Marks and Spencer are a UK retailer focusing on home ware, clothing, and groceries. Originally the company was nothing more than a small market stall on Leeds market; however, good quality goods and a strong family reputation resulted in the firm expanding globally (Marks and Spencer, 2010a). The company experienced great success in the run up to the 1990s, however, increasing competition and a failure to respond to the external environment resulted in ‘strategic drift’ (Johnson, 1992). O’Brien and Dyson (2007) notes how organisations cannot stand afford still and this is reflected in this case study. Marks and Spencer can be noted as a classic example of a firm which experience the type of change noted in the punctuated equilibrium model (Romanelli and Tushman, 1984). It is marks and Spencer’s culture which is both the dual cause of their success and failure. A strong organisational culture was an important intangible asset of Marks and Spencer in the run up to the 1990s, the company had a strong family feel, and it was this family feel which made the company approachable to the everyday consumer. At that time quality, basic goods were sought and marks and Spencer were able to meet this demand better than anyone on the high street at that time. However, as the 1990s approached, competition increased and fashion took its place over practicality. At this time it was Marks and Spencer’s culture which restricted its ability to adapt to a changing external environment. The company were no longer providing what the customer required and this resulted in a loss of sales and market share. However, the appointment of a new CEO and a new strategic focus on customer needs resulted in a revitalisation of the UK firm. That is until now where once again it appears Marks and Spencer are facing competition from the high street.
Marks and Spencer (M&S) currently face the strategic challenge of reviving their two core-businesses food and clothing, which is currently suffering dangerous competition from more fashionable and fresh high street competitors. The clothing line has recently performed well, however, it must now persevere to attract the younger, more fashionable consumers that have previously been marginalised, while holding on to the more traditional consumer demographics (Felsted & Rigby, 2010). It is clear that the clothing business is driven by women’s wear and while a variety of sub-brands such as Indigo (casual wear), Portfolio (for mature women) and Blue harbour (for men) have brought positive, it is uncertain whether these sub-brands should be retained or let go in order to appeal to the desired young consumer demographics. With regards to the food business, difficulties have been experienced as result of the recession and strong competition from supermarket rivals such as Waitrose, Booths and more broadly more mainstream supermarkets such as Tesco and Wm Morrison whose premium ranges place significant pressure on the M&S food business. As a result differentiation is becoming more difficult and price cuts less avoidable which lends itself to the ethical grey area of supply chain power, whereby supermarkets pressure low powered suppliers (farmers) into selling their produce for minimal prices.
The adoption of Porters five forces model to solve the problem.
Porter’s five forces framework can be used to ‘identify rapidly what the crucial structural features determining the nature of competition in a particular industry are’ (Porter, 1980); Porter believed that this is where the majority of analytical and strategic attention should be focused. As Marks and Spencer are facing a threat which notably can be seen as a competitive threat, it is recommended that the Porters five forces model is used to strategically deal with such a problem. Morecroft (2007) noted how models are based on forces, and Porters five forces illustrates just that.
Firms have an aim to sustain long term profitability, and in order to do so they must respond strategically to their competitors. However, as well as monitoring the moves of their established rivals and direct competition, Porter advises firms that there are four additional competitive forces which may hinder future profit and a firms competitive advantage. These forces are noted as: barriers to entry, threat of substitutes, power or suppliers and power of buyers and the force of existing rivalry between firms which traditional strategy focuses on. Barriers of entry regard aspiring entrants to an industry which may affect an existing organisation in an industry. The higher the barrier of entries the lower the chance of someone new entering the market and stealing market share from an existing industry player. An industry with notoriously high barriers to entry is the pharmaceutical industry, in which high research and development costs combined with a high risk environment make it an unattractive market for new entrants. The next force is the threat of substitutes which refers to products or services in the industry which may meet similar needs. The existence of such substitute’s results in customers having increased choice to switch over to other products and thus this can cause problems for organisations. Such problems will be reviewed in detail later. The power of suppliers is a factor which is determined by the amount of bargaining power suppliers have over participants in an industry (Henry, 2009). For example; if suppliers in an industry are more concentrated than firms within an industry than this is likely to lead to the power shifting from the firm to the supplier. Finally, the power of buyers regards buyers affecting an industry through their ability to force down prices. This may be particularly the case in those industries where there is a large concentration of buyers and buyer volumes are high.
By understanding how the five competitive forces influence profitability within an industry, Marks and Spencer can develop strategies to enhance long term profits. A strategist should be focused on understanding competition and formulating strategies to deal with such a threat and, in order to deal with competition fully the industry structure must be understood. By understanding the competitive forces and most importantly their underlying causes the ‘roots’ of an organisation can be understood. This will reveal the current profitability as well as providing a framework for firms to be able to anticipate and influence competition and ultimately profit over time. By understanding industry structure the firm will be able to position itself effectively strategically in the form of defending itself against the forces. At present it appears that Marks and Spencer is unable to position itself against completion, and thus this model should be able to increase the likelihood that marks and Spencer will position themselves in a manner which is successful competitively.
In practice, Porters five forces framework should be used to do three things. Firstly it should be used to position Marks and Spencer where the forces are weakest. For example; Marks and Spencer may choose to focus on one particular customer group within in the industry where the forces are weak. Secondly, it should be used to exploit changes in the forces. A review of the forces will enable Marks and Spencer to develop strategies to notice changes in the forces, and use this information to shake up the competition. Finally and most importantly, firms should use the framework to reshape the forces in their favour. For example; Marks and Spencer, in the past have had supplier issues. Prior to the 1990s the company solely focused on expensive UK suppliers. However, if they had used Porters five forces model they would have been able to neutralise supplier power by standardising production so that the company could switch between suppliers and thus, shift the power away from the suppliers and back on to the company. High power of suppliers is troublesome due to the fact that it can raise the cost of producing a product which ultimately will have an effect on the bottom line profit of the firm. Thus, a firm faced with high supplier power must do what they can to neutralise it. If faced with an industry where buyer power is high, a firm could expand its services and increase its added value services so that a customer finds it harder to leave for a rival. Companies such as Boots plc do this through their advantage card system. This is an area which Marks and Spencer have never strategically considered. Other ways to reshape the forces include diversification. For example; the company could invest more heavily in products which differed from the competitor’s offerings.
Thus in summary, Porters five forces model is being used to address this strategic problem due to the inherent focus the model has on competitive threats and the inability of other models to tackle this problem. Porter was able to provide a model which would not only help a company respond to competitive threats but would do so in a manner which would help the firm to position itself strategically (. Marks and Spencer’s problems as noted in the financial times reflects a strategic problem of an inability to deal with competition and thus this model should shed light on the problem. This paper will now move on to discuss the strengths and weaknesses of the model before moving on to discuss the stages in the modeling process.
2.1 Strengths of the model
This model is widely regarded in the literature as being a model which is both applicable to international business (Hill, 2007) and strategic management (Henry, 2007). Whilst many firms use for deciding entry into new international markets, Porters five forces is best used for strategic decisions. The main advantage to the model is its ability to highlight all the threats facing an organisation, so that the most prominent threat can be dealt with in a strategic manner. Other forms of competitive analysis fail to deal with ‘real’ competitiors. Too often, firms believe all competition is in the same industry, however, as the model points out often it can be the threat of substitutes which is most concerning to an organisation.
2.2 Weaknesses of the model
However, despite the noted advantages to using the framework and the answers it can hold for a strategist. Thought must be given to how Porters five forces is used, and how the way it is used can ruin its effect. Firstly, defining the industry too broadly or too narrowly can cause firms to have a narrow focus which may limit their opportunities and understanding of an industry. Secondly, paying equal attention to each one of the forces is an unwise move, and instead firms should look to choose the most prominent force and deal with that force. Finally, rather than use the analysis to see if an industry is attractive or not it should be used to guide strategic choices. Perhaps the most important criticism of the framework is that it fails to be appropriate for those markets which are dynamic and ever changing. However, the framework can be used to identify trends and no tool as of yet is able to deal with vastly dynamic conditions (Porter, 2000).
Furthermore, perhaps the most prominent and widely noted criticism is the static nature of the model. Industries and markets change consistently, and the position of competitors changes too. Thus, to view competition in such a static manner can often be seen as a pointless activity. However, it is noted in this case that the advantages of the model and the specific reasoning behind why Marks and Spencer are in need of such a model justify its use.
The modelling process
The first important step noted in the literature is to assess what industry the company are in. Marks and Spencer must aim to narrow their industry by looking at the products and services they offer. This will provide an understanding as to the scope of competition. Next, the company must review each of the five forces in turn. At this stage all forces are considered at once, it is only later that the most prominent force will be chosen. Here, Marks and Spencer will review each aspect. First, they will assess the concentration of suppliers within the industry. Are they at a position to negotiate and bargain with suppliers, or do they find themselves in a position in which the suppliers have the power and are thus driving down cost? Supplier power is an important factor and a force which can greatly alter how a firm positions itself in an industry. Next, the firm must consider the barriers to entry. This is a force which may greatly alter the competitive set up of an industry in the future and thus, if barriers to entry are low, it is important for Marks and Spencer to do what they can to mark their dominant position thus making it difficult for a firm of a similar nature to enter. This force will be reviewed by looking at regulation, inward FDI policy, and most importantly looking at market leaders which may have a presence which is working to deter new entrants. The next step in the modelling process is to assess the rivalry between firms. What is the intensity and nature of the competition? Who do marks and Spencer regard as their most prominent threat? Here the company have to be sure to give a realistic account of the industry and thus any evidence of price wars must be taken into consideration. The next force to consider is the power of buyers. In order for this force to be modelled, the strategist must look at customer demands and needs. Are customers willing to pay a premium for goods offered, or are they at a position to drive down cost by shopping elsewhere. This force is inherently linked with the threat of substitutes and thus, these two forces can be viewed together. Substitute products are important to note and ensure that Marks and Spencer do not have a narrow vision of their competition.
Porter (1998) then notes how a firm must review these five forces together to reveal the set up of an industry. From this a firm may be able to identify the strongest force. In the case of Marks and Spencer this threat is likely to be the existing rivalry between firms. Thus, the firm must then seek to respond strategically to such a threat. One way noted in the literature to respond to such a threat is to increase the intangible resources of the firm. If Marks and Spencer can seek to heighten the experience customers receive when shopping at Marks and Spencer they will likely be able to reduce buyer power and respond strategically to competitiors. Thus, it is recommended to Marks and Spencer that they introduce a loyalty scheme to reward loyal customers, and attract new customers.
Speed (1993) was one of the most prominent academics to criticise the work of Porter. The first criticism is that the models roots and development are from the early 1980s when cyclical growth characterised the global economy (Recklies, 2001). Thus, such growth surrounded objectives of profitability which it is argued were more easily identifiable due to the stable nature of the environment. However, today’s markets are dynamic and thus it is argued such a model is no longer appropriate. Furthermore, criticism arises from the fact that in an ‘economic sense’ (Recklies, 2001), the model assumes a perfect market. Therefore, the more regulated a market may be the less likely it is that the model will be able to deliver true insight. Furthermore, specifically in the case of Marks and Spencer it can be seen that the model may be unable to deal with the complexity of the product range offered by the company. A narrow focus may result in important elements being missed out (Recklies, 2001).
In conclusion, the five forces reveal why industry profitability is how it is. Once this is achieved a firm can look to incorporate industry conditions into its strategy. By providing an overview of the most significant aspects of the competitive environment it can be incorporated with the SWOT analysis to reveal a company’s strengths and weaknesses in line with the industry. Perhaps most importantly the five forces enable a firm to position the company to cope with current competitive forces as well as being able to anticipate changes in the future, and, it enables a firm to recreate the balance of forces so as to create a new industry structure. If strategy is about positioning the company in an optimum position, then the framework can be used to find a position in the industry where the forces are weakest or to build defenses against competitive forces. Thus, by using the framework as a starting point in the formulation of strategy a firm is considering both the external environment and its industry. This is something which Marks and Spencer would benefit from due to a reoccurring strategic problem in which they find themselves unable to deal with competition.
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