Marks and Spencer: Structure and Culture

1. INTRODUCTION

Marks & Spencer is British institution. Opened in 1884, the company emerged as a major retailer of clothes, food, household items and financial services. By 1997, Marks & Spencer was an international company with sales of over £8 billion and very high net profit margins.

However, the group experienced a shocking reversal in fortune at the turn of the 21st Century when its main customer base, women aged between 35 and 55 began to stop shopping at their stores.

This posed a very serious threat to the company’s survival and Marks & Spencer thought hard and long about how to rectify the situation. It did so by introducing bold new moves changing its corporate culture and by strengthening existing systems and processes. By doing so, the company was able to regain its loyal customers and grow once again. Yet, the last few years have been challenging as the company was badly affected by the global economic crisis.

This report outlines the changing structure and culture at Marks & Spencer’s. It provides a comparison of the contributions of the key business functions to the organizational change. It also identifies the key stakeholders of the organization and the key issues of managing them. Finally, a SWOT analysis is done for Marks & Spencer along with an assessment of its long term future prospects.

2. CHANGING CORPORATE CULTURE AND ORGANIZATIONAL STRUCTURE

All organizations have their own cultures, which consist of the values and beliefs shared by its members which determine to a considerable degree how managers respond to problems and opportunities. But corporate culture can become static and excessively bureaucratic over time, even among successful organizations (Huff et al, 2009).

An organizational culture is powerful because it automatically shapes the way members see their world. Any culture is deeply rooted in beliefs and values that members have internalized. When beliefs and values are held without challenge for a long period of time, they are even less likely to be questioned (Robbins and Judge, 2007). The norms rarely change to accommodate those who deviate from them. Inertia sets in and employees become stuck in a rut. Employees become resistant to change and are unwilling to do things differently because they involve inconvenience and uncertainty. This could ultimately destroy the company.

Like most successful organizations, Marks & Spencer was a victim of its own success. Its corporate culture because inflexible, rigid and resistant to change because it was felt that since the company was successful, there was no need to change. Deeply entrenched was a sense of employee entitlement regarding remuneration and working hours. However, when it became clear that the old culture was unable to cope with changing demands of the marketplace, the top management decided on a major revamp.

As a result, employees became less resistant to change and began to embrace new ways of doing things. Employees were willing to work for longer hours if it meant better pay and they were less resistant to the fact that they might lose their jobs if the company performed poorly. They were also sent for learning and education programs to equip them with new skills sets so that they were better able to cope with changes in the working environment. All these efforts contributed to the change in corporate culture which is now more dynamic and flexible.

A number of major changes were also made to the organizational structure. The formal chain of command was flattened to a certain extent and in doing so the company became more agile and responsive to changes in customer demand and taste. The regional management structure was simplified to delegate more responsibility to individual store managers to give them more autonomy.

3. CONTRIBUTIONS OF KEY BUSINESS FUNCTIONS TO ORGANIZATIONAL CHANGES

3.1 Finance

The finance function plays a critical role at Marks & Spencer in cutting costs and eliminating unnecessary expenditure. The entire value chain was examined to determine where and how costs could be trimmed. As a result, the company was able to reduce costs, provide better prices to the customers and improve its overall profitability. Ultimately, it is the shareholders who stand to gain the most from the initiatives made in terms of maximization of shareholder wealth.

3.2 Marketing

To attract new customers and retain existing customers at Marks & Spencer, the marketing function critically examined the cause of declining sales. The main cause negative customer perception of its main customer base – women aged between 35 and 55 that the clothes sold at Marks & Spencer were unfashionable and even dowdy. Therefore, the marketing function decided to split up the long-cherished St Michael’s brand into a number of categories to cater for different customer needs.

Consequently, the company launched three new product categories for women (www.marksandspencer.com, 2011). The first, the Perfect and Classic ranges were for basic purposes, for example jeans, sweaters and plain shirts. The second range, Autograph is for the more fashionable woman of a larger demographic group. The final range, per una, is targeted at the younger woman of ages 25 to 35 and is of average dress size.

By segmenting its products for different markets, the company was able to regain most of the sales it lost. Different marketing campaigns are held for each range and this makes the company’s products appear more attractive to customers.

3.3 Operations

A number of critical changes were made to the company’s operations. For one, the supply chain was made leaner and in doing so, the company made substantial savings. Fewer suppliers were used and this facilitated transparency and response time. The lead time was reduced and the company placed a greater emphasis on timeliness and quality. These contribute to leaner operations which lead to higher profits.

3.4 Human Resource

This function is critical to the successful implementation of a strategy. The HRM function at Marks & Spencer played an important role in changing employee mindset and modifying the corporate culture to be more attuned to the changes that need to occur (Hitt et al, 2004). As a result, employees were more receptive to change and aware of the sacrifices they need to make.

4. KEY STAKEHOLDERS

The key stakeholders of Marks & Spencer are shareholders, management, employees and customers. The following diagram shows their relative importance and power:

Power of Stakeholders

Meet Their Needs Key Player

B, C A

D

Least Important Show Consideration

Interest

Key:

A – Shareholders

B – Management

C – Customers

D – Employees

5. MANAGING KEY STAKEHOLDERS

Shareholders would like to maximize their wealth. Share maximization is through share price appreciation and dividends (Aaker, 1996). Therefore, satisfying this group would require increasing profits and the company profile.

Management is concerned about maintaining control over operations. Their goals are sometimes similar to that of shareholders but in some cases they differ (Daniels et al, 2007). Hence, there is the agency problem.

The employees at Marks & Spencer are most concerned about job security and work conditions. Ideally, they would like jobs that pay well and have good hours. However, this may be incompatible with the goal of wealth maximization of shareholders as employee benefits will erode profits. Similarly, if employees are unionized, they may cause problems to management and reduce its influence. Hence, management must strike a balance between making employees and shareholders happy.

Customers are concerned about satisfying their needs and wants. Managing them effectively would require Marks & Spencer to improve its product offering to make satisfied customers who make repeat purchases.

6. SWOT ANALYSIS

6.1 (S)trengths

• Excellent control system for suppliers, inventory and layout of stores.
• Very high quality products
• Efficient and modern production techniques
• Good understanding of its core customer base.

6.2 (W)eaknesses

• Generic clothing that is often perceived as unfashionable
• An image of being boring

6.3 (O)pportunities

• Global expansion
• Utilizing more overseas suppliers to achieve cost advantage
• Maximize use of existing technology to obtain competitive advantage

6.4 (T)hreats

• Competition with premium quality clothing manufacturers
• Competition with discount stores
• Economic downturn

7. FUTURE PROSPECTS

Marks & Spencer is facing a very difficult time. After its successful business turnaround, it is once again facing problems due to the recession. Indeed the next few years may be a very difficult time for the company. Not only is it facing competition from high end retailers but discount stores as well. Meanwhile, the middle class is shrinking and if the company does not take bold steps, it may collapse. To succeed, the company must grow its market share by penetrating new markets or new product lines.

8. CONCLUSION

Marks & Spencer is a company with a long history of success. To overcome its current difficulties, it must draw on its strengths, overcome its weaknesses and revamp its strategy to stay relevant and competitive.