Problems and Crisis in Marks and Spencer

Marks and Spencer

Until the shocking ruin of Marconi, no corporate collapse had seemed as inconceivable as that of the symbol of British management and among the most admired companies the world over Marks & Spencer.

Marks & Spencer (M&S) was among the world’s leading retailers, enjoying legendary and symbolic repute, often being listed in the best managed and respected businesses in the world. Its ‘fall from grace’ has been stunning and equally spectacular and the company is now fighting for its survival. Supported by extensive thorough interviews with company managers and using a case-study method, this paper gives an exploratory study into failure at M&S and presents this in the structure of the wider literature on organisational and managerial failure. It comes to the conclusion that whilst exterior factors in the different trading environments had an impact on the business, also there were internal phases of the crisis which worsen the circumstances and catalyse the problems.

Introduction

“If I had to pick one company in the world that exemplified consistent long-term growth, profitability and customer satisfaction, it would be Marks and Spencer…In terms of performance no British company can match them.” Peter Doyle, quoted in Seth and Randall, 1999, pp. 123–124)
Marks & Spencer (M&S) has been a legendary UK retailing organisation for over a century. M&S’s management, both its overall style and its individual leaders, have been acknowledged as exemplars of ‘best practice’. Peter Drucker (1974) described M&S as a ‘managerial giant in the western world’. Tse (1985, p. 1) noted that M&S “has been widely recognized as among the best-managed companies in Europe … as far as management excellence of the firm is concerned, the consensus is almost total in the trade, as well as in government and specialist circles”. Kumar (1997,p. 823) commented that “in almost every survey in the United Kingdom, Marks and Spencer tends to top the list of most admired companies and their St Michael brand is world renowned”. As by 1997, a large number of academic and business commentators could be drawn upon to make similar complimentary points. Since then however, the circumstances has altered. M&S is experiencing unprecedented troubles. The company has seen its sales stagnate, profits collapse and market share fall. Its status is much declined both at home and abroad, where, for example, it has been fined by the French courts and severely criticized for its attitude and behaviour towards its workers. Whilst a restructuring plan is underway under new, non-British management, after 12 consecutive quarters of sales decline, considerable problems remain. It is fair therefore to say that the company has been openly experiencing a survival crisis since 1998 (Bevan, 2001). The previously unthinkable, that M&S could lose its independence, has become a real possibility. How could M&S, which was so often hailed as an exemplar of retailing companies, and indeed of British business usually, suddenly find itself in such dire straits?

The phenomenon of highly successful companies facing a survival crisis is not new (Anheier, 1999; Lawler and Galbraith, 1994; Miller, 1990). The corporate scenery is dumped with the bones of bankrupt, but previously successful, corporations. Numerous popular books portray crumple of successful companies (e.g. Miller, 1990; Ricks, 1983, 1999; Ross and Kami, 1973; Sobel, 1999). Notwithstanding the commercial importance of organisational failures, both at the corporate and business start-up levels, the topic is not a central idea of management research (Cameron et al., 1988; Sheppard, 1994; Whetten, 1988). Pauchant and Douville (1993) argue that whilst excellence is well-established within the literature on strategy (and actually M&S have been included themselves in a number of ‘excellence’ collections), the study of collapse is usually less common. Using a case study of M&S, this exploratory study investigates the process by which a successful company is engulfed by a crisis, and the causes that underlay the circumstances. The aims of the paper are to recognize the reasons of collapse in M&S, to place this case study in the context of the literature on organisational crisis and failure and to draw lessons from this analysis for management and future research.

Organisational crisis and failure

The meaning of failure, decline or crisis is problematic (Sheppard, 1994). Academics have defined each of the terms in different ways (Cameron, Kim and Whetten, 1987; Carroll, 1993; Dutton and Jackson, 1987) and there is little consensus about what each term precisely means. For current research however, we define crisis-failure as an event or condition (or a series of events and conditions) that could lead to severe market-share erosion (Starbuck, Greve and Hedberg, 1978). Symptoms include declining demand, sharp declines in sales and reduced or negative profitability (D’Aveni, 1989a; Hambrick and D’Aveni, 1988). The terms crisis, decline or failure will be used interchangeably in the present exploratory research, although we recognise that there are hypothetical discussions about the appropriateness of so doing. In this exploratory work, we believe that a broad approach is the most useful.

Causes of organisational failure have been examined from at least two different perspectives. The industrial organisation (IO) perspective locates the causes in the exterior environment (see Frank, 1988; Jovanovic and Lach, 1989; Lippman and Rumelt, 1982). The IO literature seems to indicate that the management of failing firms are the unlucky sufferers of exterior conditions, and that failure does not imply management ineffectiveness or inefficiency. The IO literature suggests various primary causes of crisis and decline. These include turbulent demand structure as a result of brand switching, changes in consumer tastes or cyclical decline in demand, strategic competition caused by contention among existing competitors or new entrants (Baum and Singh, 1994; Frank, 1988; Jovanovic and Lach, 1989; Lippman and Rumelt, 1982; Sheppard, 1995), density of organisations and the natural selection process (Aldrich, 1979; Aldrich and Pfeffer, 1976; Amburgey and Rao, 1996; Campbell, 1969; Harman and Freeman, 1978), strong unexpected environment jolts (Meyer, 1982), and technological doubts due to product and process innovations (Slater and Narver, 1994).

It can be argued that organisational failure is a natural and objective phenomenon (Balderston, 1972), inherent to the efficient operation of markets. Life-cycle theory argues that organisations track the way of “inexorable and irreversible movement toward the equilibrium of death. Individuals, family, firm, nation, and civilisation all follow the same grim law, and the history of any organism is strikingly reminiscent of the rise and fall of populations on the road to extinction” (Boulding, 1950, p. 38, Downs, 1967, Davidson, Bates and Bass, 1976). This cycle of development and vulnerability is also at the hub of the ‘Wheel of Retailing’ (Hollander, 1960), which is founded on the notion that organisations commence as low cost businesses, but that as the business progresses so it ‘trades up’ and adds services, ambience and other more expensive attributes. It therefore becomes vulnerable to leaner, newer entrants, which offer shoppers the lower prices they seek. Inherent in the ‘Wheel of Retailing’ are concepts of change occurring in the environment (exterior), but also concepts of management separation from consumer realities, leading to an inability to respond to threats to the business. Though it is not generally acknowledged, the theory of cyclical tendencies or trends that need to be controlled or overcome is an attractive one. This leaves undone, however, the problem of failure is whether due to these exterior factors or to management failure.

Organisational studies (OS) literature places more emphasis on internal factors associated with failure (Cameron et al., 1988). Advocates of internal causes criticize IO literature on failure as being too rational, arguing that it assumes impartiality by overlooking the effects of internal factors and the misperception of organisational members in responding to exterior changes. According to OS literature, failure is a result of management’s lack of vision and the lack of will and ability to respond effectively and make necessary alteration to repeal the downward spiral of failure triggered by exterior factors. The literature cites as the main internal causes of a crisis, escalating commitment by management to pre-existing strategies and routines (Bateman and Zeithaml, 1988; Staw, 1981), blinded perception by management to their weaknesses and strengths, customers’ demands and competitors (Zajac and Bazerman, 1991), management malfunctioning (Argenti, 1976), strategic paralysis (D’Aveni, 1989b, 1990), threat rigidity effects (Staw, Sandelands and Dutton, 1981) and structural inertia (Hannan and Freeman, 1984).

The OS literature further indicates that successful companies are susceptible to crisis for various reasons. Miller (1990) describes that ‘success can breed over-confidence and arrogance’. Ranft and O’Neill (2001, p. 126) reported that top listed firms, facing competitive forces develop a type of watchful conservatism and probably overconfident contempt. This can be concurrent to the concept that ‘success rears failure’ and ‘failure rears further failure’ (Argenti, 1976; Cyert and March, 1963; Starbuck et al., 1978), in a twirl of decline. This process is explained in that organisations formulate heuristic programmes for dealing with recurring problems, and these programmes remain in use even after the conditions they fit have faded away (Starbuck and Hedberg, 1977, p. 250). This often results in organisational inertia (Behn, 1977; Cyert, 1978; Kelly and Amburgey, 1991). As Kelly and Amburgey (1991) note, by the passage of time flourishing routines transforms into habits. As habits, the routines become traditions, and hence, the effect of preserving the companies method of doing things. As a result, organisations that were the most victorious in the past become the most susceptible to failure in the future (Whetten, 1988), for the reason they are conditioned to exploit their old advantages, and less likely to explore or react to new ones. In essence this argues that failure is linked to internal inadequacies in dealing with exterior threats. These insufficiencies can be of a variety of types.

Larson and Clute (1979) concluded that the characteristics shared by unsuccessful firms are directly related to personal decision-based characteristics of managers. Similarly, Argenti (1976) identified as causes for failure, impulsive decisions that extended the organisation’s assets, not responding to change, an executive who is either too powerful or poorly informed and the taking of unnecessary risks. Starbuck et al. (1978) identified the source of a crisis in the misperceptions of organisational members. Barmash (1973, p. 299) noted that ‘corporations are managed by men; and men, never forget, manage organisations to suit themselves. Thus corporate calamities are calamities created by men.’ Macoby (2000) describes how visionary managers can often be selfish in their behaviour and add to the risk of failure when business conditions change. When faced with a crisis, these narcissist leaders isolate themselves from the advice of others, ignore words of caution, interpret criticisms as threat and often become myopic in their views (Macoby, 2000). This behaviour and attitude foster hubris for the reason of ‘exaggerated pride, self-confidence, or arrogance’ (Kroll, Toomb and Wright, 2000). As a result, in the face of declining returns to a once successful strategy, decision-makers will ‘stick to the knitting’ and well-learned past routines and procedures may be continued (Staw et al., 1981).

Staw et al.’s (1981) threat rigidity effect theory argues that individuals, groups and organisations tend to behave rigidly in threatening circumstances. Keisler and Sproull (1982), quoted in D’Aveni and MacMillan (1990,p. 635), state that’ a crisis is expected to deflect a manager’s concentration away from the locus of the crisis for the reason it creates noise that may keep the manager from considering relevant information about elements in the organisation’s environment that are the source of the crisis’. As a result, managers will not change their focus of concentration in response to an exteriorly induced crisis (D’Aveni and MacMillan, 1990); rather they will ignore the exterior crisis and act as if the exterior crisis does not exist (Holsti, 1978; Starbuck et al., 1978; Whetten, 1980). Managers often fail to react to a threat for the reason they were focusing on internal methods that were successful in the past (Starbuck et al., 1978). Years of continuous success lead many managers to ignore exterior crises for the reason they perceive them to be temporary or inconsequential, thus failing to react to crisis as they overestimate the strength of their strategy and dismiss the seriousness of changes in the market place (Argenti, 1976; Holsti, 1978).

The discussion of the literature above suggests that both IO and OS orientations have to be integrated in the study of failure (see Witteloostuijn, 1998). A number of previous attempts have been made to integrate the two approaches (e.g. Levine, 1978; Witteloostuijn, 1998). Levine’s (1978) typology of causes of decline proposed a combination of factors:

(1)               Organisational atrophy which is based on the ‘success breeds failure’ logic;

(2)               Political vulnerability — liability of newness;

(3)               Loss of legitimacy;

(4)               Environmental entropy — a reduction in the capacity of environmental support to the organisation.

While the first three are usually seen as internal, the last factor is exterior.

A number of themes emerge from this literature review. First, it is proposed that it is a combination of internal and exterior factors that is responsible for failure. The balance amongst these will likely vary from company to company. Second, it is proposed that in successful companies, the distance of the management from the exterior realities of the business is an important internal factor in the ability to react to threats from outside. Third, the literature consists of may reasons for the environment becoming turbulent or changed and it might be expected that some are more important than others, and that some may be more difficult to react to than others. It should be noted in the end, that most of the work cited above has not been undertaken in the retail sector, and thus by omission, the literature raises the issue of the applicability or otherwise of such factors to the case of retail collapse.

Marks & Spencer: the context

Before its current decline, M&S had been among the most successful British retailing companies. Using the basic variables of sales and profit, Figure 1 demonstrates the previous success of the company and also the scale of the current reverse. Space precludes us from describing in detail the history of the Marks & Spencer growth from its family, market bazaar, and fixed-price origins. A number of books by outside observers (Briggs, 1984; Rees, 1969; Tse, 1985), company managers (Sieff, 1970, 1986, 1990) and internal officers (Bookbinder, 1989; Goldenberg, 1989) present explanatory insights into the development of M&S. There are also explanatory (Bird and Witherick, 1986) and more superficial (Davies, 1999) academic attempts at exploring aspects of the company’s development. Such was its image and success in the UK that its forays as Marks & Spencer internationally since the 1970s had become noteworthy to educationalists looking to realize the role of image in retailer internationalisation (Burt and Carralero-Encinas, 2000; McGoldrick, 1998). Marks & Spencer’s iconic reputation within the United Kingdom may often have puzzled those from abroad. Nevertheless, by 1998 the M & S had sales of around £8 billion, traded from almost 500 Marks & Spencer stores the world over, and owned Brooks Brothers and King’s Supermarkets in the United States. It possessed a well-known private label/retailer brand in St Michael, an enviable financial services operation and made over £1.15 billion profit before tax. It was estimated to have approximately 15% of the British clothing market in the mid-1990s (Seth and Randall, 1999). By any measure, this was a successful business.

This enviable position had been achieved through a specific exercise of retailing (see Rees, 1969; Tse 1985, 1989) and through activities as a ‘rule breaker’, where M&S did not ascribe too many of the usual ‘way to do business’ practices. A few of M & S’s unconventional ways of carrying out business played a role in distinguishing it from the rest of British retailing. A number of these can be identified.

M&S persisted long in a ‘buy British’ rule after the rest of its competitors had sourced from cheaper manufacturing capacity abroad. This approach had long been believed to be what the customers wanted and desired (Sieff, 1990). M&S also had a strange hatred to marketing. It appeared to have such a total belief in its offering as to negate the need to have marketers within the organisation. Advertising in newspapers, radio and television was confined to new store openings and did not publicise either the brand (another peculiarity in its well-known reliance on the 100% retailer brand St Michael) or its products. Its marketing strategy was to introduce new products in the hope that the customers would buy them on the grounds of loyalty. If the path was unsuccessful, the company used its pricing mechanisms to discount the goods quickly so as to eliminate the mistakes quickly.

Another idiosyncrasy was the continuing refusal of the organisation to allow the acceptance of major credit cards. In 1984, the company had successfully launched its own in-house store card, which had happened to among the top most used card in the UK (after Visa and MasterCard). The vast majority of the card holders were women and the store card was considered interminably as the most flourishing of its kind in the UK. This reliance on the store card mitigated against the introduction of credit-card acceptance. Credit availability had become much more widespread in the late 1980s and 1990s and credit cards had become ubiquitous. There was the company’s stance on retail location. Long considered as the backbone of the high street and town centre, M&S was very slow to embrace the move to out-of-town retailing. Unlike many of its competitors, its retail locations remained primarily where they had at all times been — the centre of focus of the town centre.

It was not only its ‘rule breaking’ strategy that distinguished M&S from other retailing companies. Prior to the collapse, M&S had been observed as part of the fabric of UK governance. Members of the company were utilised by successive UK governments; for example, Lord Rayner, Lord Stone and Sir Richard Greenbury were involved in the forming of national policies as varied as the euro, arms procurement and inner-city renewal. It was believed that there was much to be learnt, for example, from the Civil Service or the Health Service following Marks & Spencer’s methods to management and business (Chesterman, 1984; Howells, 1981).

M & S had a high profile as well in each society in which it functioned. For many years it was the largest corporate charity donor within the UK. Sieff (1990) stated that it was the only way to do business. M & S obtained profits out of the local community; it should therefore be seen to return them. During the decades of 1980 and 1990, at least 70 members of M&S management teams were seconded to charities on a yearly basis, to give practical help as well as the direct monetary assistance. The company was also a leader in areas in which it sensed it had a more direct stake, like the fledgling Town Centre Management movement, reflecting its belief in the primacy of town centres over out-of-town retailing.

These activities gave M&S a solid exterior image, as well as building the company’s self image of itself as a superb, well-run company which had the ultimate management paradigms. It was therefore a supremely confident organisation, secure in the knowledge that it had enjoyed almost continuous growth over the last 50 years and had seen huge addition in its sales and profits for a similar period.

Its history, from a small family-run business which started in Leeds in the 1880s, is also a significant reason why it had developed in the way it had. As a small Jewish company, it embraced family values and paternalism, promoting from within. The company became world famous for looking after its staff, with its own welfare services, dentistry, a doctor attached to every store and a respected management-training scheme (see Renwick, 1998; Tse, 1985; Turnbull and Wass, 1998). Marks & Spencer was controlled and developed for over 50 years by Simon Marks, who was regarded by retailers as among the century’s retailing giants. He succeeded in transforming the business into a retailing ‘tour de force’. Drucker (1974) notes that the M&S mission was ‘social revolution’ in which it persisted to ‘undermine the working class’ by giving them ‘clothes suited for a lord’ and ‘food suited for a king’. By the death of Simon Marks, in 1964, the principles of the business were established and these principles remained the driving force of the business until the early 1990s.

When Lord Rayner took charge in 1984, as the first non-family Chairman for over 70 years, he took the company on an expansionist track, both within the UK, where the selling space was tripled, and abroad with the purchase in 1988 of Brooks Brothers and King’s supermarkets in the USA, and the swift growth of Marks & Spencer stores on the continental market. In the late 1980s and 1990s, Hong Kong and the Asia Pacific region became an immensely important area of trade, with growth doubling every three years. Whilst M&S had been involved in international retailing prior to this, for example in unsuccessful developments in Canada, this expansion at home and abroad was a significant movement of the company focus.

Rayner retired in 1991 and was succeeded by Sir Richard Greenbury, at a time of general problems in British retailing. The business began to focus mainly on cost control. Managers, hitherto unworried about profits, became ever more focused on delivery to the bottom line and not to the customer. A gap between Sir Richard and his deputy, Keith Oates (who had joined the company from outside in 1988), became obvious to most insider managers by 1994. Opposition outside the boardroom was not tolerated. The non-executive directors did not appear to be exercising any control over the obvious succession issue. In addition, Greenbury’s apparent rudeness to members of the press, media analysts and exterior observers was legendary; critics were often dismissed as ‘teenage scribblers’. However, under his stewardship, whilst there were no startling adds to in core sales, the profits continued to grow. Profits rose from £615 million in 1991 to £1.15 billion in 1998. As a result, Directors, Divisional Directors and Executives received lucrative salaries based on the bonuses that accrued from these profits.

You would imagine from this, that in 1998, the business was a complete success and poised for future growth. The non-stop expansion of the company over the last twenty years stopped dead, and subsequently reversed. Between 1998 and 2001, the reported figures show an actual sales decline, despite adds to in international and financial services sales. There was a massive decline in pre-tax profits from £1.15 billion to £0.14 billion. The market share for UK clothing collapsed from 13.9% in 1997 to 10.9% in 2000 (Corporate Intelligence Group, UK Retail Rankings 2001). Sluggish or failing sales, declining market share, a heavily reduced profit, a share-price collapse from £6.60 on 3.10.1997 to £1.70 on 20.10.2000 and a decrease in dividend are symbolic of a major crisis or failure in the business. Such was the scale of the collapse that rumours abounded about possible takeovers or mergers, although to date a new management team headed by the Belgian Luc Vandervelde remains in control. Journalistic coverage of the fall has been intense (Bevan, 2001).

Methodology

This research seeks to map out the causes of organisational failure in M&S. This study began in 1998, as the crisis became obvious. In the light of the hardships, we wanted to gain insight into the exterior environment (competitive landscape, global influences and changing consumer demands) as well as internal causes, directly examining the behaviour of the organisation and its management prior to and during the crisis. The study design from the outset has focused on using a variety of sources, to facilitate breadth of data capture augmented by explanatory in-depth research processes, with cross-checking of data, opinions and sources with each other. A number of data techniques and sources have been used.

First, the media and stockmarket analyst coverage of M&S has been enormous, for the reason of its high profile, previous success and the depth of the unfolding crisis. Secondary material is thus extensive and has been analysed to uncover themes in the descriptions for the genesis of the crisis. The structure of the case-study analysis below reflects in part these publicly articulated explanations.

Second, M&S publications like annual reports and other statements have covered the crisis. These, together with public statements by M&S leaders accessible through the press or formed, for example, at the Annual General Meeting (which has been held repeatedly), permitted us to observe the degree to which the company was aware of the crisis, it’s realizing of IT and its immediate reactions to it.

Third, twelve formal interviews were carried out in six months in 2000, with a sample of managers, executives and senior managers. For obvious reasons, these interviewees have asked to remain anonymous. Whetten (1988) proposed that organisational members’ beliefs regarding the source of crises present a rich setting for tracing the causes of the crisis. We checked to ensure that interviewees were close to the crisis and involved in its management. To reduce bias towards the causes of the crisis, our sample included nine managers who were still working for M&S during the period of research and three who were no longer with the company for the reason of the crisis. The interviews were conducted around three fundamental questions: What were the direct causes that led to the failure of M&S? What were the elements that allowed the crisis to occur? And what were the main factors that escalated the crisis? Aspects of the secondary data collection obviously informed our subsequent more explanatory questioning of the interviewees. Formal interview length varied from 45 minutes to several hours, depending on the amount of information the interviewee could present. All formal interviews were tape-recorded. Follow-up interviews with eight of the respondents were semi-structured, seeking clarification, confirmation and explanation about key events, people, and issues identified from other formal interviews, articles later published in the media and emergent themes as the crisis and the research progressed.

In the end, since 1998, among the authors, a former executive at M&S has been conducting informal interviews and discussions with M&S management regarding M&S collapse, utilizing his past contacts and colleagues. Most of these informal discussions have been telephonic and have sought to cross-check information as it emerged from the research.

For the reason of the various sources of information and data, we have regularly cross-checked information and data from different sources to add to the reliability and accuracy of our explanations. We have used published sources that often do not have a vested interest in the company, and informants that were able to report accurately on their understanding of the circumstances. We corroborated data provided in the internal and exterior written material with data from interviews. It is accepted that interviews uncover perceptions in spite of deeper realities on occasions. The sources here were very close to the central issues and capable of analysing their understanding and the corporate circumstances. We believe that this variety of data collection methods, combined with the continuous data validation process, allows us to be confident in our case-study analysis below.

Analysis

As anticipated, the research revealed that the causes of decline are complicated, interconnected and somewhat insidious. We present this analysis under the broad headings of exterior and internal factors as identified in the literature review.

Exterior factors

We found that an early explanation of the crisis lies in the radical changes in the competitive landscape that have been taking place for some time (Dawson, 2000). The changed competitive circumstances are seen in a host of revitalised and newer competitors for the core UK Marks & Spencer markets. Existing retailers in the UK like Next transformed themselves in the 1990s into strong price and quality competitors to M&S. New retailers across the price/quality spectrum, like Gap, Zara, Mango, Hennes and Mauritz and in niche markets, Sephora, Lush and La Senza, captured an increasing proportion of the market. Many of these businesses were international retailers entering the UK market, bringing new approaches. Discount players like Matalan, Primark and Peacocks expanded, catering to a price and value-conscious market. Older department stores re-invented themselves as brand-led boutique collections, e.g. Debenhams. In food, Tesco Finest eclipsed the quality image that Marks & Spencer previously had. These retailers were much more in tune with the changed consumer desires and behaviours of the 1990s. In brief, M&S managers aim to a radically tougher marketplace over the 1990s, with stronger, more aggressive and confident competitors.

Aspects of the ‘rule breaking’ stance of M&S examined earlier were in this changed environment as much a liability as they had earlier been a benefit. For example the limited advertising undertaken by M&S can be contrasted to a much more advertising-focused retailing sector usually by the mid-1990s. Retailers began to dominate the top advertising spends amongst all companies, mainly marketing their powerful retail brands and image, e.g. Next or Tesco (Burt, 2000). Similarly, the refusal to take debit and particularly credit cards became an increasing deterrent to sales, in an increasingly credit and card-based economy. M&S management was advised repeatedly, for example in customer letters and at the AGM, of this. At the AGM in 1999, the CEO in the end announced the reversal of this policy. Even this, however, backfired on the company, as customers expected the change to happen very quickly, but it took the company over nine months before its systems were able to cope with the acceptance of credit cards (see later). The lack of out-of-town stores (and a tactical mistake in purchasing even more high-street space from Littlewoods in 1998), a delivery system that did not guarantee product availability late in the day, and a store environment that was essentially unchanged in twenty years, were all further examples of a lack of awareness of the changed exterior environment. Competitors were located in new locations, serviced by world-class logistics systems (McKinsey, 1998) and with regularly re-modelled and re-designed retail stores.

Perhaps the most common of these problems became the long-term adherence to a ‘buy British’ policy. The freeing of trade with China and the expansion of production capacity in the Pacific Rim for example resulted in a huge influx of increasingly high-quality but significantly cheaper goods into western retailers. Designer clothes became affordable to customers who used to buy M&S clothes. M&S was, in fact, well placed to take advantage of this shift in the industry sourcing, as it had strong connections in China and other Pacific Rim Countries, in addition to a buying office and a director based in Hong Kong. However, M&S was strategically reluctant to change its buying policies and stuck to the ‘buying British’ policy. Other competitors were not as shackled or principled. At M&S, as the prices it charged to customers became higher and less competitive (exacerbated by the strong appreciation of Sterling from 1996), and the price and quality differentials with competitors eroded or reversed, so consumers questioned the benefits to them of such a policy, if they were concerned about it at all. M&S had a distinctive market statement on the one hand but an increasingly non-competitive stance on the other. As the company tackled this issue, by cutting its reliance on British suppliers, so its long-standing policy became a millstone and a public-relations disaster. Trades unions, suppliers and the press lined up to denounce the changes, despite the fact that this had become both a reason of the company’s non-competitiveness and common policy amongst competing clothing companies.

One final general environmental aspect can be identified. The last decade has seen a large amount of technological changes in retailing, as elsewhere in the economy and society. The use of computerized systems in order to order, store and deliver product to stores has created a more level playing field amongst retailers. Hitherto supply systems had been a source of real competitive advantage to M&S, as the company had led the way with simple, non paper-based systems which relied on internal trust and trust with suppliers (see Tse, 1985). Technological change obviated this advantage, and furthermore allowed competitors, especially late movers, not only to catch up with M&S, but surpass it by introducing the latest technology and concepts. The competitive exterior environment was therefore much transformed over the 1990s. New retailers with new practices and approaches had become serious players in the UK, allied to enhancements in existing leading retailers. Practices and policies that had worked well for M&S in the past were now not as acceptable or effective in the changed retailer and consumer environment. As interviewees reported, M&S continued to rely on older systems and approaches, whereas the new retailers were constructing new methods of operating. This raises the question of why, with all the exterior changes going on, M&S did not react to the challenges and different competitive and consumer environment.

Internal factors

The answer to this question appears to lie with a number of interconnected internal factors which were identified during the research.

First, healthy profits, a large property portfolio, a triple AAA rating from key financial advisers and a well-recognized and trusted brand name, it was thought, would insulate the company from the coldest economic chill. There was a consensus among interviewees that M&S’s past, characterized by long and continuous success, led to an overwhelming belief in the company’s management paradigm. As Tse (1989) puts it ‘the Marks and Spencer brand of management’ was of fundamental importance. Change was not welcomed, and viewed as unjustifiable, given past performance. More importantly, interviewees reported that past success bred arrogance, conceit and a sense of invincibility: e.g. ‘as we had got it right for so long, it has gone pear-shaped before and we’ve always pulled it back … we can determine the pace of the market … our buying systems, were, quite simply, the best’. Publicly, top managers tended to underestimate the effect of exterior changes in the industry landscape and, at times, disbelieve exterior reports and studies. As one interviewee noted ‘we were very comfortable and could not believe it would not go on’, whilst another stated ‘the writing was on the wall but we preferred to look the other way and ignore them’.

Second, this belief was exacerbated by centralised management systems which resulted in M&S’s management board being distanced from the emerging realities of the exterior environment and changes in customer needs, wants and shopping behaviours. Instead of looking outwards, to the competition and its customers, M&S’s concentration was directed towards internal relationships, managing internal decision processes, and satisfying internal customers and suppliers, or the Board. As an interviewee noted: ‘M&S lost contact with its customers’ needs and wants’. The business environment ended to be a source of ‘control and feedback’. Front-line managers in the stores did have direct contact with customers and the competitive environment, but during the 1990s these managers were being reduced in number to save costs. For example, one manager may have looked after as many as six stores over a wide geographic location, e.g. Northern Ireland. As consumer behaviour changed more radically, even these managers were missing the changes in customer behaviours, as dissatisfied customers stopped visiting and spending in M&S stores. Information was less available and was also more likely to be ignored by Head Office. One executive noted that ‘Up there [pointing to the top of the building i.e. top management] are still living a bygone era’.

Third, past M&S achievement invested individuals with particular interests in the status quo. Several people, positions and departments became powerful and prestigious, for the reason of the long-run success of the company. For the reason these elite groups had so much to lose internally, they became the vanguard of the old paradigm. Both internal documents and interviewees reported that dominant managers and departments became conceited and obstinate, resenting challenges and, ultimately, isolating themselves from reality. As one respondent put it: ‘entering the board room meetings is like entering another world — they lived in a world of its own’. There is some evidence to suggest that some executives’ resistance to change was based on their fear of losing their personal status, resources and influence over rival executives and departments, and not the belief in the necessity and effectiveness of change for the good of the business. One interviewee reported that while some very senior managers fiercely resisted several concepts like e-retailing, when they left the company they started businesses using exactly the concepts they objected to in M&S. ‘We made a mistake, we briefed them very well on these concepts’, an IT manager commented. Powerful managers were more concerned about their position in the company and how change was going to affect them, in spite of looking for relevant solutions. One interviewee explained management’s mind set during the early stage of the crisis: ‘all ideas were filtered through the question — how is it going to affect me? … if the answer is affirmative, it is passed on and proposed, if not he will make sure it will not see the daylight’.

Fourth, M&S’s much vaunted human resource management (HRM) practices became another contributory internal factor. M&S’s recruitment policies were internally focused, i.e. emphasizing internal promotion, job security and careful selection of individuals to fit certain career tracks. The internal recruitment and promotion model was believed to be a key contributor to M&S’s success in the past. However when the organisation needed to change, they became a handicap. The internally focused policies created a strong, rigid, monolithic culture. One manager noted that they were hired by M&S at a young age, and many of them were jobless outside M&S. As a result, when change was needed, managers were unable to change from the long-established ‘M&S routines’ and continuously behaved according to previously used ‘M&S procedures’. As a result, it was impossible for many people who had nurtured in the system, to realize that the old system was not working any more. In entirely new circumstances, that were changing radically and rapidly (c. 15% decline in like-for-like sales), management attempted to follow old policies that no longer fitted the new environment. In brief, management failed to recognize the new reality and sought instead to rationalise it. Platitudes to the City by the Chairman that sales declines were for the reason of ‘unseasonable weather’ or that ‘Grey was a difficult fashion colour’ were arguably factors, but they did not answer the underlying problems that the company faced. The company’s ideals and processes had frozen the firm in a bygone era. By the late 1990s, as one executive described it, there were two M&S’s. One, as perceived by its management, a world-class retail company with an exemplar management: the other, that seen by outsiders (industry observers and the City) and customers, was a company ill-adapted to the new circumstances and losing its market position and image very quickly.

Fifth, ‘If it isn’t broke, don’t fix it’ was repeated by almost all interviewees as among the reasons for failure at M&S. In spite of continuously looking for new ways of managing the company under changing circumstances, it continued to preserve and do what was previously successful. For the reason of its long and continuous success, M&S had tightly adapted to its historical environment and had such a strong trust in its management paradigm that it could not respond effectively to a changed business environment. It became unable to deal with its new business environment. Additionally, M&S not only stuck to its previous routine procedures, but when change was undertaken, the company initially exhibited modification routines by using similar change and modifications made to the management and operation systems throughout the company’s history. As a result, types of change made in the past were repeated. For instance, M&S resorted to lowering marginal cost, not for the reason it was believed to be the best cure to the problem but as a solution that has been used every time the company faced an environmental jolt.

In the end, internally there were ‘political’ rumblings within the company, particularly over the lack of relationship between the Chairman and his Deputy, and issues of succession. These probably dated back to 1993 when Alan Smith departed from the Board. He had been viewed by many as a likely CEO but was incompatible with the then new Chairman (Sir Richard Greenbury). The Deputy, Keith Oates, had a close relationship with Alan Smith and this seems to have caused the initial breach. This was exacerbated by the Chairman’s continuing antipathy for the stockmarket and the City. The Deputy Chair was perceived by the City as more personable and acceptable and was usually given the role of spokesman at City briefings. Increasingly though, it became obvious that there was a lack of togetherness on a number of issues. Interviewees spoke of having to see both individuals when outlining projects, proposals and agreements. Several of Sir Richard Greenbury’s actions help to illustrate the nature of his influence at the beginning of the crisis. First, he offered specious explanations of failing performance to the City, shareholders and staff (see above). Second, when he learned that his deputy, Keith Oates, was seeking clarification as to his succession, he fought an internal battle to make sure the Board backed his choice of successor, Peter Salsbury. A political battle took place and the directors who were reported to have backed Oates (who left) were ‘let go’. The specifics of this do not really matter here (see Bevan, 2001 for personal details). More fundamentally, the political in-fighting diverted management focus from the crisis. At a critical moment in the company’s history, where management focus needed to be complete, management was preoccupied with internal fighting and thus sidetracked from the measures needed to react to, and manage the crisis. As the crisis worsened, Greenbury resigned his position as Chairman, when he was informed that he was to be voted out at the 1999 AGM. It is from this position of lack of succession and wasted time, that a company outsider, the Belgian, Luc Vandevelde (previously with Carrefour) was recruited. He now has responsibility for changing the company.

Discussion

The case-study analysis above has sketched arguments around differing elements of the causes of the failure in M&S. All sources are consistent in pointing to the importance of internal factors as a primary reason of the crisis. While some elements of the crisis can certainly be justifiably understood by the extensive changes in the exterior environment, internal factors had a critical bearing on the timing and the extent of the crisis. The internal factors were a permissive condition. For example, the boardroom struggle resulted in executive incapacity, lack of decisiveness and low exterior credibility, which subsequently led to corporate inertia and thus delays in recognising and then dealing with the emerging crisis.

The case study presents evidence to suggest that M&S was in circumstances which was likely to develop into a crisis. As M & S was blinded by its previous long and uninterrupted success, and stubborn faith in its ‘M&S way of doing things’, it failed to identify a variety of exterior threats. Signals were ignored, denied or, in particular, rationalised. The company developed a faulty internal assumption, based on the fallacy that its reputation and brand name would insulate it from the competitive environment. As a result the company was not able to prepare for any crisis.

We believe that the crisis was triggered by exterior factors, in particular the changed environment of the 1990s. Overall however, our findings present evidence for the importance of the internal factors. The crisis was a result of the company’s vulnerability, created both by management’s misperceptions of their capabilities and the circumstances, and also their improper response to exterior forces. Management had neither the vision nor the will to respond to exterior forces and thus initially avoid decline or later to reverse the downward spiral. These findings lend credence to the OS perspective that the ways management react to and manage exterior changes are the key in recognising the causes of crisis.

Right after the crisis stroke the company, data suggests that managers did not scan the environment vigilantly in response to a crisis stimulus. Interviewees argued that this is not surprising in a company with a monolithic culture falsely assuming that ‘nothing will happen to us’. Additionally, the company’s inflexible structure, cumbersome reporting relationships and the complex mode of operation were neither able to present the Board of Directors with accurate information about the crisis, nor to be in a situation to process the information to keep the crisis from escalating. Put differently, the Board was isolated from the real world, taking decisions based on previous presumptions, habits and reflex actions and denying or ignoring disagreeable facts and reports. Its own internal battle led to an inertia developing amongst senior managers, followed by redundancies which in their turn created a fatalism which fed onto this inertia. Consequently, they turned their concentration to simplistic efficiency issues, like identifying lower-cost inputs and finding ways to use internal resources differently, in spite of dealing with the causes of the problem.

This study suggests that a number of exterior forces in combination at a particular point in time triggered the failure process. Furthermore, knowledge of these factors alone is insufficient for knowledge of the way the crisis raised. For this it is necessary to watch vigilantly at the ambitions and characters of the individuals who were managing the company then. In the case of M&S, knowledge of the company’s executive Board before and during the crisis, their values and objectives is necessary for knowledge of the failure process. Purely structural explanations are inadequate. Whether this would be true in the case of the failure of other organisations, we cannot say, but work on the rise and fall of big companies tends to substantiate this view. Hall’s (1976, p. 361) study of the demise of a newspaper company noted that the ‘egos of top administrators clouded their judgment at critical points in the magazine’s life cycle’.

Sir Richard Greenbury was at the helm of Marks and Spencer, in his time among the world’s largest and most profitable of retailers. Marks and Sparks as its customers like to call it sold mainly clothing but in its British and some of its overseas stores it sold a range of food. Every product was sold under a name belonging to Marks and Spencer, in other words as own brand.

Richard Greenbury left school at the age of 16 and found a job as a junior management trainee with Marks and Spencer. He rose rapidly through the ranks and joined the board aged thirty-three as its youngest director. He became Joint Managing Director in 1985, Chief Executive in 1988 and moved into the chairman’s role in 1992. A poll of institutional investors and retailers voted him retailer of the year in 1993. He chaired two government committees, one into corporate governance the other into executive pay. He was knighted in 1993.

In 1997 Marks and Spencer profits reached £1 billion for the first time. A £2 billion global expansion plan was announced to add to a policy of internationalizing the business that had begun in the 1940s. In 1998 the downturn in the Far East and stagnation in the British market saw a dramatic change in the company’s fortunes. A boardroom battle to succeed Greenbury, who had announced his retirement earlier in the year, got into the media. Greenbury stayed on for a while as Chairman but soon left. Marks and Spencer continued to decline under two successors. A more explanatory case history is given elsewhere in this book. But first what does a manager who has managed a company with among the best reputations and financial performances, but who has seen its star decline in the corporate heaven, think of reputation and its management?

Reputation

It can take over a hundred years to build a culture and a reputation but it can be destroyed in just a matter of weeks and months.

So why is Marks and Spencer regarded as a symbol? Well it was for the reason 12 million people shopped there every week for the simple reason they trusted them. That was the truth, even if they did not always buy. We knew from the figures that only about 8 or 9 million people would make a purchase. But they came every week and back the following week for the reason of a tremendous reputation which had been built up over many, many years.

Product versus image

In the long run one can be certain that you get what you deserve. If you give customers the product they want to buy and it serves them well, and you give them the service they want, I think that will lead to a better reputation. I do not believe that reputation can come before supplying the right product. Among the arguments I had in Marks and Spencer from time to time was with people talking about the brand. The St Michael brand is everything; the brand has to be managed. Certainly, but for me the product makes the brand; the brand does not make the product.

If you make mistakes in retailing, particularly with the product, you will pay a heavy price very quickly, for the reason the minute the customer has got a bad product they know about it. But if you then put the problem right, the customer can come back to you. You are as good as last night’s performance, so if you give a bad performance you are in trouble, but then you give a good performance and the crowd are back applauding you.

The label on a garment can change people’s perceptions of it. It is fashionable at the moment to knock Marks and Spencer even though they still dominate the British clothing market and it can affect the way people feel about the product. Recently one newspaper cut the Marks and Spencer label from a number of garments and sewed in those of some competitors. They asked shoppers to compare these with garments with the Marks and Spencer label still inside. The shoppers preferred those with the false labels.

Crisis management, pre-emption of crises (case histories of BSE, Coca-Cola, Perrier and Ratner), transaction analysis, the crisis management team, choosing reputation partners carefully (Ford and Firestone, IBM and Intel), dealing with pressure groups (McDonald’s and McLibel, Shell and Green-peace), losing reputation slowly (Marks and Spencer).

In Richard Greenbury’s era Marks and Sparks, as the British refer to the company, had prospered. Few companies could claim a better reputation. But in the last year of his leadership sales and profit suddenly declined. Other things happened and Marks and Spencer suddenly found itself on the receiving end of a welter of negative publicity. In Greenbury’s opinion a reputation takes a long time to build but less to destroy. The company he once managed offers some insights into why and how this is true.

Marks and Spencer was once the most admired of British retailers. The profitability of the British retail sector in the 1980s and 1990s was the envy of the world. There were many explanations (some of which are none too flattering like collusion over prices and artificial barriers to new store development by competitors), but in general the view was that the British had managed the phenomenon of own branding better than their international rivals. Retailers selling products under their own names tend to position them on price and as bargains. When first introduced into European markets own brands were seen as ‘generics’, plainly wrapped (like Carrefour’s Produits Libres) and were very low priced. Quality was not always high.

Some British retailers observed that the less well off in society (to whom such products might be expected to appeal) shunned them in favour of smaller amounts of well-known brands. They believed that the poor could not afford to take the risk of buying a store brand. To them it mattered if their children refused to eat own brand cornflakes or wear a T-shirt with an unknown name on the label.

The main buyer of own brand was the more affluent consumer who could afford to be a risk taker. Retailers realised that positioning their own brands more upmarket, at perhaps 10 % below the price of the leading manufacturer’s brand would work. They could attract the more affluent shopper and the margins they would make would be much higher than from selling most manufacturers’ brands. To be credible own-brands needed to be seen as ‘brands’ in their own right. Leading this trend was Marks and Spencer.

Their origins were humble as a single market stall, started in the open market in the northern industrial city of Leeds by an immigrant from Eastern Europe, Michael Marks, in the year 1884. By 1890 he ran a number of stalls all trading under the sign ‘Don’t ask the price – it’s a penny’. This approach of asking a fixed price was unusual in an era when negotiation or ‘haggling’ over price was still commonplace. The legend goes that Marks did not have enough confidence in his command of English to haggle and therefore refused to by hanging up his notice. Such is the way of business for the reason this initiative, an innovation in its day, worked well for him as customers often shared his views on haggling.

In 1894 Marks took a partner, Thomas Spencer. The business prospered and grew to become a private limited company in 1903. Marks’s eldest son Simon became a director in 1911, four years after his father’s death. His brother-in-law Israel Sieff joined him on the board in 1917 and by 1926 the two had become chairman and vice-chairman respectively of the company. By 1914 Marks and Spencer were operating a chain of ‘penny bazaars’ across the country, outlets (mainly in market halls) that were half way between a market stall and a shop. The one-penny price point had disappeared in 1914 but the idea of buying and selling to a fixed price remained after the First World War when the company moved away from bazaars and into high street stores.

The company became a public corporation in 1926 with 125 stores. Money from the flotation was used to expand and refurbish the outlets. At the same time Simon Marks introduced a more professional style of management, borrowed from American retail practice. Perhaps the most significant innovations were however the emphasis placed on quality control and staff welfare. Marks and Spencer began buying directly from manufacturers (thus cutting out the wholesaler) in 1924. This was again contrary to established methods and did not endear them to the wholesalers who guarded their role in the distribution system jealously.

In 1935 a textile laboratory was established to test both garments and cloth and to prepare technical specifications. This was inevitable if Marks and Spencer were to establish and maintain an image for quality. At about this time Marks and Spencer bought an interest in a textile manufacturer but this was a brief flirtation with owning the means of production. With few exceptions Marks and Spencer concentrated on controlling in spite of owning their sources of supply, leading to the label of a ‘manufacturer in disguise’. To this day virtually all Marks and Spencer products are sold under the St Michael name, a name exclusive to the retailer, or, most recently under the Marks and Spencer name itself.

A merchandise development department was created in 1936 and then a design department charged with improving quality and design. In 1947 a production engineering department was formed to assist suppliers in modernizing their plant.

In the 1920s and 1930s Marks and Spencer was predominantly a textile and home wear retailer. Food was sold but the offer was somewhat different from that today, including for example substantial sales of broken Kit Kat biscuits, a leading brand of chocolate wafer from confectionery manufacturer Rowntree (now part of Nestlé). Simon Marks in particular seemed unconvinced that food held much of a future for Marks and Spencer nevertheless a food development department had been created as far back as 1948.

What has become known as a ‘human relations’ policy at Marks and Spencer dates to the 1930s. A personnel department began in 1933 and a welfare department in 1934 whose role extended to the well-being of previous employees. Employees today enjoy subsidised meals, services like hairdressing and chiropody, discount schemes, and a profit sharing scheme. Membership of trade unions among Marks and Spencer employees was and is very low.

Concern over the scope for future growth in Britain and over moves by the Labour government in power in 1945 towards nationalisation, prompted Marks and Spencer to look abroad for future growth. A share exchange with a South African retailer was scrapped in 1971 and interest switched to Canada with a 50 % holding in Peoples Department Stores. The Canadian business developed into three chains, Peoples, D’Allairds, and Marks and Spencer. However Marks and Spencer found achieving consistent profitability in Canada to be difficult. In 1975 the first Marks and Spencer stores were opened in Continental Europe, in France and Belgium. In 1988 the company acquired Brooks Brothers with outlets in America but also across the world including Japan. Also in that year Marks and Spencer acquired the small American food chain Kings Supermarkets and opened two stores in Hong Kong. The Brooks acquisition brought with it the right to sell food into 258 US department stores belonging to the Campeau Corporation.

By 1990 Marks and Spencer had become among the world’s largest retail businesses. Its core business was still in the British high street where its 281 stores and 8.8 million square foot of selling area gave it annual sales of £4.5 billion. Its UK market share in clothing was 16 %, in food 5 %; nine hundred suppliers produced goods under the St Michael brand name. Fourteen million customers made purchases each week in their stores. Some 2.5 million possessed a Marks and Spencer store card (the company did not accept other credit or charge cards until later in that decade). According to market researchers Gordon Simmons, in 1987 67 % of all British adults made a purchase in Marks and Spencer.

The company was a household name, a British institution, yet Marks and Spencer had rarely advertised in its century and more of trading, although it was highly involved in the community, committing £4 million to good works in 1989 alone. The company name was synonymous with middle of the road reliability, the epitome of Britishness perhaps, the only retailer in the world with a triple “A” credit rating. It had grown from a single market stall through a phase as a variety chain and on to dominate the British high street with its department-store like outlets. The customer pulling power of a ‘Marks and Sparks’ meant favourable terms for the company in any new retail developments. Its human relations policies and career prospects attracted and retained good quality staff. Marks and Spencer’s positive attitude to staff was reflected in their staff’s positive attitude to customers.

The company launched a financial services business that grew rapidly. People bought savings products, unit trusts, and even pensions from what had once been mainly a clothes shop. Yet the company itself found its success in its home country almost frustrating. Each new venture in Britain seemed almost doomed to succeed while, try as it might, its success overseas had been patchy.

Lessons from Marks and Spencer

Marks and Spencer is not an example of a poorly handled crisis, unless one regards the key to its decline as the sharp fall in profits in 1999 as a crisis. It is better regarded as offering a series of lessons in Reputation Management that, cumulatively, resulted in a reputation being severely damaged. Richard Greenbury’s opinion is that the public quarrel over who was to be his successor was a crucial beginning. It gave the impression of an organisation not able to manage itself. Further dramatic changes in personnel did not help. Store closures and the great loss of jobs contrasted with the large payoffs and bonuses announced for executives. The company’s press machine still poured out positive messages to the media, but many journalists chose to put a negative spin on such material. Why? Journalists are stakeholders in such businesses as well. Business and fashion journalists rely upon their contacts for that occasional exclusive, so why bite the hand that feeds you? Obviously for the reason their allegiances are primarily to their own employers, to their readers and viewers and not to any corporation. The perceived needs of their own stakeholders meant that they should use the information they had to further darken the Marks and Spencer image.

The effect on the core customer is the most important issue. Marks and Spencer sold a wide range of products but its core offer was in clothing, which is a very individual purchase. People do not buy clothes solely or even mainly for their functional attributes, like the wear rating of the cloth or the colour fastness of the dye. These are assumed to be integral at the price points of a Marks and Spencer. We also wear clothes for the reason we like to feel good in them. For some of us this might mean that tired old pullover that an aged aunt had lovingly knitted for us twenty years ago, more of a friend than a garment. For most it is that new item that we have worked hard to buy or spent ages searching for. A plethora of negative comment would impact upon our emotional attachments to the products the company sold.

What appeared to happen in the case of Marks and Spencer is that the customer stopped believing in the brand. It was still trusted, but trust needs evidence. If we have faith in a brand we accept everything the brand offers. We do not question. If the brand name is on a pension product, no matter if it started on a frock, we still accept it as a quality product. One we lose our faith, we descend to mere trust. If the evidence is poor we no longer reject the evidence or rationalise it; we act on it and reject the product not the message.

Marks and Spencer is still a strong brand. It is still the market leader for clothes in the UK and the most profitable food retailer, probably in the world, if measured on the basis of net margin. It has suffered and not only with customers. Its relationships with suppliers were always tough but companies like Coates Viyella who had supplied them for years suddenly walked away. So did senior staff, some pushed, some jumping ship before they were pushed, but others for the reason the rosy future that global expansion had once promised was now gone with the sale of the overseas operations.

The same content but a different plot?

Among the lessons from the Marks and Spencer example is that the media can use the same factual information to support very different pictures of the organisation. A useful way of analysing what is happening here is a framework from Downing (1997). Drawing from themes in drama he suggests that there are four ‘plots’ that can describe most themes in the way a journalist will play a legend about an organisation: the quest, the downfall, the contest and the scam. These reflect the four traditional themes in drama: romance, tragedy, melodrama and irony.

In the ‘quest’ the firm as hero challenges the status quo, experiences setbacks but ultimately triumphs. In the ‘contest’ the legend line becomes a struggle between good and evil, where ultimately one side emerges triumphant. In the ‘downfall’ the firm as hero is seen to be first successful and then to fall to humiliation. In the ‘scam’ the hero is shown to be no hero at all. The hero’s actions are shown to have been an attempt to fleece others.

Marks and Spencer had once been the hero who could do no wrong. They developed own brands to offer the audience quality products at a price they could afford. The play is rewritten and Marks and Spencer has its rivals (other retailers) who try to overcome its market dominance. Despite all, the hero triumphs, though perhaps the audience is left with a less than secure view of the hero’s infallibility. In the next version the hero is seen to fail, but mainly for the reason of fate or exterior events. This would equate to the company’s failure in its attempt to become global. In the final version the hero is seen to be the reason of his own downfall. The audience is exposed to his duplicity. This certainly describes the way the media tended to play stories about the large payoffs for senior mangers and the bonus for the new chief executive.

This legend used to be told of among Britain’s’ leading retailers Marks and Spencer. The retailer sells only own-brand products and pioneered what became known as ‘ready meals’, precooked meals like Chinese pork in black bean sauce. Such dishes can be prepared by warming or briefly cooking them in the oven or more usually in the microwave, typically by microwaving for three to four minutes. The legend goes like this: a customer purchased a ready meal from Marks and Spencer, took it home, and followed the instructions on microwaving the food carefully. ‘Remove outer packaging. Pierce film. Place in microwave. Set timer for four minutes. Stir and serve’. However the dish was disappointing; the taste and texture were poor. The following day the customer phoned Marks and Spencer asking what he had done wrong in preparing the meal, in the belief that the company could not be at fault themselves. The legend illustrates perfectly what faith and belief in a company can mean. In the late 1990s the retailer lost the faith the British consumer once had in them. They were still trusted, but customers now wanted evidence. They were more likely to question what the retailer did, to compare value for money elsewhere and not to accept that for the reason ‘it came from Marks it must be OK’.

Perhaps the best-known high street name in the UK, Marks & Spencer’s recent travails seem to be at an end.

The legend of Marks & Spencer is a commercial rollercoaster of epic proportions. From humble market stall to respected bastion of the British high street to scourge of the business pages, the latest twist has M&S clawing its way back into the hearts of the City and shoppers.

Marks & Spencer grew from a market stall to a clothing store in the first years of the twentieth century. The retailer’s speedy growth led to its flotation in 1926 and the launch of its own label brand, St Michael, the following year.

The years between the wars were a period of heady growth for M&S. The flagship Marble Arch store was opened in 1930, with the first store food department a year later. In 1948, retail history was made when M&S opened the first self-service store, in London’s Wood Green.

By the 1970s, the Marks & Spencer brand looked virtually unassailable, having become an intrinsic part of British life. It had also started to grow overseas, opening stores in Paris and Brussels in 1975. International expansion really took off in 1988 — the company opened an M&S store in Hong Kong and bought Brooks Brothers, a US clothing chain, and Kings Supermarkets, also in the US.

It was the first food retailer to sell ready meals and had its labels in just about every woman’s underwear drawer. But the early 1990s saw it getting a little too ambitious, trying to shift the brand into the more fashionable clothing territory claimed by Top Shop and Miss Selfridge at the same time as fending off competition from the likes of Gap. For a while it succeeded, but by 1998, when bad trading figures signalled the start of its slide, the rot had set in.

M&S had turned proud and contented and slowly but surely shoppers had found alternatives. By the time it woke up to its problems, they had become a crisis. After a very public boardroom battle for control of the company, new chairman Luc Vandevelde started the turnaround by getting back to basics. Plans were set in motion to shut overseas branches and sell the interests in the US.

After so many years managing with only minimal marketing, it was realised that advertising was needed. M&S’ first TV ads, created by Rainey Kelly Campbell Roalfe/Y&R in September 2000 created a stir. They featured a size-16 woman running around yelling “I’m normal”—it was an attempt to get back in touch with M&S’ traditional core market, the 35- to 45-year-old woman. A new slogan was introduced — ‘Exclusively for Everyone’ — and a corporate identity redesign saw the end of the gold on green look. At the same time, the St Michael brand was dropped in recognition that it was confusing the brand power of Marks & Spencer itself.

In an attempt to boost profits with a premium clothing line, M&S unveiled its Autograph range in 2000, with designs from Katharine Hamnett, Betty Jackson and Julien Macdonald.

But the range had limited success. The following year, the company tackled its basic women’s wear range by bringing in designer George Davis, founder of Next and creator of Asda’s successful George clothing range. His efforts resulted in a back-to-basics range for M&S called Perfect, aimed directly at 35- to 45-year-olds. The positioning was ‘good quality clothes that flatter’ — exactly what M&S had been known for at its height. Davis also created the Per Una line for a younger, more fashionable shopper.

Women’s clothing has been the priority for getting M&S back on top. But the company is also earmarking food and home furnishings as opportunities for growth. Beginning in July 2001, a chain of small town-centre food stores has been opening under the brand Simply Food to help reassert M&S’ leadership in ready meals. And it announced earlier this year that it is planning to open two home furnishing stores this year.

Conclusions

In this article we have sought to make a contribution to recognising the causes of failure in successful organisations. Although this is primarily an exploratory case study focused mainly at identifying the causes of the crisis at M&S, we believe that the findings presented here have a number of implications and conclusions. We present these by re-considering the broad aims of the paper and the four themes developed through the literature review.

Our first aim was to understand the causes of failure in M&S. The case study and the discussion above have presented our findings on M&S, and there is no need to repeat the detail here. We conclude that failure in M&S was due to a misunderstanding of the exterior changes underway in the retail and consumer environment. This misunderstanding occurred for the reason of a number of internal factors which distanced the company’s management from reality, combined with an overwhelming belief in the strength of their own, and the company’s position.

Second, we aimed to place this case study in the context of the literature on organisational crisis and failure. In particular, we believe the case study follows Levine (1978) and Witteloostuijn (1998) in demonstrating that both internal and exterior factors are important in any crisis. The balance of these for M&S has been presented. For other companies, the balance and relative importance of elements may well vary. If we consider Levine’s (1978) typology of causes of decline, then we conclude that in the case of M&S, organisational atrophy compounded emerging exterior environmental entropy problems. As the environment changed, management failed to react. Moreover, this failure to react and believe in the need for new forms of change, was itself exacerbated by the political vulnerability of certain groups within the organisation, who fought to maintain their status quo. As the crisis progressed, so the company realised that it had lost its legitimacy, with suppliers and fundamentally with consumers, and so the crisis spiralled downwards.

Third, we aimed to draw lessons for management and future research. For company management, we believe that there are two major implications arising from the study. It is clear that a prolonged period of uncertainty at the Board level is immensely sapping throughout a business. Whilst initially such divisions may not seem to affect the operation of the business and the customers, in reality they detract concentration from key elements of the business and if continued, lead to inertia and loss of legitimacy. Board battles need to be quick. Management must continuously measure performance of the business in customers’ minds, against other possibly new competitors and general societal or market norms of expectation. Having a powerful position or brand is insufficient. These need regular re-evaluation and re-investment. M&S did not continuously re-invest in the brand, the stores or the operations, believing their position was impregnable. In reality however, both existing customers and new generations of possible customers were progressively perceiving M&S in a less and less positive light.

In terms of research in organisational crisis, we believe that despite its exploratory nature, this case study has shown the relevance and richness of the method. It suggests that longitudinal studies of organisations, both in ‘ordinary’ and crisis times, have their place and can present insights. It also suggests that management research has to develop a combination approach to cover both exterior and internal factors. The two are linked by business, but often separated in research. We also believe that the M&S study shows how our understanding of crisis could be taken forward to consider a broader range of exterior and internal factors.

In the end, we need to say something about M&S and the retail sector. The failure of a successful company in the retailing industry cannot be considered to be typical nor to embody the full range of patterns of failures. Retailing is a distinctive sector of the economy, both in terms of its requirements on management (for example to manage massively multiple site companies) and for the reason of its direct links to consumers. Yet some of the dynamics shown here are surely not idiosyncratic. The interaction between situational factors and personal characteristics of the Board of Directors as a major contributor to the crisis, and the tension between different factions on the Board are themes that transcend any particular organisational crisis. Whether retailing is particularly prone to such problems or whether such crises are different in retail organisations is an avenue for further research. Perhaps retailing, by its nature and its dealings with consumers, could be expected to have better protective mechanisms, but less time in which to apply them, for the reason of the rapidity of consumer change and the direct, rapid impact of these changes on sales.

Identification of general themes, certainly, forces us in the direction of elaborating a general framework, but we believe the state of current evidence provided in the present study falls short of developing a comprehensive framework. There is an intricate web of internal and exterior factors that is required to be more fully included into the study before such a framework would be possible. For instance more concentration could be paid to factors like the role of the financial markets and global competition, particularly as these are transforming retail markets. Several interviewees mentioned global competition, but without providing any coherent explanation as to how it contributed to the failure. Is this a ready and handy scapegoat or is it an exact causal issue? Other internal factors also need more careful elaboration, given the way in which organisational management has been changed with the adoption of new methods and technology.

We began with our scrutiny that M&S had symbolic reputation in Britain, retailing and in management literature. It is right therefore that we conclude with a look to M&S’s future. There have been some modifications, currently, at M&S. Most of the previous unconventional behaviours have been abolished. Change is underway within the business and much-needed investment in stores and systems is being made. The decision has been made to concentrate on the UK market and to withdraw from other countries and operations. M&S is still a giant (£8 billion annual sales) in retailing. The crisis however has damaged its reputation, brand and position. Its future remains on a knife-edge.

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