The Organization and Its Mission
Background of the company
Marks and Spencer PLC, commonly known as M&S, was founded in 1884 by Michael Marks and Thomas Spencer in Leeds under the United Kingdom laws. M&S is a leading British retailer with headquarters in the City of Westminster, London. About 21 million customers visit the stores each week. M&S has over 700 stores across the UK and covers the other 42 territories globally, with a total of 78,000 employees. The company’s corporate objectives and the company’s principle needs are set out in the mission and vision statement as outlined below.
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- Vision statement: The standard against which all others are measured.
- Mission: Making aspirational quality accessible to all
- Values: Quality, value, service, innovation, and trust
Financially, the Group aims to deliver shareholders value in terms of an increase in returns and an increase in sales and market share in retail. M&S outlines its corporate social responsibility (CRS) as “we have a strong tradition of CRS, but we want to make sure CRS is integrated into our operations at every level.” Finally, M&S would like to continue its differentiation strategy by delivering freshness and innovation (Marks and Spencer, plc).
Budget constraints for a producer are represented by a production possibility frontier curve. The curve shows the limitation of available factors of production to a producer. The current budget of a firm may not allow it to utilize all aspects of production in the economy. Therefore, there is always a need to maximize the use of available resources. Marks and Spencer faced several limitations in its operations during the financial year ended in April 2011.
First, the uncertain global economic conditions greatly impacted consumers’ confidence and spending patterns as consumers’ disposable incomes come under pressure from increased VAT rates, cuts in public spending, and increased fuel prices. The trading conditions continued to remain a challenge, especially for the UK business. These adversely influenced the ability of M&S to achieve forecasted sales, and consequently, the overall budget was affected. The rising commodity prices, particularly in the cost of oil, food, and cotton, as well as general inflationary pressures on the supply base such as an increase in labor costs also impacted negatively on the cost of sales for the Group. Increases in the price of factors of production directly affect the budgeted cost of production.
Also, the inability of the company to leverage its systems and processes hindered the growth of the international business as it reduced the ability of the Group to attract capital for expansion. Finally, the Group faces operational risks in stock management, supply chain management, key supplier constraint, and IT security (Marks and Spencer plc). Given that the Group has to operate within a predetermined budget, changes in the individual component of the budget affect the operations of the entire business.
Revenues and capital structure
Marks and Spencer generates revenue from sales of its wide range of products. The company deals with various products ranging from clothing, shoes, home & furniture, technology, flowers & gifts, and food & wine. In the financial year 2011, clothing and homeware sales accounted for 49% of the business, while the remaining 51% was generated from food sales. Further, the UK market generated £8,733.0 million, equivalent to 89.7% of the total sales for the year ended April 3rd, 2011.
The total revenue for M&S has grown over the two years from 2010 to 2011. In 2010, the Group reported revenue amounting to £9,536.6 million, while in 2011, it amounted to £9,740.3 million, which is an increase by £203.7 million (equivalent to 2.1% increase). Similarly, profit after tax increased by 14.5% from £523 million in 2010 to 598.60 in 2011 (Marks and Spencer plc).
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The company’s capital structure is made up of both debt and equity financing. Marks and Spencer has not had any new primary source of funding in the two years. In 2011, borrowings and other financial liabilities amounted to £1,924.1 million, which declined from £2,278.0 million reported in 2010. Called-up share capital increased from £395.5 in 2010 to £396.2 in 2011. Other reserves and retained earnings also make up the capital structure.
Both operating and capital expenditure of the Group is financed by the current cash flows (Marks and Spencer plc). Financial statements indicate that in 2011 the M&S acquired new derivative financial instruments amounting to £37.5 million. Generally, long term debt financing declined from £3,076.8 million in 2010 to £2,456.5million in 2011, equivalent to a 20.2% decline, while equity financing increased from £2,185.9 million in 2011 to £2,677.4 million, which is a 22.5% increase. These indicate that the Group is moving towards a cheaper source of financing. Net retirement benefit had a surplus of £168.5 million.
This was an increase of £366.5 million from the previous year’s deficit of £198 million. Shares issued on exercise of employee share option amounted to £12.4 million. The Group also purchased its own shares held by employee trusts amounting to £19 million. The transaction with non-controlling shareholders generated £1.7 million in 2011, due to the improved cash flow generated from financing activities, management invested in the supply chain, and technology in line with the strategic plan. In the UK market, the Group opened 20 additional stores while in the international market, it opened 49 new stores and closed 15. Reduction in debt and an increase in equity during the two years contributed to an expansion in operations of the Group (Marks and Spencer plc).
Breakdown of the workforce
As pointed out earlier,
M&S employs over 78,000 people in the UK and around the world. Employees’ turnover fell for the third year running, and it is at 14% in 2011, one of the lowest in the retail sector. Further, 46% of the employees have been with the Group for more than five years, and absence levels have fallen for the second year running (Marks and Spencer plc).
The Group’s management committee is made up of very high profile personnel who have worked with top-performing organizations before joining the Group. The committee comprises 15 persons headed by the Chief Executive, Marc Bolland, who was appointed in 2010. Out of the 15 top personnel, 5 are women, which translates to 33.33%. M&S has employed 83% of females out of the total workforce, and 17% are male. Over the past five years, there have been changes in the management committee. These changes have led to a new makeup of the Group, and the business now has a flatter organization structure.
The business lost several layers of authority through a process of delayering. This means that employees throughout the company have more responsibility and can make quick decisions when required. At the same time, these employees have more accountability than before. This means that they must be prepared to explain and justify the decisions that they take (Marks and Spencer plc).
Threats and opportunities
Evaluation of strategic threats and opportunities is essential for an organization as feedback from such appraisal is vital for executing strategic plans and decision making. M&S is exposed to numerous threats; for instance, following the European Integration and Free Trade Agreements, the market has opened up for British Companies to invest in Eastern Europe. Tesco already has a 60 Hypermarket store in Hungary. M&S was forced to close down and sell off its outlets due to stiff competition, which lead to a dip in sales in 1998.
Secondly, the retail sector is relatively responsive to the recession and also very sensitive to changes in interest rates. Since the events of September 11th, the world economies have suffered heavily, stocks plunged, and prices were low at all times. The world economy is, however, now on the up post-September 11th. Consumers are optimistic, and the retail industry is once again booming.
Further, changes in consumer taste and lifestyle represent both opportunities and threats for the industry. Opportunities are in terms of new markets and consumers. However, there are added threats in terms of social acceptance of alcohol and national legislation for health and safety in terms of consumer rights and production of own natural renewable resources for making clothing. The renewable source of resources used in production, namely cotton, and wool, are environmentally friendly. The threats are legal consequences for livestock in terms of health and safety (Mark and Spenser plc).
The Group is surrounded by several opportunities for the growth of the business. For instance, it has not fully explored the international market. It can develop an overseas supply chain, and it should shift the new product market more into global markets. Also, customer demand for change to more value for money products presents itself as an opportunity for the business. M&S still has an opportunity to diversify its products further. Changes in retailing methods as such clothes sales via the Internet is now commonplace in retail. The paperless operation, the management, and administration of the company are undertaken on IT systems, which are accessed through secure servers; provide flexibility in the running of the business (Mark and Spenser plc).
In November 2010, Marks and Spencer announced a strategic plan on how to grow the business over the next five years and how to combat the threats and challenges currently facing the company. According to the project, the first three years (2010-2013) will focus on UK businesses to develop the M&S brand, improving stores, and focusing on the clothing, home, and food business. The plan outlines what will be done in each segment, and the duration of time it will take to implement it. The plan will be funded from the existing cash flows. Also, M&S also has an eco and ethical program known as plan A.
This plan has the objective of reducing environmental impact, developing sustainable products, and improving the lives of the Group’s employees, customers, suppliers, and people in the local community. “The main aim of plan A is to enable M&S to be the world’s most sustainable major retailer by 2015” (Marks and Spencer plc). The plan was launched in 2007 with a target of making 180 commitments by 2015. For the year ended 2011, the Group had fulfilled 95 of the commitments. Further, the plan generated a net benefit of over £70 million achieved by a combination of increased efficiencies, new businesses, and growth of the business (Marks and Spencer plc).
Training, Career Development, and Performance Appraisal
Training and career development
Marks and Spencer Group endeavor to have a pipeline of talent to work towards achieving long-term objectives. In support of the goals, the Group has organized several tailored training and development schemes designed to help its people fulfill their potential. The training and development programs are both on-the-job and off-the-job. For instance, the Group initiated the Lead to Succeed program. It is built around the core business values and is firmly aligned with the business strategy – developing skills that will support the future growth of the business.
The program is designed for senior managers, and since it was launched, over 300 senior managers have completed it. In the financial year 2010/2011, over 100 senior managers participated in the program. The Group also has a graduate scheme initiated to put candidates on the fast track to management. In the 2010/2011 financial year, the Group had over 11,000 applicants for approximately 180 places. The MBA program was also introduced to enhance the talent base, and four students were expected to start in September.
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The Group also has a program for the homeless, disabled, lone parents, and unemployed known as Marks and Start. In the year 2010/2011, about 840 people took part in the program to support a hired coach. The program results are encouraging, as about 40% of those involved go on to gain full-time employment. M&S also has a new initiative in partnership with HM Prison Send in Working. It is a training program for women offenders to build confidence and prepare them for the world of work. The major restructuring that occurred in the company impacted on the training and development program (Marks and Spencer plc).
Training and development form part of organizational strategy mostly because the company has been characterized by numerous expansions both without and within the region. Consequently, there is a need to merge organizational skills, knowledge, and culture with new challenges and demands. Marks and Spencer needs to use training and development primarily because it is operating in a highly competitive retail sector.
Consequently, there is a need to ensure that the company remains ahead of the competition. Management ought to realize that there is no better way to achieve this rather than through the use of training and development. Further, M&S should evaluate the effectiveness of training and development in realizing the goals and objectives of the Group. Finally, the company’s management should use outcomes of training and development in decision-making relating to promotions and transfers within the organization (Marks and Spencer plc).
M&S should undertake several career development programs. Such would be necessary for attracting and retaining a human resource base. The Group should consider providing a job compensation structure that supports the organization’s and individuals’ growth and development perspectives. The Group should also evaluate employees and produce succession pipelines for vital job positions in the organization (Marks and Spencer plc).
At the end of every six months, performance reviews are carried out at M&S for all the employees. Employees engage their line managers in discussing their performances for six months. The employees are rated based on the proficiencies and competencies they have shown during the period ended. Staff members are then given ratings for the skills and competencies they have shown over the past period. A comparison is then made between the ratings and the expected results as agreed upon at the beginning of the year and also with expected skills profiles for these areas. Such appraisals are important as they help employees to establish their performance concerning the expectations from the business and expected outcomes as agreed during performance planning.
Further, the appraisals reveal gaps that may be inherent when executing duties. At the end of the appraisal procedure, the line manager and the staff member formulate a plan for further development for the next period. In the personal development plan, the employees set objectives based on their performance appraisal feedback, and all staff members must have such a plan. The whole interactive appraisal process is beneficial as it aids employees in developing a focused vocation trail.
Further, the process is realistic. The gaps noted during the review process are bridged by training and development. This training also helps in preparing the staff members for future managerial duties. The performance review process helps the Group’s management to have a well-organized, effectual, and motivated human resource base.
The appraisal procedure is all-encompassing, and it reflects the actual performance by the staff members because it involves both the line managers and the staff members. Also, there is a comparison of the actual and expected performance, and any variances are noted. Actions in the form of training, development, and disciplinary measures are taken to improve future performance. The performance management at M&S is satisfactory because overall strategic goals are cascaded down to departments and further to the individual staff members. Therefore work done by each employee contributes to the overall strategic goal. Further, the staff members’ performance is cascaded upwards, and the actual performance of the Group can be compared with the forecasts (Marks and Spencer plc).
The outcomes of performance appraisal are not only influenced by the job performance of the employee. Several other factors may influence the performance appraisal rating of the employees. For instance, a line manager’s attitude towards the employee may influence his/her decision on the grade to award such an employee. This grade may not reflect the true performance of the staff member. Further, errors in the system, especially for automated human resource processes, may give faulty results.
Summary and Evaluation
In the last five years, Marks and Spencer have experienced a succession of management and corporate structure changes following a massive decline in sales. What used to be a leading worldwide quality food and clothing retailer became an out-of-date, uncompetitive haze on the UK stock market. The decline began in the late 1990s due to pressure from changing economic demand, causing Marks and Spencer to undergo continual business restructuring (Marks and Spencer plc).
However, the days when M&S was unchallenged have long gone as clothing sales have come under pressure from Next and Asda, while Tesco has hit food revenue due to the opening of the European market. The company closed many stores resulting in job losses – humanist issues of existing employees need to be addressed (e.g., trust, anxiety, and commitment). The Group adopted a new structure coupled with new management.
These changes have immensely enabled M&S to turn around from the deteriorating performance noticed in the late 1990s. M&S has reported an increase in revenues, profit, and dividends for shareholders for the past two years. Several stores have been open both in the UK and the international market. Further, M&S is now able to survive stiff competition and downswing in the economy. Employees’ turnover remains a threat to human resource management, especially in top management.
A planned change approach is required with the initiation and implementation of change being driven by management with the aid of a practitioner. The magnitude of change is quantum, as large changes involving culture, structure, and strategy of the company is required. Transformational change is a relatively new count to organizational change. It is concerned with drastic change and is fundamentally about altering the way that the organization is perceived both internally and externally as well as how it functions. This type of change would be particularly relevant to Marks and Spencer’s case as it needs to radically alter how it operates in the face of stiff competition.
“Marks and Spencer plc”. About Us. 2011. Web.
“Marks and Spencer plc”. Our plan, 2011. Web.
“Marks and Spencer plc”. Financial reports, 2011. Web.