Introduction
For a firm to have a competitive advantage in domestic and international markets, it needs to mobilize core resources and capabilities. Marks and Spencer Plc. (M&S) is a Britain retailer that operates in both domestic and foreign markets. Established in 1894, it remains the most renowned and oldest retailer in the UK (Mellahi, Jackson & Sparks, 2002). The company was founded based on a partnership between Michael Marks and Thomas Spencer. The primary values of the company emphasize quality, service, value for money, trust, and innovation (Marks & Spencer 2013). These values and the philosophy of M&S have assisted the retailer to drive growth over the years. M&S has successfully expanded its operations in the domestic and foreign markets. For instance, the clothing retailer has over 455 stores in more than 40 countries (Marks & Spencer 2013). The company is also listed in both the London Stock Exchange and FTSE 100 index. The primary products provided by M&S are clothing, food products, and homewares The purposes of this report are threefold: (i) to identify 3 key strategic issues facing M&S; (ii) to provide an analysis of core resources and key capabilities of M&S; and (iii) to assess the extent to which the M&S competitive strategy focuses on the strategic problems faced, and offer recommendations for improvements.
Key Strategic Issues Facing the Marks & Spenser Plc
A strategy of an organization encompasses a comprehensive master plan that explains how the organization in question intends to achieve its objectives and mission (Johnson, Scholes, & Whittington, 2008). A strategy enables a firm to minimize competitive disadvantage and at the same time promote a competitive advantage. A strategy can take one of three forms: functional, business, or corporate. A corporate strategy describes the general direction of an organization in terms of its attitude toward management and the growth of product lines and its different business units (Coulter, 2001; Lynch, 2006; Thompson, 2001). Business strategy is applied at the unit level and it emphasizes improving the competitive position of the services or products of a company in a particular market segment. Lastly, a functional strategy enables a firm to achieve business and corporate strategies by taking full advantage of resource productivity. From the definition of a strategy, a strategic issue may be described as a critical challenge affecting the mission, mandates, values resources, processes, structure, management, product, and stakeholders of an organization (Hill & Jones, 2004). Strategic issues for M&S were identified at the end of the strategic analysis activity that included an environmental scan and SWOT analysis of M&S (see Appendix 1& 2).
The three strategic problems faced by M&S are: (a); competition from international retailers (b), unprofitable clothing and homeware departments, and (c) pricing problems. About competition, The Financial Times has reported that M&S faces a strategic issue regarding competition in the industry because international retailers such as Zara, H&M, and Primark continue to take a profitable proportion out of M&S’s customer base (Vandevelde, 2017). Competitors have continued to amass enough buying power needed to deprive M&S of its traditional advantage. Subsequently, competitive retailers have gained the capability to persuade suppliers to supply them with better clothes at lower prices than M&S (Vandevelde, 2017). Retailers such as TJX, H$M, Gap, Inditex (Zara), Next, Primark, and Arcadia have all increased competition in the clothing industry, hence affecting this part of M&S’ operations.
Under unprofitable clothing and homeware departments, M&S has for a long time adopted a family-based strategy which is associated with the provision of clothes that have family appeal. The company has long failed to provide what the customer requires, and this led to losses in market share and sales (Vandevelde, 2017). Subsequently, competitors such as H$M, Gap, Inditex (Zara), Next, Primark, and Arcadia have been able to provide clothes and apparel that are competitive and meet customer needs and demands. Thus, M&S continues to face the strategic challenge of operating one of its corporate businesses. Consequently, M&S has come under increased competition from contemporary and more fashionable high-street competitors such as Zara. M&S provides clothes with family appeal, which implies that it has failed to attract younger, more fashionable consumers because it focuses more on traditional consumer demographics. On the issue of profitability, M&S clothing and homeware departments were in 2010 making £4.1bn annually, but this declined to £4bn by 2015 (Wood, 2016).
The third strategic issue is related to the pricing strategy adopted by the company. Although M&S provides value for money for its products, especially in the older clothes-buying customer base, the prices are 20% higher compared to Next and Debenhams (Wood, 2016). The high pricing could be responsible for the decline in M&S’s UK clothing share which is now at 9.9%, compared to 11% in 2010 (Wood, 2016). Brands such as George and Matalan have continued to target loyal M&S customers with lower prices. This has made, Asda the second Britain's clothing retailer in terms of volume (Butler, 2015). Zara, H&M, Gap, and Next also target younger, fashion-oriented clientele with affordable prices and their latest fashions. This is a strategic issue because it has an impact on the market share and profitability of M&S (Sadler, 2003).
Resources and Key Capabilities of M&S
Organizational Capabilities refer to a firm’s capacity to undertake a specific activity. As indicated in Figure 1, resources could be tangible, human, and intangible, and they facilitate the implementation of efficient strategies that in turn enhance competitive advantage. The resources and capabilities of an organization are vital in defining the business strategy and they also act as the primary source of competitive advantage (Sirmon, Hitt, & Ireland 2007). Thus, the resources and capabilities of M&S establish the long-term performance of the company. The Open University (2015) has identified M&S as a highly profitable organization with a large market share, and its profitability has been achieved because of its unique set of resources and capabilities that have in turn afforded the firm a significant competitive advantage. For instance, M&S has several properties located at prime retail locations and they continue to assist M&S in realizing occupancy costs and reducing operational costs. In addition, M&S has a reputational brand with a worldwide consumer base that helps the company remain competitive. Employee loyalty has also played a major role in creating a competitive advantage by lowering average turnover, thus enhancing retention of employee skills. Also, close and efficient management of supply chains has resulted in lower costs of operations and higher quality (Open University, 2015). The company has a flat management structure that is supported by effective management systems, and this has helped to improve efficiency in business operations.
Hitt, Ireland, and Hoskisson, (2007) have defined core competencies as the combined capabilities of an organization such as superior management skills and advanced technologies that are employed to offer a leadership position in developing core products. Thus, core competencies are the capabilities essential for the performance and strategy of an organization. Core competencies are the unique abilities that allow an organization to be in a position to differentiate itself from its rivals in the market. Core competencies provide a business with competitive advantages while delivering and creating value for money to potential and loyal consumers (Porter 1985). Technology and innovation supported by skilled employees (80,000) are the primary competencies of M&S. In addition, M&S has a diverse workforce which has made the company more successful and reputable. As a strong brand, M&S is internationally recognized with 55 stores in foreign countries. Lastly, M&S has resulted in bricks and clicks to increase its presence in the market. Therefore, M&S' core competencies have been a result of the development of a strong brand, good customer service, adoption of technology and innovation, and excellent quality control.
Resources, Capabilities, and Competitive Advantage
Porter (2004) has noted that a firm is in a position to identify its strongest force and capitalize on it to create a competitive advantage. M&S has intangible resources that enhance customers’ experience, and this has reduced the buyer power in the market. According to the resource-based view (RBV), the use of valuable tangible and intangible resources at the organization’s disposal promotes its competitive advantage. Some of the resources available to M&S are technology, premises, and workers. Makadok (2001) has described RBV proposes that resources of an organization must be specific and non-transferable and firm-specific, and applied to enhance the productivity of secondary resources used to promote a competitive advantage. Thus, resources based on the RBV must be valuable, rare, non-imitable, and sustainable. About value, M&S employs a value-creating strategy by reducing its weaknesses and competing with its competitors. For instance, M&S's strategy is to deliver capital-light expansion in an appropriate way to its markets via partnerships, franchise agreements, and wholly-owned stores to reach the targeted consumers (M&S 2014). Subsequently, the company has been able to offer value to its customers, suppliers, and partners. The products of M&S are also of better quality in its portfolio, which ranges from food to financial services.
To add value to an organization, Makadok (2001) posited that resources must be rare. To be competitive, a resource needs to be rare to allow value addition to the organization. M&S is British-oriented and the rarity of the quality makes the company competitive amidst competitors such as Zara and H&M. Unlike other companies in the clothing industry, M&S has continued to maintain the creation of quality products, which are based on a family approach to dressing. This is unique as it maintains the British form of culture. Under inimitability, Barney (2001) contended that a valuable resource is controlled by one firm, and it acts as a source of a competitive advantage. It also implies that if a resource is non-imitable it cannot be duplicated by competitors (Armstrong & Kotler, 2007). About M&S, knowledge-based resources about the market are not imitable as it has experience in the clothing, food, and financial service industries. For example, its leadership is based on experienced leaders with a much stronger overseas background (M&S, 2014).
Substitutability is a key requirement when a resource is rare, imperfectly imitable, and potentially value-creating. According to Kozlenkova, Samaha, and Palmatier (2014), when competitors are in a position to counter the firm’s value-creating strategy through the use of a substitute, then the major company is not competitive because its prices are driven down. The resources used by the company are sustainable and this makes them rare to substitute. The company has a creative team that creates products of high quality and high to imitate. Nonetheless, companies such as Zara H&M, and Next have provided close substitutes for products provided by M&S, at lower prices (Wood, 2016). Non-substitutable resources increase the competitive advantages of a company. The M&S continues to add value to resources to enhance sustainability by investing in green initiatives, subsequently differentiating its services and products from its close rivals.
A distinctive competency plays a major role in the competitiveness of a company (Porter, 1980). For instance, customer loyalty, strong supplier relationships, and trustworthy staff are intangible assets that promote the distinctive competence of M&S. The M&S resources meet the criteria for competitive resources because they are rare, non-tradable, hard for rivals to imitate, and nonsubstitutable.
Porter's generic strategy is composed of Cost Leadership, Differentiation (creation of unique desirable products), and Focus leadership (providing specialized service in a niche market) (Porter, 1985).
A differentiation strategy is used by an organization to differentiate its products from its rivals and competitors (Daft & Marcic 2011). Under cost leadership, the market leader offers quality products at a lower cost than its rivals. M&S does not use this strategy because its prices are extremely high compared to its rivals. For instance, a pricing problem is experienced whereby M&S’s lowest-priced polo shirt costs at least£15 compared to Next’s which costs £12 (Wood, 2016). Differentiation strategy is based on the development of products with unique attributes, to create value for the consumers. Differentiation focus is whereby the organization not only differentiates its product but also focuses on a particular segment. The M&S employs the Differentiation Focus strategy and this has allowed the company to be a leader in the UK market. The products of M&S are unique and different from their rivals and competitors, and they are based on quality and innovation (M&S, 2014). The brand position of the organization is “Only at your M&S” (Marks and Spencer, 2013), and it is used to differentiate the company from its competitors through the provision of unique products available and sold only at M&S stores. Furthermore, the addition of the quality dimension to all the services and products of M&S has resulted in a high amount of loyalty and customer satisfaction.
Several critical success factors (CSFs) have enhanced M&S’ competitive advantage. For instance, M&S is competitive because it has invested in various sub-brands, an improved in-store customer experience, and in-store bakeries, and it has been able to meet the changing consumers’ needs (Marks & Spencer, 2016). The company also has a state-of-the-art supply chain that was incorporated by Mark Bolland. The supply chain is efficient and effective and it aims at saving $280 million by 2020 (Marks & Spencer, 2016). The M&S has also closed most of its smaller regional warehouses and replaced them with super warehouses for effective distribution to its stores and partners (Marks & Spencer, 2016).
Marks & Spencer Plc. is one of the iconic brands in the UK, and it is among the top ten brands (Vizard, 2015). The company has been successful because of its strong brand promotion via investments in brand-building advertising and innovations (Marks & Spencer, 2016). To develop a competitive advantage over its competitors, M&S has shifted its focus on products through the use of a consumer-focused strategy. The organization also focuses on providing customers with a quality experience achieved via High Street chains and online stores which have improved its market share (Marks & Spencer, 2015).
Assessment of M&S Competitive Strategy
A competitive strategy according to Porter (1980) is the long-term action plan that an organization adopts to enable it to acquire a competitive advantage over its competitors. The competitive strategy for M&S is based on a differentiation focus strategy whereby the company selects to strategically differentiate itself from its competitors via the provision of quality products. According to Marks & Spencer (2016), the company’s strategy is to differentiate its product offerings from those delivered by competitors, with a focus on innovation, technology, and quality as key growth drivers. Such a focused differentiation strategy is promoted through the use of its resources and capabilities to realize a competitive advantage. To assess how M&S’s competitive strategy has addressed the strategic issues identified, the Johnson & Scholes SAF Model is applied. A successful strategy is Suitable (S), Acceptable (A), and Feasible (F) in that it can be supported by the available resources (Johnson et al., 2008). The SAF model is applied to determine whether the issues identified (competition from international retailers, unprofitable clothing and homeware departments, and pricing problems) are addressed by the competitive strategy.
Regarding suitability, the primary strengths of the company include financial strength and a reputable brand that has promoted the success of the company. From the SWOT analysis (Appendix 2), M&S provides a wide range of products that are value for money. These strengths are aligned with the company’s competitive strategy. However, it solves the first two strategic issues and not the pricing problem. For instance, to compete with international retailers and make the clothing department profitable, M&S has embarked on designing clothes that compete with Zara and other retailers, by targeting youths with trendy clothes (Mellahi, Frynas, & Finlay, 2006, Vandevelde, 2017). In addition, through the use of its core competencies, namely innovation, technology, and skilled workforce, the company has invested in e-commerce (Marks & Spencer, 2016). Bolland has emphasized that M&S remains focused on targeted quality innovation in the clothing industry to allow the retailer to differentiate itself from competitors. The suggested solution is for M&S to reduce its product prices, especially in the clothing sector, and be more price-focused. Subsequently, the company could meet consumer behavior and demands as compared to competitors.
Acceptability is related to competitive advantage which affects shareholders. Competition, unprofitable clothing, homeware departments, and pricing problems are three issues that affect the company strategically and have negative effects on the profitability and share value of the organization, hence negative effects on shareholders. Drawing from Wu (2010), M&S could solve the problems by taking a new strategic direction that is not discomforting to the stakeholders. For instance, solving the three strategic problems via technology and innovation does not affect the stakeholders negatively. The company is advised to follow the market trends by increasing the presence of the clothing line. As noted by Jones et al. (2005), there is no need to protract the challenge and be in a position to continue competing with Gap, Zara, and other competitors.
The feasibility element is concerned with whether the company has the required resources to pursue its strategic choices and solve strategic issues (Wu, 2010). From the SWOT analysis (Appendix 2), M&S is a financially stable company, that has more than 80,000 employees, and the infrastructure to roll out the strategic direction (Marks & Spencer, 2015). M&S has the machinery, manpower, materials, make-up, and financial ability to revive the clothing and homeware departments, to increase its competitive advantage.
Conclusion
The paper focused on M&S and its competitive advantage in the market. The three strategic issues identified are a); competition from international retailers (b), unprofitable clothing and homeware departments, and (c) pricing problems. The company has a competitive advantage realized via the use of its core competencies, resources, and capabilities. From the SAF analysis, M&S could solve the strategic issues and be profitable, competitive, and align its products with current consumer needs and requirements. SWOT analysis has established that the company has the manpower and money to undertake the new strategic direction, which entails innovation to produce quality products that can be differentiated from those of competitors.
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