & Spencer leaders was that all the CEO’s were generally lifetime employees or part of the founding members family. We begin our analysis of strategic leadership by looking at each of the leaders in the Marks & Spencer business and discuss their management and leadership styles.

Simon Marks had taken over the business from his father. He had adopted an aggressive attitude with regards to his ideas for the organisation. He was also responsible for founding many of the procedures and strategies of the organisation by studying what firms in the US were doing and then bringing many of those ideas to the UK. A strong sense of personal control was exhibited by Marks and he was also described as meticulous, paying a great deal of attention to detail. A large part of his success may also have been attributed to his keen understanding of his customer’s preferences and trends. However his management style was essentially top down and followed the organisation’s hierarchical nature. Marks was reported to have been a leader who shouted and bullied his employees. He was the type of leader who could be classified as instrumental in that his focus was on designing systems and controlling the organisation’s activities.

Marks was succeeded by Richard Greenbury. Greenbury had followed a similar management style to Marks and his leadership exhibited centralised authority. Many of the managers were actually scared of him. Instead of focusing on long -term strategy a large part of his focus, unlike Marks, was on the day to day operations of the organisation. Greenbury may be regarded as an autocratic leader when we look at the approaches he followed. When the organisation was not doing well he was quick to blame the failure on the competitive environment.

After much controversy Salsbury succeeded Greenbury in 1998. Salsbury had adopted a management style and approach far different from his pre-decessors. Rather than focusing on the business processes, he shifted the focus on to the customer. His aim was to adopt a customer centric approach and to restore the image of the company. Essentially this involved, moving the organisation away from its bureaucratic culture and stripping away further layers of the hierarchy. His leadership allowed for effective change management in trying to implement a reorganisation strategy. He could be described as a charismatic leader, in that he had a vision for what the organisation should be and tried to energize people to achieve it.

Another important person that needs to be mentioned is Luc Vandervelde. He was appointed the new chairman in 2000. Like Salsbury he had an approach which was geared more at restructuring the organisation and enforcing change management. He adopted a forward looking approach and looked towards the future instead of the past. He was a huge driver of change and implemented many new ideas in the organisation. Unlike many of the other leaders, Vandervelde may be classified as an outsider as he was previously employed as a managing director at the French food retailer, Promodes. Often it is the case that an outsider may be introduced into an organisation to effect change. The idea is that they will bring a fresh perspective on the organisation, not bound by the constraints of the past or the everyday routine of doing things which can prevent strategic change. The introduction of such new management from outside the organisation increases the diversity of ideas, views and assumptions, which can help break down the cultural barriers to change and may help increase the experience of and capability of change. (Johnson & Scholes 2002:553)

The experience lens ideology may also be extended to leadership and strategy, in that the strategy advanced by the individual may be formed on the basis of individual experience.(Johnson & Scholes 2002:66) The strategy advance by a long established CEO may strongly reflect or be informed by his organisation’s paradigm (like Greenbury). Alternatively a strategy advance by a CEO new to an organisation may be based on a successful strategy followed in a previous organisation (like Vandervelde)

Culture
Although strategy is decided in terms of processes and decisions, it is only through people that it is implemented. The way in which they behave cannot be predicted or controlled. Therefore, an organisation needs to consider their cultural dimensions while planning their strategy. As we have seen in many cases, an organisations’ strategy is doomed to fail if the right atmosphere and culture are not present.

From the beginning, we see that a very strong, autocratic culture prevailed at Marks & Spencer:
“There was a feeling of camaraderie and close-knit family atmosphere within the stores, and this was compounded by employing staff whom the managers believed would ‘fit in’ and become part of that family. The staff were also treated better and paid more than sales assistants in other organisations. The family nature of this firm dominated top management too: until the late 1970s the board was made up of family members only.”

We can see that Marks and Spencer had always focused on their culture. Although it was autocratic and hierarchy-based, was also “strong” and “close-knit”. The “family” atmosphere that prevailed would always be a winner with their customers since most of the people that frequented their stores shared these same “family” values and beliefs.

Looking back at this case in hindsight, many attribute Marks & Spencer’s failure during the 90s to a problem of culture. The problem may not have been that they had the wrong culture – indeed it had done wonders for them throughout the years – but rather the fact that they were unwilling to adapt their culture and management style to the world that was changing around them.

“Every M&S was identical – they looked the same, they did things in exactly the same way, and answered to the same people. But this meant that each store had less control of its own operations – “Store managers were severely restricted in how they could respond to the local needs of customers and could do little that departed from central discretion.”

Managers followed decisions sent down from the top, regardless of whether they agreed with the decisions or not. As a result, many problems that occurred at the store level were ignored and customers grew more frustrated.

During Marks & Spencer’s growth period there were few changes in its methods of operation or to its strategies. They felt that they knew what was right for their customers and this would help them succeed. This is why they refused to change the way they were doing things.

In the meantime, their competitors were being praised for reacting quickly to changes in the environment – and this proved to be the source of their success. Rather then force their own culture onto their customers, they instead focused on what the customer wanted, and adapted their strategy to meet those needs.

Even if we examine the expansion of Marks & Spencer, we will see that the primary reason for their failure to succeed was that they tried to force their tried-and-tested strategy on a market that had their own unique culture – and refused to change. As a result, Marks & Spencer was forced to halt expansion plans and eventually pulled out.

In April 1999, after realising that they needed to change, Salsbury issued a memorandum explaining that “he wanted to make changes to Marks & Spencer which would move the organisation away from its bureaucratic culture. One way Salsbury felt this could be achieved was by creating a decision-making environment that wasn’t encumbered by hierarchy.” But still their problems continued. One possible reason this did not work was that the public saw ‘through’ them and realised that even though they knew they needed to change, they did so reluctantly, if only to curb losses. This transparent move by Marks & Spencer was not enough – they needed to determine what their customers wanted before giving it to them.

Finally, in January 2000, Marks & Spencer made a bold move and appointed Belgian-born Luc Vandervelde as executive chairman. He was the previously the managing director of a large, successful French food retailer.

“This was the first time that anyone from outside the organisation had been appointed to the position of chairman at M&S, and many commented that it showed an indication that M&S had plans to develop as more of an international retailer.” Furthermore, in March 2000, they introduced a new corporate image, complete with new colours and logos – a new organisation.

Albert Einstein once said, “The significant problems we face cannot be solved at the same level of thinking we were at when we created them.” Could Marks & Spencer’s current upturn be attributed to this ‘out of the box’ thinking? Most probably.

STRATEGIC OPTIONS AND THE FAILURE OF M&S
Strategic options are concerned with decisions about an organisation’s future and the way in which it needs to respond to the many pressures and influences in its environment. This is particularly of great importance in the case of Marks and Spencer. Strategic choices are grouped into three parts: Corporate strategy, competitive strategy and directions or methods of development. The consideration of future strategies has to be mindful of the realities of translating strategy into action which, themselves, can be significant constraints on strategic choice. The strategic options employed by Marks and Spencer’s will be discussed in detail.

Until the late 1990s Marks and Spencer’s was successful in terms of profit and market share. It maintained a set of core principles which it used.

These were:
· To offer customers a selective range of high-quality, well designed and attractive merchandise at reasonable prices under the brand name St Michael;
· To encourage suppliers to use the most modern and efficient production techniques;
· To work with suppliers to ensure the highest standards of quality control;
· To provide friendly, helpful service and greater shopping comfort and convenience to customers;
· To improve the efficiency of the business, by simplifying operating procedures;
· To foster good human relations with customers, suppliers and staff and in the communities in which trade takes place.

M&S always had a very conformed formula which included identical layout, store design, training and so on. They also insisted on using only British suppliers. This was not very wise in 1998 as at the time, they were planning an expansion into Europe and America which had totally different cultures to the British. They believed that customers thought that they received higher quality from British suppliers. The failure of M&S began with a strategy that should never have been applied to overseas markets. They had implemented their tried and tested formula in various overseas markets. This resulted in a drastic fall in the share price and their profits. However, the CEO at the time, Sir Richard Greenbury, insisted that the profit loss was due to the competitive environment. There were many reports that M&S no longer understood the customers’ needs and had misread its target market. M&S had continued too long with its traditional risk-averse formula and ignored the changes in the marketplace.

Why did the internationalisation activity of Marks and Spencer fail? With hindsight, it might be said that there are a number of inter-connecting reasons. Firstly, analysts commented that Greenbury focused too much on the day-to-day operations of the organisation rather than their long-term strategy which needed to be altered. Secondly, many of the elements that made Marks and Spencer successful in the UK, did not apply in the global arena. The long-sustained buy-British policy, the peculiarities of the retail operation, the emphasis on a British brand alone and the lack of clear retail positioning and design, all presented problems in the global situation. Thirdly, despite the length of time in international activities, there was no experience of decentralised control of businesses and the systems needed to develop these businesses. Values in the companies taken over were not enhanced. Arguably, Marks and Spencer never really understood what they had bought, as it was so different to their own operation. When the crisis hit at home, the reaction was to quickly to distance themselves from this global operation. If it had really worked, then this international dimension could have been a source of strength in times of crisis.

M&S also had a peculiar aversion to marketing. It appeared to have such a total belief in its offering as to negate the need to have marketers within the organization. Advertising in newspapers, radio and television was confined to new store openings and did not promote either the brand (another peculiarity in its well-known reliance on the 100% retailer brand St Michael) or its products. Its marketing strategy was to introduce new products in the hope that the customers would buy them on the basis of trust. If the lines were unsuccessful, the company used its pricing mechanisms to discount the goods quickly so as to eliminate the mistakes quickly.

When Peter Salsbury became CEO, he began to implement a reorganisation strategy, splitting the company into three parts: UK retail business, overseas business and financial services. His plans also involved establishing an organisation-wide marketing department to break down the power of the traditional buying fiefdoms. Salsbury wanted the marketing department to adopt a customer-focused approach, rather than allowing the buyers to dictate what the stores should stock. Salsbury tried to restore M&S’s image as an innovative retailer by launching new clothing and food ranges. In the UK, Marks & Spencer implemented a costly change strategy as it wanted to create a new store image. Another strategic change, was the use of overseas sourcing while severing links with UK suppliers. Despite the implementation of all these strategies, there was still a decrease in profits.

In January 2000, Luc Vandevelde was appointed as the new CEO- this marked a great change as it was the first time someone from outside of the organisation was appointed as CEO. Vandevelde’s strategy was to create a whole new corporate image by changing the original St Michael brand and the M&S supply chain. Also, a great strategic change was that the stores outside the UK developed their own strategies which were tailored to the needs of the local market. However, even with the implementation of new strategies, profits still fell.

Managing Change
Change management is very important to an organisation’s survival in their respective market. It is important for organisation’s to realise that their market will not remain the same all the time. With today’s competitive world, organisations are doing everything they can to try and gain as much of the market share as they possibly can. This means that the market is constantly changing, with companies improving their services and their products. If an organisation does not respond to these changes, they will inevitably become “extinct”. This could be the case with Marks & Spencer, they are a good example of a company that was dominant in their market but failed to change with the “changing” times of their market. Now they find themselves in a position where they are struggling to keep their customers satisfied or even keep their customers.

Marks and Spencer’s problems started in the late 1990’s. There was a shift in the market’s preferences. Marks and Spencer’s market was undergoing a change. Customers’ preferences and expectations of Marks and Spencer were changing. This was normal for many companies, all you have to do is analyse the market, find out what your customers want, what the current trends are, and just adjust your strategy to accommodate for these changes. The problem was that Marks and Spencer did not analyse their market, or find out what the current trends were, or what their customers wanted, and this is one of the reasons they now find themselves struggling to keep their customers.

There are a number of contextual issues that need to be taken into account when analysing Marks and Spencer’s problems. These contextual issues are Time, Scope, Preservation, Diversity, Capability, Capacity, and Readiness. Each of these sections is covered below.

Time
Marks and Spencer had plenty of time to analyse their market’s trends, its not as if their market suddenly changed and they were left behind. The table in the case study showed a decline in their customer’s expectations of them. There was a steady decline from 1995 to 1999. This was enough time for Marks and Spencer to react to the changes in the market so that they did not find themselves in a position where they were losing sales regularly to their competitors. However this was exactly what happened to Marks and Spencer, they failed to heed the warnings and were far too slow to make the necessary changes for them to stay competitive.

Scope
There were several factors that drove the need for companies like Marks and Spencer to change its strategy. One of the main drivers for change in Marks and Spencer’s market was a change in fashion, appearance was everything. People started dressing loosely to work (eg. Wearing jeans, formal shirt and tie). This clashed with Marks and Spencer’s successful formula. Marks and Spencer was founded on British values, they reflected the British culture very and understood the British culture very well. Therefore they knew what the British people wanted and they provided it, good quality products at a good price. Marks and Spencer range was dull and boring, but their prices and quality of goods attracted customers, this was the success to their formula. However this formula worked well up until the 1990s.

Suddenly people became more flexible in terms of what products they wanted, as was mentioned above fashion became a major market driver in the clothing industry. Marks and Spencer failed to acknowledge this; being an established company they resisted the change they needed to make in order to stay competitive. Being a British company (ie. very traditional), they believed that their traditional strategy would continue to bring them success. They were wrong, old fashion trends (which Marks and Spencer were successful in) changed. Marks and Spencer’s clothing ranged was out of date with the public, their competitors were now offering more “stylish” clothing ranges and this took business away from Marks and Spencer.

One of the reasons why Marks and Spencer failed to adapt to their changing market, was because they felt that the market trends at the tie would pass and customers would go back to the types of products Marks and Spencer offered. Again they were wrong, people now started to dress a lot less formally to work; most of them wore clothing like jeans to work. Marks and Spencer’s clothing range did not cater for this; they did not diversify their products. This hurt Marks and Spencer because their customers now went elsewhere to get the type of clothing they wanted.

Preservation
There was not much that was preserved form the old Marks and Spencer. Since they failed to embrace the changes that were needed to remain competitive, they found themselves in a position where they had to revolutionise their image and strategy. The company’s image was completely changed; from the downgrading of their famous St Michael brand to the restructuring of the companies supply chain. When Vandevelde came to Marks and Spencer, Marks and Spencer were struggling and needed some changes made to the company quickly. Vandevelde chose to make wholesale changes to the company’s image like changing the staffs clothing and the symbol of the marks and Spencer brand. The reason being is that he felt that people confused the St Michael and Marks and Spencer brand. These changes started working to an extent, Vandevelde managed to slow down the decrease in the company’s sales.

Diversity
Marks and Spencer did not diversify their products. They offered the same boring products they used to offer before. Customers got tired of seeing the same type of clothing all the time, so they eventually went to another store to get a more fresher, up-to-date style of clothing. This was a clear indication that Marks and Spencer did not understand their customer or the market anymore. They failed to realise that they needed to make changes to their clothing range in order to remain competitive.

Capability
Marks and Spencer’s capability to recognise and enforce changes in the way the company went about doing its daily business, was severely hampered by the management style adopted. Marks and Spencer adopted a top-down management style, which left little room for the employees in the company to introduce new ideas into the company. People in the organisation were told what to do by people above them. This could be seen when Marks and Spencer used to allocate products to a store without researching whether those products were needed in that store. This meant that some stores got products that did not suit that store customers, and this resulted in those stores losing business. This type of management did not give people lower down in the organisation a chance to voice their opinions. People like the store managers and store assistants would have been able to help Marks and Spencer review and change their strategy in accordance with the market, since they would have been the ones to know exactly what the customers wanted from the company.

Capacity
Marks and Spencer had the resources available to them to make the necessary changes needed for them to stay ahead of their competition. Firstly they were too slow to enforce changes in the company’s strategy, they were forced to make changes in order to survive. Secondly and most importantly, Marks and Spencer were too conservative in the way they implemented their changes to their strategy. Marks and Spencer tried changing one variable at a time form their original successful formula. They did this because they believed that the core of their original formula was still successful for the current market. All they had to do is change one variable at a time and they would eventually find the variable that needed to be changed or updated.

This was a big mistake, Marks and Spencer did realise that their market kept changing, so a variable they thought was not problematic would later turn out to be problematic. Or there may have been two variables that needed to be changed simultaneously.
With Marks and Spencer still trying to find the right formula by using their “one variable at a time” method, the market continued to changed and eventually the market changed to such an extent that Marks and Spencer’s original formula was completely outdated and needed to be completed scrapped and restarted.

Readiness
Marks and Spencer were never ready to implement changes to their strategy at any stage during the late 1990s. Their British values could be seen quite clearly, when they resisted the temptation to make changes to their strategy while their competitors did. Marks and Spencer were rather old-fashioned; they felt that the current trend would pass and that their customers would return to the normal products that they used to purchase from Marks and Spencer. Marks and Spencer were also afraid to be the first ones to change their strategy; they felt that if they changed their strategy in accordance with the markets current trends they would be successful for a period of time. That period of time, they felt was the period of time the market trends lasted. They felt if the market trends faded away, they could not go back to what they were, and customers might view them differently. Marks and Spencer felt that it was too big a risk for them to take.

The Future
In May 2000, despite the new measures and strategies there was still no visible improvement regarding the company. However, what they had managed to do was slow the sales decrease. Vandeveld wanted to look towards the future instead of concentrating on the past. His detailed plan for restoring the fortunes of Marks and Spencer entailed mainly the objective of moving the business closer to the customer. His strategy for doing this was by mainly creating clear profit centres by allowing more effective information flows and therefore responsiveness; creating a customer-facing organization which meant explicit focus on the customer and giving him/her what they wanted; restoring overseas profitability; and building financial services.

He also began to simplify the management structures and changed the way Marks and Spencer bought goods by creating dedicated buying and selling teams. What Vandevelde did first was that he focused on the heart of their business, i.e. their retail and financial services operations in the UK in order to get back to the fundamental strengths that had made Marks & Spencer great in the past. Together with this, he began to stop all activities which were non-core or making a loss. He knew that they needed the right capital structure to make their balance sheet more efficient and to generate greater value for their shareholders.

And this had to be accomplished rapidly as they were fighting to recover in a harsh, competitive marketplace.

After in-dept research regarding their customer focus, the company began to identify the needs of their customers as well as new initiatives. At the end of 2000 Marks and Spencer also made plans to offer clothes at a discounted price of 30 per cent in factory outlet malls. The malls were used to sell excess stock, something that its more aggressive competitors had been doing for a number of years. In September 2000 Salsbury retired from Marks and Spencer and by the end of March 2001, the company began to divest and close overseas business as well as close direct catalogue business so that the company could focus more on the core domestic clothing. To complement all this, Marks and Spencer also entered into a strategic partnership with George Davies, renowned clothing designer.

The Outcome
After the major changes to the company, there has been a significant turnaround in the performance of Marks and Spencer. The restructuring was complete and the changes to our capital structure have increased our potential earnings per share. Best of all, we’re seeing a marked improvement in our performance. In the 12 months to 30 March 2002, sales from continuing operations were up by 3.8% and corresponding Group operating profits by 30.8%. During the 2001 calendar year, Marks & Spencer was the best performing share in the FTSE 100. Customers were coming back and buying more.

The company completed the changes to the capital structure allowing £2bn to be returned to shareholders and leaving the company with the right capital structure to generate greater value for our shareholders.

Marks and Spencer’s operating profit from continuing operations in 2002 was £629.1m compared to 2001’s £480.9m, an increase of 30.8%. The company’s total operating profit had also increased considerably from £471m in 2000 to £454.4m in 2001 to £629.1 in 2002. This is exceptionally well considering their declining slump. So, in summary, at the end of the financial year, Marks and Spencer have achieved a much improved profit performance and a much more efficient balance sheet.

Conclusion
Reflecting on the company’s swift turnaround, we see that they had changed their organisational and financial structures. But more importantly, they had tapped into the values and qualities that customers traditionally associated with their brand but which tended to be obscured in recent years. They succeeded not by inventing a new Marks & Spencer, but by rediscovering the fundamental strengths of the past and making them relevant to the present. Their successful performance was due to a powerful combination of people with past experience of Marks & Spencer and those who brought new skills and ideas to the organisation. Their next imperative step was that they listened to their customers.

Marks & Spencer has a special place in the British way of life. I have always believed, and have often said publicly, that no other retailer in the world has such loyal customers. We may have let them down and they may have punished us by staying away, but the vast majority were waiting for the excuse to come back. They definitely – even desperately – wanted us to succeed (Luc Vandeveld).

The past years had proved that returning to fundamentals and reconnecting with the company’s customers really did make a difference. The vicious circle of decline has now become a virtuous circle of recovery.

Looking ahead, Marks and Spencer’s task is to keep building on their fundamental strengths, of making aspirational quality accessible to all. If phase one of the plan focused their efforts on the heart of their business, phase two must address the future growth of the company. The company must regain their leadership, build on their customer relationships and most importantly reassert their position as a leading socially responsible business.

“Now that we have turned the corner, our task is to secure the recovery and to keep building for our future. There is much to do and we are not complacent. Phase one may be complete, but the plan moves on as we set about growing the business and regaining our leadership in the UK market.” (Luc Vandeveld)

Advertisements
  1. No comments yet.
  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: