Introduction of Critical Corporate Strategy Governance
Corporate Governance is huge and global concept. It is relevant where people are grouped in structure and it is even more relevant when group 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 effects of these factors on management of these organization. Impact of social, environmental, legal and governmental issues also have been explained in this report. To face this issues company frames different strategies and operations has been explained broadly.
Critical analysis of the specified organization
Mark and Spencer is a retail industry which has specialized business of manufacturing home products as well as food products. After few years of establishment the firm became the first British retailer to create profit before tax over 1billion pounds. According to Solomon (2007) the two partners in 1990s made long-term relationship with British manufacturers to sell clothing and food items. Using 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 market and along with that to improve the quality of their rolls they hired a food expert of 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, soups were sold in large M & S shops. In 2007 M&S launched new shops offering home furnishing products. As the mentioned firm is leading retail firm of UK where over 20 million people visits its shops every week. M&S has over 418 international stores across Europe, Middle East and Asia. According to Levine (2004) in context of market share, the mentioned group is expanding its business in womenswear and Lingerie in UK (Denis and McConnell, 2003).
It has different formats of shops such as Core shops, Outlet shops and M&S simply food. Core shops, includes clothing products and M&S food halls. But the range of products in this shops depends upon the number of customers according to demographic conditions whereas M&S food halls expertise in selling groceries under its own brand name. Outlet shops is specialized in selling products on discount offers such as at least 30% discount on original price of the product. Most of the outlet shops of the firm are located in retail parks and outlet centers (Aoki, Jackson and Miyajima, 2008). M&S simply foods includes food items along with general merchandised products such as marriage cards, birthday cards and home ware.
The firm specializes in three main products namely, clothes, housewares and food items. Regarding clothes, it includes 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 UK while T-shirts were made for Asian countries. According to Daily (2003) whereas, UK's biggest men casual brand is Blue harbour which has got splited into Heritage, Luxury and Golf(Solomon, 2007). In context of housewares, products like interior design, kitchen equipment and furnishing are present. For example, furniture include kid's bedroom, sofas, dinning- tables, bathroom furniture etc. In 2008, the from 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 standard regarding the changing internal and external factors. Those internal and external factors are also called macro and micro economic factors which influences business operations up to a very large extent (Larcker, Richardson and Tuna, 2007). This factors not only gains the firm to be competitive but also provides benefit in making strategic planning considering its stakeholders. According to Blair (2010) despite of being the largest retail firm, the company faced huge challenges like double flip economic recession which impacted customer's purchasing power. In spite of all this barriers Marks and Spencer remained constant to run business and finally made profit of 564.3 million pounds in 2013/2013. to understand the micro and macro environment, firm's culture and operational management should be focused.
Another threat of substitute products is also on a high extent. There are various retailers doing business of clothing and food and about which the mentioned firm should be concerned. As discussed earlier, that changing needs and preferences of customers effects a lot to any industry, especially retail industry therefore change in consumer's bargaining power also matters a lot for the above stated retail firm. This factor indicates that suppliers has great chance to influence the retail firms by demanding high values. Therefore this gives birth to high competition because of a little differentiation in product. Threat of consumers effects a lot on retail firm because they cannot be changed but if suppliers bargaining power changes, the retails can change their supplier any time because either availability of huge number of suppliers in the market (Blair and Roe, 2010). According to Cohen (2009) especially, Marks and Spencer need not to worry about their suppliers barging power because it has 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 there uncontrollably feature, the firm has to maintain its decision-making process and alter its strategic planning time to time. In order to overcome this situation, firm needs to use two methods such as SWOT analysis and PESTEL.
SWOT analysis is the tool which is helps determining 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 strength, weaknesses, opportunities and threats of the firm. Therefore this criteria helps the mentioned firm to know about it strengths and weaknesses along with opportunities and threats. However strengths of M&S firm are that it has broad range of products such as cloths, furniture and food products so that it if any of the product does provide much of profit than managers can change the line of product immediately (Levine, 2004). Another strong point of the firm is that it is the largest retailer through its sale which clearly shows it has large number of consumers. According to Jackson (2008) along with this two above mentioned strengths it has powerful cash flow position which is beneficial for capital investment. On the other hand, in spite of good strengths, the mentioned firm possess some weakness too, for example, as a large retail firm, it produces numerous products which is creating extra and unwanted pollution that is harmful for people residing near the factories and degrading atmosphere. Many people are having the perception that as it is large firm so its products are highly prices, therefore they are not likely to purchase products and this is major weakness of the firm (Xie, Davidson and DaDalt, 2003). High level of competition is penetrating the firm change its decisions and strategies time to time and this is making instability in procedure and operations of the firm. Entrance of new and existing firms is major threat for Marks and Spencer retail firm.
PESTEL, are the external factors which includes political, environmental, social, technological, economical and legal factors that affect the above stated firm in preparing itrs strategic planning. According to Richardson (2007) this techniques helps the firm in understanding the external environment and decide on how to manage the operations through effective planning.
- Political: These are the factors includes trade barriers such as Free trade agreements and European integration which are creating panic to M&S firm. Not only the mentioned firm but every organization in UK must have to follow the laws and policies imposed by the government.
- Economic: Due to economic recession and sensitive interest rates, the retail sector of UK has been greatly affected.
- Social: Customers are the leading players in social factors. There changes in taste, buying behaviors and needs and demands force the firm to change their strategies and policies.
- Technology: Use of latest technology is providing good support to the mentioned firm through internet (Levine, 2004). This factors allows users to buy online and saving lot of time without visiting the shops.
- Environmental: Now a days every organization is focusing on factors related to environment. According to Ferrell (2009) each firm is using environmental 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 in defined limits. The main aim behind this laws and regulations is that no firm can perform its operations beyond the limits or unlawful activities.
Organization's relationship with its core competencies
The mentioned firm is the largest retail firm in the UK so definitely it has strong financial position. Through its financial strength it can overcome issues related to environmental changes such as change in need 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 environment. Strategies can be made by evaluating current feasibility and suitability of the firm. The mentioned firm has faced many issues related to external factors due to which there had occurred downfall in profitability and market value.
Research and development has showed that Marks and Spencer has high level of competitive advantage in regard of its product's quality and customer's satisfaction. While PESTEL analysis is an important tool used by the firm to mange its operations. Various political factors affect firm in making there strategies and considering those factors the firm must ensure about consumer's rights and duties (Blair and Roe, 2010). This factors shows that firms should maintain their market share.
In 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 behavior according to seasons meanwhile the mentioned firm ignored customers perception and this this strategy has impacted lot. In the competitive rivalry, the mentioned firm focus more on its products as they are product-oriented while on the other hand the competitor were customer oriented who focused 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 includes customer's tastes, preferences and lifestyle. This creates threats in order to change its operations. Therefore, management need to be flexible because of changing environment. Continuous feed backs from customers play dominant role in making strategies because changes in customers can be determined through them only. Managers need not only to focus on product's quality but also on customer's 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 quality of products manufactured. However the mentioned firm is very old, it definitely gives clue that its products are classical but modern customers needs trendy products. According to McConnell (2003) so this factor also should be kept in mind by the managers while making strategies.
- Environmental: Today every firm is in seek of making strategies keeping in mind the environmental friendly policy. It is the main theme of every organization, most especially for a retail firm which is involved in production process. Firm need to produce products in such a way that it causes minimum pollution. It can be done through fitting chimneys at the top of factories from where polluted air goes through. At that point polluted particles gets filtered by chimneys that ultimately controls air pollution (Xie, Davidson and DaDalt, 2003). Laws enacted towards environment has impacted greatly on the mentioned firm so that it is making clothes using environmental friendly fabrics and raw materials.
- Ethical and Legal: - This are the factors which influence the firm by different laws and regulations. One of the latest law passed by the laws globally is directly related to environment because due to increasing population, environment is getting polluted so more and more focus is given to 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 law. This can be regarded as unlawful and the firm excising it can be punished by law. The laws also states health and safety of customers, in other words, products should not have negative impact on customers after its usage otherwise customers are given right to file s suit against the manufacturing industry (Blair and Roe, 2010). So that mentioned firm needs to focus on customers as well as products also.
- Governance: Governance is also known as regulatory authority which plays vital role in every firm. There are certain limits set by the governance beyond which no firm can pass. Every firm has to follows 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 this things are needed to be kept in mind to not to breaks laws.
Framing of issues in firm's strategy and operations
Operating in retail sector it is important for Mark & Spencer to manage and control its business operations in 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 execution of business operations can achieve desired goals and objectives (Hummels, 2010). As studied in above questions, there are several approaches and methods that cited firm is taking under in order to overcome external issues. These are:
- Social issues – As per the view of Joshi (2004), Mark & Spencer top level management is making valiant efforts in order to overcome social issues as these will help firm to attain competitive edge within market (Ayuso and et. al, 2011). In regards to this, 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 M&S supply chain benefits. Offering variety of products Mark & Spencer aims at enhancing standard of living of the people so that overall better society can be developed. For attaining 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 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 plan was to enhance the efficiency of business operation of Mark & Spencer PLC so that it can easily attain desired goals and objectives (Kapelus, 2002). However, firm has committed itself to high standards of corporate governance by indulging different set 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 aspect in business operations is quite essential and it is helping the course of corporation (Carrillo, 2007). However, Mark & Spencer with the mission of enhancing standard of living for overall society has to ensure that its employees behave ethically with other people, quality of services is offered to customers, maintaining relationship 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 regulation are followed so that functioning can be accomplished in 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 near future. According to Ayuso (2011), company has the major responsibility over its shareholders as they are the major source of fund. But contrary to that Orchard, (2013) stated, 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 assist in ensuring efficiency so that all activities can be performed in 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, 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 earning per share of shareholders. However, it is different from all that and manager of 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 business future functioning. Furthermore, finance managers of Mark & Spencer has to ensure that its employees are treated in better manner as well as providing them better working environment so that they company can make their optimum utilization in attain desired results and outcome (Joshi, 2004). On the other hand London (2010), stated that, companies which pay their employees below market or deals with them in discriminate ways and underpins their talents are wasting valuable talents as well as not maximizing the wealth for shareholders (Son and Orchard, 2013).
Operating in retail sector it is important for Mark & Spencer to manage and control its business operations in 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, report highlights various issues regarding social, environmental, ethical, legal that 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 existing market to attain high profits.
- 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.