ASSIGNMENT 2: BUSINESS STRATEGY QUESTION 2 Compare the turnaround styles of Holmes and Rose, what type of change were

they trying to employ in terms of nature and scope? Why do you think that Rose found success for M& S when the preceding CEOs had not? 2.1 Turnaround Strategy: The objective of turnaround strategy is to bring back an underperforming or distressed organisation to normal in the form of acceptable levels of profitability, liquidity, activity, market share and cash flow. Turnaround strategies in an organisation may be prompted by the decline in performance, crisis, threat of takeover and bankruptcy. The turnaround strategys emphasis is on the speed of change, prompt and rapid cost reduction, cash management and revenue generation. Both Roger Holmes and Stuart Rose as CEOs of M&S found the following problems/threats to the well being of the organisation: Decline in profits; loss of market share to competitors; the organisation being risk averse avoiding risk investments that would pay back high returns such as diversification and expansion; the organisation being managed on short- term strategies and no long term strategies were in place; falling share prices and the M&S culture problem and arrogance.. The culture at M&S was characterised by Paradigms: The organisation was complacent with the past achievements. M&S felt they were the best, trend setters and that they had the best knowledge in the market; that products and services at M&S were of highest quality and could be differentiated from that of the competitors. And due to the past respect that they commanded in the business they thought that people would always buy from them. Organisational structure: Top-down management, hierarchical and male dominated. Routines and Rituals: based on the short term strategies carried out on the day to day basis. Working atmosphere was that of supportive family. Similar stores layouts existed in the organisation.

2.2 Holmes and Rose Holmes: Roger Holmes was recruited by Luc Vandeveld (CEO) to head the M&S retailing in the UK market. Before joining M&S, Holmes had worked as a consultant for McKinsey, financial director of DIY chain B&Q, managing director of Woolworths, and chief of electrical at Kingfisher group. Holmes became CEO of M&S after a service of one year. Though Holmes was promoted from within M&S to CEO, his little or no experience in the selling of clothing qualified him to be considered as an outsider. Therefore, it was expected that using the outside experience and influence Holmes would increase turnaround capability in the organisation and that he would break the barriers to cultural change and bring with him fresh perspectives. Rose: Stuart Rose became CEO in 2004 at the time when M&S was threatened with take over. The reasons for takeover were because of poor performance; fall in share price and CEO Holmes unstable recovery programme. Rose started at M&S as a trainee and rose through the ranks in 17 years to senior executive. He headed both womens and mens wear stores before being appointed CEO. Rose had both internal and external experience in the retailing of clothing which suited to make a turnaround without wasting time trying to adapt to the existing culture in the organisation. 2.2.1 Styles of managing turnaround Holmes and Rose Holmes and Rose applied education, participation, intervention, direction and coercion styles to manage turnaround at M&S with different approaches. Education: Is the outlining of the reasons for change and the mode of change that will be applied to turnaround the crisis situation. Holmes: In 2003 Holmes announced that M&S would soon recover its recent sales slowdown and win the market share and customers back. The action plan of making clothing and food a top priority; building stand- alone Lifestores in the homeware and opening Simply Food stores at filling stations were used as the mode of change.

Rose: Rose realised that he was using orders in the change management announcements which resulted in miscommunication. He therefore, embarked on 10m training programme dubbed Can-Do. This programmes objectives were to change attitude and culture; make employees understand M&Ss strategic changes and Roses turnaround styles; improve customer relations and reduce miscommunication. Participation: Is the movement of those who will be affected by the strategic change in the change agenda. Holmes: Using the participation style of change, Holmes used the old M &S culture of appointing committees of 19 members to carry out the board s plans, come up with road maps to resolve pertaining marketing issues and generally find solutions to many of the challenges that the organisation was facing at the time. Rose: The non-executive directors were shown how they will be affected by the strategic changes in the change agenda and hence being persuaded to retire. Rose also involved the employees in improving quality, customer relations, communication, reducing of waste and changing employees mentality through training programme called can-do. These factors affected the strategic change in the agenda and ultimately affected employees performance and that of M&S.

Intervention: Involves the change agent in this case the CEO taking responsibility of coordinating the affairs of change and having authority over the process of change. Holmes: Intervention was applied in the case where contractors in logistics were reduced to half and direct sourcing in place of middlemen became the order of the day in time of Holmes being the CEO of M&S. Rose: After making the first management changes by appointing Charles Wilson and Steven Sharp to administer logistics and operations respectively, Rose chose to keep an eye on clothing being the core of the business and the source of the prevailing problems at M&S. Rose outlined the change agenda and

enforced it in the clothing division using his position. He reviewed and monitored performance and made changes when need arose.

Direction: This is a top- down management strategy. Here the position or authority according to hierarch is exercised to establish strategy and map out how the process of change will take place. Holmes: For example, by early 2004, when the total sales had fallen more especially in the clothing and food and the main concern being womenswear ranges, Holmes took a direct interest in the affairs of the womenswear. He used his position to map out sales improvement and change strategy which was later cascaded to subordinates using the top bottom management style. Rose: In order to achieve cost savings of 250m per annum and increase the sales growth, Rose and team mapped a strategy of making M&S return to five core values of quality, value, service, innovation and trust. The objective was to make M&S return to its status quo which was synonymous with high quality, being the trendsetter; regain customer respect and lure them to always shop from M&S. Rose strategically halved the board so that he could get closer to the operation processes, gain more control and increase speed and flexibility.

Coercion: Is when change is imposed on the workforce or when orders are made to mange change. Holmes: Holmes never applied coercion but instead used committees to resolves issues before he could make final decisions Rose: It is evident that from the way he is described by his friends as a nice, quiet and ruthless that Rose used force to effect his turn around strategies. This also clear from the fact that Rose never used to accept debate but action not until he realised that there was among little communication given to the employees. Force is an important tool to use when need be to enforce change.

2.2.2 Turnaround strategies Holmes and Rose Crisis stabilisation: Involves speed short term focus on cost reduction and revenue generation and may be centred on reducing direct operational costs and producing gains. Holmes Holmes crisis stabilisation approach included revenue generation, cost reduction and focus on market targets. Revenue: In order to increase profit which had drastically reduced, Holmes exploited and took control of the financial services at M&S and launched a combined credit and loyalty card called, &more. Cost reduction: Homes reduced costs such as labour through downsizing of staff at the head office; cutting off the organisations suppliers to half and then start direct sourcing instead of using agents. To reduce wastage in the form of poor quality and high inventory a, innovations to products improvement, supply chain, stores and operations embarked on. As a result of high inventory discounts of about 20% were given out. Market focus: Organisational activities were focused in target markets such introduction of the Per Unas funky young sister for the 15 -30 years age group and Simply Foodstores in motorway service stations. These activities were meant to increase revenue. Rose: He reduced operational costs by implementing the redundancies such as retiring of non executives and forcing some directors to resign and reducing the board to half. Also reduced costs by stopping wastage in the processes and halting non value adding administration costs. Rose created revenue through buying back of 635 million shares; improving core services and through acquiring Per Una.

Management changes: Is the change of top management with an objective of getting ride off the cause of the prevailing problems in the organisation; bringing in experience that could be used to turnaround the crisis and adapting different approaches of managing change.

Holmes: Though Holmes reduced the size of staff at head office in order to reduce head count and overheads it is not clear whether this included top management. Top management account for high overheads and if reduced this would result in profit gains. However, Holmes employed Vittorio Radice to head homeware so that he could increase creativity in the department, and assist in managing change. Prior to becoming CEO he employed Yasmin Yusuf as creative director whose task was to target the organisations tradition customers. Rose: Not only did Rose retire the non executives and force some directors to resign, but he also halved the board to Charles Wilson, Ian Dyson and himself. Charles Wilson headed logistics; Steven Sharp looked after operations and marketing and he himself managed clothing. The aim was to reduce costs and instead up the shareholders money. In order to increase sales in womenswear, Kate Bostock was employed to head this section.

Gaining stake holder support: Provision of information to the stakeholders such as shareholders, employees, banks, government and suppliers about the status quo, solutions and improvement plans. Holmes: Holmes often reported about the performance of M&S to the, senior and middle management, the board and shareholders. However, reasons given to justify the results and action plans put forward to turnaround the crisis were not convincing. Stakeholders such as the senior managers lost confidence in Holmes style of turnaround because it lacked progress and was full of promises. The crisis turnaround was made more difficult for Holmes owing to the existing M&S arrogance and bureaucracy of resolving problems through appointment of committees Rose: From the onset Rose worn the support of the board when he outlined the ideas for the new ranges and competitive pricing; and made management changes by bringing in Charles Wilson to run logistics, Steven sharp to look after operations and later on marketing and Kate Boston to head womenswear. He later on retired the directors and halved the board to three people only. Rose

looked at the another group of stakeholders, the employees, he introduced the training programme worth 10m whose aim was to change the attitude and culture; make employees understand M&Ss strategic changes and Roses turnaround styles; improve customer relations and reduce miscommunication.

Clarifying the target market: Turnaround success depends on clarity of market segments where cash and profits can be generated. This approach may involve getting closer to the customers; improving flow of marketing data and focusing on revenue generating activities of the key market segments. Holmes: For example in Food market segment, Holmes targeted customers at highway service stations where more Simply Food stores were opened with a view of enhancing the sales which at the time was in excess of the average return for food. Clarity of the market segment in clothing include introduction of the award winning washable suits and categorising of clothing per age group such as the 15 -30 funky young sister. In the homeware, Life stores were built to show case functioning homes. Rose: Roses strategy in target market included the improving M&Ss core services; put Per Una Due on hold being a non target for natural M&S customers; acquire Per Una from George Davies which was doing very fine in the market segment; re-establish the out-of-town retail centres in order to address customer complaints and increase sales and close underperforming store like lifestores and upgrade the stores that were performing well but needed an uplift.

Refocusing: When market segments are clarified then focus can be redeployed to target markets and decisions can be made whether to discontinue supplying or outsource products and services meant for the non key markets. Holmes: Though the 15 -35 market segment was a target for M&S, Holmes outsourced Per Una to supply womenswear to the fashion conscious group aged 25 35 years and the funky young sisters aged 15 30 years owing to the uninspiring, non stylish and low value clothes being supplied to customers. The refocusing in this case was misplaced because Holmes should have improved

quality of the product instead of outsourcing more especially that this was a core to the business. Rose: Having classified the market segments such the re-opening of out-of-town stores, concentration on the core services and clothing, Rose focused on delivering quality, value, service, innovation and trust so as to increase sales and raise revenue.

Financial Restructuring: Involves changing existing capital structure, raising additional financing through sell of shares or negotiating for loans. Holmes: Takeover of control of the financial services of M&S and introduced the loyalty card. Though it is not clear how much expert and experience Holmes had in this section prior to taking over. It is not also clear how this venture generated Rose: included giving back to share orders a sum of 2.3bn by buying back 635 million shares: franchising M&Ss financial division for ten years to HSBC for 762m with M&S retaining 50% of the profits.

Prioritisation of critical improvement areas: Applied to critical areas that require improvements. Priority should be give to things that will give rapid and significant improvements. Items such as cost reduction, revenue generation ventures, innovation, and market segment recapturing and establishment should be part of the action plan or priority list in order to have an effective turnaround.

Holmes: Cost reduction included labour downsizing, reducing contracted suppliers to half and doing away with agents in resourcing. In revenue generation, Holmes leveraged the financial services: introduced a credit and loyalty card called &more; Introduced Per Una to supply womenswear Rose: Priority was given to resolving M&Ss trading problems through culture change, improving decision-making, accountability and revitalising of clothing so as to win back the core customers. Other issues of priority included management

changes- reduce the number of directors to improve the operations cost; restructuring and redundancy; raising revenue through sale of shares; closure of underperforming stores; tackling problems left by his predecessors such as M&S financial services, reduction of process wastage and non value adding administration costs.

Nature and scope of change Holmes and Rose Holmes: Holmes embarked on a turnaround strategy as CEO of M&S by employing both incremental and big bang as the nature of change. He chose realignment as the scope or extent of the strategic change. His strategic changes involved the process of adaption and reconstruction. In his quest to succeed in the turnaround, Holmes applied Theory E as the lever of change. Rose: In his turnaround strategy, Rose used both incremental and big bang as the nature of change and the scope being transformational. He applied evolution and revolution as the strategy of change and a combination of theories E and O as the levers of change. Theory E: Is change that is based on the pursuit of economic value and is linked with top-down management and use of hard levers of change. The emphasis is on changes of structures and systems, financial incentives, portfolio changes, downsizing and job layoffs. Theory O: Change that is centred on development of organisational capability with emphasis on culture change, learning and participation in change programmes and experimentation. Holmes: To achieve Theory E, Holmes applied the crisis stabilisation and management changes as the levers of change. He embarked on increasing revenue through leveraging of the financial services, launching of a combination of a credit and loyalty card known as &More and increased the sales by clinching deal with George Davies of Per Una who became the sole supplier of womenswear for the 25 -35 years age

group. He also reduced costs by downsizing of staff at head office and cutting down the number of contracted suppliers to half and sourcing directly instead of using agents. Rose: Using theory E as the lever of change, Rose went on to put Per Una aside to make M&S concentrate on core services. Generated revenue through selling of 635 million shares; revive out-of-town retail centres to up sales and franchising the financial service division to HSBC at 762m and retaining 50% of future profits. Reduced costs through re-organisation and declaring some employees redundant; stopping process wastage; discourage non value adding administration costs and closing of underperforming stores. And applying theory O as the lever of change, his strategy was centred on training of employees using the Can-Do programme in order to change attitude, culture, make employees appreciate Rose approach to change and the M&S strategic changes, improve customer handling and communication.

Incremental: Is the strategy development that is built on previous strategy such as existing skills, routines and beliefs in an organisation. Holmes continued with the same organisational structure of hierarch; short-term strategies of day- to-day basis; the culture of resolving issues through committees and maintained most of the structures that he inherited from Vandeveld.

Big Bang: Is the nature of change that is applied when an organisation faces crisis or is in need of a fast turnaround, for example loss of market, loss making, insolvency, threat of takeover, reduced share price. Holmes: Big bang was used as the lever of change during the tenure of Holmes when contractors for M &Ss logistics were halved; and sourcing through agents was cut off. When the market for clothing declined or lost due to core customers buying less as a

result of customers spending out of town; poor quality and loss of trust, Holmes big bang were improvement of products, stores, supply chain, stores and operations. Rose: M&s faced crisis due to threat of takeover from Philip Green as result of reduced share price, poor performance and loss of market segments. Using the big bang method to turnaround the crisis he made management changes by retiring long serving directors, frustrated some directors with his management style who then resigned, brought in new management and reduced the board to half. He reversed Holmes initiatives such as closing underperforming lifestores, franchising financial service division to HSBC to reduce costs and improve efficiency. Rose reduced inventory by refining supply chain and improving sourcing efficiency.

Holmes: Adaptation and Reconstruction Adaptation: Is the type of strategic change which fits in with existing culture and occurs incrementally. Strategic changes that were put in place included the plans of shifting from core ranges of clothing and food to homeware, financial services and simply food motorway outlets. However, these plans were introduced in the old culture like that of M&S being synonymous with high quality, a complicated and over staffed structure, same old rituals and routines, existing skills with few changes.

Reconstruction: A type of strategic change that is rapid and may cause commotion in an organisation but does not change culture. The reconstruction process involved the leverage of financial services; scale down the number of staff at the head office which may have brought uproar among the discharged employees. However, Holmes maintained the tradition of appointing committees to tackle turn around problems and the culture of arrogance at M&S continued.

Rose: Evolution and Revolution Revolution: Is a transformational change that requires rapid and major changes and culture change. It is applied in situations where the organisation may be bound by the prevailing culture and also when threatened by takeovers. Rose prioritised the strategy to avert takeover by Green and solved M&Ss trading problems by taking on culture change, improving decision making and accountability and reviving clothing, the core of the business, to win back customers. Retired long serving directors and trimmed the board to three members only. Rose took over managing of clothing himself. Sales grew in womenswear due to promotions using famous models such as Twiggy and Erin OConnor. Rose also reduced inventory in the clothing; reduced lead times and simplified products in homeware and agreed new terms with suppliers. Raised capital through selling of shares Evolution: Is the strategic changes that demands culture change. Evolution may take the idea of a learning organisation. An organisation that adjusts its strategy as the environment detects. Initially, Rose applied both direction and coercion styles to change attitude and culture of the employees. Later on he changed his style after realising that there was little or no communication between employees and management. Therefore in order to improve on communication, customer relation, change attitude and culture and make employees understand M&S, he introduced a training programme called Can-Do.

Why Rose was successful than his predecessors Leadership style: Rose was both a charismatic and transactional leader. Charismatic because he was so skilful at building morale for example not only did Rose initiate the workers training- can-do, but he also rewarded them with bonuses to appreciate their commitments towards turnaround change thereby energising them to do better in future. His transactional leadership can be seen in the way for example Rose offered to head the loss making clothing division

himself and the controls that he put in place for his turnaround change to be successful.

Experience: Rose who started as a trainee at M&S had many years of experience in retailing. He rose through ranks to senior executive in his 17 years at M&S before being appointed CEO. With this experience, Rose understood the strengths, weaknesses, opportunities and threats of M&S faced in its approach to business, prevailing culture, trading problems, poor quality, labour costs, product pricing and many more. When he became CEO he used the strengths and opportunities to overcome the aforementioned problems.

Management changes: Labour costs due to high head count contributed to high overhead expense. Owing to the culture of family at M&S, the previous CEOs did not carry out any restructuring at top management level. In order to save money and reduce costs, Rose restructured and declared some non executive directors redundant and also reduced the board to three members including himself. Note that the cost of maintaining directors in an organisation is high because of the allowances and other incentives that go with such positions

Stakeholders Support: From the onset Rose received support from the shareholders, the press and later on by the employees. For Example, he received praise from the shareholders for retiring long serving and non value adding directors, for improving quality, for returning 2.3bn to shareholders by buying back 635million dollars; increasing share price from 290p in 2004(at the time of Holmes) to 586p in 2006. The press simply called him a skilful morale builder, comfortable with analysts and shareholders, and one who was able to achieve a turnaround in the worst consumer recession for 15 years. Rose being comfortable with the analysts and shareholders meant that he was able to listen to their concerns and criticism on M&Ss performance. And then he would put in place action plans to resolve issues noticed. Employees did not only support Rose for the bonuses, but also for the training initiative, for putting

controls and systems in place, improving coordination and communication between departments and his charismatic leadership.

Levers of Change: Rose combined theories E and O as levers of change in order to turnaround M&Ss crisis and used incentives such as bonuses to reinforce change rather than driving the change. He used training to change workers mentality; reduced costs through restructuring and redundancies and closing of underperforming stores; increased sales by opening up out-of-town retail centres and improving core services, raised capital through buying back of shares.

Culture Change: Culture at M& S was not only the driving force behind the strategy but also the force behind the appointment of senior personnel in the organisation. For one to become CEO he/her had to be family or had served with the organisation for all his careers except Holmes. In his 17 years of service with M&S, Rose understood the culture very well. Rose made culture change a priority. For employees he embarked on an employee change mentality programme that included communication improvement, understanding the customers and changing attitude. In order to break the ice, Rose made appointments from outside and inside the organisation, put long serving and non value adding directors on retirement thereby avoiding behavioural compliance and reducing costs. Culture change was the main hindrance to innovation, management change and indeed the success of M&S.

Communication: Rose improved communication between departments at M&S. He further improved communication through the Can-do training that he offered to the employees. Communication at M&S had always been the top-down style but Rose encouraged bottom up flow of information thereby opening up with the employees. Hence achieving synergies in the employee output and indeed a successful turnaround. He also communicated with other stakeholders such as the shareholders, customers, the press and analysts.

Refocusing: Rose refocused the strategy of M&S by focusing on the five core values of quality, value, service, innovation and trust with a view to gaining the lost standards. These values improved the sales, pricing, brought back the core customers and increased revenue.

Milestone for review progress: Rose reviewed his change programme performance regularly with the board, shareholder and top management and later cascade to the employees. At such meetings he outlined the problems, achievements, failures and the action plans to be put in place in order to reach the intended targets.

Visible Commitment to change: Is when top management is consistence on how change is explained and effected. And it involves talking straight to individual who will be affected by change. Rose is as proficient as can for example be seen at how he convinced the long serving executives to accept retirement and the employees to undertake an attitude change programme.

Marketing Strategies: Rose put in place strategies in order to cut down on costs( for instance retire directors, shut down poorly performing lifestores, stopping wastage and cut down on admin costs); increase revenue( for example improving quality, competitive pricing ,new stylish clothes introduced fortnightly and use ad-campaigns); reduce customer complaints and increase customer satisfaction( for example reviving out of town stores and improving quality); cut down on inventory( for example reduced stock commitments in clothing, cut lead times and agreed new terms with suppliers).