Strategic change

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Strategic change can take many different forms, all of which have their place within a successful company. Certain types of change are more useful in certain situations than others.

Evolution: Transformational change implemented gradually through interrelated initiatives; likely to be proactive change

Adaption: Change undertaken to realign the way in which the organization operates, implemented in a series of steps

Big Bang

Revolution: Transformational change that occurs via simultaneous initiatives on many fronts; more likely to be forced and reactive because of the changing competitive conditions that the organization is facing

Reconstruction: Change undertaken to realign the way in which the organization operates, with many initiatives implemented simultaneously; often forced and reactive because of a changing competitive context

The strategic change within M&S was purely reactive and incremental. Management had a tendency to let the organisation run its own course and only interfere and cause change if something had gone wrong. This type of change is perfectly acceptable when a company is profitable, has a strong market presence and is successful. This type of change cannot continue for the lifetime of a company though, because consumer tastes vary over the years it is often necessary to pre-empt and anticipate these variations. In order to do this the role of management must be proactive toward change. Occasionally something dramatic will occur which requires a more serious change than simply an incremental tuning or adaptation.

This appears to have been the case with M&S, however the changes made were still largely only incremental when it appeared to outside observers that more striking changes were required.

In late May 2000, M&S announced a dividend cut for the first time ever as it reported a sharp fall in profits for year ending 1 April 2000. Two months later, Marks & Spencer's Executive Chairman, Luc Vandevelde, only five months into his new job, said that he is "more convinced than ever" that the company will turn around, but stressed shareholders will have to be patient as there are no quick fixes.

The shareholders' disappointment and the failure of previous years' strategies were translated into the announcement of a new M&S top management team, on 18 September 2000. The Executive Chairman assumed the responsibilities of Chief Executive from Peter Salsbury, who resigned from the Board and left the company. Nevertheless, two weeks afterwards, shares in M&S dipped below 200p for the first time in its history.

Refocusing Strategy

In March 2001, and following a wide-ranging and detailed strategic review of its business, the Board of M&S announced significant changes to the Group strategy and structure. The highlights of the plan were:

The Company planned to return to selling only own brand products and brands exclusive to M&S so it could guarantee customers the quality, value and service. Central to the recovery plan was to be the delivery of significant improvements in product appeal, availability and value, thereby rebuilding the relationships with core customers. The following comprise the key courses of action:

Clothing

The Company aimed to regain the confidence of its customers in the quality and fit of its clothing by extending the range of entry-price merchandise (premium quality) and communicating this clearly to customers.

Food, Home and Beauty

M&S Foods was considered to be a key platform for future growth, with opportunities to expand reach through new locations and selling channels. The Home (furniture, furnishings, etc) business had experienced good growth, with home furnishings and gifts the fastest growing product areas. Beauty, albeit relatively small, was also growing rapidly.

Store Revival

The Company would step up the roll-out of the successful elements of its new concept format under a plan to refurbish more stores faster and at lower cost. Selling space would be reallocated to higher growth product areas to maximise returns per square foot. 600,000 sq ft was to be reallocated within the year to areas such as the new Clothing range supplied by George Davies, Home, 50 new Beauty Shops, and 30 new Coffee Shops.

In order to be more customer-oriented, some stores in big cities were to be open 24 hours perday, while others in the UK were to be modernized in order to create a more attractive, easy-to-shop environment. With all changes, the company expected to raise the operating profit in the UK by 10% approximately (?40 million) per year.

Financial and Cost Cutting Measures

In order to focus all its efforts on the recovery of the UK business, several courses of action were proposed by management. In brief, these included the following proposals:

Close the loss-making business in Continental Europe (France, Germany, Belgium, The Netherlands, Luxembourg and Spain), affecting some 3,350 jobs. The stores were considered to be too big and the company hadn't properly understood the markets before investing in them. Dispose of its two profitable US businesses, Brooks Brothers and Kings Super Markets.

Sell the Company's 10 stores in Hong Kong and convert to franchises. Close its loss-making catalogue business including a dedicated call centre and fulfillment centre. In 2000, losses of the direct catalogue unit amounted to ?38.6 million. Release value from almost half of its extensive property portfolio (78 stores) and rent back the properties in which it operates. Reduce the costs of goods sold, using fewer UK suppliers and more foreign suppliers, mainly from Asia. At present UK suppliers represent 70% of total purchases. This will be reduced to 25%. This measure will allow a reduction in sales price and an increase in profits.

Reduce general and administrative costs at Headquarters, where 350 jobs will be axed.

Reduce the investment in inventories by 10%. That means a reduction of ?90 million.

Return ?2 billion of cash to shareholders by the end of March 2002 in order to create a more efficient capital structure and improve the potential for a faster rate of earnings growth.

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