ROUGH M&S

Internal and External environment for Marks and Spencer
Marks and Spencer (hereinafter called M&S) is one of UK's leading retailers of clothes, food,
home products and financial services (Kippenberger 1997). M&S has a record of success and
profitability since its establishment with well known reputation for its innovative, quality
products and reasonable price which offers customers value for their money. M&S sales and
services been declined in mid to late 1990s. The purpose of this report to identify the key
drivers that made M&S falls in their performance.
The external environment scanning is concerned with the forces and factors that impact upon
M&S. However, analysing those forces and factors will assist M&S in identifying the change
in the environment, is often referred to as the macro-environment, planning in how to cope
with such a change, and being ahead of the competitors in the adaptation to the new
environment and the response to the market demands. PESTEL framework and Porters Five
Forces model are the techniques that author uses to identify and analyse the problems that
M&S experienced in the mid to late 90's. Then the author carries out an internal analysis of
the organisation's resources and competences. Resource audit, value chain and SWOT
analysis are the techniques to examine the activity of the M&S in order to reveal what was
the basis of their competitive advantage. Furthermore, the author uses the cultural web
analysis in order to identify what were the main cultural features of M&S until the mid 90's.
And discusses were the resistance to cultural change originated and what aspects need to be
changed. Finally the author identifies and evaluates the strategic choices available to M&S by
using BCG matrix, Strategy Clock and Ansoff model techniques. A brief conclusion and
recommendations for the strategy of M&S for the next 3 years will follow.
EXTERNAL MACRO-ENVIRONMENT

PESTEL Analysis
Fahey and Narayanan (1986) argue "that macro-environmental conditions set the
fundamental context in which industries operate" (Fahey and Narayanan, 1986). The
Political, Economic, Social, Technological, Environmental, Legal (PESTEL) framework shall
be used in order to identify the changes in the external environment that caused decline in the
M&S performance in the mid to late 1990's.
Political
European Committee decision to permit free flow of trade among themselves and other
countries under foreign trade regulations makes companies to import their products over time
easier than before. M&S competitors took advantage of its higher cost structure and bit off
some its market share.
Economic
M&S competitors are specialised in niche markets and consumers' focus which make them to
provide a much better consumers satisfaction. They prefer to import their products from
abroad for cost savings, this fact puts M&S in a cost disadvantage for a perceived "higher
quality".
Social
Consumers' concept in the marketplace has changed; they do not sense British products as of
high quality. There is a shift in demand for more fashionable clothing. Moreover the price
sensitivity of the majority of the consumers has increased leaving M&S in a less competitive
position.
Technological
Media played major role of communicating new fashions to the customers. This knowledge
can be communicated to the designers and producers, so a manufacturer in Thailand or China
can be aware of the current fashion trends in UK. Technology theses days are even more
quickly copied than before. Moreover due to the transportation speed a shipment of stock
from a country in far Asia will only take a few days instead of a preview time period of over
a month.
Environmental (Ecological)
Selling products produced by suppliers has a much greater affect on the environment on how
these products are used and disposed by consumers. Retailers use a huge range of raw
materials to produce their goods. Because of this, it is critical to manage the use of these
materials sensitively and pay proper regard to how they affect natural habitats and bio-
diversity.
Legal
Offering customers high standards of quality product are essential to meet their requirements.
M&S are known for delivering world class quality products.
Porters Five Forces Model
This model was developed by Michael E. Porter in 1980. This model is used to identify the
sources of competition in the retailing industry (anon, 2004a; anon, 2004b). These forces as
described as follows:
Bargaining Power of Suppliers
More than 90 per cent of M&S suppliers were British. M&S bought directly from a few UK
suppliers all their stock that they manufacture which created a situation where the supplier
was reliant on M&S and vice versa. The problem of this approach is that overseas suppliers
produced products on lower cost. The bargaining power of suppliers is quite low when it has
concentrated purchasers. When the sales declined rapidly in late 1990s, M&S outsourced
globally to reduce its cost similar to its competitors which resulted a lower bargaining power
of its UK suppliers.
Bargaining Power of Buyers
In general, bargaining power of buyers is high. Customers seeking classical clothing became
price sensitive and some others seeking high image became fashion sensitive. M&S
competitors were more customers focused which took away its potential customers. In
addition UK consumers were not willing to pay a premium price for supporting British
products. M&S had misread its target market, therefore a consumer oriented strategy is
needed instead product oriented strategy.
Threat of Entrants (Barriers to Entry)
In the retailing clothing sector M&S faced a competition both in the higher and lower ends of
its market. ASDA with its own brand name George and Matalan are offering high quality
clothes at low prices. Both companies' clothes have a classical style, which attracted UK
consumers who were traditional customers of M&S. In addition, stores like Gap, Oasis, Next
BHS, Top Man & Zara offered high quality clothes of latest fashions that attracted the
fashion orientated younger customers. Further more, Tesco and Sainsburys offer their own
high quality range food that was a traditional market of the M&S (Johnson and Scholes,
2002; anon, 2001)
Threat of Substitutes
The threat of substitutes is high. In the cloths retail sector after the mid 1990s there has been
a great increase of retailers operating with foreign imports. Consumers are prepared to pay a
premium for a label or they can buy similar products with lower price.
Competitive Rivalry
M&S operates in a very competitive environment. Its competitors are more customers
orientated and more in tune with the needs and the demands of the customers. Such as on
cloths sector, Next & Gap have exploited the demand for young people and in food sector,
Tesco and Sainsbury have developed its ranges of ready cooked meals.
In UK there are no exit or entry barriers but the market is mature and therefore there is no
bounce for a new company, or a company from abroad to come and compete in these
markets. In contrast M&S experienced Exit barriers when under the France law they were not
permitted to close their France stores and make their employees redundant with just a week's
notice. (Ralph, 1996; anon, 2004c).
INTERNAL ANALYSIS
Auditing the Resources of Marks & Spencer
Physical
M&S own 375 UK stores, 155 stores managed under franchise in 28 territories and the US
supermarket group, Kings Super Markets (anon, 2004d). This indicates their strength. But all
M&S stores were identical in procedures, layout, design and image which lead to limitation
of changes according to local changes based on environment, lifestyle and geographical
location.
Human
M&S has loyal, friendly, hardworking and experienced staff. Knowledge management was
not handled in a right way due to Greenbury's style of top-down management structure. No
skills in buying or outsourcing according to consumers needs. No good communication
between the head quarter and stores due to M&S bureaucratic culture.
Financial
M&S profits were declining from 1998 until 2000. This indicates that M&S did not have a
healthy sign of its level of cash availability which made M&S to stop its expansion
programme in Europe and America. But in general M&S has good financial resources.
Intangible
Customer loyalty decreased due to change of market fashion and products low costs. M&S
brand 'St Michael' as a of high quality standards was undervalued. M&S did not have a
knowledge management system such as customer and suppliers data base.
Value Chain Analysis
In order to investigate Marks & Spencer performance in the mid to late 90s by value chain
model the author examines each section individually (Appendix I).
SWOT
"SWOT's objective is to recommend strategies that ensure the best alignment between
external environment and internal situation" (Andrews, 1980, Christensen et al., 1982 in
Mintzberg, p. 36-37; Hax & Majluf, 1996, p.27; CSUN strategic planning leadership retreat,
April 1997; Hill & Jones, 1992, p. 14 cited in anon, 2004e). To evaluate the strategy followed
by Greenbury SWOT analysis is used to identify the strengths, weaknesses, opportunities and
threats in order to identify how M&S can increase its performance and regain again a high
market share.
Strengths
Excellent and quality products.
Excellent relationship with its employees. Its employees treated better and paid more than
sales assistants in other organisation.
M&S is the high street giant, has stores all over high streets in UK.
M&S is mature and profitable company beside this it has large slice of the market share of
many retail sectors and is a leader in others. This indicates its financial strength.
M&S has reputation of quality and value associated with the brands 'St Michael', 'Per Una' &
'M&S'.
Long term relationship with suppliers.
Weaknesses
M&S was reliant on particular British suppliers comparing with its competitors who use
overseas suppliers for lower cost products.
Old & classical fashion image, grey and navy colour cloths were used on autumn 1998 (anon,
2001). Hanging on to traditional colours in M&S clothing range is putting the company at a
disadvantage. Market surveys need to be conducted in a more effective way to find out the
exact demand of the customers, being the most important factor in any business.
Lack of clear marketing strategy. Advertising has been poor and M&S neither has offering
sales to its customers especially during Christmas and Easter period comparing with others.
Not customer focus, its reputation for womenswear was built on underwear, jumpers and
skirts. M&S focused on customers who their age from 35-44 years old, neglecting the
younger and children ages consumers (Barnes, 2004).
Poor customer services, no fitting rooms, less sales assistants and no credit or loyalty cards
facilities.
Technology is poor, M&S not able to provide an accurate readings of its stock in each of its
stores.
Top-down management system restricted store managers to respond to local customers needs.
No wide knowledge about the market for the younger generation.
All ranges of cloths were not segregated neither display probably.
Bureaucratic culture organisation.
Lost focus on local market by reaching every where in the world like Europe and America
under the expansion programme.
Opportunities
Keeping in line with the competitors, M&S must enter the e-business in an effective way.
While offering the customers the option of shopping from the comfort of their homes, it
should also address the problem of operating stores in high cost localities.

Rapid changes in technology. M&S needs to keep ahead of its competitors.
Focus on the cloths market segment by age, such as young men's, women's and children
clothing.
Products diversity such as food, customers are interested more in international dishes such as
Indian & Chinese.
Threats
Intense competitions such as Gap, Oasis, Nest, Bhs, Top Shop, Zara, Asda, Sainsbury &
Tesco.
Clothing industry is mature and market not saturated which indicates that customers are
always looking for new fashionable cloths.
Internet technology enables consumers to shop from home.
Expansion into international markets has proved to be less successful for M&S.
Cultural Web Analysis
The Paradigm
The core competency is high quality "British" products at a reasonable price i.e. value for
money.
The M&S Formula for success.
Top-down management control system, bureaucratic culture, changed to decision making
environment that wasn't weight down by hierarchy.
Until late 1990's all CEOs were either family or all life employee in M&S but in 2000 for the
first time the company appointed someone from outside to that position of Chairman.
Stories
Michel marks set up his first "penny bazaar" on in the late 1880s.
Tom Spencer, a cashier of Mark's supplier became a partner and M&S grew since then.
Reputation for the quality.
Symbols
'M&S' & 'St Michael' brands.
Head Office in London.
Executives have a high status and prestige.
Store on most of UK high street.
Power Structures
Head office has the power of designing the stores, training the staff, goods logistics, quality
standards, finance, etc.
Simon Marks and Richard Greenbury are autocratic approach people.
Control Systems
Top-down management system.
Reward system by prompting their life employees to become mangers and executives. Few of
top management positions were appointed to outsiders.
Rituals and Routines
Specialist buyers in the head office decide cloths ranges instead of getting the feedback from
stores mangers.
Buying quality products, British, for reasonable price.
Organisational Structures
Hierarchical and centralised structure.
STRATEGIC CHOICES
Strategic choices available to M&S are concerned about its future and how to respond to
external and internal pressures.
Corporate-Level Strategy (BCG Matrix)
BCG Martix is used to conceive the balance of the portfolio of the businesses in terms of
relationship between market share and market growth. It is a company in a market that has
slow growth and its market share is continuously shrinking. The industry in which M&S
operate is mature and market is likely to be stable so it is more difficult to gain market share.
It's assumed that M&S is a decline phase organisation (Stockport, 2000).
Business-Level Strategy (Strategy Clock)
M&S competitors in the growth stage trying to gain market share, it is necessary to invest in
order to regain its market share and dominance. This can be done by reducing the product and
service prices lower than competitors and spend high amounts on advertising and selling.
Using the strategy clock model, the hybrid strategy is the best option for M&S to achieve
differentiation and a price lower than its competitors (Johnson and Scholes, 2002).
Strategy Development Directions (Ansoff Model)
Peter Salsbury took the company mainly into a strategy of market penetration but did not
have immediate success for M&S. Strategic direction followed under Salsbury is analysed
(refer to Appendix II). It was definitely the foundations from which Vandevelde was to build
upon. Vandevelde came to M&S and outlined the following objectives for its strategy for the
year:
1. Creating clear profit centres
2. Creating a customer-facing organisation
3. Restoring overseas profitability
4. Building the financial services sector
Strategic direction followed under Vandevelde
Vandevelde also decided to follow mainly a market penetration strategy as he wanted to give
new life to the domestic brand then move overseas. Main areas of Vandevelde's Market
Penetration Strategy were:
Increased amount of staff which made the shopping experience more enjoyable and easier.
New corporate identity which stopped customers being confused and repositioned the brand
all over the organization to fit with the new image.
Changes to the look of stores, uniforms, packaging and labelling to fit with this new image.
Stores were specifically tailored based on customer profiles and lifestyle patterns when
sending out stock to stores.
He also split the organisation into five main operating divisions. This facilitates the company
in being able to recognise which areas are performing well and ensures customer focus
through each unit by having dedicated selling and buying teams. This allowed the first and
second objectives to be more attainable.
However at the end of 2000 M&S "disclosed its plans to offer clothes at a discounted price of
30 % in factory outlet malls". This conflicts with their strategy of differentiation as Porter
(1980) contends that a company must choose to follow one or the other and may result in
direction being lost. Another possible outcome of the introduction of this type of mall would
be that it would erode the quality of the brand name and in turn deplete the number of 'loyal'
customers.
Complete withdrawal from overseas markets to cut losses and concentrate on domestic brand.
This meant that the third objective was not to be met.
It is important to develop a new brand name which is capable of competing with low-cost
products from China and Thailand. Lower ratio of profit from the "other" M&S brand can be
overcome with higher bulk turnover. M&S brought in George Davies, the founder on Next
and the creator of the 'Gerorge at Asda' clothing range to design new range of clothes.

CONCLUSION
After mid 1990s M&S began to experience internal problems such as information flow
breakdown and together with the fact that top management was concerned with international
expansion M&S was drifted away from its core values such as consumer care and customer
satisfaction. M&S failed to recognise that consumers were becoming wiser and its
competitions much stronger. Most of consumers consider M&S to be old fashioned company,
this image has to be changed to be in line with the market demand and regain its lost
customers to other competitors. Based on the analyses, the author feels that M&S requires to
be reorganized in various departments especially in Sales & Marketing and HRM
departments.
RECOMMENDATION
In order to regain competitive advantage, Luc Vandevelde should consider the following list
of recommendations as 3 years plan (1st year to refocus the business, 2nd year to derive it
and 3rd year to expand it):

1st YEAR STRATEGY PLAN:
Define Vision and Mission Statement within the framework of organization's philosophy.
M&S Company Vision & Mission: "To be a socially responsible and profitable, by providing
new quality products in the area of Cloths, Food, Home and Financial Services. M&S strive
to serve customers better than the competitors, achieving customer satisfaction by adding
value through quality products and services and continuous improvement through its
resources. M&S aims to maintain a healthy working environment that rewards achievements
and increase competencies. As Individuals, we aim to maintain good citizenship and the
courage for innovation and trust".

Regain Clothing Market Share
M&S needs to change its corporate culture to be customer oriented and dedicated to customer
satisfaction by encouraging the decision making environment that was not weight down by
hierarchy, i.e. low hierarchal and decentralised structure.
M&S markets products for both the sexes. However, the management of the company is
predominantly male. It would be advisable to achieve a gender balance in the management
hierarchy and who understand customers well.
To consider Bottom-UP planning from business units but within central guide lines.
Communication is essential process, "the ritualistic Saturday morning headquarter meetings
to exchange ideas and review, and company executives' commitment to visiting stores,
talking to customers, and soliciting suggestions from employees" (Thompson, Strickland and
Gambles, 2004).
Introduce a new corporate image and implement a large promotional campaign. Advertising
in News Papers, TV, and Satellite channels is essential to keep up with M&S competitors.
M&S needs to carry out intense market research to identify the customers' needs for styles
and products.
In order to cash in on its "brand loyalty", M&S must develop an effective customer opinion
and feedback system, preferably through the internet, being more convenient. Feedback
received from the loyal customers must be considered seriously.
M&S need to focus on the top end of the clothing market but deliver stylish cloths,
beautifully made with fantastic value.
M&S focuses on its core customers, slightly old 35-55 but neglecting the younger ages
comparing with its competitors. M&S should enter this market segment either by starting new
business or by acquiring another company such as Next who is well known for stylish clothes
for children and younger aged consumers.
M&S should acquire Goerge Davies brand "Per Una" if it has excellent performance.
M&S should show its innovation and create the fashion of the future.
Searching on how the consumer's shopping experience can improve stores environment, by
changing the lay out, design, separating cloths and food to make the stores more attractive
and enjoyable. This will attract new customers and improve customer satisfaction.
Understand and treat each store as individual SBU.
Improve the supply chain efficiencies
M&S has to exploit technology in its stores by introducing hand held communicators 'pda' to
track the cloths from the distribution onto the sales floor which helps to know exactly what is
in the store from stock availability and ensure the right items will be delivered the next day
similar to Next.
M&S to utilise the E-commerce, the use of web-based ordering system should reduce costs.
Further more, the latest market trends knowledge can be communicated to the designers and
producers through media, so a manufacturer aboard can be aware of the current fashion
trends in UK and deliver it fast to keep ahead of its competitors similar to Zara's concept.
Develop Employees Skills
M&S needs to introduce training programme to have innovative staff. A centralised training
centre would be an ideal way to train store supervisors and section managers on sales &
services similar to Channel & World Disney concept.

Furthermore hiring young motivated staff in addition to experienced staff would increase
M&S competences.
2nd YEAR STRATEGY PLAN:
Maintain and Increase Market Share by 1 to 2% for Food & Strengthen its Financial Services.
M&S to maintain high quality foodstuff introducing ready-cooked meals such as Indian,
Chinese and Italian. M&S also needs to reach customers by expanding its food stores.
Introduce loyalty and credit cards facility to customers.
Introduce cash banking facility at the tills similar to Tesco & Sainsbury (personnel
experience in late 1990s).
3rd YEAR STRATEGY PLAN:
Develop Home Business Unit
Home sector, M&S needs to focus on things they know well to have competitive advantage to
increase their market share. Providing stylish furniture with low cost and expands the home
stores will be the ideal method.

REFERANCES
Barnes R. (2004) Your M&S Makes Debut to Back Womens's Range, Marketing (UK),
Business Source Premier, p3, 1/3p, 1c
Fahey, L. and V.K. Narayanan (1986) Macroenvironmental Analysis for Strategic
Management, St. Paul, MN: West Publishing Company.
Johnson, G. and Scholes, K. (2002) Exploring Corporate Strategy, 6th edition, Harlow:
pearson Education Limited, England.
Kippenberger T. (1997) Marks & Spencer: A Revolutionary in Retailing, The Antidote,
Emerald Group Publishing Limited, v2 n6 p32-36

Ralph D. (1996) Strategic Managerial & Organisational Planning, 2nd edition, Pitman
Publishing.

Stockport G.J. (2000) Developing Skills in strategic transformation, European journal of
innovation management v3 n1 p45-52

Thompson, A. A., Strickland A. J., and Gambles, J. (2004) Crafting and Executing Strategy:
The Quest for Competitive Advantage: Concepts and Cases, 14th edition, Mcgraw-Hill, UK

Anonymous (2001) Marks & Spencer [Video Cassette], Available: Channel 4 TV Programme
[2004, July].

Anonymous (2004a) Porter's Five Forces: , A Model for Industrial Analysis [Online],
Available: http://www.quickmba.com/strategy/porter.shtml [2004, Oct].

Anonymous (2004b) Strategic : Planning, Porter's Five Forces Model [Online], Available:
http://www.des.calstate.edu/basicmodels.html [2004, Oct].

Anonymous (2004c) Marks and Spencer [Online], Available:
http://www.veryard.com/comanies/mks.html [2004, Oct].

Anonymous (2004d) Marks and Spencer, The Company [Online], Available:
http://www2.marksandspencer.com/thecompany/ [2004, Oct].

Anonymous (2004e) Strategic Planning, Basic Models [Online], Available:

http://www.des.calstate.edu/basicmodels.html

APPENDIX I

M&S Value Chain Analysis

PRIMARY ACTIVITIES

Inbound Logistics

M&S was using only British suppliers in order to produce the quality products whilst most
other retailers sourced goods from overseas to keep costs down.

Operations

Refurbishment programme caused disruption and worse effect on the customers. The cloths
were not managed and displayed well, such as work and casual style cloths in the same place
(Johnson and Scholes2002; anon, 2001). M&S did not have a loyalty and credit cards facility
at the time when almost every other retailer did.

Outbound Logistics

M&S stores location were situated in prime locations so that its full range of products could
be stocked at city central locations.

Marketing and sales

M&S had poor marketing plan, especially when it stated that its products is available to
everyone which was wrong because of their focus on classical and wearable fashions only. A
good example of this argument when M&S produced a controversial television advertisement
featuring a blurred image of a rather large naked woman.

Services

M&S had poor services in the shop floor due to Geenbury cost control by reducing the sales
assistance in stores. M&S did not have fitting rooms and no body listen to customer
comments (anon, 2001). M&S customer satisfaction survey results prove the same (Johnson
and Scholes2002).

SUPPORT ACTIVITIES

Firm Infrastructure

Bad due to centralization structure of the company. The store managers follow the head
office direction on the products lay out and store design.

Technology Development

Poor comparing with its competitors like Zara who has in their stores hand held
communicators 'pdf' which enables them to know exactly what is in the store and ensure the
right items will be delivered the next day.

Human Resource Management

No training programme to innovate the staff and develop their skills. Senior executives could
not communicate directly with Greenbury on the customer satisfaction results because the
fear. Most of sales assistances in the stores were old ladies and all dressed in gray and navy
color.

Procurement

H&R recruitment and products procurement were done locally.

APPENDIX II

Strategic direction followed under Peter Salsbury

Peter Salsbury took the company mainly into a strategy of market penetration but . This is
evident in the following points;

Withdrawal from most of their international markets as a corrective measure for very poor
planning of strategy in the previous years.

M&S bought 19 Littlewoods stores for a price of £192m on the grounds that they
were in prime locations. They bought these stores with the intention of refurbishing them
completely and at the same time refurbishing their own stores at a cost of £100m.
This had a disastrous effect on custom and pushed their sales and profits down which affected
the share price.

In April 1999 they launched a large promotional campaign and new clothing and food ranges.

In September 1999 they decided to source overseas to reduce costs.

M&S decided to diversify into home and Internet shopping in response to customer trends.

M&S established a new department responsible for identifying new business opportunity.

**********************************
Case study marks & spencer



Content


List of Illustrations



1. Introduction



2. Strategic Business Audit

2.1 The Macro Environment

2.2 The Micro Environment



3. Stakeholder Influence



4. Strategy Development



5. The Organizational Culture of M&S

5.1 Understanding the Cultural Context

5.2 Problems of M&S’s Organizational Culture



6. Strategic Capabilities



7. Recommendations for Future Strategies



p. 3



p. 4



p. 5

p. 5

p. 5



p. 9



p. 11



p. 13

p. 13

p. 14



p. 16



p. 18




8. Conclusion

p. 19



Illustrations


Illustration 1: Main Topics of the Marks & Spencer Analysis



p. 4


Illustration 2: Proposed M&S Industry and Market Framework



p. 6


Illustration 3: Repositioning Main Stakeholders



Illustration 4: Interdependence of Main Factors



p. 9



p. 11


Illustration 5: Impact of Senior Management on Organizational Culture



p. 13


Illustration 6: Resources and Competences of an Organization



p. 16



1. Introduction

This report’s aim is to analyse the main problems Marks & Spencer (M&S) faces in its
business environment. In order to point to the most critical issues the report is divided into
several sections, starting with an analysis of the broader macro and micro environment
leading to focus on internal organizational problems afterwards. Thus, a broader picture is
examined first and then narrowed down to more detailed analyses as illustration 1 shows:



Illustration 1 Main Topics of the Marks & Spencer Analysis

Having identified the most critical areas a list of recommendations will be provided before
ending the report in form of a final conclusion.


2. Strategic Business Audit


2.1 The Macro Environment

Due to lack of available information in this case, the PESTEL framework, which is normally
applied to analyze the macro environment, cannot provide great help in this discussion.

2.2 The Micro Environment

From the case, we can identify that "clothing" and "food" are the two major industries M&S
is involved in. These two industries have the common feature of swift change. The pace of
technological improvement and the speed of global communications mean more and faster
change now than ever before.[1] This trend, therefore, requires managers to react swiftly to
adjust strategies which fit the changing business environment. Unfortunately, M&S seemed
to have done this poorly, as analysts commented: M&S ignored the changes in the
marketplace while its competitors quickly reacted to changes. The reasons should be
analyzed by looking closer at the micro environment.

Before using the five forces model to analysis the micro environment, the market has to be
segmented. However relatively few information for this aspect can be drawn from the case.
We roughly breakdown the clothing market into three segments numbered from 1 to 3 to
which the model will be applied (see illustration 2 on the next page):



Illustration 2 Proposed M&S Industry and Market Framework

A. Bargaining power of suppliers

· Bargaining power of suppliers in most clothing segments is relatively low but when
purchasing cloths from luxury designer firms, the bargaining power tends to be higher.

· M&S previously had only British suppliers for its claimed reason of high quality, but
later on it outsourced globally to lower the cost. M&S was no longer reliant on particular
suppliers and therefore the bargaining power of suppliers is lowered.

· M&S’ mass purchase also leads to lower the bargaining power of suppliers.

B. Bargaining power of buyers

· Generally speaking, bargaining power of buyers is high. However buyers’ power in
segment 1 is relatively low, while that in segment 2 and 3 is high.

· Products in segment 1 are usually designed for the non-price-sensitive people who
prefer quality and fashion.

· People in favour of products in segment 2 and 3 are more price-sensitive. And
normally they can choose from a variety of companies. Thus they have high bargaining
power.

C. Threat from substitutes

· Broadly speaking, threat from substitutes is very low. Only products from different
segments might work as product to product substitutes.

· In times of economic recession, people may shift from segment 2 to 3. And in times of
economic development, people have more disposable income and accordingly more interest
in products in segment 1 and 2 rather than 3.

· This means that segment 2 has the threat of substitutes from both segment 1 and 3.
Products of segment 1 and 3 normally do not directly substitute each other.

D. Threat from new entrants

· Threat from new entrants is high in segment 1 and low in segment 2 and 3.

· Brand name and high capital requirements build up high entry barriers in segment 1,
which can efficiently protect existing firms from intense competition.

· To provide high quality and the latest fashion for segment 1, capital is required for
using superior materials, modern design, superior workmanship and sufficient expertise.
Brand name is also an important competitive advantage for established firms due to the brand
loyalty of people in this segment.

· Meanwhile, low cost and low brand loyalty, resulting in low entry barriers in segment
2 and 3, provide more chances for potential entrants.

E. Rivalry among existing firms

· It seemed that existing firms in the clothing industry do not compete as intensely as
firms in other industries. In relation to segment 1 and 2, M&S suffers more from the
competition of segment 3.

· Competition in segment 3 comes from two aspects. Price-sensitivity feature of segment
3 is very likely to lead to a price battle which will finally squeeze out profits. A number of
firms competing in segment 3 will erode M&S’ market share.

Further problem areas which need to be considered are in particular:

A. Market

· M&S is tied to a generalized view of the market due to a lack of proper segmentation.
It might not need segmentation in early year since people had similar requirements and very
few competitors could challenge its market leadership. However things have changed. Strong
competitors emerged and different products have been required by customers. M&S’ failure
to segment the market and to differentiate products resulted in shifting customers’ interests to
other brands. Consequently M&S’ market share has been eroded.

· M&S must target a segment or prioritize some segments. Different marketing
strategies should be raised for each different segment so as to shield itself from competition.

B. Customers

· Demand and Competition are the determinants of industry profit. Therefore,
understanding, stimulating or even creating demand is of great importance for profitability.

· Understanding customer preferences and trends was deemed as a major reason of
previous success. However, survey results of customer satisfaction in the late 1990s revealed
that customers were more and more dissatisfied with product or service. This resulted from
the fact, as frequently reported, that M&S no longer understood or reacted to its customer’s
needs.

· As technology develops and people care more and more about clothing fashion rather
than only quality or price, the life cycle of the products in this industry tends to be short. That
means, if the company does not pay sufficient attention to collect information from
customers, products might be outdated soon. This would then require a swift managing
change including new designs, new concepts and new materials to meet customer’s needs.

· In addition to the product itself, value-added service is also an important part. The
value of the product or service to customers should be created to appeal to customers.
Furthermore, well working long-term relationships need to be established between the
company and customers. This should greatly help to maintain them and to increase their
loyalty to the brand. Salsbury’s proposal of customer-focused approach should be
appreciated. Unfortunately, the fact not to segregate different items and to deal with customer
complains poorly reveals that this approach seemed not to be implemented very well.


3. Stakeholder Influence

Strategy making takes place in a political context, so the impact stakeholders will be
considered in this section. These stakeholders[2] are most of all:
1.Employees
2.Senior managers (excluding Salesbury)
3.Salesbury
4.Customers
5.Suppliers
6.Competitors

These individuals or groups can next be placed in a power/interest matrix which helps to
analyse their potential influence on strategy. Having done that, ways can be found to
reposition them if necessary (see illustration 3 on the next page).



Illustration 3 Repositioning Main Stakeholders

The analysis implies that it is most important to shift the individuals or groups in box one to
boxes where their impact on strategy is weaker:

a) In the case of competitors, their power has grown because of M&S’ inability to position
itself clearly in the market. By enforcing Vandevelde’s new strategies their potential power
should decrease leading to a shift in box two.

b) Salesbury’s influence is probably still strong because of his position and tradition in the
company. However, outside pressure already forced him to accept Vandevelde. Increasing
this pressure over time through PR and positive customer perception of the company may
decrease Salesbury’s power gradually over time leading to a shift in box two.

c) The power of suppliers used to be high because M&S only sourced from a few British
suppliers. Their interest in the company was high too because M&S was a major buyer. Their
power already has been shifted to box two when Vandevelde started to purchase goods from
Asian suppliers.

In summary it can be said that a new strategy has to take the political context into account
represented by M&S’s main stakeholders if future strategies want to be implemented
successfully.


4. Strategy Development

The true strength of an organisation comes to the forth during changing environment. When
the environment is static, the organisation knows its capabilities, and it devices its strategies
accordingly. A successful organisation is one that can adapt itself according to the changing
environment, by finding new capabilities and changing strategies. This interdependence
between environment, strategy and organizational capabilities is shown in the following
illustration:



Illustration 4 Interdependence of Main Factors

This is where M & S stumbled. Till 1990's M & S rode on a success wave because the
environment hadn't changed and they weren't forced to face unpleasant tasks. But when the
rules of competition changed, it failed to adapt itself, hence the mighty fall from everyone's
favourite to one at which everyone looked at with wariness. In expanding laterally, it failed to
focus.

When analysing the history of M&S’ strategy the following points have to be considered:

M & S was known for the family atmosphere, feeling of camaraderie, and the top
management within the family. It had an inward looking culture- of ‘growing your own tree’.
Almost all the top management had come up through the lines in the organisation. There was
no fresh blood, ideas to infuse life in the organisation. It was only as late as 2000, that a
person from outside the organisation was appointed to the top post, Luc Vandevelde, who
brought with him a new strategy, quite different from the existing one. He began changing
the entire outlook of the organisation from inward looking to outwards.

· M & S had a top down management approach, which seldom worked. All the stores
were similar in layout, design etc, leaving no scope for modifications based on the local
environment. The individual stores were allocated merchandise dependent on the floor space.
Stores of the same size were sent the same clothes. It failed to understand that customer tastes
are different, will change according to the lifestyle and the demographic characteristics.

· M & S always had the same UK based suppliers, because they felt that these suppliers
could provide them with the highest quality goods. They also believed that the customers
were patriotic. They gave scant regard when the costs escalated and competitors started
buying its merchandise from low cost countries.

· M & S continued with its risk aversive formula long after the rules of competition
changed. It ignored the market changes. Greenbury, who was heading the firm in the 1990’s,
when trouble began to erupt, used to focus on day to day operations and didn’t focus on the
long term strategy for the company. It neither understood nor tailored the offerings to the
various growing market segments.

· Even though the majority of the customers were women, and much of the merchandise
was womenswear, the decision makers were dominated by men.

· M & S tried to expand in the international market in a big way. But it didn’t give
importance to the fact that Europe, America, Canada were entirely different from England. It
failed to give respect to the new foreign environment

· M & S built its reputation on the basics, the essentials, and didn’t work on fashions.
This worked for them in the beginning, but by late 1990’s it began to lose out to its
competitors, The Gap, Oasis, Next, at the top end and Matalan, Asda etc at the bottom end. In
the value food market, Tesco and Sainsbury began competing with them. It was only in 2001,
did they bring in a designer to design its new range of clothes. They stopped understanding or
reacting to the customer’s needs.

· M & S did not have a customer loyalty card, when almost all its competitors had one.


5. The Organizational Culture of M&S

5.1 Understanding the Cultural Context

The culture of the M&S plays in important role if the company’s performance wants to be
understood. Only when the culture of an organization is analyzed, it is actually possible to
understand its strategy, as Watson (2002) points out.[3]

When speaking of organizational culture we speak of a general set of meanings that is shared
by all members and that defines the way people have to think and behave. The roots of these
shared beliefs trace back to the founders of M&S and are personified in the case study in the
behaviour of the senior management such as Greenbury and Salesbury. So, in order to
understand M&S culture, it is essential to understand the impact senior management had
made on the rest of the company. This interrelation can be seen below:



Illustration 5 Impact of Senior Management on Organizational Culture

When analysing the case, the following list of main beliefs and values can be found that has
to be adopted by all members of M&S:

- Quality has to be offered at reasonable prices

- Relationships with suppliers on a personal basis are essential

- Control of the organisation should be exercised top-down

- Employees are promoted internally

- The company grows from within and can build upon its long lasting reputation

5.2 Problems of M&S’ Organizational Culture

Structure, culture and strategy are interrelated.[4] Accordingly, these three main aspects need
to be discussed in more detail:



A. Problems with Strategy

First of all, it was believed by the former top management that quality had to be high while
prices needed to be affordable. This belief was essential for strategy making because it
implied which actions had to be taken to achieve these aims. Such a strategy is however
problematic to implement because as Porter (1985)[5] notes, it leads to a situation of "stuck
in the middle" which means that companies should either be low cost or product led.
Achieving both is to some extent contradictory in his view and can therefore help to explain
the inability of M&S to achieve sustained competitive advantage.

B. Problems with Culture and Structure

Secondly, an important belief was that control should be in the hands of top management
which had been exercised by the successors of the founder. The case shows that Greenbury
always tried to run the business on his behalf and rejected delegating responsibilities. This
approach can be named "top down" which means that information flow from top
management to the shop floor. This has several disadvantages: it fosters autocracy and
managerialism, it does not take advantage of the sales staffs’ experiences who know best
what customers demand, it leads to bureaucratic structures which hamper flexibility and
quick decision making, it discourages lower managers to make critical suggestions because of
Greenbury’s habit to think that his decisions are hardly fallible.

Lastly because all managers were promoted internally, such an approach led over time to a
closed inward looking system which fairly ignored external change. Appointing managers
solely on the basis of this system implies the danger that new innovative ideas from outside,
essential for creating strategies leading to sustained competitive advantage are not fostered.

Culture is the product of a long time period, people get used to it because it offers direction.
So, change strategies might lead to resistance because new ways of doing things have to be
adopted. Furthermore, knowing now about the impact Greenbury, Salesbury and their
predecessors have made on M&S culture it gets clear how difficult it is for the new CEO Luc
Vandevelde to achieve a turnaround.


6. Strategic Capabilities

In this part, we will examine the resources and competences of M&S using the following
model:


Easy to imitate

Difficult to imitate


Resources

Threshold resources

Unique resources


Competences

Threshold competences

Core competences


Illustration 6 Resources and Competences of an Organization

A. Threshold Resources

Threshold resources are requirements needed for existing in the market. M&S, as a retailer,
has nearly 300 stores, in which there are experienced staffs serving different customers. The
company has long-time suppliers, which are essential to assurance the high quality of
products. Furthermore, as a listed company, the organization has enough financial sources to
fund its operation.

B. Unique resources

Unique resources are crucial to underpin the competitive advantage. M&S, which has long
history in the market, has unique brand awareness. Most of the people in the U.K. know the
company. The brand of „St Michael" is deemed as the symbol of trust and quality. Facing the
decrease in performance, the company reacted by employing an experienced CEO, Luc
Vandevelde, who has an outstanding performance in the industry. He emphasizes on building
a flatter company structure to improve the decision-making environment and to improve
customer relationships.

C. Threshold competences

Threshold competences are competences, which are essential to stay in the industry. M&S
provide retail services along with financial services, domestically and globally. Facing the
intensive competition, the company has to adjust its purchasing systems and starting global
sourcing to reduce the cost of sales. M&S charges rents for each individual store, in order to
make store managers more accountable for their branches’ performance. In addition, they
group the stores on the basis of demographic characteristics and lifestyle pattern instead of
allocating merchandise depending on floor space.

D. Core competences

Core competences are activities or processes that critically underpin an organization’s
competitive advantage. There is no clear core competence held by M&S, but the new CEO
thrives to it up in order to recover the market share. He emphasized on building a flatter
company structure to improve the decision-making environment. Another point is that he
wanted to create a customer oriented organization.

In general, the analysis outlined shows that M&S has enough threshold resources and
competences, and even some unique resources. But unfortunately, the company has not any
proved core competence at the moment. In the past, the company did have some unexampled
competitive advantages, which resulted in M&S’ dominant status in the industry. In recent
years, there have been huge changes in both the macro and the micro environments. But the
company did not develop their capabilities to follow the changes. It is no surprise that M&S
lost market share. Now the main problem for the management is how to utilize and combine
all the resources and competences to develop new competitive advantages.


7. Recommendations for Future Strategies

So far the report has highlighted M&S’ major areas of concern. Having done that, we will
now take our analysis one step further and provide a list of recommendations for M&S’
management which we think are important to recognize in order to regain sustained
competitive advantage:

· Macro and micro environment change have great impact on the performance of
companies. Sticking to previous stubborn strategies and ignoring rapid environment change
will only disadvantage the company. An open-minded and flexible management, with
capability of reacting swiftly to the environment and competitors’ strategy change, is crucial
for the survive and success of the company.

· Strategy development takes place in a political organizational environment that is
influenced by a series of stakeholders, each of them with different levels of interest and
power. In the past, strategy making was done by the top management which paid little
attention to the potential impact of stakeholders. It is highly likely that this contributed to the
poor performance of the company. In the future, stakeholder mapping should assist the
strategy developing process leading to a more transparent picture of potential influences.

· The importance of culture has to be considered when changes are planned in
restructuring the organization or when new strategies are considered due to their interrelation.
The challenge of the new top management is to achieve a ‘fit’ between these forces. This can
only be done gradually over the long-term because rapid changes might lead to resistance
among M&S’ employees.

· The resources and competences of companies are the primary determinants of their
strategies. M&S should hold core competences to form their competitive advantages in the
industry. Accordingly, M&S should build its own core competence by utilizing and
combining its resources and competences, especially unique resources, such as brand name
and image. Flatter organization structure and customer-closeness will help M&S to react
quickly and to serve customers better.

· Lastly, M & S should consider the following suggestions:

§ To conduct market research to find what really current customers want.

§ To segment the markets scientifically.

§ Understand and treat each store as individual SBU.

§ To separate the food and clothing divisions into separate stores.

§ Find cheaper suppliers for the clothing range.

§ To introduce a new loyalty card for its customers.

§ To have more women in its top management who understands customers well.


8. Conclusion

The report analysed the main problem areas of M&S, starting by looking at the broader
business environment and then focusing more on the organization itself.

By doing so the report highlighted potential risks first of all which were presented to the
reader in more detail.

However, stressing which areas are most problematic for competitive advantage form only
the basis for strategy development. Thus the authors combined their results at the end of the
report to provide a list of useful recommendations which should help to regain sustained
competitive advantage in the near future.


--------------------------------------------------------------------------------



[1] Johnson, G. / Scholes, K. (2002), Exploring Corporate Strategy, 6th edition, Harlow:
Prentice Hall, pp. 97-102.


[2] This analysis will only concentrate on the main stakeholders mentioned in the case, thus it
will not cover groups such as local or state government, unions etc. which do have an
influence but which is marginally in this context.


[3] Watson, T.J. (2002), Organising and Managing Work, Harlow: Prentice Hall, p. 222-5.


[4] Watson (2002), p. 223.


[5] Porter, M. (1980), Competitive Strategy, Oxford: The Free Press.


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