2008 Professor Pal Burns.

Extract from: Corporate Entrepreneurship: Building the

Entrepreneurial Organization (2
nd
Edition), Paul Burns, Palgrave Macmillan, 2008.
M&S (A)

Marks & Spencer (known as M&S) is a famous
British retail chain selling clothes, food, household
goods and furniture from over 450 shops in the UK
and some 200 managed under franchise in 30
territories mostly in Europe, the Middle East, Asia
and the Far East as well as wholly-owned stores in
the Republic of Ireland and Hong Kong. In 2007 it had a turnover of over 7 billion
and employed over 70,000 people. M&Ss origins come from a chain of penny
bazaars (market stalls selling everything for one penny) set up in the late 1800s by a
Russian-born Polish-J ewish immigrant, Michael Marks in Leeds with a 5 loan from
Issac Dewhirst, a wholesaler. Interestingly Dewhirst went into manufacturing and
remains the biggest supplier of M&S to this day. Marks opened his first store below
his home in Manchester in 1893. He went into partnership with Thomas Spencer
(then a Dewhirst cashier) and the first Marks and Spencer store was opened in the
prestigious Cross Arcade in Leeds in1904. After the death of the founders, Simon
Marks (son of Michael) took over as Chairman and started to work with his friend
Israel Sieff. Together they turned M&S into the iconic British retailer it is today.

The original success was based upon a number of ideas that meant M&S, although
never cheapest in the market place, offered high quality but most important of all very
good value for money. They did this by adopting the then revolutionary idea of buying
directly from manufacturers and placing their own label on goods - originally the St
Michael brand (registered in 1928). By the 1950s all goods were sold under this
label. By then it was known for selling only British made goods, entering into long
term partnerships with British manufacturers which required them to commit solely to
manufacturing M&S products. It was also known for its policy of accepting the return
of unwanted goods, giving a full cash refund if the receipt was shown. Its first
overseas store was opened in 1975 and it resisted the lure of television advertising
until the mid 1990s.

But it was in the 1990s that M&S started to lose direction and, as can be seen from
the financial highlights below, both turnover and profitability started to fall. With the
benefit of hindsight, Sir Richard Greenburys tenure as Chairman (1991-1999) saw
profit margins pushed to untenable levels, and the loyalty of customers was seriously
eroded. A number of things happened. The costs of using British suppliers increased
so M&S reduced quality. Meanwhile competitors were sourcing overseas and beating
M&S on value for money. M&Ss reaction was to switch to overseas suppliers but this
undermined a core part of the companys philosophy and appeal. At the same time
the company was losing touch with potential younger customers who increasingly
saw M&S designs as frumpy and old fashioned. Alongside this the company
steadfastly refused to accept credit cards except for their own store card. In the
financial press M&S came to be seen as an aging and famously lethargic and
bureaucratic company. They simply failed to see that the high street had changed
and competitors were now offering better products at lower prices in more attractive
surroundings. The slump took the company by surprise and its share price fell by
over two thirds and the late 1990s saw serious boardroom instability. But how do you
encourage a firm with over 100 years of history to reinvent itself and become, again,
entrepreneurial? How do you drive through the necessary changes? Answer - you
bring in new people....and you start at the top.

2008 Professor Pal Burns. Extract from: Corporate Entrepreneurship: Building the
Entrepreneurial Organization (2
nd
Edition), Paul Burns, Palgrave Macmillan, 2008.



Year ending
March/April
Turnover
(bn)
Profit before
tax (m)
Basic
earnings per
share (p)
2007 8.6 965 40.4
2006 7.8 746 31.4
2005 7.5 505 29.1
2004 8.3 782 24.1
2003 8.0 678 20.7
2002 8.1 336 5.4
2001 8.1 146 0
2000 8.2 418 9.0
1999 8.2 546 13.0
1998 8.2 1,155 28.6
1997 7.8 1,102 26.7
1996 7.2 966 23.3

Sir Richard Greenbury retired in 1999 and Luc Vandevelde, a Belgian, took over as
both Chairman and Chief Executive. He had previously been Chairman and Chief
Executive of Promods, the French hypermarket chain, where he oversaw a merger
with Carrefour, its rival. Roger Holmes was brought in at about the same time and he
became Chief Executive later in the year. Drastic action was called for simply to
survive. Stores were closed on the Continent and in the US and jobs were cut as the
company also closed down its Direct catalogue so as to enable it to focus on its core
UK retail business. Sourcing was moved overseas, cutting back on UK suppliers, in
order to increase margins and make prices more competitive. At the same time the
supply chain was modernised, allowing clothes to be brought to market more quickly,
bureaucracy was reduced and new talent brought in to drive innovation. Shops
opened on Sundays and accepted credit cards.

Clothing fashions were improved by bringing in new people. George Davies, founder
of Next, was brought in to produce a young, fashionable collection called Per Una. In
the same year Yasmin Yusuf, the brains behind the Warehouse clothing chain was
appointed creative director. The fashion strategy became one of targeted sub
brands, such as the Limited Collection label, Blue Harbour mens casual wear, the
Perfect range of classic pieces and the more expensive Autograph label which has
designers such as Betty J ackson, Sonja Nuttall and Anthony Symonds. Fashion
sales started to increase. By 2002 the company was gaining market share in areas
like lingerie and mens casual wear. New ways of presenting clothes meant the
average spend increased as shoppers were encouraged to buy entire outfits rather
than just single products. M&S started innovating again with products ranging from
seam-free underwear to steam cuisine microwave meals. It opened new
convenience food outlets called Simply Food, targeting new markets. Some, within
railway stations and motorway service areas are run by Compass Group, the
specialist catering company, under franchise. Vittorio Radice, the brains behind the
regeneration of Selfridges, the department store was brought in to experiment with
stand-alone home ware stores the first of which was opened in Gateshead in 2004
2008 Professor Pal Burns. Extract from: Corporate Entrepreneurship: Building the
Entrepreneurial Organization (2
nd
Edition), Paul Burns, Palgrave Macmillan, 2008.
with the name Lifestore. But not all the initiatives worked and many of the underlying
management problems remained.

In 2004, amid rumours of a possible take-over bid, M&S announced that Chairman
Luc Vandevelde would be leaving with immediate effect and that the Chief
Executive, Roger Holmes would be replaced by Stuart Rose. At the same time Paul
Myers, chairman of Guardian Media Group, took over as Chairman. Timing is crucial
in business because shortly after this Philip Green, boss of the fashion retailers
Arcadia Group, which includes Bhs stores, announced a take-over bid for M&S.
Stuart Ross came to M&S with a track record of turning around struggling retailers.
Indeed he is credited with turning around Arcadia Group, which is quite a
coincidence. He was also a friend of Philip Green. Stuart quickly put together a
recovery plan which included selling off the financial services business to HSBC
Bank, buying control of the Per Una range, closing the Gateshead Lifestore (Vittorio
Radice along with many senior managers subsequently left M&S) and stopping the
expansion of the Simply Food outlets (there were about 20 at the time). Philip Green
later withdrew his bid after failing to get sufficient backing from shareholders.

Son of a civil servant, Stuart Rose was educated at a Quaker boarding school and
started his career in retailing in 1972 after joining M&S as a management trainee. He
remained with the company for 17 years, holding a variety of jobs in the textiles and
food divisions before being appointed commercial director leading M&Ss European
operation in Paris. In 1989 he joined Burton Group, which included Debenhams, Top
Shop and Dorothy Perkins stores. The group later demerged into Arcadia and
Debenhams. In 1998 he was appointed chief executive of the Argos catalogue/shop
chain. Later as boss of Booker, the cash-and-carry business, he arranged a merger
with the frozen food retailer Iceland and became the new groups chief executive. He
joined Arcadia in 2000, a company with 250 million of debt, which he turned around
and then sold two years later to Philip Green for 855 million making 25 million for
himself. He took over as Chief Executive of M&S in 2004 at the age of 55.

Although always smartly dressed, Stuart Rose is known for his informal management
style that circumvents formal structures. If he wants to know something he is quite
likely to go directly to the person who should have the answer rather than ask for a
management report. He is seen as very good at motivating people and giving them
clear instructions. He brings the best out in people.a dedicated networker, always
lunching someone from the City or the media.He maintains a helicopter
position.(but nevertheless).sits in on merchandising reviews, knows how many
of which style is sold where, and can reel off financial data about each of his many
retail chains at will (Times Online 25 J anuary, 2007). He is also known for bringing
in his own trusted managers to focus on the minutiae which is precisely what he
did, reshuffling and firing many of M&Ss top managers. For example, Steve Sharp
was brought in as new Marketing Director. He met Stuart Rose at Debenhams where
he was Marketing Director. At M&S he introduced the new Your M&S brand, together
with the new clothing advertising campaign featuring the celebrated model Twiggy
and younger models associated with the bohemian styles of 2005-6. He was also
responsible for the TV advertising campaign for their food range featuring Derla
Kirwan with the tag line This is not just food, this is M&S food. Managerial and
directorial changes followed including the appointment in 2007 of Martha Lane Fox,
co-founder of Lastminute.com, as non-executive director to advise on the companys
Direct business.

Stuart Rose focused on three things; product, environment and service. Getting the
product right was also top of the agenda. Many slow moving, expensive suppliers
were replaced by quick-turnaround specialists, often overseas. Prices were often cut
2008 Professor Pal Burns. Extract from: Corporate Entrepreneurship: Building the
Entrepreneurial Organization (2
nd
Edition), Paul Burns, Palgrave Macmillan, 2008.
whilst quality was maintained. Improving value,
style and the amount of new product was
important. In clothing the company initially
focused on the classic designs it had historically
always excelled at the Classic Collection but
other lines have been expanded, particularly the
Per Una range. It rationalised its menswear. For
both menswear and womenswear it introduced
innovative products such as machine washable suits and seam free underwear. In
food M&S focused on offering high quality, innovative products such as the additive
free Marks and Spencer Cook! range. After a pause the Simply Food stores started
to expand once more so that by 2007 there were about 200. Getting the environment
right meant stores were completely redesigned with white tiles (black in Foods)
replacing carpets and laminate flooring, brighter lighting, new product stands, display
styles, mannequins, till points and staff uniforms. By 2007 some 35% of stores had
been completely refurbished in this way and many others temporarily updated as
part of a massive investment programme costing over 520 million. M&S also moved
to improve its service levels by investing in its biggest ever customer service training
programme based around the Mary Gober Method - called Your M&S Our
Service Style. Our Service Style is defined as We are friendly, helpful, courteous
people, who are knowledgeable and enthusiastic about taking care of our
customers. The company also overhauled its pay rates and improved career
planning for its customer assistants, reducing grades to just four with clear
progression. As well as attractive salaries staffs are paid a performance bonus,
which in 2006 totalled 70 million or an average of 500 per employee. The
company also has a saving scheme that allows staff to buy M&S shares at a 20%
discount. As the turnaround gathered pace in J anuary 2007 sizable bonuses were
triggered a total of 56 million or an average of 4,700 per member based upon
a share price that had tripled in less than three years.

What Stuart Rose did in focusing on product, environment and service was to return
to the core M&S value(s) propositions:
The M&Ss vision is to be the standard against which all others are measured.
The M&Ss mission is to make aspirational quality accessible to all.
M&Ss Values are quality, value, service, innovation and trust.

Our plan remains the same to drive further growth from our core business
through the delivery of better products, service and environment. We are also
starting to broaden the business, by stretching the brand into new product areas,
expanding space, driving our Direct business and growing our brand
internationally.

Up-to-date information on M&S can be found on their web site:
www.marksandspencer.com.

Questions
1. What are the lessons you learn from M&S about how to turn around an ailing,
bureaucratic firm?
2. What lessons do you learn from Stuart Rose about the role of leader in this
situation?
3. How important was it to change senior management at M&S?