Business Government and Society

Introduction to the Company

Marks and Spencer, the leading retails store chain specializes in high quality, great value clothing and home products, as well as outstanding quality foods. More than 21 million customers are visiting M & S 730 stores in United Kingdom that are served by 78000 people in UK and aboard (M&S Annual Report, 2012). Leading the womenswear and lingerie marketing share in UK and rapidly increasing menswear, kids wear and home products. 51% of M & S business is in food products and 49% in clothing and homeware. The business highly identified for its green credentials and pledged to its Plan A that endows the company to accomplish carbon neutral and none landfill waste by 2012 (M & S Annual Report, 2012).

Organizational activities are affected by the environment they operate in. External environment includes various factors and forces that organization hardly controls. (Voiculet et al., 2010) The consequences of these factors could be a result of competitor move (A direct impact) or a legislative or political move (an in direct factor). Externally, organizations are affected by economic, political, legal, ecological, technological and social factors— popularly known as PESTLE (Burt and Sparks, 2002).

Assessing the needs of all stakeholders is imperative to sustain the competitive position of the company. Major stakeholders are customers, employees, owners and suppliers. Measuring how well the expectations of each of the company's stakeholders are met yields a more balanced and holistic picture of performance that can provide critical insight and guidance for action. For example, a company with steadily rising earnings per share, but whose customer satisfaction has dropped three years in a row, is not performing at a healthy level (Curtice, 2006).

It is important for the organization to always consider the stakeholders expectations and needs. There are mainly two type of stakeholder; internal and external. Internal stakeholders are company’s employees and external stakeholders are customers, government, environmental institutes and organizations and pressure groups.

Employees: their needs include career growth, learning and development, better working environment, flexible working arrangements, better policies for paid leaves (maternity and paternal leaves and many other. Marks and Spencer has already developed learning environment in their stores and head office by issuing trainings and better succession plans and performance appraisal system Company also offers flexible working for young working adults and women to meet their professional and social needs (Marks and Spencer Annual Report, 2013).

a) Shareholders: profit and growth.

b) Government: Tax and compliance to legislations and regulations.

c) Customers: better products in competitive prices with excellent service delivery and after sales services.

d) Pressure Groups: environmental obligations, healthy food to reduce obesity and improve health.

Above needs and expectations of external stakeholders are also carefully met by Marks and Spencer as they are following Plan A in which they commit to follow rigid environmental and ethical program by taking steps such as more sustainable supply chain, strict sourcing standards and respond environmental changes by using campaigns like big beach clean-up and SHWOPPING (Marks and Spencer, 2013, p.06).However, to improve this commitment, M&S needs to put more efforts particularly outside Europe to share the same recognition as in legacy markets.

The PEST Analysis is called by many names (STEP, PESTEL etc) yet it still uses the same principles of examination. Specifically, it looks at the political, economic, socio-cultural, and technological elements of the environment. This tool essentially places importance on how these elements influence the organization. (Blair and Hitchcock, 2001, 99). There are significant changes taking place in the external environment of Marks and Spencer as it operates in 51 territories of Europe, Asia and Middle East (M&S Annual Report, 2014, p.1), that implies various changes in political, economic, technological and legal environments and more importantly ecological needs and requirements.

Table 1: PEST Analysis

Above changes in the external environment will certainly affect the strategic direction of M&S and it is therefore M&S is following Plan and regularly strengthen its commitment to external stakeholders and internal stakeholders. Like Love food Hate Waste Campaign, SHWOPPING and many other strategic moves to compliance with the changes in its external environment.

( Threat of Potential Entrant—Medium Start-ups like boohoo or Asos cheap to set up )

( Power of Suppliers—Low As M&S have high bargaining power due to economy of scale ) ( Power of buyers—Medium Easy switching but no bargaining ) ( Rivalry among Competitors—High Aggressive pricing and tight margins )

( Threat from Substitutes—High Many food and clothing stores with huge variety and pricing. )

Every organization is following a business plan and adopting various strategies to implement that plan in various stages to achieve profitability and growth (Lynch, 2005). Various tools like Boston-Growth Share (BCG) matrix, SWOT analysis, value chain analysis and organization’s cultural and resource analysis could be performed in evaluating its business plans and strategies (Mintzberg, Ahlstrand and Lampel, 2008).

Tough economic environment both in Europe, Asia and Middle East, requires M&S to develop various strategic options for competitive products and services considering local and international tests and choices. Legal and environmental situation directs M&S to more sustainable products and reduce packaging and food waste. However, industry does not require high technological changes. However, it is important to review the major strengths, weaknesses, opportunities and threats to prepare strategic options for M&S.

Considering the SWOT of M&S, it appears to be necessary to introduce better and highly attractive store environment to suit for variety of demographics. This has been done in Cheshire Oaks store with a visually stunning environment (M&S About Us, 2014). However, this needs to be applied across all stores to attract young market segment. Similarly, decentralized management approach to make faster decisions and re assessing HR and finance department for better payment system for pension funds. It will also be important to sell other brands in store to fill the gap and capture market share. Focus on online shopping in china and India by introducing mobile apps and integrated customer relationship management systems. Reviewing its pricing strategy in Asia and penetrate in Chinese market through acquisitions and franchising.

( Opportunities from overcoming weaknesses. M&S can put strong CRM system to use customer feedback for new product lines, hence avoid low product differentiation. ) ( Use of Strengths in capturing opportunities Stronghold on 50+ y.o can be utilized as oldies are becoming 60% of internet users in United Kingdom according to NewMedia Trend watch report. )

( Minimize weaknesses and threats Bureaucratic organizational structure can be changes by focusing on cultural modernization and recruiting more young talent through effective graduate schemes. ) ( Utilization of Strengths to avoid threats: M&S should use scale, size, expertise and capital to capture market share of neglected segment (25-40 y.o ) that is currently under threat by Next from above and Primark from Beneath. ) TWOS

Taking BCG analysis of M&S, it seems feasible to focus more on Stars especially in international market considering locally feasible products as it was down by 2.4% in 2013. (M&S annual report, 2013, p.08).Target market should also be young working professionals and introduce low price range cloths to improve market share in international markets. As in Asia youth and young working professionals are have larger market share.

The role of the industry in its social, economic, and political setting

M&S losses its first position in cloth retailing who gains advantage of economic down turn. It comes at sixth position in terms of sales volume (GBP 8.95 bn) and sales area that is 15400000 sq feet. (Retails Economics, 2013).M&S also loose clothing sale by 4.1% in 2013 but still holds 11% market share (BBC News, 2013) Tesco stands at first position due to its food market and Sainsbury at second position( see appendix A).

Introduce better online shopping facilities with better navigation, next day delivery and iphone apps for transactions. This has increased sales at 16.6% that contributed GBP 651.8 million in 2013. It has also increased the range of products that could be purchased online that include flowers, wine, hampers and technology goods that can be delivered into 80 countries. Focusing on operational changes, international developments and brand communication which is a part of technology improvement plan named “2020 doing the Right Thing”.

Mintel (2013) found that M&S is place for cloth shopping for the people age above 40 which needs to be changes for better sales and for capturing opportunity of young age group. M&S need to develop more market segments by improving styles and lowering price range.

International sales increased by 4.5% (GBP 1.1 bn) with 45 new openings in Asia, Middle East and India and Mediterranean. Among these Shanghai is the largest flagship store with sales floor of 40000 square feet(M&S Annual Report, 2013). M&S continue to expand internationally, however, still lacks in number of outlets to compete with the local and international competitors.

Concluding this section of report it is obvious that M&S is following growth strategies by introducing more product and price ranges besides improving online selling platforms. However, tough competition and lower number of physical presence in geographical location of both in legacy market and international market put it in a threat of losing market share to competitors like Tesco, Wal-Mart and Sainsbury. Therefore, there is a great need to develop strategic options for M&S for converting these threats into opportunities.

It is imperative to identify the major motives of the organization on the basis of which it will formulate the strategic direction of its operations (Mintzberg, 2000) For example, increasing profitability, gain more market share, boosting customer satisfaction or completing particular projects. For M&S, gaining more market share besides customer satisfaction and ensuring profit maximization are core motives. In above two parts of this report we have discuss the operating environment of M&S and also the Strengths and weakness of M&S. environmental analysis suggests that M&S needs to focus more on environmental issues as European and Asian customer are more concerned with environmental impacts of operation of multinational organizations. Furthermore, political situation in Asia and legal situation in Europe also impose strict monitoring of laws and stipulations for M&S operations.

Similarly, SWOT analysis and competitive environment in retail industry also require M&S and spencer to improve its product ranges and increase market segments to improve sales in both clothing and food sector. TWOS analysis also reflects that M&S has great capability to overcome on its weaknesses like product range and diversifying for young age groups and change the store environment for new generations.

For developing strategic options for M&S, researcher already performed PESTLE and SWOT, however, Ansoff matrix and generic strategies are also very important to provide better strategic landscape of M&S.

Products New

( Market Penetration Development of low cost quality products. Focus on UK and European markets. ) ( Product development Developed Pre Una brand Technological advancement. )Existing

( Diversification Increasing range of food products. Changing outlook of stores. Seek merger and acquisitions with renowned design house. ) ( Market Development Approaching new market segments. Entering new territories. Exploring new users. )Markets

New

Above Ansoff matrix identifies various new strategic directions for M&S according to markets and products. Market penetration could be done by lowering prices and focusing more on EU market while M&S could also work on product development to catch up with innovation and technological improvement in this industry. More interestingly exploring new markets and new users could also be very affective in improving sales and profits as M&S has been only targeting 55+ age group which undermine the benefits of other market segments. Similarly, changing store outlook towards for attractive and physically stunning environment which appeals the high street walkers to come and enjoy the shopping.

Tesco and Sainsbury are major rivals of M&S. they are regularly innovating in food sector and capturing share of M&S it is therefore M&S need to particularly focus on the food products. M&S has introduced very attractive online applications to maintain healthy food selection and following sustainable food strategy. Similarly, Primark and Next are giving tough time to M&S as they are targeting all age groups and offering quality products with low to high pricing strategies. Overcoming these challenges can only be possible through aggressive pricing strategy and besides maintaining brand image and also targeting other segments to fill the gap.

There are four key dimensions on the basis of which M&S can form future organizational strategy. These dimensions are Domestic growth, international growth, Diversification and Cultural change. All these dimensions are explained below.

As domestic market of M&S is highly competitive therefore it needs hybrid strategy which not only focuses on differentiation but also targeting cost of its cloths. Research found that hybrid strategy is more affected in retail industry due to high competition and low margin of innovations (). Getting stronger grip on the existing market segment of 50+, however, it needs to target 25-40 age group in their multi-channel retail strategy. Finally food market need more cost effective, healthy and environmentally friendly packaging. It needs to speed up the campaigns like “love food hate waste”.

International market is full of competitors and they are offering great variety in nearly all product lines which M&S offering. Therefore product differentiation as noted in Ansoff matrix is necessary to contribute to revenue as it has been achieved during 2010-2013 that is GBP1.1 bn that is 4.5% increase. Brand image and clothing styles could be used to target international customers.

Product and store diversification is mandatory for Marks and Spencer. It will include targeting 25-40 years age group and creation of more product lines. On the top of this seek merger and acquisitions with retailers which are famous for their styles and brand image is more fashionable. Particularly focus on Per Una range.

As M&S is known for highly bureaucratic and traditional organizational structure therefore, it needs to re-evaluate the organizational structure. It is found in research that less bureaucratic and open management culture could help to speed up innovation, decision making and performance (). This can be done by improving two-way communication to encourage feedback process to amend and improve strategies at operational and strategic levels. Reduce managerial layers and encourage flexibility to adapt to fast-paced cultural and competitive change.

Summing up strategic options for M&S, hybrid strategy is needed to focus both on new product line and competitive prices. Ansoff matrix also suggests new markets and new users particularly in Asia. Acquisition and mergers could also be helpful to quickly adapt to new fashion and design. Cultural aspects, particularly organizational structure need to be changed for flexible management style with effective communication processes.

Domestic and international ethics and strategies

Organizational structure provides basis for implementing the strategies. Centralized and bureaucratic organizations normally follow rigid strategies which are not much flexible and have low tendency to adapt to environmental changes. As, writer established that M&S need to be flexible and has to work for developing new products, enter new markets and target new customers, therefore, it needs more flexible and decentralized organizational structure. Stacy (2010) has noted that decentralized organizational structures help to improve communications among front line managers and upper management and more authority is delegated to front line managers.

Figure 1: Decentralize Structure for M&S.

In above figure M&S can improve transparency and efficiency which will results in better services and reducing cost of operations. It will also improve feedback system. This structure will help to implement cost reduction, product development and new market entry strategies of M&S.

This structure will also help to ensure the participation of all stakeholders like employees, pressure groups, suppliers and executives. Furthermore, separate business units with more authority will improve creativity due to autonomy and authority. However, it needs to be ensured thatall these independent business units must be align with major business objectives like environmental focus and new market entry besides improving legacy markets.

It is important to establish control and monitoring mechanisms for achieving the strategic objectives. M&S has been suggested with product and market development strategies which need to develop new products improve existing ones and enter into new markets. All these strategies require comprehensive reviewing criteria on the basis of which they will be assessed. Following are the major criteria reviewing options.

Before developing new products, pilot testing, particularly for food products is a better option to assess the taste of consumers. It will help to save cost and time rather than launching an out of taste products. Furthermore, cultural dimension, purchasing power and local trends in global markets should also be taken into consideration of feasibilities studies.

All strategic options should be well matched with organizational values and continuously reviewed. New products must not avoid the legacy of quality and style of M&S and its operations remain environmental friendly.

Targeting new segments should be properly assessed in terms of taste and price. Competitive prices and demanded quality will be the part of sensitivity analysis of new segments.

Balanced scorecard is a strategic planning and management system that is largely used in industry, non-for profit and commercial organizations to align business operations with organizational vision and strategy to improve communications within and outside organization and improve performance against strategic goals (Kaplan and Norton, 2000). In figure 2, it is illustrated, how M&S can achieve and align financial, customer, internal processes and organizational capacity to its vision and strategic direction.

Figure 2: strategic mapping for M&S for its Strategic Objectives

Source: www.balancedscorecard.org

Ecological and natural resources

There are four potential strategic options for marks and spencer, acquisitions, diversifications, franchise operations worldwide and increased penetration in the existing markets as identified in Ansoff Matrix.

Table 2: Strategic Plan for M&S

For acquisitions:

· Large financial inputs

· Organization’s cultural compatibility.

For Diversification:

· Human resources

· Expert management teams

· Financial resources.

For Market Penetration:

· Financial resources,

· research and development expenditure,

· product development expenditures

· Marketing expenses.

M&S spencer operates in highly competitive environment but has established strong brand image and holds huge cash reserves and potential to explore new market segments and even penetrate in new markets. Ansoffmatrix suggests acquisition, franchising and market penetration strategies for M&S. Key performance indicators and acquisition committees could be useful to monitor and evaluate the strategic plan.

Burt S & Sparks L (2002) Competitive Analysis of the Retail Sector in the UK. Department of Trade and Industry.Department of Trade and Industry, London.