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Fail of Marks and Spencer Company

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    Introduction

     

    Marks and Spencer- with over 450 stores all over the world is one of the major business retailers in the world market. Founded by Michael Marks [see figure1] in 1884, is now one of the primary retailers of clothing, foods home ware and financial services that provide 10 million customers in a week (Zyra, 2007). But before attaining its glorious years, M&S suffered first into major business depression that lasted for years.

    Statement of the Problem

     

    Why did Vandevelde’s attempts to turn the company around fail? How did he attempt to turn the business around? What else could he have done? Is the change between 2000 and 2004 an evolutionary or revolutionary?

     

    Objectives

     

    The objective of the study is to determine and explain why the attempts of the past CEO are of M&S fail in putting the company into progress. Specifically, this study aims to determine the factors that a company or any business entity should consider to prevent business crisis and to attain their goals. To provide a recommendation to M&S on what policy or ways on how they will regain their profit and sales.

    Advent of the Crisis

    The crisis roots can be traced way back in the late 1990’s where the customers satisfaction of M&S declined continuously because of the cutting down of the staffs on each stores. The ‘un-updated fashion designs of M&S and lack of initiative to cope up with their client’s fast changing fashion taste made the company miserable in the later years. Scanning the environment was one of the things that M&S ignored in their marketing plan. As we all know, examining your market would really help your company to cope up with the changing market behavior (Strauss, 1989). Environmental scanning is the studying of information on events occurring outside the company’s organization to identify and interpret the potential trends in the market. The main objective of this is to spot trends and determine if they pose specific opportunities or threats to the firm (Berkowitz, 1989). M&S started to gain losses in their investment and experienced nonstop decline in their profits for the next period. When Peter Salsbury assumes the office of the CEO in 1998, he divided M&S into 3 business units, they are, the UK retail business, overseas business and financial services. He also lunched new clothing and food ranges and those were accompanied by “large-scale promotional campaign” to gain back their image as the “innovative retailer” that caters to distinctive and excellent products. Advertising plays a vital role in influencing people up to the extent that they become loyal to the product being endorsed (Shah, 1999). He also made some changes in the structure of the stores to meet the tastes of their clients. He further divided the company into seven business units: lingerie, womenswear, menswear, childrenswear, food, home and beauty (Johnson, 2004).

    The efforts of Peter Salsbury to uplift their market standing failed even after his retirement. His legacy was continued by Luc Vandevelde in the year 2000. He aimed to refresh their domestic products and extending the service abroad. The made steps to reach their customer by: creating a clear profit centers, creating customer-facing organization, restoring the overseas profitability and building financial services sector. He divided M&S into five operating divisions namely: UK retail, international retail, financial services, property and ventures for them to concentrate with their customers. To resolve their problem with the changing behavior of their customers, he established the “Customer Insight Unit” that studied the “shopping habits, “demographics” and “understanding” of their customers to their brands (Johnson, 2004)

    In March 2001 M&S planned to close their 38 stores in Europe for them to concentrate on the domestic clothing. In France, 1700 employees lost their jobs. The problem started when French unions made their protests by organizing strikes to show their disapproval with M&S action. The influence of the labor unions to business sectors can be seen on their support for the benefit of the labor class (Kotler, 2003). Customers sympathized with the labor sector. The French government also said that M&S violated their employment law. The entire events above made the image of M&S worse to the consumers or the general public. There were also problem occurred inside the M&S company. Employees, especially those who belong to stores that did not meet their target sales, were not given a bonus by the company while Vandevelde has. Incentives are sometimes given to employees to motivate them to work hard for the company (Sullivan, 2000). To resolve this problem, Vandevelde put back his bonus for a year. Economic factors such as price deflation, underlying pre-tax profits and high competition and the condition of their relationship with their suppliers made the recovery of M&S delay (Tanner, 2007). But Vandevelde was a bit confident with his strategies and believed that it was just a matter of time to achieve their end goal. The movement of the main office from the Baker Street in London to Paddington made the general public to believe that they were not just changing their store layout and merchandises but also with their management core. As for the many, changing your Headquarters means you are also starting to change into something new (Rogers, 1994). Top managers made attempts to break the barriers between them and the lower management units like visiting the stores to help staffs to serve their customers. This act made employees feel that they were valued by their superior and as for the top managers, for them to feel the environment of those employees on the ‘floor’. To further improve their clothing ranges performance, Vandevelde made a joint venture in designing and sourcing their clothes to Desmond & Son’s to make them produce more fashionable clothes faster. Joint venture refers to the investment of local and foreign companies together to create a local business wherein they share the ownership of the new company (Elliot, 2007). They also made collaboration with George Davis, the creator of ‘George’ clothing range and the founder of Next. His task was to design women’s range that would satisfy their fashion conscious customers. After they lunch “per Una”, they experienced a sales increase which was their first sales increase for the past three years (Johnson, 2004).

    On the succeeding years, M&S growth continuously increased. Their Christmas sales and stocks on the following year was of good performance and these were all attributed to their additional clothing ranges and “Per Una”. This made Vandevelde to receive his bonus on that year and the one he deferred the previous year. The passing of their new salary pension scheme to new members was considered to be the one of the best in UK. The said new scheme enabled M&S to save millions and at the same time to scrap their last acts of corporate paternalism. They also improved their financial services entity by leveraging their card holders and combining their credit and loyalty card.

    Vandevelde resigned on his position earlier and chose to become a part time chairman, Roger Holmes assumed the office of the CEO. He made a three year deal with Beckham which serves a role model for the boys. The said deal surpasses their sales target for that quarter. They also hired skilled managers to lead stores that needed more attention.

    At the end of that year, M&S reported that they had a successful Christmas trading period for the second time around. They cut their contractors from four to two to further improve their recovery. The cutting down of contractors enabled them to save 20 million pounds per year. Holmes management decided to lunch the nation wide credit and loyalty card scheme after its successful pilot trials. They also made improvement on home wares by designing their stores in such a way that customers would buy not only one item but also the “way of life”.

    After Vandevelde handed the full Chairmanship to Holmes, M&S progress again started to fall down. They all blame Holmes for his lack of initiative, being too nice, long decision making and lack of sufficient experience. M&S business entities started to experience problems they had before. In January 2004, M&S said that their sales were down because of “not strong enough” and “the wrong products in place” in the clothing sector. Home division had underperformed and the food division performance was just enough.

    As most of the commentators say with regards to the performance of Vandevelde and Holmes, the two only solved the company’s problem regarding sales and profits and not the “underlying structural” problems.

    At this point, we are going to determine what the two; especially Vandevelde, should have done in order to uplift the market status of M&S.

     

    Point of View

     

    In this case, the point of view of a Business Consultant will be used to asses the performance and problems of M&S since it can generate suggestions that is uninfluenced by any of the existing individual interest.

     

    Areas of Consideration

     

    SWOT analysis will be used to fully understand the current situation of M&S. This would be helpful in such a way that it gives us the ‘bird’s eye view’ of the company’s position in the market. Through SWOT analysis we can easily determine the key factors that affect the performance of the company. These include the strength, weakness, opportunity and threats. Strength and weakness deals with the internal issues of the company, while opportunity and threats discuses the external factors that affects the company (Echaniz, 2001).

    Internal Situation

    This would undertake all the issues inside the company that plays vital roles on their development.

    Strength

    M&S is known for its low priced products and known for their quality products since their raw materials came from UK. Low priced product is much likely to purchase by the customers since they are always on a budget constraint (Schenk, 2007). They also establish camaraderie and maintains good compensation rate for their employees. This good working relationship to the ordinary employees, as M&S believes, would increase their productivity (Lewin, 2005). They already established good working relationship with their suppliers, thus, they are ensured of having enough, reasonable and of good quality raw materials. They are also known for being innovative.

    Weakness

    During the later years, M&S customer’s satisfaction declines. This was attributed to the “un-up dated” fashion trends of their products. They did not consider the external factors that would affect the performance of the company. Examples of external factors are: the medium and long term change in the demand, new technology, new competitors and demands of their stakeholders (Porter, 1980). The higher officials of the company lack long term goals and strategy which was very much needed especially on the line of product they were into. Centralized authority made their store managers incapable to cope up with the changes in their customer’s behavior. Eager to expand internationally where in fact they are experiencing problems in the domestic markets. Resignation of skilled employees made the company’s progress to slow down. An example to this is the early resignation of Vandevelde as the CEO of M&S.

     

    Opportunities

    During the years when M&S was experiencing slight growth, they hired skilled personnel’s to further improve their products. Skilled personnel can be treated sometimes as an asset of a company (McDonald and Temple, 2005). The acquisition of skilled personnel’s up lift the market standing of M&S even for a short period of time. They also introduced new clothing styles to the customers which enables M&S to gain more markets. They implement the redesigning of the interiors of the stores to complement with their customers taste.

    Threat

    M&S competitor’s prices are almost the same as of them. Moreover, their competitors enable to meet the fashion trend of their market. The consumer’s constant change of fashion trend can also be treated as a threat since you have no control over it.

     

    Alternative Courses of Action

     

    M&S eagerness to expand abroad made their situation worse. They still chose to open stores to US and UK even they are experiencing down trend in the sales and profits. I believe M&S should concentrate more on the improvement of its domestic performance before expanding abroad. Dealing with the international market requires a stable financial and market inflows to support the possible risks of venturing to this large market.

    The early resignation of Vandevelde left his programs to improve M&S ineffective since his successor, Holmes, has limited understanding of the said programs. He could have stay for a few more years until the stability of the company is assured. With this, M&S could pass a memo requiring the absolute vote of the board of directors on accepting the resignation of the top officials of the company.

    M&S could reorient their employee about their goals and mission to the employees every time they will implement new strategy, product and other business aspects to the minds and environment of the employees in the working place. Visiting them regularly or helping them in serving the customers is not enough, although this would only give you increase in sales and profit for a short period of time.

    M&S could re-construct their organizational framework in such away that they would easily made the decision making process and would involve most of the major sectors of the company in planning.

    M&S must hire researchers to study and monitor the consumers of their respective product. The number of sales and good return on investment does not mean that the business could attain progress. And also, the company should hire skilled employees to increase the competitiveness of the company. Marketing is not an easy process. It requires a lot of steps in order to attain the individual and organization objectives (Ruekert, 1987).

    M&S could alter their business culture since they are already ‘living’ in the modern era of business world. The one they are still using is the culture of the company during the early years of its establishment. By changing your company culture, it would enable the company to cope up with the ever changing environment.

     

    Change Cube

     

    Change cube tell us that for the implemented program to be effective, it should be accompanied with changes on the same level of the organization. On the case of Vandevelde, he did made major changes on the strategic approach of the company without a altering the organizational factors as well. He planned to extend the scope of their market abroad and improved their product designs while keeping the original culture, the system to handle the expansion and the employees of the company. He forgot to motivate his workers about the new strategies he’s going to implement. The environment of the employees was still based on their old one which made them unable to be flexible with the new strategies they were implementing.  The culture they are practicing is already obsolete. The top managers should find ways on how to change their culture to stabilize their company (Bannan and Barnard, 2007).

     

    Evolution vs. Revolution

     

    Evolutionary change is a slow alteration form a more complex entity to a better form (Answers corp., 2007). This change foresees the need for a considerable change and implementing it through a planned approach over a period of time.

    Revolutionary change refers to the totality and whole change of the business (Answers corp., 2007). This is considered as a major and rapid change that is normally triggered by a crisis or threat due to strategic drift.

    Based from the facts above, I would not agree to Vandevelde’s statement that the induced changes from 2000 to 2004 were of evolutionary rather than revolutionary one. The change that occurred on the said period was of a “big bang” type, since M&S were just forced to undergo changes and the implemented changes affected the organization too much. Its scope falls under the transformation level. M&S had to change their designs on clothes, store layout, target market, their ‘culture’ and their organizational structure just to cope up with the fast pace of changes on customers tastes and preferences. Almost all the aspect of the organization was changed. When Vandelvede planned to extend the service of M&S internationally it would mean additional investments on labor, machineries and the like. He also made changes on the structure of the M&S by dividing the company into seven divisions.

     

    Recommendation

    After evaluating the given alternatives above, I will now give my recommendation to M&S and should take effect right after the top management agreed with the said alternative.

    Based from the suggested alternatives above, I would recommend the hiring of researchers and skilled employees. The programs of Vandevelde were really effective, only that he passed the later on the supervision to other person that has a limited understanding of the said programs. The inefficiency of Holmes made the strategies unable to develop the company. The problem lies on the efficiency of the top personnel’s and not anymore on the changing market environment. The latter was already resolving Vandevelde.

     

    Contingency

     

    If the above recommendation does not work on the company, the second best alternative would be implemented which is the restructuring of the company in such a way that the decision making process would become faster than before to give them ample time to catch up with the market change.

     

    Conclusion

     

    Based on the facts mentioned above, we could say that the success of a business lies on the ability of the company’s top managers. Moreover, the company should be able to coordinate and integrate with the world market and at the same time should maintain the ability of the company to respond to local market demands and changing circumstances. In addition, the company should not ignore the effects of the customer’s behavior. Remember that they are the one who determines what and when products will be available in the market. Also, the top management should always plan ahead of time to give space for any possible circumstances that might arise during the implementation of the said plan (Moses, 2005). If the company is about the implement changes, always determine if there is a corresponding alteration on the same level.

     

    REFERENCES

    Zyra (2007). ‘Marks & Spencer’. Available at: http://www.zyra.org.uk/marks.htm. (Accessed: 6 May 2007).

     

    Johnson, G., Scholes, K. and Whittington, R. (2004). Exploring Corporate Strategy: text and Cases. 7th edn.

     

    Berkowitz, E. N. (1989). Marketing. 2nd edn., Massachusetts: Irwin/McGraw Hill.

     

    Answers Corporation. Business terms. Available at: http://www.answers.com/topic/revolution. (Accessed: 9 May 2007).

     

    Moses, J. (2005). Small-Business Success Causes Change for Employees: How to Manage During Rapid Growth Periods. Available at: http://www.nfib.com/object/IO_23656.html. (Accessed: 9 May 2007).

     

    Ruekert, R. W. (1987). Marketing’s Interaction with Other functional Units: A Conceptual Framework and Empirical Evidence. Journal of Marketing.

     

    Strauss, L. (1989). The Home of Information Revolution. 3rd edn.

     

    Echaniz, E. (2001). Fundamentals of Management: Text and Philippine Cases. 4th edn., Manila: Diwata Publishing Inc.

     

    Kotler, P. (2003). Marketing Management. 11th edn., New Jersey: Prentice Hall International

    Sullivan, J. (2000). Recognize the Importance of Incentives and Rewarding Employees. Available at: http://findarticles.com/p/articles/mi_m3190/is_34_34/ai_64704062. (Accessed: 9 May 2007.
    Elliot, R. J. (2007). The Importance of Joint Ventures. Available at: http://jvwisdom.com/index.php/news/118/70/d,articles.tpl.html. (Accessed: 9 May 2007).

     

    Shah, A. (1999). Media and Advertising. Available at: http://www.globalissues.org/HumanRights/Media/Corporations/Ads.asp. (Accessed: 10 May 2007).

     

     

    Rogers, M. (1999). The One to One Future. 5th edn.

     

    Tanner, S. (2007). Economic Factors of Managing Digital Content and Establishing Digital Libraries. Available at: http://jodi.tamu.edu/Articles/v04/i02/editorial/. (Accessed: 10 May 2007).

     

    Schenk, R. (2007). The Budget Line. Available at: http://ingrimayne.com/econ/LogicOfChoice/BudgetLine.html. (Accessed: 10 May 2007).

     

    Lewini, B. (2005). People like Good Working Relationships. Available at: http://www.fourgroups.com/blog/archives/30/people-like-good-working-relationships/. (Accessed: 10 May 2007).

     

    Porter, M. (1980). Competitive Strategy. New York: Free Press.

     

    McDonald, P. and Temple, J. (2005). Young, Skilled Workers and their Importance to the Economy in the Context of Ageing Population. Available at: http://iussp2005.princeton.edu/download.aspx?submissionId=50829. (Accessed: 10 May 2007).

     

    Bannan, S. and Barnard, B. (2007). The Importance of Culture: Four Models for Workplace Basic Skills. Available at: http://literacynet.org/ll/issue6/columnist.html. (Accessed: 10 May 2007).

     

     

     

     

     

     

     

    APPENDIX

     

    Figure1: Michael Marks, the founder of Marks and Spencer, ‘Examstutor.com’.

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