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Friday, 8 November 2013

Strategic Management overview of Marks and Spencer




In order to understand the concept of strategic management, it is important to consider the meaning of the word strategy. Strategy involves a firm’s efforts to gain a competitive advantage over its competitors through delivery of products that are distinctive and unique to them (Yoo and Choi, 2005). It enables a firm to establish itself uniquely in the industry by attracting customers that find greater satisfaction in elements that the firm chooses to exemplify as a source of its strategic strength (Porter, 1981). It entails making use of a firm’s internal strengths to create value that uniquely satisfies its customers (Yoo and Choi, 2005; Porter, 1981).

Strategic management therefore involves the process of defining a firm’s strategy, its implementation and monitoring to ensure the strategy achieves its desired results (Werner, 2002). It involves a nine step process which entails; agreement on the importance of the process and initiation of the strategic management process; clarification of the company’s objectives, mission, and the current strategy; analysis of the organization’s external environment which involves the threats and opportunities available; identifying key stakeholders and defining their main interests; assessing strategic issues which confront the organization; generating strategic options and selecting those needed for implementation and the eventual implementation of the selected strategy; monitoring and review of performance of the chosen strategy (Sheldrack, 2003).

On the whole, the success or failure of any strategic management process is determined by the achievement of the desired outcome. Any unforeseen deviation from the desired outcome may mean a lapse in the proper observation of any of the steps outlined above and calls for an audit of the whole process in order to rectify any weaknesses with a view to taking corrective measures.

The practice of strategic management is influenced largely by a firm’s philosophy based on its strategic position in the market, the beliefs of the key decision makers within the organization as well as the desired goal that the organization may have in terms of long term and short term objectives. The practice of strategic management may therefore be linked to any or several or the following common theories of strategic management: the survival based theory; the contingency theory; the agency theory; profit-maximizing and competition-based theory; resource based theory and the human resource based theory. These theories are as explained below: Profit-Maximization and Competition-Based Theory is based on the firm belief that main reason for existence of a business is to maximize its profits in the long run and gain a competitive advantage over its rivals in the market (Ramsay, 2001). In other words, this theory concentrates on the organization’s relative positioning in the external environment. This theory requires that a business develop adequate intelligence to monitor the competitive forces in the market with relative accuracy.

Resource-Based Theory is based on the premise that a firm’s competitive advantage lies in its resources. It places more emphasis on the internal capabilities and positioning. This theory describes competitive advantage as the firm’s ability to produce superior performance products using attributes of their unique resources and capabilities which are valuable often difficult for rivals to copy (Raduan et all, 2009). A firm’s ability to translate its unique resources and capabilities is the primary source of its competitive advantage. The main sources of competitive advantage to businesses include proficiency (capability, competence, and knowledge), assets’ or position ownership, and access to supply and distribution. The ability of a firm’s resources to create competitive advantage is based on qualities such as non-substitutability, in-immitigability, value, and rareness. In the case of M&S, their organizational culture of excellence should be their traditional source of competitive advantage. The value in a resource is its ability to enhance exploitation of opportunities or its ability to neutralize potential threats (Ramsay, 2001). A firm’s resources include assets, organizational processes, capabilities, information and knowledge and its attributes over which they have control and are able to use to implement strategies to ensure efficiency and effectiveness.

The Survival Based Theory is based on the notion that an organization needs ensure its survival by continuously adapting to its competitive environment (Sheldrack, 2003). Small organizations that do not command a significant client base are the ones that often adopt this mentality. Here, the organizations trail the market developments as opposed to being in the lead as far as innovations and pricing are concerned (Sheldrack, 2003). Analysts view the subscribers to this line of thinking as extremely limited in terms of their capacity to grow and such growth if any is less likely to surpass those organizations that are presumed to be at the helm of market leadership (Raduan et all, 2009). The Human Resource Based Theory is based on the importance of the human element in the development and implementation of strategy in an organization. It emphasizes the involvement of all the human resources in all the processes of strategic management process (Ramsay, 2001). M&S put this theory into practice when they engaged employees in serving customers directly and later when they rolled out massive staff training aimed at changing employee mentality.

The Agency Theory is based on the view that the existence of good and sustainable relationship between the organization, or managers and the owners, or shareholders is crucial in the achievement or the organizational strategies (Donaldson and Davis, 1991). The board of directors is a crucial organ in this theory. The theory further advocates separation of offices where the chairperson of the board and his members are not members of the business management (Donaldson and Davis, 1991). This relationship is crucial since the management may need the shareholder and directors’ support in enforcing whatever strategies they may need to come up with from time to time. This was illustrated when the M&S management needed the shareholders to support their strategies by resisting the takeover bids by rivals. In the absence of cooperation between the managers and the owners, the firm would only be limited to implementing strategies that do not require endorsement by the business owners and this may be found to be extremely limiting. Such good relationships need to be nurtured through constant and responsive communication with the shareholders where the management ensures they create ways of ensuring the business owners are well furnished with the goings on in the organization as well as the strategic issues and options of the organization at all times. The Contingency Theory is based on the notion that each organization should approach its strategic management based on its own unique circumstances since there is no common approach applicable to all firms. Managers are therefore required to carry out an in-depth analysis of the company’s situation including its internal resources, culture and capabilities as well as its positioning in the market (Raduan et all, 2009). It is only after an accurate assessment that the organization can derive strategies that would work best for them.

Marks and Spencer, hereafter, M&S was founded in the late 1880 by Michael Marks. It grew steadily to become the biggest retail outlet in the UK until the late 1990s. This success could be attributed to the development of a culture of quality awareness in the company. The founding CEOs and subsequent executives and managers had adopted a culture of rigorous examination of supplies from the suppliers hence ensuring quality products in their outlets. This became a source of strategic advantage as their brand gained the trust of consumers who believed in the quality of the products displayed in their stores. This advantage was further enhanced by their policy to create sustainable relationships with suppliers who after some length or engagement would adopt their quality standards hence ensuring little or no breach of product quality. The firm had also focused on retention of their employees and was able to implant in them this culture of excellence which further stabilized their reputation of offering quality products. The company had until late 1990s established its culture of excellence as its main source of competitive advantage.

The 5-Forces model concentrates on analyzing the company’s position in the market with the aim of being a guide to effective strategic management process. With Rivalry as the central factor, this model evaluates the factors that may impact a company’s performance under Barriers to Entry, Buyer Power, Threat of Substitutes, and Supplier Power. For a company to enhance its competitive advantage, it needs to understand and use these factors to their advantage. The 5 Forces model is summarized by the 5-Forces Diagram below:




 













































































































































































































































































































The level of rivalry in M&S’s industry had greatly increased with entry of more firms into the sale of clothing where some organizations such as the Gap and Oasis offered current fashions whereas firms like the George and Matalan who offered similar products at lower prices. The high rivalry that struck M&S in the 1990s was due to the fact that the clothing they stocked had become quite common and their competitors could stock the same fashions hence cutting into their competitive advantage. This threatened their brand identity which had for a long time been a mark of reliable quality and style. The rivalry was further enhanced by M&S fixed costs in relation to labor costs, warehousing costs and a significant proportion of their operation costs. In relation to supplier power, M&S mainly sourced products from UK based suppliers who were readily available. The suppliers were also ready to differentiate their supplies to suit the quality standards of M&S which resulted in them being able to consistently stock high quality products. Their relationship with the suppliers was therefore contributed to their competitive advantage. The ability of differentiated input was further influenced by their ability to procure large volumes that enabled suppliers realize the benefits of such differentiation. The Buyers in the context of M&S are attentive to fashion and design suitability. The high end customers place a high value on their desired clothes and are willing to pay a premium for the ones they find acceptable to them. On the lower end of the pyramid, the buyers are also price sensitive and M&S stood a high risk of losing market share to organizations that offered low prices for similar products. The cloths on offer by M&S also seemed to have close substitutes in the industry, a fact that further compromised their market standing. A consistency in producing fashions and quality that pleased the customer would lead to brand loyalty among the customers as was evidenced by M&S maintaining a stable clientele prior to its decline in the late 1990s. This loyalty would be threatened when a disconnect leads to the firms not keeping in touch with changing customer preferences as substantiated by M&S rapid decline in the late 1990s. The industry in which M&S operates requires that operators keep making new innovations to keep in line with the changing customer preferences. This is due to the ease with which competitors can replicate existing designs or design close substitutes. The industry’s ability to offer substitutes to the products M&S offers is a potential threat if the company does not keep ahead of the competition in understanding and satisfying their niche market. The threat of entry by new players is dependent on how well M&S and other leading brands can build the customer brand loyalty to their advantage. The access to distribution networks also gives great advantage to M&S hence acting as a barrier to new entrants. The loophole that they need to seal is the poor understanding of customer needs as this may serve as an excellent launch pad for a new entrant into the market.

The Strategic Drift model helps understand the importance of a company realigning their culture and product development to the changing needs of their target customers and the market as a whole. Where there is a discord between the changes in the customer preferences and the changes in design and product specifications in the organization, it results in what is called a strategic gap. Organizations are obligated to find all possible ways to resolve this gap to ensure their continued competitive advantage. Where befitting changes are not implemented, the organization’s existence may be threatened. Strategic drift model is as illustrated below:
















































































































Source: Ramsay, 2001

The strategic drift model is the model that best describes the reason for decline of M&S. As market trends were changing, M&S continued to focus inwardly on the product quality for their products. Their overreliance on the past strategy, coupled with insufficient monitoring and review of changing market trends would soon render their competitive advantage obsolete. The market trends had shifted and the products stocked by M&S, although still high quality, did not satisfy the changing needs of the market. The resultant strategic gap triggered a decline in the M&S market share and at the same time triggered streams of strategic management processes at the company in a bid to recover its market leadership. M&S’s subsequent strategies would be seen as their interpretation of the causes of the strategic gap and the actions needed to regain strategic advantage.

M&S initially reacted as using what an observer would call Survival-Based theory of strategic management, where without an in-depth analysis into the real causes of strategic gap, they sought to follow the lead of the organizations that were offering considerably new fashions of dresses and better looking stores. M&S hurriedly carried out refurbishment of their current stores while at the same time acquiring new ones that they considered strategically place. The scale of renovation affected normal business flow and the interruption on delivery led to a further decline in their market share. However, it would be argued that their initiative to try and revitalize their image was an indication that they had acknowledged the strategic gap and were willing to work on it. In 1999, M&S engaged in restructuring in a bid to assign responsibility centers to ensure accountability among the various divisions. Coupled with this, M&S launched new designs of clothing as well as an attempt to reduce the amount of bureaucracy that hindered its ability to respond to clients changing needs. Also done was an effort to redo display of clothing in a more appealing fashion in order to attract more purchases. These steps proved inadequate owing to M&S’s inaccurate assessment of customer needs and its own internal strengths and weaknesses. By November 1999, M&S still acknowledged its bureaucracy as its weakness in implementation of proper strategies. A flatter management structure was adopted in a bid to rectify this. While acknowledging the inward culture of most of its executives, M&S resorted to hiring a new CEO from outside its ranks, the first such CEO in their history. In 2000, M&S further sought to enhance its image among investors by providing additional staff to help serve customers directly, introducing brand clarity to reduce confusion among customers, and remodeling some of their stores to serve a specific clientele. In 2001, M&S would commit a grave mistake by failing to consider the government regulations while planning its restructuring program. Proper strategic planning must take into account all major stakeholders and appropriate actions be taken prior to the implementation of such a strategy. This led to M & S losing a significant portion of their investment. While further trying to correct their image, M&S decided to move their headquarters in 2004 in a more modern street that would make consumers see them as abandoning their laid back conservative culture. M&S then shifted their attention to the importance of their employee participation in the implementation of their new strategies where they sought to lift their employees’ morale by allowing them to serve the customers directly. This was in line with the Human Resource Based Theory of strategic management. The influence of shareholders was brought sharply to the fore in May 2004 when there was a tempting takeover offer. The management had to convince the shareholders to wait on them to implement strategies that would work. M&S was also exhibiting signs of focus away from survival to a renewed determination to harness its resources to gain strategic advantage in the market. M&S set out to do away with resources that were redundant while improving their core services. Focus on employees was enhanced in order to make them more instrumental to the strategy implementation process. Training programs were rolled out throughout the organization in order to align their mentality with the organization’s strategic decisions. This approach was more resource-based than the earlier approach, which seemed to be motivated by survival. They harnessed their design capabilities to display clothes that earned them praise by December of the same year. A more accurate insight into consumer preferences, coupled with an elaborate advertising campaign also contributed to a renewed enthusiasm of M&S’s consumers. By late 2005, M&S seemed to be on its way to full recovery, thanks to the strategic decisions taken by the management at the time.

For more theory and case studies on: http://expertresearchers.blogspot.com/

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