Unit 4 Strategic Management Assignment Marks and Spencer

Unit 4 Strategic Management Assignment Marks and Spencer

Introduction:

Unit 4 Strategic managemen marks and spencer is about the strategic analysis of Marks and Spencer in UK. The study of the company analysis is supported by identifying strength, weakness, opportunities and threats of the organisation by SWOT analysis. Further this report discusses about the business model that is porter’s 5 forces model applied by the company for the industry analysis. It examines the environmental factors that have their effects on the company strategies. The environmental analysis is explained by the PESTEL analysis method. This is the method that helps us to determine the political, economical, social, technological, environmental and legal factors that affects the  business strategy  of the company. (Duli, Gnjidi and Alfirevi, 2012)

This Unit 4 Strategic Management Assignment Marks and Spencer generates an idea about the business model applied by Marks and Spencer to face the competition in the external environment. At the end of the report, some of the recommendations have been given that supports the organisation to improve strategically and raise the business standards.

Findings:

Overview of porter’s model-

Porter’s five forces is the model that analyse the competition in a particular industry. It is a tool to strategic management that determines the position of an organisation in relation with other organisations in the same industry. The five forces that are involved in this model provide us with the information regarding the organisation’s present position and the strategies need to be applied to achieve a particular position in future. This model also helps in identifying the attractiveness of the industry. Attractiveness refers to the profitability of the industry. If the industry is profitable that does not mean that every company in that particular industry is in profits, it provides us with the idea of average profits an industry is earning.

The five forces involved in the model are: (David, 2005)

• Threat of new entrant:
• Threat of substitutes:
• Threat of competitors:
• Supplier power:
• Buyer power:

• Threat of new entrant: New entrants are the start-ups that are growing their roots into an industry. They become the threat for an existing organisation because they may affect the overall profitability of the industry and increase the competition for the existing organisations.
• Threat of substitutes: Substitutes are the alternatives that are present for your product in the market. These alternatives become the threat for the organisations because they can replace their products. If the replacement cost of the products is low, then the customers can switch their choices with so much of ease. (Jeyarathnam, 2008)
• Threat of competitors: Saturated industry results in high competition. If there are many organisations in the industry with equal power then they face high competition from each other. This is because the customers have many choices to make.
• Supplier power: The power of the supplier can be determined by the number of suppliers present in the industry. If there is less number of suppliers then the bargaining power remains in the hands of suppliers only. It creates a situation of monopoly among suppliers. The one who is selling best quality with best price, rules the market. (Jeyarathnam, 2008)
• Buyer power: it can again be determined by the number of buyers for the particular product. If the organisation is dealing with few buyers then the bargaining power remains in the hands of buyer. This is because the organisation does not have many choices to sell their products. They have to deal with the existing buyers on their terms and conditions.

This model helps the organisations to identify the effects of external environment but there are some drawbacks associated with it. This model of Porter does not consider the dynamic environment but is only applicable in the stable environment. It proves to be starting point for the further analysis but is not that much effective to make any strategic decisions. (Roy, 2009)

Company analysis:

The founder of Marks and Spencer were Michael Marks and Thomas Spencer. It is one of the largest departmental store chains in UK. This organisation is into selling of products like; food, drinks, apparels, household items etc. They diversified their business by adding a new product line of financial products like credit cards and insurance. This organisation believes in the values to provide quality with affordability and good service. As they are into many businesses they have to deal with many competitors simultaneously. M&S is earning 90% of its revenues from UK market. The strategic position of the organisation can be explained by PESTEL analysis.

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PESTEL analysis identifies the effect of external factors on the organisation:

• Political factors- Due to EU trade directives, European countries have to open their boundaries and allow organisations like M&S to set up their subsidiaries in their market. This aids M&S to open their stores in Hungary, Bulgaria, and Bosnia etc. This proves that the change in political factors have their effect on the businesses of the organisations.
• Economical factor- The economy of the country as well as of the whole world has its impact on the business.  Health and safety  economy of the country give rise to high purchasing power of the people and this in turn benefits the organisations. The uncertain current economy has shown its impact on the retailers like M&S in negative way. M&S needs to downsize its staff by 2% due to this uncertainty in the economy. M&S has recently introduced the offer to provide 20% discount on all wines and champagnes to match up the pace with its competitors. (Roy, 2009)
• Social factors- A company needs to be updated according to the changes in the society. Change in social factors affects the choice of the customers. In 1990’s, the lifestyle of the people changes and the consumers have become more fashion conscious. To match up the choices of the consumers, M&S hire some designers to design stylish clothes for them. This shows that the change in the social factors affect the strategies of the business.
• Technological factors- Technological factors are those factors that affect the operations of the organisations. The organisations need to update themselves according to the latest technology so that they can improve the operational processes running in the organisations. If we talk about M&S, this organisation fails to innovate. M&S never kept itself updated in the technological world. Due to lack of technological knowledge, the organisation fails to compete with the competitors and have bearded increased cost of production.
• Environmental factors- Environment is the factor that needs to be considered by the organisations. The organisations should keep in mind that their production processes are not affecting the environment in negative way. Government and media are arguing on the reduction of packaging by the companies. M&S has taken a step forward towards this issue and start charging for the plastic bags. This results in 70% reduction in usage of plastic bags. M&S has also introduced ‘Plan A’ that aims at reducing waste, helping poor localities and fair trading practices.
• Legal factors- Many legal policies have been enforced by the government so that the organisations cannot enter into false practices. Consumers are also aware of the laws available for them to sue the companies if they have been cheated by any of the organisations. So the organisations like M&S need to keep in mind the legal factors during marketing practices as well as during the production. (Dul, Gnjidi and Alfirevi, 2012)

SWOT analysis of Marks and Spencer: SWOT analysis is done to analyse the strength, weakness, opportunities and threats to the organisation. Strength and weakness are the internal factors of the organisation while the opportunities and threats can be analysed by observing the outside environment. (Foss, 2007)

Strengths-

• High quality products: The products of Marks and Spencer are of high quality and this organisation believes in providing good services to the customers.
• Large market share in the industry: As Marks and Spencer is into so many businesses, it has a very large market share and has its stores at the high street of London.
• Variety of products: Marks and Spencer deals with many product lines like; household items, apparels, food and drinks, etc.

Weakness-

• Rely on British supplier: Marks and Spencer rely on British supplier for the raw materials while its competitors deal with foreign suppliers for low cost products.
• Lack of technology: Marks and Spencer is not technologically sound as compared to its competitors. The company do not even provide shopping cards to the customers.

Opportunities-

• E-business: As all the companies now days moving towards e-business, Marks and Spencer should also use this technology of conducting business online.
• Designer clothes: The organisation should take step towards selling designer and trendier clothes so that it can attract the young customers.
• Developing markets: As the market of China and India is developing, this provides a chance to M&S for improving its  business management  into these countries. (David, 2005)

Threats-

• Large competition: M&S has to compete with large number of competitors because it has its business in many product lines. Every organisation that has its businesses into the similar product lines act as competitor for M&S.
• Dynamic society: The society is dynamic in nature and so the people. This change in lifestyle of the people affects their choices and the organisations need to work accordingly. M&S fails to fulfil the changing needs of the customers.
• Online business by competitors: Customers prefer to buy online these days. M&S has not introduced itself in e-business and this is the reason why they are lacking behind from the competitors like ZARA, Sainsbury, and GAP etc. (Foss, 2007)

Financial analysis of the organisation:

The above figure shows the flat results of M&S in recent years. It shows that the revenue is rising but the dividend and per share earnings are nowhere to be seen growing.

Over the last decade, M&S made an investment of about Pound 6bn into capital assets. This amount is more than what the organisation has earned. This suggests that it is a very capital intensive business that requires large capital for its survival and growth.

Application of Porter’s five forces in M&S:

• Threat of competitors: M&S is the organisation that deals with many businesses simultaneously. This is the reason why this organisation is more prone to competition. M&S departmental stores face competition from the organisations like; Sainsbury, Tesco and ASDA. M&S clothing stores face competition from John Lewis, ZARA, GAP and Topshop etc. (Corporate.marksandspencer.com, 2016) According to Porter, companies pursue one of the generic strategies from low cost, differentiation and hybrid. M&S tries to be differentiated by positioned itself as the organisation with high quality and money brand. But afterwards, this organisation tries to introduce the concept of ‘all things to all people’ by cutting down prices of apparels. This step leads to degradation of the value of the company in this era of specialisation.

The above picture shows that John Lewis, the rival of M&S is found to be far ahead in terms of fashion, layout, home ware etc. The above data is extracted by conducting an online survey.

• Threat of substitutes: As M&S is selling food and clothes that have no such substitutes available in the market. But the threat is created by the rivals that are selling similar type of product range as that of M&S. (the Guardian, 2016) Foreign clothing brands also act as the threat for the company as they provide clothes in cheap rates. Some people may compromise on the quality and prefer to pay less for the foreign clothes.
• Threat of new entrant: With regard to new entrants, M&S is on safer side because of the barriers to enter this industry. It is very difficult to enter into this industry as it requires huge investment capital. Another factor is the trust that is earned by the brand. M&S is a very old and trusted brand so; it is not that easy to capture its customers just by entering into the industry. Absence of knowledge and experience is one of the factors that have its impact on new entrants. It acts as the barrier for the new entrants to enter the market.
• Supplier power: In case of M&S, bargaining power of the supplier is low. This is because M&S is not solely dependent on the suppliers as they sell their own products. This organisation generally buys raw materials and not finished goods. This is the advantage for the company as they can go for large margin base. (Corporate.marksandspencer.com, 2016)
• Buyer power: The buyer power is high in this case because the concentration of buyer is more. Another reason for the high buyer power is product oriented approach by M&S. The organisation concentrated on products instead of customers and its competitors were at the same time focussing on customers. The customer oriented approach by competitors leads to loss of loyal customers and hence the loss of business.

Conclusion:

The study suggests that M&S has to take strategic decisions very carefully. It is lagging behind from its competitors as it does not possess any competitive advantage. M&S has to shift their strategy of being product oriented to consumer oriented. The overall study suggests that the company is not adopted the change management strategy. M&S is into so many businesses that results in higher competition by many organisations from different sector. It we take a look at the company analysis, it has been suggested that there are many external factors that affect the company’s policies. (David, 2005)

There are 3 types of analysis that helps in judging out the effects of these factors. First one is PESTEL analysis that provides us with the idea of political, economical, social, technological, environmental and logical factors that affects the organisation. Another one is SWOT analysis that helps in identifying the strength, weakness, opportunities and threat to the organisation. Last one is the porter’s five forces model that has been used by many organisations to determine the threat of competitors, substitutes and new entrant as well as to determine the supplier and buyer power in the industry. This analysis is done on the industry and not only on the organisation. The overall industry analysis of Marks and Spencer’s identifies that there are many competitors for M&S in the industry that have consumer focussed strategies unlike M&S. If we draw our attention towards the economic perspective, due to unstable economy M&S cut down its staff those results in lowering of  customer satisfaction . This is because the customer satisfaction is related to the resources available in the organisation.  (Corporate.marksandspencer.com, 2016)

It has been concluded that M&S need to be advanced in terms of technology as well as in terms of customer satisfaction, and then only this organisation can develop competencies over its competitors.

Recommendation:

In order for Marks and Spencer’s to be competitive, it is necessary for the organisation to change the strategies. M&S has to develop the core competencies that help in fighting the global competition that the organisation is facing by its competitors. (Dul, Gnjidi? and Alfirevi?, 2012)

It is recommended for M&S to concentrate on the consumer’s choices rather than concentrating on being product oriented.

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References:

Books:
Jeyarathnam, M. (2008). Strategic management. Mumbai: Himalaya Pub. House.
Roy, D. (2009). Strategic foresight and Porter's five forces. München: GRIN.

Journal:
Dul, Ž., Gnjidi, V. and Alfirevi, N. (2012). From Five Competitive Forces to Five Collaborative Forces: Revised View on Industry Structure-firm Interrelationship. Procedia - Social and Behavioral Sciences, 58, pp.1077-1084.
Foss, N. (2007). Strategic belief management. Strategic Organization, 5(3), pp.249-258.
Website:
Corporate.marksandspencer.com. (2016). Plan A. [online] Available at: http://corporate.marksandspencer.com/plan-a [Accessed 20 Aug. 2016].
Seekingalpha.com. (2016). [online] Available at: http://seekingalpha.com/article/3978378-marks-and-spencers-shares-fall-300p-invest [Accessed 20 Aug. 2016].
The Guardian. (2016). Marks & Spencer | Business | The Guardian. [online] Available at: https://www.theguardian.com/business/marksspencer [Accessed 19 Aug. 2016].