EMBA

Marks and Spencer: Where next for the icon of British retailing?
Presented to Pat Cunneen

Martina Forde 07102176 MG 528 Strategic Management 11/12/2011

Table of Contents

1. Analyse the attractiveness of the M&S business in terms of Porters 5 competitive forces and consider its strategic capabilities as a basis of competitive advantage. .............................. 2 b) Analysis of its strategic capabilities as a basis of competitive advantage ......................... 4 2. When new CEO Bolland joined M&S in 2010 what were the main strategic issues facing him?............................................................................................................................................ 6 b) What strategic options might he consider and why? ......................................................... 7 c) What strategy should he follow? ........................................................................................ 8 d) What challenges might he encounter in seeking to implement that strategy? ................... 9 References: ................................................................................................................................. 9 Appendix 1 ............................................................................................................................... 10

1. Analyse the attractiveness of the M&S business in terms of Porters 5 competitive forces and consider its strategic capabilities as a basis of competitive advantage.

Porters (1980) five forces framework provides an analysis of the competitive environment in which Marks and Spencers (M & S) operates in. Porter identified five competitive forces that shape every industry and every market. These forces determine the intensity of competition and hence the profitability and attractiveness of an industry

Five Competitive Forces are typically described as follows: (Appendix 1)

Force Number 1: The threat of entry. The greater the threat of entry, the worse it is for incumbents in an industry. An attractive industry has high barriers to entry to reduce the threat of new competitors. (Johnson et al 2010, p 55) Porter (1980) suggests that there are six major sources of barriers to entry: 1. Economies of Scale: Barriers to entry can relate to economies of scale. As M&S have over 125 years of experience in the retail industry coupled with a vast network of retail outlets this creates puts up a considerable barrier to entry. 2. Product Differentiation: M&S as an established organisation have developed a strong brand and have achieved customer loyalty. Differentiation creates a barrier to entry by forcing entrants to spend heavily to overcome existing customer loyalties. (Porter, 1980, p 9). This can potentially result in start up losses over a prolonged period of time. 3. Capital Requirements: Start up costs for many entrants into the market can be a source of barrier to entry. However when competing with an established brand such as M&S the need to invest
2

larger financial resources in order to compete or gain market share can be a major source of barrier to entry.

4. Switching Costs: The presences of switching cost create a barrier to entry. Switching costs for new entrants can include such costs as employee training costs , costs of new equipment and capital investment If these switching costs are high, then new entrants must offer a major improvement in cost or performance in order for the buyer to switch from an incumbent (Porter 1980, p 10) 5. Access to Distribution Channels: As M&S have established Distribution Channels the barrier to entry for new firms can be insurmountable. New entrants to the market need to secure distribution channels in order to get their products to market in a timely and cost efficient manner it will be difficult for new entrants to compete with these existing channels. 6. Government Policy: There is no evidence of any legal barriers to entry with regard to regulation or licensing. This is the only area where new suppliers will not have to overcome barriers to entry.

Force 2: Threat of Substitutes As with the threat of new entrants, the threat of substitutes is determined by factors such as brand loyalty, customer relationships and switching costs for customers. A threat from substitutes to M&S would exist if there were alternative products with lower prices of better performance parameters for the same purpose. They could potentially attract a significant proportion of market volume and hence reduce the potential sales volume for M&S. As food and clothing have no substitutes the threat to M&S is very low

Force 3: Power of Buyers

Buyers compete in the industry by forcing down prices, bargaining for higher quality or more services, and playing competitors against each other, all at the expense of industry profitability(Porter,2008 p 24).Switching costs are low and with many retailers available buyers have the ability to shop around and switch. M&S must strive to maintain the loyalty of their customers by constantly supplying high quality goods and services and avoid them going elsewhere.

Force 4: Power of Suppliers

The threat of suppliers is low as M&S are not as dependent on suppliers as some of their competitors due to the fact that it sells mainly its own branded products. Suppliers lack choice when it comes to large accounts such as M&S with regard to negotiating price and discount.

Force 5: Competitive Rivalry

As stated in the case study for M&S the direct rivals in the food market are Waitrose and Asda whilst in the clothing market Next, Oasis and Gap on the upper end of the market therefore making the threat of competitive rivalry high. M&S under the leadership of Bolland need to keep ahead of rivals with affordable up-to-date high street fashion.

b) Analysis of its strategic capabilities as a basis of competitive advantage

A company can outperform rivals only if it can establish a difference that it can preserve. It must deliver greater value to customers or create comparable value at a lower cost, or do both. (Porter 2008, p 8)

Competitive advantage of an organisation is explained by the distinctiveness of its capabilities. The long-term survival and the competitive advantage of an organisation
4

hinges on its strategic capabilities. If they are to provide a basis for long-term success, strategic capabilities cannot be static: they need to change.(Johnson et al, 2011, p85). Resources and Competences are the two components of strategic capability. As M&S has the advantage of its powerful brand it has achieved a competitive advantage thus creating a distinctive resource over its competitors. The strategic capabilities of Marks and Spencer are what customers perceive as valuable to them and what its rivals do not possess or will have great difficulty in obtaining.Managers need to consider whether their organisation has strategic capabilities to achieve and sustain competitive advantage (Johnson et al, 2011, p 94) Organisations can gain a better insight into their strategic capabilities and competitive advantage by carrying out a VRIN analysis.

VRIN

VRIN is an Acronym for Value, Rarity, Inimitably and Non-Substitutability.

Value What does the customer consider value? What does he look for when he buys the product? (Ducker, 1955, p 51). M&S as evident in the case study were perceived as delivering value and quality to their customer.

Rarity: Understanding the capabilities of other organisations or competitors is important to M&Ss competitive advantage. As they do not possess rare capabilities in the form of patented products or services they will need to build on other core competences to maintain a certain amount or rarity. (Johnson et al 2011, p90) suggest that here are two important points to bear in mind about the extent to which rarity might provide competitive advantage: meeting customer needs and sustainability. M&S need to clearly understand their customers needs in order to deliver on these needs and expectations and thus allowing them to retain their competitive advantage. However M&S should not become complacent in assuming that their resources and capabilities which are perceived to be rare will remain so.

Inimitability:
5

The inimitability of strategic capabilities is best described as those that are difficult for competitors or new entrants to imitate or obtain. The inimitable, competitively superior resources of M&S allowed them to dominate the British retail market for many years. M&S were perceived as one of the best retailers for quality, value and service. Non-Substitutability The final criterion is N for non substitutability. How likely is it that the product or service on offer by M & S or the capabilities underpinning them, might be at risk of substitution by a different product, service or capability is an issue that M & S must be cognisant of at all times.

2. When new CEO Bolland joined M&S in 2010 what were the main strategic issues facing him?

"What is strategy?" Strategy is the creation of a unique and valuable position, involving a different set of activities. If there were only one ideal position, there would be no need for strategy.(Porter 1996) There were many strategic issues facing Marc Bolland as the CEO of M&S such as: The revival of M&Ss two core businesses: Clothing and food. International Expansion: Identifying where the organisation should choose to compete successfully internationally Cultural change: Changing the embedded culture within the organisation. George Davis, who established the successful Per Ina brand for M&S, sees culture as core to successful management. Culture is the thing that makes us do things and stops us doing things (Johnson et al 2010, p 175). Relationship Building: Building strong relationships between the M&S board of directors and the shareholders and in return gaining their trust is something that Marc Bolland would need to achieve. As stated in the case study as Marc Bolands pay packet was negotiated without the consultation of the shareholders he is certain to meet with some resistance. It will

require strong leadership skills on behalf of Marc Bolland to achieve buy in from all in order to drive and deliver change. Large-scale organisational change requires a strong, visible leader to communicate the need for change (Cunneen 2008, p101)

b) What strategic options might he consider and why?

There are two main strategic choices that Marc Bolland could consider in his role as CEO of M&S, generic competitive strategies and interactive strategies.

Generic Competitive Strategies would allow him to focus on cost leadership, differentiation and focus, whilst also focussing on the strategy clock. Porter (1980) maintains that there are three potential successful generic strategic approaches to outperforming other firms in the industry. Appendix 2 1. Overall Cost Leadership. 2. Differentiation 3. Focus

Overall Cost Leadership:

Cost leadership emanates from performing activities and processes in less expensive ways than customers. Overall Cost Leadership requires a clear focus on cost reduction in areas such as labour, raw materials and ever head costs , A cost leadership strategy can

sometimes revolutionise an industry in which the historical bases of competition have been otherwise and competitors are ill-prepared either perceptually or economically to take the steps necessary for cost minimisation(Porter, 1990, p 36).

Differentiation:

The second generic strategy available to Marc Bolland is one of differentiation. A differentiating the products and services offered by M&S thus creating something that is perceived industry wide as being unique. Differentiation involves uniqueness along some
7

dimensions that is sufficiently valued by customers to allow a price premium. (Johnson et al 2010, p 203)

Focus: The final generic strategy is focussing on a particular buyer group, segment of the product line, or geographical market. (Porter, 1990, p 38)This strategy would allow Marc Bolland to presume that M&S is therefore better able to serve its narrow strategic market more efficiently that its competitors thus allowing M&S achieve differentiation by better meeting the needs and wants of its customers in the various operating markets.

c) What strategy should he follow?

On analysing the case study I would advise that Marc Bolland should follow the differentiation strategy. Differentiation is a matter of delivering non price value for which customers are willing to pay. Differentiation for M&S may involve choosing a defined customer base and not targeting other consumers who value different attributes than than M&Ss target market. A differentiation strategy if implemented correctly would allow M&S to achieve above average returns in the retail and food industry as it would create a strong position for the firm if faced with the five competitive forces. (Johnson et al 2010) suggest that differentiation strategies require clarity about two key factors.

1. The Strategic Customer : M&S need to clearly identify their strategic customer. In the past M&S had difficulty attracting the younger consumer with regard to their retail business. It is clear from studying the case study what the age demographics of M&S were. They need to differentiate and attract a younger age profile in order to remain competitive. As stated in the case study M&S have failed to attract the 30-year-old woman into its stores and still had an over reliance on
8

the over 55 plus age group. In consumer goods, demographic changes are one key determinant of the size of the buyers pool for a product (Porter 1980, p164).

2. Key Competitors. It is very easy for a differentiator to draw the boundaries for comparison too tightly, concentrating on a particular niche market (Johnson et al 2010, p 204) M&S have in the past avoided concentrating on a niche market however as identified in the case study they need to concentrate on their competitors and stay abreast with market trends and customer need.

d) What challenges might he encounter in seeking to implement that strategy?

In pursuing the implementation of a differentiation strategy Marc Bolland faces the risk of failing or sustaining the strategy. As with any strategy implementation requires support from within the organisation. Implementing differentiation strategy requires different resources and skills. From analysing the case study culture is a major problem within the organisation. Cultural change within the organisation was needed in order for M&S to achieve any of its strategic objectives As organisations get older, part of their learning is embedded in the shared expectations about how things are to be done.(Tuchman el al 2004, p283) Changing the culture at M&S is a vital component to its success. Fixing the culture is the most criticaland the most difficult part of a corporate transformation (Hays 1994).

References:

Boston Consulting Group http://www.bloomberg.com/news/2011-06-22/emerging-marketsled-by-china-india-to-spur-global-consumption.html Accessed 28th OCT 2011

Cunneen, P. (2008): Organisational Structure, an Essential Lever in Managing Change. Blackhall Publishing. Dublin.

Drucker, P. (1955): The Practice of Management. MPG Books Ltd, Great Britain. Hays, L. (1994) Gerstner Is Struggling As He Tries To Change Ingrained IBM Culture. Wall Street Journal 13th May 1994. Johnson, G., Whittington, R., Scholes, K., (2011), Exploring Strategy: Text and Cases. Porter, M, 1980, Competitive Strategy: Techniques for Analysing industries and Competitors. 1980 The Free Press NY. Porter, M, E. (1996), What is strategy?" Harvard Business Review vol. 74, n6 Nov 61. Prahalad, C.K., and Hamel, G. (1990) The Core Competence of the Corporation Harvard Business Review May-June 1990 Tushman, M, L., & Anderson, P., (2004) Managing Strategic Innovation and Change: A Collection of Readings, 2nd Edition, Oxford University Press: New York.

Appendix 1 .

10

Appendix 2

11

COMPETITIVE ADVANTAGE Lower Cost Differentiation

Broad Target COMPETITIVE SCOPE Narrow Target

1. Cost Leadership

2. Differentiation

3A. Cost Focus

3B. Differentiation Focus

12

13