Marks and Spencer Strategic Develpoment History Essay Example For Students

Marks and Spencer Strategic Develpoment History Essay Executive Summary Marks Spencer is most recognized British retail brands having 760 stores more 30 countries on the world, which was very successful in term of profitability and market share until the late 1990 and then its fortune turned to decline. The report depicts about the competitive strategy behind its successful growth until 1990 and the highlights the causes behind its decline. It also suggests the future competitive strategy to sustain competitive advantage in current scenario. Generic strategy described by Porter (1985) is being used to describe the competitive strategy while supportive corporate and value chain strategies also discuss that help to strengthened strategic competitive choice of Mark Spencer. Porter (1985) generic strategy framework describes that the traditional business formula of Mark Spencer was partially near to the â€Å"Differentiation† strategic. MS basis of strategy was quality which is the main essence of Porter (1985) generic â€Å"Differentiation strategy. Porter (1985) describes that to pursue â€Å"Differentiation† organization should be customer focus, pursuinge creativity, and innovation and use of , technology, should be supportive by decentralized decision making structure. MS differ on the ground that it tried to pursue quality but through UK base supplier, centralized control, bureaucratic structure and culture which was is the main contradiction between Porter (1985) generic strategy and MS traditional business formula. Moreover MS was pursuing growth investment strategy to diverse its business internationally though joint venture and franchise business. MS offer selective rage of quality products that was offered with the presumption that people like those goods which they known before. After successful MS face drastic decline that started during 1990. This was mainly due to traditional business formula in which close bureaucratic structure and culture restrict the management to think beyond the its own business theory as result MS fail to assess rapidly changing environment forces i. e. legal, social, and economical and industry competitive forces. On the other competition quickly assessed such changingchanging and respond accordingly. Moreover it involved in aggressive investment growth strategy by using same traditional business formula without restructuring organization design and culture as result management focus just confined to day to day operation rather than long planning. The environment analysis P. E. S. T. , Porter (1985) five competitive forces, Stakeholder analysis supports that the MS should remain continue to quality focus â€Å"Differentiation† strategy but it should be based customer focus to satisfy customer needs and wants. The strategy should be supported by value chain activity that helps to add value for organization and customer both. MS pursue stable and retrenchment strategy to sustain stable financial position for the time being and as soon stability sustain pursue growth strategy. Initially it is suggested that pursue investment in vertical integration in value chain. MS should redesign its structure and culture and it should be customer focus characterized by division in different business units, flat structure, decentralized decision making. Strategic management is continuous iterative process that should be carefully manage at each stage i. e. environment scanning, strategy formulation, implementation, control etc. MARKS SPENCER Marks Spencer is most recognized British retail brands having 760 stores more 30 countries on the world, which was very successful in term of profitability and market share and until the late 1990 and then its fortune turned to decline and crises. Marks Spencer TypePublic (LSE:MKS,OTCBB: MAKSY) FoundedLeeds, England (1884) HeadquartersLondon, England, UK Key  peopleMichael Marks, co-founder, Thomas Spencer, co-founder IndustryRetailer ProductsClothing, food, household items, coffee shop, furniture, technology Revenue^ ? 8. 588 billion GBP (2007) Operating income^ ? 0. 965 billion GBP (2007) Net income^ ? 0. 660 billion GBP (2007) Employees75,871 (2007) SloganYour MS Websitewww. marksandspencer (Source: http://en. wikipedia. org/wiki/Marks__Spencer) It is case study analysis reports that critically investigate key strategic issue of MS by using key principal, theories and model studied MBA module strategic management. The key issues are:- 1. What was the basis of Marks and Spencer Competitive strategy? 2. Why did the organization suffer a downturn in 1990? 3. Why competitive strategy should MS seek to follow and why? 4. Evaluation of theories and model applied During analysis, critical approach is adopted in which more focus is given to explain and evaluate the issue of MS by using appropriate academic models and lesser to explain model itself, academic reference is also being mentioned by using Harvard business technique, where needed. 1. What was the basis of marks Spencer competitive strategy? The basis of competitive strategy of organization is usually considered as a polemic issue in theoretical grounds (Mintzberg, 2000). In order to identify the competitive strategies of MS, I rely mostly on Porter Generic Strategies and lesser extent to investment and some competitive tactical strategies. MS structured business formula is being analyse by using academic model as following:- 1. 1. Generic Strategy Porter (1980) describes generic competitive strategies to sustain competitive advantage (1) cost leadership, (2) differentiation, (3) Focus Cost Leadership, (4) Focus Cost leadership. Competitve Advantage | |Efficiency |Quality | |Compe|Broand| | | |titve|Market| |Differnciation | |Scope| |Low Cost | | | |Narrow| | | | |Market| | | | | |Focus |Focus | | | |Cost |Differenciation | The competitive strategy of MS was differentiation to sustain competitive advantage. Accordingly, MS differentiated its products on basis of quality and customer services. The strategy given option to charge high price but it tried to provide value for money to its customers. It provided no quibble refund on good purchased until 2 year, if customer is not happy. Surprisingly, more focus was given to quality of the products and lesser to customer response while another important factor innovation, high market segments, research and development, marketing orientation, which is the essence of differentiation generic competitive strategy (Porter 1980) was entirely ignored by MS. It acquired products from UK based supplier. In order to maintain the reliability and other attributes of products MS concentrate on high quality consistency and standardized products. It offered customer selective range of high quality, well designed and attractive merchandise at reasonable price to provide value for money under St. Michael brand which was perceived by the customer as a sing of quality. 1. 2. The Value Chain Porter (1985) develops the concept of value chain to sustain competitive advantage which is â€Å"an interdependent system or network of activities, connected by linkages†. MS used value chain to support competitive strategy as:- 1. 2. 1. Primary Activities 1. 2. 2. 1. Inbound – operation – outbound activity: MS worked with UK based high quality UK base supplier, quality was the criteria of good relationship while encouraged its supplier to use efficient production technique. It maintained good human relationship with its supplier. MS controlled operating activities through central buying office operated and then allocated to stores. 1. 2. 2. 2. Marketing and Sale: There was no proper marketing orientation; MS ignored marketing orientation with company more focus is given to selling activities and its structure business formula. MS adopted simple price policy, charge relatively premium price. 1. 2. 2. 3. Customer service: MS strategy to support generic strategy was to provided friendly, helpful service to its customer with great shopping comfort and convenience and good human relation with customer. 1. 2. 2. Supportive activities 1. 2. 2. 1. Infrastructure: The structure of the MS was tall, top-down. Top management renewed as personal control. Decision was made by boardroom. It was a bureaucracy model characterized by formulizationformulization, standardization of system, decision making at top level. The store manager followed central direction on merchandising, layout, store design, training and other activities. MS culture catogorized as weak culture where there is little alignment with organizational values and control must be exercised through extensive procedures and bureaucracy. There was family-knit atmosphere within Mark Spencer even top management dominated by family member. 1. 2. 2. 2. Human Resource: MS staff treated and rewarded well as compared to market. The criteria to recruit and retain employee was it should fit in MS culture and served being a part of family. Almost all managers and executives are promoted internally. 1. 3. Supportive Investment Strategies MS ware pursuing growth investment strategy that can be explained with help of Ansoff growth model. 1. 3. 2. Ansoffs Product/Market Matrix The Ansoff matrix entails four possible product/market combinations: Market penetration, product development, market development and diversification (Ansoff 1957, 1989). Ansoff Model |Existing Products |New Product | Existing | | | |Market | | | | |Market Penetration |Product development | | |UK market |Financial products | | |Little wood stores | | |New | | | |Market |Market Development | | | |Canada |Diversification | | |America | | | |Europe | | M was pursuing marketing development strategy to expand its operation in international market by using its structure formula i. e. Europe, Hong Kong, America and at lesser extent to product development by entering in financial market and offering ethnic food etc. 2. Why did the organization suffer a downturn in the 1990? The External and Internal factor that caused to change the fortune of Mark Spencer after continuous success up until 1990 are:- 2. 1. External factors (discussed detailed in next section) One of major strategic issue is that M ignore or fail to assess the impact of changing environment and continued his structure formula to success in business, while the competitors, in the meanwhile, realized quickly changing environmental factor and reacted accordingly. 2. 1. 1. Macro Environment or PEST forces 2. 1. 1. 1. Political: Deregulation of economies especially after 1970 was encouraging and making the business competitive. 2. 1. 1. 2. Economic: 1990 the UK economy was experiencing the recession characterized by changing economic condition that was not assessed by M. Economic condition not only impact on society as whole but also on individual purchasing power, saving and expanding. 2. 1. 1. 3. Social: It was a biggest change in society. Change in life, taste, fashion, trend, especially due to impact of media impact on purchasing behaviour of the people. People not satisfied with the selective range of M cloths. They want fashion and trendy apparel. Economics and technology change reshaped their buying behaviour, expectation and demand. Moreover, social components vary country to country, area to area that was totally ignored by M and used traditional business formula. Ignored that customer no more want products from its home furnished range. 2. 1. 2. Industry competitiveness or 5 Porter competitive forces 2. 1. 2. 1. The Degree of Rivalry: Rivalry among competitors increased, they competing on price, products, and services. Competitors timely assessed the environmental change and offered similar quality product with wide variety and design at lower price, focusing customer satisfaction. 2. 1. 2. 2. The Threat of Entry: Because of no entry barrier, new competitor came in to market at top end those competed on quality and innovation and bottom end who competing on price. 2. 1. 2. 3. Buyer Power: increase number of competitor, large number of product increase the buyer power of customer. They were no more loyal with UK base products. 2. 2. Internal Factor The major internal factor of M failure is:- 2. 2. 1. Management style, structure culture Bureaucratic management style and structure of the M was not supportive and integrate with uncertain competitive environment of the company. The company was controlled through tall structure, centeralized authority, riged business operating sytem and process. In uncertain enviornement, bureucratic model fail to respond properly (Daft, 2002). Culture of the M was close directed the all employee to follow central direction. Culture was strongly reinforced by the top management. The top management consisted of men. 2. 2. 2. Single unit, No buseinss portfolio Moreover M was running as one unit while there was need to split the compnay into different business unit to control and evaluate business. 2. 2. 3. Human Resource Human resource policy was not flexible. Store manager failed to maintain required staff at outlet due to policy to have full time sale assistant. 2. 2. . Marketing / Customer focus M strategy was not customer focus. It failed to understand to customer changing needs of its target market. Its offerings based on its top management perception rather to focus on customer preference and trend. Buyers tended to sele ct merchandise that they knew CEO would approved instead of customers need and liking. It stocked generic clothing range with a wide appeal to public: buyers often made choices which would outlast the current fashion and trends seen in other high street retailer. Moreover M wanted to keep the company on traditional trend. Greenbury did not want M to be the cutting edge of fashions. Diabetes EssayIt is necessary that I should structure M in different business units on the basis of geographically such as UK retail, overseas business, and financial services and then split in products division range lingerie, women wear, beauty, men wear, children wear, foot wear, Food, Home ware, Food motorway. It will help M to build customer focus strategy keeping in view products offering and geographic environment. Moreover, it also helps to pursue investment strategies. To analyse the performance of each business BCG matrix or GE model can be used. 3. 6. 3. BCG matrix model |Market |High |Question Mark |Stars | |Growth | |Financial Service |E-selling | |Rate | |Hong Kong |Home ware | |Cash | | | |Usage | | | | | |Low |Dogs |Cash Cows | | | |Traditional cloths |UK Foods | | | | | | |Low |High | |Relative Market Share | |(Cash Generation) | Henderson (1970) develop matrix for Boston Consulting Group categorized business unit as Stare, Cash cows, Dogs, Question marks on the b asis of marketing growth and market share. Note: just strategic evaluation concept is presented due to limited information about business units available to use this model. 3. 6. 4. GE / McKinsey matrix model McKinsey (1970) develop matrix on the basis of market attractiveness and business strength. These model should be used to analyses the performance of each business unit. |Business Unit Strength | |High |Medium |Low | |Market |High | | | | |Attract| | |UK- Retail |Europe | |iveness| | |Food |America | | | | |Cloths |Hong Kong | | | | |Home ware |Traditional Cloths | | | | | | | | |Medium| |Financial Service | | | | | | | | | | | | | | | | | | | | | |Low | | | | | | | | | | | | | | | | | | | | | | | |GE Matrix | The results of each model can be used to pursue investment strategies. 3. 7. Investment Strategies M should pursue stable strategies or retrenchment strategy and stopped growth strategies for the time being. The business unit that are performing profitability should be hold while other can be retrenched fully or partially. Growth strategy can only be advocate in vertical integration of in value chain that will add value in its competitive strategy. M should continue to establish joint venture in Home ware, Food like it made with Desmond Sons in children cloths range, George Davies in â€Å"Per Una† brand etc. It may sale out (fully or partially) financial service segment to any specialized financial institute. As soon M sustain or stabilize its competitive position it can pursue growth strategy, may be related or unrelated business or other market. 3. 8. Business Competitive Strategy: It is suggested that M entirely focus on differentiation based on high quality but more focus give to customer focus, market segmentation to penetrate in market, research and development of products, innovation and creativity to offer fashion and trendy cloths rather than traditional, these are the essence of competitive strategy. |Competitve Advantage | |Efficiency |Quality | |Compe|Broand| | | |titve|Market| |Differnciation | |Scope| |Low Cost | | | |Narrow| | | | |Market| | | | | |Focus |Focus | | | |Cost Differenciation | 3. 9. Value chain strategy Porter (1985) said value chain help to sustain competitive advantage. When the value chain system is managed carefully, the linkages can be a vital source of competitive advantage (Pathania-Jain, 2001). Value on the one hand help M to differentiation and on the other and help provide value of money to the customer by proving value added feature i. e. customer service, after sale service etc. 3. 9. 1. Outsourcing: Differentiation defini tely increase the cost of products that can be overcome by outsourcing products outside the rather to depend on UK base producer. 3. 9. 3. Cross functional process management Rather to run value chain in functional, M should use cross functional process approach i. e. supply chain management to get efficiency in value chain. TQM approach is useful quality focus technique that involve every on to conquest for quality or customer satisfaction, it can be adopted. 3. 9. 4. Procurement M should improve their procurement system. Use modern technique to improve inventory system like Economic Order Quantity, Just in Time. 3. 10. 5. Marketing Aggressive advertising of differentiation products should be consider as investment (Porter 1985) and it will help to attract the customer on the basis of distinctive attributes with value of money. 3. 9. 6. Infrastructure, Culture M should adopt flat structure, promote democracy, decision making at lower level, and use feed back as input to make decision, promote adaptive culture. 3. 10. 7. Human Resource Management M should adopt motivational HR policies that increase employee involvement in decision making, informal communication, sense of responsibilities, creative ideas to respond dynamic environment. There should be job specification, training and development, job rotation and enrichment, flexible contract, performance base reward system. 3. 9. 8. Vertical Integration Vertical integration in back end or forward helps the M to maintain the consistent quality and achieve innovation by controlling cost as well. 3. 10. Corporate social responsibility and ethics Orlizty, Schmidt, and Rynes (2003) found a positive correlation between social/environmental performance and financial performance. Corporate Social Responsibility (CSR) is a concept whereby organizations voluntaritly consider beyond the satutory obligation, the interests of society by taking responsibility for the impact of their activities on stakeholder environment in all aspects of their operations. This will help the M to strenthend and differentiate its brand and customer loyality and profititablity. 4. Limitation: †¢ Despite of facts that all model and theories applied are reliable and is being used successfully to make strategic analyses, but attached with some limitation that considered in M strategy analyse. Porter (1980) described five forces that should consider sustaining competitive advantage but (Haberberg and Rieple, 2001) argue in addition to it other strategic frameworks of SWOT and PEST analysis should also be used. Moreover this model ignore the impact of som e other forces i. e. employee, government, shareholder, public so stakeholder analysis should also be conducted. †¢ Moreover porter (1985) just focus on value chain and competitive forces as basis of competitive force while ignore corporate strategies. Porter (1985) value chain model is that it describes an industrial organization but I discussed it M term. The limitations of the model include the fact that ‘value’ for the final customer is the value only in its theoretical context (Svensson, 2003), and not practical terms. The real value of the product is assessed when the product reaches the final customer. †¢ The study report considered, Ansoff matrix only just express the strategic choice and can only be effective when it use with PEST, 5 competitive forces or SWOT matrix. †¢ The report also considered GE model valuation of the realization of factor determinants of market attractive and business strength is very difficult. Moreover, core competences are ignored. †¢ When using BCG matrix model, it should be noted it fail to consider the provision of synergy among product/business unit of M. moreover, the computation of market share and market growth is also difficult. Corporate social responsibility come into conflict and objected by shareholder on the view that it is use of its own share of profit. †¢ Despite of the some limitation, all model used are very successful to attain competitive advantage over rival. †¢ Moreover, business strategy is a continuous (because of dynami c environment) iterative (serious of step) process keeping the organization as whole to achieve its object. If M adopt any specific strategy, the rival can use as well. So there is need that M continuously analyse dynamic environment and react quickly. †¢ Strategic businesses units may result in inter competition and conflicts as M experience between Davies (fashion cloths) Yusuf (Traditional cloths) regarding space and designs, and may increase operational cost. Growth investment strategies increase may impact to increase the financial risk and organization infrastructure (management, design, culture) i. e. M experience during its decline 1990. (Management focus just confined to day to day operation not long term prospective. †¢ Strategy can only achieve its objective if it communicate, implement and control effectively, as planned. Formulated strategy may need to bring change in culture, design and management style that could also create problem for organization. M has t o make sure supportive organization structure to achieve objectives of any strategy formulated. †¢ Strategic management is a continuous process because of dynamic components of environment and should continue to achieve competitive advantage. Defiantly competition respond against M strategies or may be follow the same strategy then to remain competitive it has to react may be by competitive strategy or through value chain. As soon M fail to assess environment factor it lose its competitiveness. 5. Conclusion The essence of traditional business formula of M before 1990 was delivery of quality products through UK base supplier and bureaucratic organizational infrastructure that partially near to differentiation strategy described by Porter (1880) in generic competitive strategy framework but M ignore other components like creatively, customer focus and response while organization structure was also not support differentiation. The M experienced great downfall in 1990 that is basically due to lacks of customer focus strategy rely of traditional business formula, aggressive investment policy, and bureaucratic organization design and culture. M need to pursue differentiation strategy that should be based on customer focus, market segmentation, innovation, creatively, supportive corporate strategy and value chain activity. 6. Reference: Ansoff, I. H. (1957), Strategies for diversification, Harvard Business Review, Vol. 35, No. 2 Byars, L. 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(2003), Strategic Management: Concepts and Cases, Thirteenth ed. , McGraw-Hill. http://www. mindtools. com/pages/Newsletters/20Jan05. htm http://www. themanager. org/Strategy/BeyondPorter. htm Wikipedia, The free encyclopaedia www. netmba. com www. quikcmba. com Thank You Porter Value chain model MS MS Secondary Activities Firm Infrastructure Human Resource MS Primary Activities Customer Service Marketing and Sale Outbound Activity Operation Inbound Activity Porter (1985) five competitive forces Buyer Competitors Substitutes Rivalry Supplier MS MS Margin