Marks and Spencer has been a leading
retailer in the UK retail market, principally in the retail of home products,
apparel and food items. It combines its products offer with different private
label brands including portfolio, classic, Indigo and North coast. As of 2010, GlobalData
(2010) reported that the group had a network of over 1000 franchised and
company owned stores spread across 40 countries. In recognition of its heavy
presence in the UK and other markets, this study will make an analysis of the
company’s maintenance of competitive advantage that gives it an edge over its
rivals under the guidance of various competitive strategic models.
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:
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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:
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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.
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