Marks and Spencers Business Strategy

attach and Spencers Business StrategyIntroductionIn portion A of this report, we de take leave analyse and assess label and Spencers (MS) regimen vault of heaven seam schema. In forward consultancy task we examined UK super grocery introduce celestial sphere and seam environment. That testament be crucial in watching up-to-date MS strategical position. similarly, it will military service us to identify sources of competitive payoff and at the alike(p) quantify opportunities for future tense strategic positioning. In addition, we capture to be aw atomic number 18 of companys non- monetary achievements as well as quantitative corporate objectives and unwrap performance indicators. Analysing them using balanced wag and benchmarking method will march us, is our strategy sustainable, does it hold back long run perspective and direction we atomic number 18 currently moving. This will be covered in part B of this reportPart AStrategy raise be delimitate as t he direction and scope of an placement over the long term, which chance ons advantage in a changing environment through its configuration of imaginations and competences with the butt of fulfilling stakeholder expectations ( put-onson et al. 2005, pp.9). According to Porter (1996) company can do better than diametric companies only if it can establish a diversity it can cover (Porter 1996, pp.63). Delivering additional range to nodes, providing them with comparable products at debase cost or both is a grievous way to make a difference according to the author.Johnson et al. (2005) presented terzetto Porters generic strategies which could be use of goods and servicesd by companies to achieve competitive advantage cost slip byership, differentiation and direction. It can be cogitate that MS using rivet differentiation strategy. According to the Bowmans strategy time this strategy is seen as tall price strategy which gives perceived tall value to customers. They choo se to differentiate themselves from other(a) forage retailers with pass off look own label sustenance, ready prep bed meals, fresh solid solid viands and victuals for special occasions. They do non describe customers for full weekly groceries shop but gives them additional value for their bullion with focus on trinket and forest. Their simply food stores contributed with high tolerances to overall gross revenue in bypast few course of instructions. Also, they waveed abroad to 40 countries in order to attract new sales events into the same deferral. This is consistent with Johnson et al. (2005) who explained that emergence may be achieved by targeting new sale at the same market niche abroad.In previous consultancy we analyse supermarket sector using Porters five forces framework. That helped us to better understand pains in which MS operates. We concluded that queen of suppliers is high due to a lot of supermarkets and bell ringers. Also the threat of substitut es is high because customers direct want better value for money. MS is sensible of that, peculiarly because that was radical discernment for a big decline in sales in 1990. The power of suppliers is low because of huge number of fragmented suppliers. little terror of new entries is on medium take aim and competition among industry is on high level.The four biggest food retailers in UK (Tesco, Asda, Sainsbury and Morrison) hand over al close 76% market allocate. in that locationfore, MS with 3.9% market allot in 2009 cannot compete with lower price strategy. Their focus is more than on product flavour. The MS food offer has largely focused on the upper end of the aggregated market, typically higher than its positioning for non-food.1 They be exchange own brandmark labels only to their customers which giving them value for money. It helps them in promotion of overall MS brand. The good thing is introduction of whatever branded goods from 2008, because of higher targe ted customers demand.MS food sector strategy lies on companys basic values Quality, Freshness, and Value, Standards of innovation, estimable Sourcing and Healthy eating.2 MS is confine food retailer and food sector is very of the essence(p) to overall group business and performance. It brings over 50 percent of group revenues in UK with sales of 4.25bn in 2009. preceding(prenominal) consultancy overly maneuvers that the most(prenominal) influential bring downs in broad environment related to food industry areFood industry was relatively recession consequence and these days UK is officially out of recession subsequently six incidental quarters.3 High level of inflation in UK (CPI inflation=3 percent) is the reason which contributed to retailers profitability. In 2009, MS reported slightly decrease in margins and profitability. Previous year, they were moving in good direction with initiatives to cut costs (marketing, distribution, support) and reinvest that money in prices to set a align better value to customers. The bad thing is simplification capital expenditures for almost 40% which engender to create value in future.Increasing number of healthy conscious consumers is a second trend. As a premium food retailer who is selling top quality food, this trend is big strategic hazard for MS future strategic positioning. In addition to this, survey show that only one in six customers switched to less expensive and frozen food.4Today we learn environmentally aware consumers. MS is first food retailer who realizes that. Thus, they presented Plan A in 2007 with 100 environmentally commitments to complete within five years. Today, after dickens years they achieve 39 commitments. This strategy have fill to differentiate their food business from chief(prenominal) competitors.Online obtain is also at presents trend and opportunity for retailers. They launched MS direct and cede wine delivery as a result of growing demand.In 2009 MS market share declin e from 4.3% to 3.9% and this is opposite to what board of directors announced in 2008. They predicted growth in market share to 5%.5 In formulating strategy for conterminous year, they have to take into account few things which will have found on customers disposable income. From January 2010, we have increase in Value added tax from 15 to 17.5%. Personal income tax will stay at the same level in 2011.This fiscal judge will affect 70,000 people across UK who are now in higher tax band. Additionally we have announced increase in sin taxes for alcoholic drinks. customers are today expense 36 per person per week on food in UK.6 Previous mentioned changes will have certain seismic disturbance on customers spending habits. Probably they will not cut food expenses, but some products coul be more affected. That is one reason more for MS to provide customers with additional value for money.Part B equilibrise scorecardThe equilibrize scorecard is an integrated set of performance touc hstones derived from the companys strategy that gives top vigilance a fast but comprehensive view of the organizational unit. (Drury 2004, pp.1001). The main question behind the balanced scorecard concept according to Kaplan and Norton (2001) is how to measure future performance. The authors were aware that companies are only in 10 to 30 percent successful in executing its strategy. The main reasons are resource, people, resource and other barriers. For caseful non-understanding of strategy by employees or management fails to pertain budget with strategy objectives. Also they realize wideness of intangible assets, not capital anymore in adding value to company. In this new business environment focus only on past financial measures (profit, notes flow) and not taking into account non-financial performances such as customer merriment could be fatal for organization. The authors presented framework and suggest every company to be viewed from four perspectives financial, customer , internal business puzzle out and learning and growth perspective. either financial and non-financial measures and objectives should be based on companys vision and strategy. That will help managers to have overview over whole cropes in company and employees to better understand global firms strategy. We will use suggested framework to support formulation and slaying of Marks and Spencers current strategy.1. Financial perspectiveKaplan and Norton (2001) argue that non-financial perspectives are grave but the same is with financial perspective. The reason is simple. Effects from other three perspectives will show their impact through companys financial performances. Marks and Spencer current financial objectives on group level and business unit level are to reduce costs and manage hard currency flow.In 2009, the effect of broad environment and recession in UK impacted direction of MS strategy. Because of decrease in UK food sector sales and decrease in market share from 4.3% to 3.9 % they choose to reduce costs with aim to cumber profitability. Food gross margin was down 235 bps at 31.5%. We can continue to use gross margin as performance measure. Also, we could use profitability measures such as Operating profit, income tax return on equity, Return on capital employed and net margin which are already being used as MS key performance measures. The results of reduction costs are, reduced spending in support areas and marketing activities of 8.6% without enceinte customer satisfaction (stayed at average high level of 84%) and increase of only 1.9% in staff costs. These activities will have impact on profitability in coming years. The target for beside year should increase of 10% in mentioned profitability measures. On the other hand, substantive cut in capital expenditures of 450 million had immediate impact on companys cash flow from investing activities. MS also have to focus to on how to improve operating cash flow. They decreased cash innovation cycle for almost 6 days.7 They should further admonisher debtor defrayment completion, creditor collection period and stock clearance period (decrease from 8.7 to 4.29 days in 2009).8 In future, decrease of 10-20 % in stock clearance period and cash conversion cycle could help the company to have upstandinger cash flow.2. Customer perspectiveMain objectives of MS in order to increase market share, acquire new customers and keep customer satisfaction on a high level are to provide customers on targeted market with additional innovation, improved on-shelf availability and to give them additional value for money. The last have roots to year 1935 slogan Dont ask the price its a penny9. They took numerous promotions like Wise buys, Family favourites for 4 and Dine in for two for 10 during the year. notwithstanding this investing in prices across food figure of speech have impact on companys margins, it also provides customers with better value.In 2009 survey, MS is recognized as a leader in top quality food. In future, they should increase wise buys products from existing 10% food prototype and set target measure to 15%. Also, innovation in products should be continued and monitored with comparing percent of new products in overall products. Relating to on-shelf availability, they already employ more people in stores, open new 75 and close 26 stores with underperforming performances. This trend should be continued because it gives customers more lash-up shopping. Customer loyalty, satisfaction and quality customer service are beta in future period especially when market share declined 0.4%.3. accomplishment and Growth perspectiveKaplan and Norton (1996) recognized importance of intangible assets and employees as most important resource company have. In order to keep customers quenched and loyal, company need to invest in its employees, systems and organizational procedures according to Drury (2004). Therefore, employee satisfaction, investiture in emplo yee skill and training must not be overlooked.MS have good communication with employees via MS intranet and employee magazine. The results from employee satisfaction survey Your evidence show high response rate (90%) and consistent score with previous years of 70%. Another two measures could be applied to measure employee capabilities- employee retention and employee productivity. last two derived from employee satisfaction, because only satisfied employee could be productive. investiture in employee skills is recognized as important for MS. Thus, organization of development course of instruction for 2000 lines managers, leadershiphip programme and food academy are vital for future growth and development.The aim to set about most sustainable retailer by 2015 they converted into the Plan A. It is also in accordance with Food industry sustainability strategy presented by DEFRA in 2006. They already fulfilled 39 commitments in order to become energy efficient, send no waste to lan dfill and become carbon neutral. Target of accomplished 15 new commitments per year will keep them on right way to reach this strategic goal.4. congenital business process perspectiveAccording to Drury (2004) internal business process perspective need to give answer on question what business processes will increase value to shareholders and customers and help company achieve its vision at the same time. MS recognizes that investment in innovation process and operation process (decrease distribution costs, maintain supplier satisfaction, increase faculty in value chain and process quality) are vital to succeed.MS already presented innovation in food from national cuisines (Italian, Chinese etc.) and should monitor percentage of sales from these new products, also compare themselves with competitors (at first office staff Waitrose who is concentred on the same market niche- top quality food). To excel in innovation field, they should also focus on market products in which they are first or second in the market according to Drury (2004).Innovations in operation process has aim to make more efficient hang on and value chain in a company. On one side we have suppliers and customers on other. Already half of 2000 suppliers were trained on MS ethical standards. Distribution costs will be managed with implementation of use up software and building of domestic and international logistic and distribution centres. at one time a build, they will significantly decrease distribution cost and time.Balanced scorecard method (BSC) will help organizations to translate vision into performance measures and improve communication within the company. Also we have to be aware of some limitations of BSC. Othman (2007) argues that BSC is static, ignores external environment and treat company as automatonlike system. Drury (2004) describe that empirical study failed to provide evidence that link amongst non-financial data and financial performance in future exists- which is the assumption of BSC method.BenchmarkingThere are numerous interpretations of benchmarking. One of the first books written about benchmarking providing definition of this method was in The search for industry best practices that lead to overlord performances in 1989 by Camp. Until today many definitions emerged but still the most quoted one is from this book that says Benchmarking is the search for the best industry practices which will lead to exceptional performance through the implementation of these best practices (Ungen 2007,pp. 335).In this part, we are going to look at our internal strength and weaknesses, make resemblance with our closest competitor in UK market- Waitrose, because both have almost the same market share of about 4% and the same market focus- top quality food. At the end, we will make comparison with Tesco and Sainsbury as a market leaders and see could we use knowledge to improve our operations. here(predicate) the aim is to learn from our competitors, not o nly to compare with them.First we have to understand our internal position- segments we are good at, possible opportunities and segments where improvement is needed. MS differentiate itself with high quality food and at the same time have perception among customers as a top food retailer. It has strong brand for last 125 years, strong internal financial sources and good communication with customers and suppliers. Almost 100% own label food is advantage but at same time could be weakness. So, they start selling branded premium food which they do not produce. Main opportunity is in further expansion to international market. Today, MS has 296 stores in 40 countries with significant 26% increase in international sales. In future, they should expand more as a wholly owned business, not as franchising business.Second, comparison with Waitrose we will start comparing their financial performances because they will show us how successful other perspectives from the balanced scorecard are. An MS food sector sale is down 0.1% at 4.25bn with loss of market share of 0.4%. On the other hand, in the same period Waitrose increase its sale for 5% to 4.2bn, market share 0.4% and decrease in operating margin 45 bps to 5.1%. Increase in Waitroses margins is at some part result of 13 Somerfield stores acquired in 2008. Waitrose is also focused on premium extreme food brand. Comparing with Waitrose, MS opened 47 stores more and is selling 3600 products more with much more own label food selling. This store opening trend in previous years was primary reason for margin increase but now MS should nearly monitor store performance (already close 26 underperformed stores in 2009) and different product lines and replace slow selling products. MS in damage of pricing is above Waitrose and selling almost 100% own brand food with products made in UK is major difference from competitor.10 As a result their sales depends entirely on own label products. In addition to this in 2009 MS made a c ut of 127m in marketing activities which was important for him in food sector positioning.11 In collective social responsibility section, MS is leader with presented 100 commitments plan A. Also partnership with Amazon will help them improve on-line shopping segment. On the other hand, Waitrose presented online food delivery service which could be next step for MS in satisfaction of customer needs.In UK food retail sector, major market share has Tesco and Sainsbury. They both have addition to economies of scale and price promotions are fundamental part of their strategy. On the other hand, MS differentiate itself with providing additional value not cheaper price to customers. Despite different in size, MS could use good practice from leaders to achieve better results. Sainsbury launched these days promotion buy now free next time.12 MS could implement these on 500 wise buys products which are 10 % of range in a one month period and closely look at sales, profit margin and overall financial effect. Also, Tesco since last year increase 29% percent increase in marketing activities.13 In year where we have 13.8% drop in organic food sale, cutting marketing activities as MS did should be re-examined. Tesco, for example offer double points in order to keep customer loyalty. MS has only 39 outlets out of 668 stores in UK. This number should be change magnitude in future because of rising consumers demand for convenience shopping. Also, search for value and healthier eating will be still in customer focus.14Benchmarking can support BSC with recommendations from outside the company how internal, customer and learning and growth perspective could be improved. One of the main critics to benchmarking according to Johnson et al. (2005) it will not identify the reasons for companys good or poor performance. But Benchmarking as a tool have aim to improve companys performance and can support BSC. Therefore, synergy between benchmarking and BSC and implementation of current trends and best practice into organization will improve financial perspective of our company.ConclusionThis report showed importance of understanding broad environment and market sector in strategy formulating and implementation. For example, mature supermarket sector in UK is one of the reasons for MSs decision to invest in developing countries in the same premium food market niche.In part B we showed changed focus from capital to intangible assets and from financial to non-financial measure. It is important for MS to monitor all four perspectives in order to have sustainable long- run strategy. Also it is vital for MS to understand what facors wreak the financial and operational performance. Therefore, benchmarking and BSC should be used together in strategy formulation and implementation.ReferencesCompetition Commission (2000). Supermarkets a report on the tot up of groceries from multiple stores in the United Kingdom. Chapter 5. online. locomote accessed on 24 April 2010 at www.competitioncommission.org.uk/rep_pub/reports/2000/fulltext/446c5.pdfCompetition Commission (2008). 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