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Corporate Strategy Governance

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Introduction of Critical Corporate Strategy Governance

Corporate Governance is a huge and global concept. It is relevant where people are grouped in structure and it is even more relevant when groups of those structures get merged with customers or staff members. It is closely linked with human specifications such as ego, wealth creation, risk, morality etc. it is the most important aspect of organizational management regarding international trades and policies (Gugler, 2001). For regulating in business organization's activities it is the most specialized mechanism to follow.

In the current scenario, Marks and Spencer is a public limited retail company situated in Leeds, UK headquartered in London around 86,000 workers are employed in this retail group. The main aim of this project is to evaluate the ethical and corporate governance factors and the effects of these factors on the management of these organizations. Impacts of social, environmental, legal and governmental issues also have been explained in this report. To face this issue company frames different strategies and operations have been explained broadly.

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Critical Analysis of the Specified Organization

Mark and Spencer is a retail industry which has a specialized business of manufacturing home products as well as food products. After a few years of establishment, the firm became the first British retailer to create profit before taxing over 1 billion pounds. According to Solomon (2007), the two partners in the 1990s made long-term relationships with British manufacturers to sell clothing and food items. Using the method of stoking size the firm put stress on its quality in 1957 (Bebchuk, Cohen and Ferrell, 2009). Later on Marks and Spencer began to sell Christmas cakes and Christmas puddings. They also started to sell Swill rolls in the market and along with that to improve the quality of their rolls they hired a food expert for the entire cake range.  

In UK Marks and Spencer are known as “Marks and Sparks”. Brands such as Coca-Cola and Stella Artois were sold in 2009 by the firm. Hospitality outlets such as canapes, seafood, burgers, chips, and soups were sold in large M&S shops. In 2007 M&S launched new shops offering home furnishing products. The mentioned firm is the leading retail firm in the UK where over 20 million people visit its shops every week. M&S has over 418 international stores across Europe, the Middle East and Asia. According to Levine (2004) in the context of market share, the mentioned group is expanding its business in womenswear and Lingerie in the UK (Denis and McConnell, 2003).

 It has different formats of shops such as Core shops, Outlet shops and M&S simply food. Core shops include clothing products and M&S food halls. But the range of products in these shops depends upon the number of customers according to demographic conditions whereas M&S Food Hall's expertise in selling groceries under its own brand name. Outlet shops is specialized in selling products on discount offers such as at least a 30% discount on the original price of the product. Most of the outlet shops of the firm are located in retail parks and outlet centres (Aoki, Jackson and Miyajima, 2008). M&S Simply Foods includes food items along with general merchandised products such as marriage cards, birthday cards and homeware.

The firm specializes in three main products namely, clothes, housewares and food items. Regarding clothes, it includes a collection of children, men and women. Different lines in its brand name such as Linen with Love, skirts, Original and authentic laundry, Basic jeans, umbrellas etc are produced and sold for female customers. It also sells classical products like smart casual seasonal clothes, scarves, hats, socks, pyjamas etc. The main aim behind selling classical clothes was to target women above 55 years of age. Its classical shoes, hats and frocks were made for women in the UK while T-shirts were made for Asian countries. According to Daily (2003), the UK's biggest men's casual brand is Blue Harbour which has been spliced into Heritage, Luxury and Golf(Solomon, 2007). In the context of housewares, products like interior design, kitchen equipment and furnishing are present. For example, the furniture includes kids' bedrooms, sofas, dining- tables, bathroom furniture etc. In 2008, the form launched Electricity and Gas for Home.

Critical analysis of the organization's environment

In order to remain competitive business environment, every firm needs to maintain its standards regarding the changing internal and external factors. Those internal and external factors are also called macro and micro economic factors which influence business operations up to a very large extent (Larcker, Richardson and Tuna, 2007). These factors not only enable the firm to be competitive but also provide benefits in making strategic planning considering its stakeholders. According to Blair (2010) despite being the largest retail firm, the company faced huge challenges like a double flip economic recession which impacted customer's purchasing power. In spite of all these barriers Marks and Spencer remained constant to run the business and finally made a profit of 564.3 million pounds in 2013/2013. to understand the micro and macro environment, the firm's culture and operational management should be focused.

Another threat of substitute products is also to a high extent. There are various retailers doing business in clothing and food and about which the mentioned firm should be concerned. As discussed earlier, the changing needs and preferences of customers affect a lot to any industry, especially the retail industry therefore change in consumer bargaining power also matters a lot for the above-stated retail firm. This factor indicates that suppliers have a great chance to influence retail firms by demanding high values. Therefore this gives birth to high competition because of a little differentiation in product. The threat of consumers affects a lot on the retail firms because they cannot be changed but if suppliers' bargaining power changes, the retailers can change their suppliers at any time because of the availability of a huge number of suppliers in the market (Blair and Roe, 2010). According to Cohen (2009) especially, Marks and Spencer need not worry about their supplier's barging power because it has a large number of suppliers in contact.

Macro analysis of the firm

It is also a very crucial factor that influences the firm because they are external and uncontrollable as well. Due to their uncontrollable features, the firm has to maintain its decision-making process and alter its strategic planning from time to time. In order to overcome this situation, the firm needs to use two methods such as SWOT analysis and PESTEL.  

SWOT analysis is the tool which helps determine the firm's internal as well as external factors that are crucial in meeting the goals of the firm. This analysis helps in identifying the strengths, weaknesses, opportunities and threats of the firm. Therefore this criteria helps the mentioned firm to know about its strengths and weaknesses along with opportunities and threats.  However, the strengths of M&S firm are that it has a broad range of products such as clothes, furniture and food products so if any of the products do provide much profit then managers can change the line of products immediately  (Levine, 2004). Another strong point of the firm is that it is the largest retailer through its sale which clearly shows it has a large number of consumers. According to Jackson (2008) along with these two above-mentioned strengths, it has a powerful cash flow position which is beneficial for capital investment. On the other hand, in spite of good strengths, the mentioned firm possesses some weaknesses too, for example, as a large retail firm, it produces numerous products which create extra and unwanted pollution that is harmful to people residing near the factories and degrading atmosphere. Many people have the perception that as it is a large firm its products are highly-priced, therefore they are not likely to purchase products and this is a major weakness of the firm (Xie, Davidson and DaDalt, 2003). A high level of competition is penetrating the firm changing its decisions and strategies from time to time and this is creating instability in the procedure and operations of the firm. Entrance of new and existing firms is a major threat to Marks and Spencer retail firms.

PESTEL, are the external factors which include political, environmental, social, technological, economic and legal factors that affect the above-stated firm in preparing its strategic planning. According to Richardson (2007), this technique helps the firm understand the external environment and decide on how to manage the operations through effective planning.

  • Political: These factors include trade barriers such as Free trade agreements and European integration which are creating panic for M&S firms. Not only the mentioned firm but every organization in the UK must have to follow the laws and policies imposed by the government.  
  • Economic:  Due to the economic recession and sensitive interest rates, the retail sector of the UK has been greatly affected.
  • Social: Customers are the leading players in social factors. These changes in taste, buying behaviours needs and demands force the firm to change their strategies and policies.
  • Technology: The use of the latest technology provides good support to the mentioned firm through the Internet (Levine, 2004). This factor allows users to buy online and save a lot of time without visiting the shops.
  • Environmental: Nowadays every organization is focusing on factors related to the environment. According to Ferrell (2009), each firm is using an environmentally friendly policy in order to save natural resources that are essential for survival.
  • Legal: Laws and regulations are vital for retail industries, in fact, every company to run business within defined limits. The main aim behind these laws and regulations is that no firm can perform its operations beyond the limits of unlawful activities.

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Organization's Relationship with its Core Competencies

The mentioned firm is the largest retail firm in the UK so definitely it has a strong financial position. Through its financial strength, it can overcome issues related to environmental changes such as changes in the needs and preferences of people or recession. The mentioned firm should keep some strategic approaches for the organization such as mission and vision, well-planned policies and optimum and efficient use of resources (Xie, Davidson and DaDalt, 2003). The firm should keep its strategic planning well focused keeping in mind the changing external factors. According to Roe (2010), the main aim or goal of the firm behind keeping good strategic management is to remain constant in uncertain or unspecific market environments. Strategies can be made by evaluating the current feasibility and suitability of the firm. The mentioned firm has faced many issues related to external factors due to which there occurred a downfall in profitability and market value.   

Research and development have shown that Marks and Spencer has a high level of competitive advantage in regard to its product quality and customer satisfaction. PESTEL analysis is an important tool used by the firm to manage its operations. Various political factors affect firms in making their strategies and considering those factors the firm must ensure consumer's rights and duties (Blair and Roe, 2010). These factors show that firms should maintain their market share.  

In the strategic efforts of Marks and Spencer, they do not lower their prices either in season or off-season so customers started to change their buying behaviour according to season meanwhile the mentioned firm ignored customers' perception and this this strategy has impacted a lot. In the competitive rivalry, the mentioned firm focuses more on its products as they are product-oriented while on the other hand, the competitor are customer-oriented oriented who focus more on their customers. According to Gugler (2001), another great tool used by M&S is SWOT analysis which identifies both internal and external factors of the business environment. To make an effective competency condition, the firm needs to focus more on its product's quality and innovation.

Influences of social, environmental, ethical, legal and governance issues on the business organization

  • Social: Social factors include customer's tastes, preferences and lifestyles. This creates threats in order to change its operations. Therefore, management needs to be flexible because of the changing environment. Continuous feedbacks from customers play a dominant role in making strategies because changes in customers can be determined through them only. Managers need not only to focus on product quality but also on customer perceptions because their needs and demands are always changing (Blair and Roe, 2010). Consumers are more likely to be loyal towards one single brand and the quality of products manufactured. However the mentioned firm is very old, it definitely gives a clue that its products are classical but modern customers need trendy products. According to McConnell (2003), this factor also should be kept in mind by managers while making strategies.   
  • Environmental: Today every firm is in seek of making strategies keeping in mind the environmentally friendly policy. It is the main theme of every organization, most especially for a retail firm which is involved in the production process. Firms need to produce products in such a way that it cause minimum pollution. It can be done by fitting chimneys at the top of factories from where polluted air goes through. At that point, polluted particles get filtered by chimneys that ultimately control air pollution (Xie, Davidson and DaDalt, 2003). Laws enacted towards the environment have impacted greatly on the mentioned firm so that it is making clothes using environmentally friendly fabrics and raw materials.
  • Ethical and Legal: - These are the factors which influence the firm by different laws and regulations. One of the latest laws passed by the laws globally is directly related to the environment because due to the increasing population, the environment is getting polluted so more and more focus is given to the environment because of the law passed by the government. According to Solomon (2007), another example of this factor involves competition wherein any firm cannot make changes in its pricing policies that affect the competition because this is against the law. This can be regarded as unlawful and the firm excising it can be punished by law. The laws also state the health and safety of customers, in other words, products should not have a negative impact on customers after their usage otherwise customers are given the right to file s suit against the manufacturing industry (Blair and Roe, 2010). So the mentioned firm needs to focus on customers as well as products also.
  • Governance:  Governance is also known as a regulatory authority which plays a vital role in every firm.  There are certain limits set by the governance beyond which no firm can pass. Every firm has to follow rules and regulations passed by the regulatory authority. For example: tax policy, interest rate, export-import, production quantity, supply of raw material, profit margins, sale volume per year etc. All these things need to be kept in mind to not break laws.

Framing of Issues in the Firm's Strategy and Operations

Operating in the retail sector it is important for Mark & Spencer to manage and control its business operations in an appropriate manner. However, at present company specializes in various categories of products such as clothing, home appliances and luxury food products. According to Harrison (2007), top-level management has various responsibilities and authorities regarding framing strategies so that the execution of business operations can achieve desired goals and objectives (Hummels, 2010). As studied in the above questions, there are several approaches and methods that the cited firm is taking in order to overcome external issues. These are:

  • Social issues – As per the view of Joshi (2004), Mark & Spencer's top-level management is making valiant efforts in order to overcome social issues as these will help the firm to attain a competitive edge within the market (Ayuso and et. al, 2011). In regards to this, the company aims to fair partner by working very closely with suppliers in order to make sure both of its major stakeholders employees and communities in the M&S supply chain benefit. Offering a variety of products  Mark & Spencer aims at enhancing the standard of living of the people so that overall better society can be developed. To attain the goals, the cited firm is making tremendous efforts like good pay scale, effective supply chain management and increasing health and safety standards. Along with that, Mark & Spencer PLC also incorporate stakeholders by keeping transparency within work and providing them with appropriate information so that they can make smart and correct decisions (Ross and Harradine, 2010).
  • Governance issues - Mark & Spencer PLC launched a so-called plan A which majorly addressed the social and environmental impacts of a retail business. According to Wicks (2007), the main aim of the plan was to enhance the efficiency of the business operation of Mark & Spencer PLC so that it could easily attain desired goals and objectives (Kapelus, 2002). However, the firm has committed itself to high standards of corporate governance by indulging different sets of principles in a combined code to execute business activities ethically and appropriately.  
  • Ethical and Legal issues – As per the view of Rubin (2010), retailers have realized that ethical and legal aspects of business operations is quite essential and it is helping the course of the corporation (Carrillo, 2007). However, Mark & Spencer with the mission of enhancing the standard of living for overall society has to ensure that its employees behave ethically with other people, that quality of services is offered to customers, maintains relationships with suppliers in order to maintain quality of raw materials etc (London and Hart, 2010). On the other hand, operating in different countries top-level management has the responsibility to make sure that all the rules and regulations are followed so that functioning can be accomplished in a legal manner.

Management of tension between responsibilities and shareholder value

Being a public limited company Mark & Spencer has various responsibilities regarding different stakeholders but one of the most common is to maximize shareholders' value so that they can constantly invest in the future functioning of the firm so that they can attain desired goals and objectives in the near future. According to Ayuso (2011), a company has the major responsibility over its shareholders as they are the major source of funds. But contrary to that Orchard, (2013) stated, that corporate governance deals with corporation organisation and decision-making structure (Freeman, Harrison and Wicks, 2007). The main aim of having corporate governance is that it assists in ensuring efficiency so that all activities can be performed in an effective manner and efficiently customers are served.

According to Kapelus, (2002), Corporate social responsibility is emerging as a crucial tool or technique by the means of which shareholders' value is maximized and conflicts between other stakeholders are minimized. For Mark & Spencer PLC, the value of different shareholders can be determined as the current value of free cash flow (Lamberg and et. Al, 2007). on the other hand, increasing their value cannot be compared with short-term advantages or earnings per share of shareholders. However, it is different from all that and the manager of the cited firm has to focus on meeting all the needs and wants of shareholders so that they can be encouraged and motivated towards investing in the business's future functioning. Furthermore, finance managers of Mark & Spencer have to ensure that its employees are treated in a better manner as well as provide them with a better working environment so that the company can make their optimum utilization in attaining desired results and outcomes (Joshi, 2004). On the other hand, London (2010), stated that companies which pay their employees below market or deal with them in discriminatory ways and underpin their talents are wasting valuable talents as well as not maximizing the wealth for shareholders (Son and Orchard, 2013).

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CONCLUSION

Operating in the retail sector it is important for Mark & Spencer to manage and control its business operations in an appropriate manner. However, top-level management has various responsibilities and authorities regarding framing strategies so that execution of business operations can achieve desired goals and objectives. Furthermore, the report highlights various issues regarding social, environmental, ethical, and legal that the company faces as well as there are several approaches and methods that M&S PLC undertakes in order to overcome these obstacles and maintain its position in the existing market to attain high profits.

References

  • Ayuso, S. and et.al., 2011. Does stakeholder engagement promote sustainable innovation orientation? Industrial Management & Data Systems.
  • Barnea, A. and Rubin, A., 2010. Corporate Social Responsibility as a Conflict Between Shareholders. Journal of Business Ethics.
  • Bebchuk, L., Cohen, A. and Ferrell, A., 2009. What matters in corporate governance?. Review of Financial studies.
  • Daily, C. M., Dalton, D. R. and Cannella, A. A., 2003. Corporate governance: Decades of dialogue and data. Academy of Management Review.
  • Denis, D. K. and McConnell, J. J., 2003. International corporate governance. Journal of financial and quantitative analysis.
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