Marks & Spencer (M&S) was once hailed as one of the best managed and most admired retailers in the world, enjoying legendary status in the UK for over a century. However, since 1998 it has faced an unprecedented crisis, with plummeting profits, stagnating sales, and falling market share. This exploratory study uses interviews and a case study approach to investigate the failure of M&S. It aims to understand the causes of the failure and place it in the context of literature on organizational crisis and failure, in order to draw lessons for management and research.

1. Introduction
‘If I had to pick one company in the world
that exemplified consistent long-term growth,
profitability and customer satisfaction, it would
be Marks and Spencer . . . In terms of perform-
ance no British company can match them.’ (Peter
Doyle, quoted in Seth and Randall, 1999,
pp. 123–124)
For over a century Marks & Spencer (M&S) has
been a legendary UK retailing organization.
M&S’s management, both its overall style and its
individual leaders, have been acknowledged as
exemplars of ‘best practice’. Peter Drucker (1974)
described M&S as a ‘managerial giant in the
western world’. Tse (1985, p. 1) noted that M&S
‘has been widely recognized as one of the best-
managed companies in Europe . . . as far as
management excellence of the firm is concerned,
the consensus is almost total in the trade, as well
as in government and specialist circles’. Kumar
(1997, p. 823) commented that ‘in almost every
survey in the United Kingdom, Marks and Spencer
tends to top the list of most admired companies
and their St Michael brand is world renowned’ .
Until 1997, a host of academic and business com-
mentators could be drawn upon to make similar
complimentary points. Since then however, the
situation has altered. M&S is experiencing unpre-
cedented troubles. The company has seen its sales
stagnate, profits collapse and market share fall.
Its reputation is much reduced both at home and
abroad, where, for example, it has been fined by
the French courts and severely criticized for its
attitude and behaviour towards its workers. Whilst
a restructuring plan is underway under new, non-
British management, after 12 consecutive quarters
of sales decline, considerable problems remain. It
is fair therefore to say that the company has been
publicly facing a survival crisis since 1998 (Bevan,
2001). The previously unthinkable, that M&S could
lose its independence, has become a real possi-
bility. How could M&S, which was so often hailed
as an exemplar of retailing companies, and indeed
British Journal of Management, Vol. 13, 15–29 (2002)
© 2002 British Academy of Management
An Exploratory Study into Failure
in Successful Organizations:
The Case of Marks & Spencer1
K. Mellahi, P. Jackson* and L. Sparks†
Loughborough University Business School, Loughborough LE11 3TU, *Coventry Business School,
Coventry CV6 5LW, and †Institute for Retail Studies, University of Stirling, Stirling FK9 4LA, UK
email (corresponding author): K.Mellahi@lboro.ac.uk
Marks & Spencer (M&S) was one of the world’s great retailers, enjoying legendary and
iconic status, being often held up as one of the best managed and admired businesses in
the world. Its ‘fall from grace’ has been spectacular and dramatic and the company is
currently fighting for its life. Based on extensive in-depth interviews with company
managers and utilizing a case-study approach, this paper provides an exploratory study
into failure at M&S and presents this in the context of the wider literature on organ-
izational and managerial failure. It concludes that whilst external factors in the various
trading environments affected the business, there were internal aspects of the crisis
which exacerbated the situation and the problems.
1
We acknowledge the constructive and helpful advice
of the Editor and three anonymous BJM reviewers.

2. of British business generally, suddenly find itself
in such dire straits?
The phenomenon of highly successful com-
panies facing a survival crisis is not new (Anheier,
1999; Lawler and Galbraith, 1994; Miller, 1990).
The corporate landscape is littered with the bones
of bankrupt, but previously successful, corpor-
ations. Several popular books describe collapses
of successful companies (e.g. Miller, 1990; Ricks,
1983, 1999; Ross and Kami, 1973; Sobel, 1999).
Notwithstanding the commercial importance of
organizational failures, both at the corporate and
business start-up levels, the topic is not a central
theme of management research (Cameron et al.,
1988; Sheppard, 1994; Whetten, 1988). Pauchant
and Douville (1993) argue that whilst excellence
is well-established within the literature on strategy
(and indeed Marks & Spencer have been included
themselves in a number of ‘excellence’ collections),
the study of failure is generally less common.
Using a case study of M&S, this exploratory study
investigates the process by which a successful
company is engulfed by a crisis, and the causes
that underlay the situation. The aims of the paper
are to understand the causes of failure in M&S, to
place this case study in the context of the lit-
erature on organizational crisis and failure and to
draw lessons from this analysis for management
and future research.
Organizational crisis and failure
The meaning of failure, decline or crisis is
problematic (Sheppard, 1994). Academics have
defined each of the terms in different ways
(Cameron, Kim and Whetten, 1987; Carroll, 1993;
Dutton and Jackson, 1987) and there is little
consensus about what each term precisely means.
For the purpose of the present research however,
we define crisis-failure as an event or condition
(or a series of events and conditions) that could
lead to severe market-share erosion (Starbuck,
Greve and Hedberg, 1978). Symptoms include
declining demand, sharp declines in sales and
reduced or negative profitability (D’Aveni, 1989a;
Hambrick and D’Aveni, 1988). The terms crisis,
decline or failure will be used interchangeably in
the present exploratory research, although we
recognize that there are theoretical debates about
the appropriateness of so doing. In this exploratory
work, we believe that a broad approach is the
most useful.
Causes of organizational failure have been
examined from at least two different perspectives.
The industrial organization (IO) perspective locates
the causes in the external environment (see
Frank, 1988; Jovanovic and Lach, 1989; Lippman
and Rumelt, 1982). The IO literature seems to
indicate that the management of failing firms are
the unfortunate victims of external circumstances,
and that failure does not imply management
ineffectiveness or inefficiency. The IO literature
suggests a range of primary causes of crisis and
decline. These include turbulent demand structure
as a result of brand switching, changes in consumer
tastes or cyclical decline in demand, strategic
competition due to rivalry among existing com-
petitors or new entrants (Baum and Singh,
1994; Frank, 1988; Jovanovic and Lach, 1989;
Lippman and Rumelt, 1982; Sheppard, 1995),
density of organizations and the natural selection
process (Aldrich, 1979; Aldrich and Pfeffer, 1976;
Amburgey and Rao, 1996; Campbell, 1969;
Hannan and Freeman, 1978), strong unexpected
environment jolts (Meyer, 1982), and techno-
logical uncertainty due to product innovations and
process innovations (Slater and Narver, 1994).
It can be argued that organizational failure is a
natural and objective phenomenon (Balderston,
1972), inherent to the efficient operation of markets.
Life-cycle theory argues that organizations follow
the path of ‘inexorable and irreversible movement
toward the equilibrium of death. Individuals,
family, firm, nation, and civilization all follow the
same grim law, and the history of any organism
is strikingly reminiscent of the rise and fall of
populations on the road to extinction’ (Boulding,
1950, p. 38, see also Downs, 1967, and in the retail
context, Davidson, Bates and Bass, 1976, amongst
others). This cycle of development and vulnerability
is also at the heart of the ‘Wheel of Retailing’
(Hollander, 1960), which is based on the notion
that organizations commence as low cost/low
price businesses, but that as the business develops
so it ‘trades up’ and adds services, ambience
and other more expensive attributes. It therefore
becomes vulnerable to leaner, newer entrants,
which offer shoppers the lower prices they seek.
Inherent in the ‘Wheel of Retailing’ are concepts
of change occurring in the environment (external),
but also concepts of management separation from
consumer realities, leading to an inability to respond
16 K. Mellahi, P. Jackson and L. Sparks

3. to threats to the business. Whilst not universally
accepted, the concept of cyclical trends or tend-
encies that need to be managed or overcome is
an attractive one. This leaves open, however,
the question of whether failure is due to these
external factors or to management failure.
Organizational studies (OS) literature places
more emphasis on internal factors associated with
failure (Cameron et al., 1988). Advocates of
internal causes criticize IO literature on failure
as being too rational, arguing that it presumes
objectivity by ignoring the effects of internal
factors and the misperception of organizational
members in responding to external changes.
According to OS literature, failure is a result
of management’s lack of vision and the lack of
will and ability to respond effectively and make
necessary adjustments to reverse the downward
spiral of decline triggered by external factors. The
literature cites as the main internal causes of a
crisis, escalating commitment by management to
pre-existing strategies and routines (Bateman and
Zeithaml, 1988; Staw, 1981), blinded perception
by management to their weaknesses and strengths,
customers’ demands and competitors (Zajac and
Bazerman, 1991), management malfunctioning
(Argenti, 1976), strategic paralysis (D’Aveni, 1989b,
1990), threat rigidity effects (Staw, Sandelands
and Dutton, 1981) and structural inertia (Hannan
and Freeman, 1984).
The OS literature further indicates that
successful companies are susceptible to crisis for a
range of reasons. Miller (1990) notes that ‘success
can breed over-confidence and arrogance’. Ranft
and O’Neill (2001, p. 126) argue that high-flying
firms, in the face of competitive pressures develop
a form of ‘cautious conservatism and perhaps
arrogant disdain’. This can be linked to the idea
that ‘success breeds failure’ and ‘failure breeds
further failure’ (Argenti, 1976; Cyert and March,
1963; Starbuck et al., 1978), in a spiral of decline.
This process is explained in that organizations
formulate heuristic programmes for dealing with
recurring problems, and these programmes
remain in use even after the situations they fit
have faded away (Starbuck and Hedberg, 1977,
p. 250). This often results in organizational inertia
(Behn, 1977; Cyert, 1978; Kelly and Amburgey,
1991). As Kelly and Amburgey (1991) note, ‘over
time successful routines develop into habits. As
habits, the routines become traditions, and hence,
the effect of preserving the firm’s way of doing
things.’ As a result, organizations that were the
most successful in the past become the most
vulnerable to failure in the future (Whetten,
1988), because they are conditioned to exploit
their old advantages, and less likely to explore or
react to new ones. In essence this argues that
failure is linked to internal inadequacies in deal-
ing with external threats. These inadequacies can
be of a variety of types.
Larson and Clute (1979) concluded that the
characteristics shared by failed firms are directly
related to personal decision-based characteristics
of managers. Similarly, Argenti (1976) identified
as causes for failure, impulsive decisions that ex-
tended the organization’s assets, not responding
to change, an executive who is either too powerful
or poorly informed and the taking of unnecessary
risks. Starbuck et al. (1978) identified the source
of a crisis in the misperceptions of organiza-
tional members. Barmash (1973, p. 299) noted
that ‘corporations are managed by men; and men,
never forget, manage organizations to suit them-
selves. Thus corporate calamities are calamities
created by men.’ Macoby (2000) describes how
visionary managers can frequently be narcissistic
in their behaviour and increase the risk of failure
when business conditions change. When faced
with a crisis, these narcissist leaders isolate them-
selves from the advice of others, ignore words of
caution, interpret criticisms as threat and fre-
quently become myopic in their views (Macoby,
2000). This behaviour and attitude foster hubris
because of ‘exaggerated pride, self-confidence,
or arrogance’ (Kroll, Toomb and Wright, 2000).
As a result, in the face of declining returns to
a once successful strategy, decision-makers will
‘stick to the knitting’ and well-learned past
routines and procedures may be continued (Staw
et al., 1981).
Staw et al.’s (1981) threat rigidity effect theory
argues that individuals, groups and organizations
tend to behave rigidly in threatening situations.
Keisler and Sproull (1982), quoted in D’Aveni
and MacMillan (1990, p. 635), state that ‘a crisis is
expected to divert a manager’s attention away
from the locus of the crisis because it creates noise
that may keep the manager from considering rele-
vant information about elements in the organiza-
tion’s environment that are the source of the
crisis’. As a result, managers will not change their
focus of attention in response to an externally
induced crisis (D’Aveni and MacMillan, 1990);
A Study into the Failure of Marks & Spencer 17

4. rather they will ignore the external crisis and act
as if the external crisis does not exist (Holsti, 1978;
Starbuck et al., 1978; Whetten, 1980). Managers
often fail to react to a threat because they were
focusing on internal methods that were successful
in the past (Starbuck et al., 1978). Years of
continuous success lead many managers to ignore
external crises because they perceive them to be
temporary or inconsequential, thus failing to
react to crisis as they overestimate the strength of
their strategy and dismiss the seriousness of
changes in the market place (Argenti, 1976;
Holsti, 1978).
The discussion of the literature above suggests
that both IO and OS orientations have to be in-
tegrated in the study of failure (see Witteloostuijn,
1998). A number of previous attempts have been
made to integrate the two approaches (e.g. Levine,
1978; Witteloostuijn, 1998). Levine’s (1978) typology
of causes of decline suggested a combination of
factors:
(1) organizational atrophy which is based on the
‘success breeds failure’ logic;
(2) political vulnerability – liability of newness;
(3) loss of legitimacy;
(4) environmental entropy – a reduction in the
capacity of environmental support to the
organization.
While the first three are generally seen as
internal, the last factor is external.
A number of themes emerge from this literature
review. First, it is suggested that it is a com-
bination of internal and external factors that is
responsible for failure. The balance amongst
these will likely vary from company to company.
Second, it is suggested that in successful com-
panies, the distance of the management from the
external realities of the business is an important
internal factor in the ability to react to threats
from outside. Third, the literature contains a large
number of reasons for the environment becoming
turbulent or changed and it might be expected
that some are more important than others, and that
some may be more difficult to react to than others.
It should be noted finally, that most of the work
cited above has not been undertaken in the retail
sector, and thus by omission, the literature raises
the issue of the applicability or otherwise of such
factors to the case of retail failure.
Marks & Spencer: the context
Prior to its current decline, M&S had been one of
the most successful British retailing companies.
Figure 1 takes the simple measures of sales and
profit to illustrate the previous success of the
company and also the scale of the current reverse.
Space precludes us from describing in detail the
history of the development of Marks & Spencer
from its family, market bazaar, fixed-price origins.
A number of books by outside observers (Briggs,
1984; Rees, 1969; Tse, 1985), company leaders (Sieff,
1970, 1986, 1990) and internal officers (Bookbinder,
1989; Goldenberg, 1989) provide detailed insights
into the development of M&S. There are also
detailed (Bird and Witherick, 1986) and more
superficial (Davies, 1999) academic attempts at
exploring aspects of the company’s development.
Such was its image and success in the UK that its
forays as Marks & Spencer abroad since the 1970s
had become of interest to academics searching to
understand the role of image in retailer inter-
nationalization (Burt and Carralero-Encinas, 2000;
McGoldrick, 1998). Marks & Spencer’s iconic
status within the United Kingdom may often have
puzzled those from outside the country. However,
by 1998 the business had retail sales of almost
£8 billion, traded from almost 500 Marks & Spencer
stores around the world, and owned Brooks
Brothers and King’s Supermarkets in the United
States. It possessed a renowned private label/
retailer brand in St Michael, an enviable financial
services operation and made over £1.15 billion
profit before tax. It was estimated to have approx-
imately 15% of the British clothing market in
the mid-1990s (Seth and Randall, 1999). By any
measure, this was a successful business.
This enviable position had been achieved through
a particular practice of retailing (see Rees, 1969;
Tse 1985, 1989) and through activities as a ‘rule
breaker’, in that M&S did not ascribe to many of
the usual ‘way to do business’ norms. Some of
M&S’s unorthodox ways of conducting business
played a part in differentiating it from the rest
of British retailing. A number of these can be
identified.
M&S persisted in a ‘buy British’ policy long
after the rest of its competitors had sourced
from cheaper manufacturing capacity abroad.
This approach had long been believed to be what
the customers wanted and desired (Sieff, 1990).
M&S also had a peculiar aversion to marketing. It
18 K. Mellahi, P. Jackson and L. Sparks

5. appeared to have such a total belief in its offering
as to negate the need to have marketers within
the organization. Advertising in newspapers, radio
and television was confined to new store openings
and did not promote either the brand (another
peculiarity in its well-known reliance on the 100%
retailer brand St Michael) or its products. Its
marketing strategy was to introduce new products
in the hope that the customers would buy them on
the basis of trust. If the lines were unsuccessful,
the company used its pricing mechanisms to
discount the goods quickly so as to eliminate the
mistakes quickly.
Another idiosyncrasy was the continuing refusal
of the organization to allow the acceptance of
major credit cards. In 1984, the company had
successfully launched its own in-house store card,
which had become the third most used card in the
UK (after Visa and Mastercard). The vast majority
of the card holders were women and the store
card was regarded for a long time as the most
successful of its kind in the UK. This reliance on
the store card mitigated against the introduction
of credit-card acceptance. Credit availability had
become much more widespread in the late 1980s
and 1990s and credit cards had become ubiquitous.
There was the company’s stance on retail loca-
tion. Long regarded as the pillar of the high street
and town centre, M&S was very slow to embrace
the move to out-of-town retailing. Unlike many
of its competitors, its retail locations remained
primarily where they had always been – the focal
point of the town centre.
It was not only its ‘rule breaking’ strategy that
distinguished M&S from other retailing com-
panies. Prior to the crisis, M&S had been seen as
part of the fabric of UK governance. Members
of the company were utilized by successive UK
governments; for example, Lord Rayner, Lord
Stone and Sir Richard Greenbury were involved
in the formulation of national policies as varied as
the euro, arms procurement and inner-city renewal.
It was believed that there was much to be learnt,
for example, from the Civil Service or the Health
Service emulating Marks & Spencer’s approaches
to management and business (Chesterman, 1984;
Howells, 1981).
The company also had a high profile in each
community in which it operated. For many years
it was the largest corporate charity donor within
the UK. Sieff (1990) noted that ‘It is simply the
only way to do business. We take profits out of the
local community, we should therefore be seen to
put them back.’ During the 1980s and 1990s, at
least 70 members of M&S management teams
were seconded to charities on a yearly basis, to
give practical help as well as the direct monetary
assistance. The company was also a leader in
A Study into the Failure of Marks & Spencer 19
9000
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1000
0
1978
1980
1982
1984
1986
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1978
1980
1982
1984
1986
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1200
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0
£m
£m
Sales (£m) Pre-tax profits (£m)
Financial year Financial year
Figure 1. Marks & Spencer recent business performance

6. areas in which it felt it had a more direct stake,
such as the fledgling Town Centre Management
movement, reflecting its belief in the primacy of
town centres over out-of-town retailing.
These activities gave M&S a solid external
image, as well as building the company’s self
image of itself as a superb, well-run company
which had the ultimate management paradigms.
It was therefore a supremely confident organiza-
tion, secure in the knowledge that it had enjoyed
almost continuous growth over the last 50 years
and had seen huge increases in its sales and
profits for a similar period.
Its history, from a small family-run business
which started in Leeds in the 1880s, is also a
significant reason why it had developed in the
way it had. As a small Jewish company, it em-
braced family values and paternalism, promoting
from within. The company became world famous
for looking after its staff, with its own welfare ser-
vices, dentistry, a doctor attached to every store
and a respected management-training scheme
(see Renwick, 1998; Tse, 1985; Turnbull and Wass,
1998). Marks & Spencer was controlled and
developed for over 50 years by Simon Marks, who
was regarded by retailers as one of the century’s
retailing giants. He succeeded in transforming the
business into a retailing ‘tour de force’. Drucker
(1974) states that the mission of M&S was ‘social
revolution’ in that it existed to ‘subvert the work-
ing class’ by providing them with ‘clothes fit for a
lord’ and ‘food fit for a king’. By Simon Marks’
death in 1964 the principles of the business were
established and these principles remained the
driving force of the business until the early 1990s
(Figure 2).
When Lord Rayner assumed control in 1984, as
the first non-family Chairman for over 70 years,
he took the company on an expansionist track,
both within the UK, where the selling space
was tripled, and abroad with the purchase in 1988
of Brooks Brothers and King’s supermarkets in
the USA, and the rapid expansion of Marks &
Spencer stores on the continental market. In the
late 1980s and 1990s, Hong Kong and the Asia
Pacific region became an immensely important
area of trade, with growth doubling every three
years. Whilst M&S had been involved in inter-
national retailing prior to this, for example in
unsuccessful developments in Canada, this
expansion at home and abroad was a significant
movement of the company focus.
Rayner retired in 1991 and was succeeded by
Sir Richard Greenbury, at a time of general prob-
lems in British retailing. The business began to
focus mainly on cost control. Managers, hitherto
unworried about profits, became ever more
focused on delivery to the bottom line and not
to the customer. A split between Sir Richard and
his deputy, Keith Oates (who had joined the
company from outside in 1988), became obvious
to most insider managers by 1994. Opposition
outside the boardroom was not tolerated. The
non-executive directors did not appear to be ex-
ercising any control over the obvious succession
issue. In addition, Greenbury’s apparent rudeness
to members of the press, media analysts and ex-
ternal observers was legendary; critics were often
dismissed as ‘teenage scribblers’. However, under
his stewardship, whilst there were no startling
increases in core sales, the profits continued
to grow. Profits rose from £615 million in 1991
to £1.15 billion in 1998. As a result, Directors,
Divisional Directors and Executives received
lucrative salaries based on the bonuses that accrued
from these profits.
You would imagine from this, that in 1998,
the business was a complete success and poised
for future growth. As Figure 1 shows however,
the continuous growth of the company over the
last twenty years stopped dead, and subsequently
reversed. Between 1998 and 2001, the reported
figures show an actual sales decline, despite
20 K. Mellahi, P. Jackson and L. Sparks
Figure 2. Marks & Spencer business principles
Sell merchandise of the highest quality and outstanding
value
Provide the highest standard of customer care in an
attractive shopping environment
Improve quality standards continually throughout our
operations
Support British industry
Pursue mutually rewarding long-term partnerships
with suppliers
Ensure that staff and shareholders share in our
success
Nurture good human relations with customers, staff
and the community
Minimize the environmental impact of our operations
and merchandise

7. increases in international and financial services
sales. There was a massive decline in pre-tax
profits from £1.15 billion to £0.14 billion. The
market share for UK clothing collapsed from
13.9% in 1997 to 10.9% in 2000 (Corporate
Intelligence Group, UK Retail Rankings 2001).
Stagnant or declining sales, falling market share, a
heavily reduced profit, a share-price collapse
from £6.60 on 3.10.1997 to £1.70 on 20.10.2000
and a reduction in dividend are emblematic of a
major crisis or failure in the business. Such was
the scale of the collapse that rumours abounded
about possible takeovers or mergers, although to
date a new management team headed by the
Belgian Luc Vandervelde remains in control.
Journalistic coverage of the fall has been intense
(Bevan, 2001).
Methodology
This research seeks to map out the causes of
organizational failure in M&S. This research began
in 1998, as the crisis became obvious. In the light
of the difficulties, we sought to gain insight into
the external environment (competitive landscape,
global influences and changing consumer demands)
as well as internal causes, directly examining the
behaviour of the organization and its management
before and during the crisis. The research design
from the outset has focused on using a range of
sources, to enable breadth of data capture aug-
mented by detailed in-depth research processes,
with cross-checking of data, opinions and sources
with each other. A number of data techniques and
sources have been used.
First, the media and stockmarket analyst
coverage of M&S has been enormous, because of
its high profile, previous success and the depth
of the unfolding crisis. Secondary material is thus
extensive and has been analysed to uncover themes
in the explanations for the origins of the crisis.
The structure of the case-study analysis below re-
flects in part these publicly articulated explanations.
Second, M&S publications such as annual
reports and other statements have covered the
crisis. These, together with public statements by
M&S managers and directors available through
the press or made, for example, at the Annual
General Meeting (which has been attended
regularly by one of the research team), allowed us
to examine the extent to which the company was
aware of the crisis, its understanding of it and
its immediate reactions to it.
Third, twelve formal interviews were conducted
over a period of six months in 2000, with a sample
of managers, executives and senior managers.
For obvious reasons, these interviewees have asked
to remain anonymous. Whetten (1988) suggested
that organizational members’ beliefs regarding the
source of crises provide a rich setting for tracing
the causes of the crisis. We checked to ensure that
interviewees were close to the crisis and involved
in its management. To reduce bias towards the
causes of the crisis, our sample included nine
managers who were still working for M&S during
the research period and three who were no longer
with the company because of the crisis. The inter-
views were conducted around three fundamental
questions: What were the direct causes that led to
the failure of M&S? What were the factors that
permitted the crisis to occur? And what were the
main factors that escalated the crisis? Aspects of
the secondary data collection obviously informed
our subsequent more detailed questioning of the
interviewees. Formal interview length varied from
45 minutes to several hours, depending on the
amount of information the interviewee could pro-
vide. All formal interviews were tape-recorded.
Follow-up interviews with eight of the respond-
ents were semi-structured, seeking clarification,
confirmation and explanation about key events,
people, and issues identified from other formal
interviews, articles later published in the media
and emergent themes as the crisis and the research
progressed.
Finally, since 1998, one of the authors, a former
executive at M&S, has been conducting informal
interviews and discussions with M&S manage-
ment about M&S failure, utilizing his past contacts
and colleagues. Most of these informal discussions
have been by telephone and have sought to cross-
check information as it emerged from the research.
Because of the diverse sources of information
and data, we have constantly cross-checked
information and data from different sources to in-
crease the reliability and accuracy of our explan-
ations. We have used published sources that often
do not have a vested interest in the company, and
informants that were able to report accurately
on their understanding of the situation. We corrob-
orated data provided in the internal and external
written material with data from interviews. It
A Study into the Failure of Marks & Spencer 21

8. is accepted that interviews uncover perceptions
rather than deeper realities on occasions. The
sources here were very close to the central issues
and capable of analysing their understanding and
the corporate situation. We believe that this variety
of data collection methods, combined with the
continuous data validation process, allows us to
be confident in our case-study analysis below.
Analysis
As anticipated, the research revealed that the
causes of decline are complicated, interconnected
and somewhat insidious. We present this analysis
under the broad headings of external and internal
factors as identified in the literature review.
External factors
We found that an early explanation of the crisis
lies in the radical changes in the competitive land-
scape that have been taking place for some time
(Dawson, 2000). The changed competitive situation
is seen in a host of revitalized and newer competitors
for the core UK Marks & Spencer markets. Exist-
ing retailers in the UK such as Next, transformed
themselves in the 1990s into strong price and
quality competitors to M&S. New retailers across
the price/quality spectrum, such as Gap, Zara,
Mango, Hennes and Mauritz and in niche markets,
Sephora, Lush and La Senza, captured an increas-
ing proportion of the market. Many of these
businesses were international retailers entering
the UK market, bringing new approaches. Discount
players such as Matalan, Primark and Peacocks
expanded, catering to a price and value-conscious
market. Older department stores re-invented
themselves as brand-led boutique collections,
e.g. Debenhams. In food, Tesco Finest eclipsed the
quality image that Marks & Spencer previously
had. These retailers were much more in tune with
the changed consumer desires and behaviours of
the 1990s. In short, M&S managers point to a
radically tougher marketplace over the 1990s, with
stronger, more aggressive and confident competitors.
Aspects of the ‘rule breaking’ stance of M&S
examined earlier, were in this changed environ-
ment as much a liability as they had earlier been
a benefit. For example the limited advertising
undertaken by M&S can be contrasted to a much
more advertising-focused retailing sector generally
by the mid-1990s. Retailers began to dominate
the top advertising spends amongst all companies,
mainly marketing their powerful retail brands and
image, e.g. Next or Tesco (Burt, 2000). Similarly,
the refusal to take debit and particularly credit
cards became an increasing deterrent to sales, in
an increasingly credit and card-based economy.
M&S management was advised repeatedly, for
example in customer letters and at the AGM,
of this. At the AGM in 1999, the CEO finally
announced the reversal of this policy. Even this,
however, backfired on the company, as customers
expected the change to happen very quickly, but
it took the company over nine months before its
systems were able to cope with the acceptance of
credit cards (see later). The lack of out-of-town
stores (and a tactical mistake in purchasing even
more high-street space from Littlewoods in 1998),
a delivery system that did not guarantee product
availability late in the day, and a store environ-
ment that was essentially unchanged in twenty
years, were all further examples of a lack of
awareness of the changed external environment.
Competitors were located in new locations, ser-
viced by world-class logistics systems (McKinsey,
1998) and with regularly re-modelled and re-
designed retail stores.
Perhaps the most public of these issues became
the long-term adherence to a ‘buy British’ policy.
The freeing of trade with China and the ex-
pansion of production capacity in the Pacific Rim
for example, resulted in a huge influx of increas-
ingly high-quality but significantly cheaper goods
into western retailers. Designer clothes became
affordable to customers who used to buy M&S
clothes. M&S was, in fact, well placed to take
advantage of this shift in the industry sourcing,
as it had strong connections in China and other
Pacific Rim Countries, in addition to a buying office
and a director based in Hong Kong. However,
M&S was strategically reluctant to change its
buying policies and stuck to the ‘buying British’
policy. Other competitors were not as shackled
or principled. At M&S, as the prices it charged
to customers became higher and less competitive
(exacerbated by the strong appreciation of Sterling
from 1996), and the price and quality differentials
with competitors eroded or reversed, so con-
sumers questioned the benefits to them of such
a policy, if they were concerned about it at all.
M&S had a distinctive market statement on the
one hand but an increasingly non-competitive
22 K. Mellahi, P. Jackson and L. Sparks

9. stance on the other. As the company tackled this
issue, by cutting its reliance on British suppliers,
so its long-standing policy became a millstone and
a public-relations disaster. Trades unions, suppliers
and the press lined up to denounce the changes,
despite the fact that this had become both a cause
of the company’s non-competitiveness and com-
mon policy amongst competing clothing companies.
One final general environmental aspect can
be identified. The last decade has seen a large
amount of technological changes in retailing, as
elsewhere in the economy and society. The use of
computerized systems in order to order, store and
deliver product to stores has created a more level
playing field amongst retailers. Hitherto supply
systems had been a source of real competitive
advantage to M&S, as the company had led the
way with simple, non paper-based systems which
relied on internal trust and trust with suppliers
(see Tse, 1985). Technological change obviated
this advantage, and furthermore allowed com-
petitors, especially late movers, not only to catch
up with M&S, but surpass it by introducing the
latest technology and concepts. The competitive
external environment was therefore much trans-
formed over the 1990s. New retailers with new
practices and approaches had become serious
players in the UK, allied to enhancements in
existing leading retailers. Practices and policies
that had worked well for M&S in the past were
now not as acceptable or effective in the changed
retailer and consumer environment. As inter-
viewees reported, M&S continued to rely on
older systems and approaches, whereas the new
retailers were constructing new methods of
operating. This raises the question of why, with all
the external changes going on, M&S did not react
to the challenges and different competitive and
consumer environment.
Internal factors
The answer to this question appears to lie with a
number of interconnected internal factors which
were identified during the research.
First, healthy profits, a large property portfolio,
a triple AAA rating from key financial advisers
and a well-recognized and trusted brand name, it
was thought, would insulate the company from
the coldest economic chill. There was a consensus
among interviewees that M&S’s past, character-
ized by long and continuous success, led to an
overwhelming belief in the company’s manage-
ment paradigm. As Tse (1989) puts it ‘the Marks
and Spencer brand of management’ was of funda-
mental importance. Change was not welcomed,
and viewed as unjustifiable, given past perform-
ance. More importantly, interviewees reported
that past success bred arrogance, conceit and a
sense of invincibility: e.g. ‘as we had got it right
for so long, it has gone pear-shaped before and
we’ve always pulled it back . . . we can determine
the pace of the market . . . our buying systems, were,
quite simply, the best’. Publicly, top managers
tended to underestimate the effect of external
changes in the industry landscape and, at times,
disbelieve external reports and studies. As one
interviewee noted ‘we were very comfortable and
could not believe it would not go on’, whilst
another stated ‘the writing was on the wall but we
preferred to look the other way and ignore them’.
Second, this belief was exacerbated by central-
ized management systems which resulted in M&S’s
management board being distanced from the
emerging realities of the external environment
and changes in customer needs, wants and shop-
ping behaviours. Instead of looking outwards, to
the competition and its customers, M&S’s atten-
tion was directed towards internal relationships,
managing internal decision processes, and satisfy-
ing internal customers and suppliers, or the Board.
As an interviewee noted: ‘M&S lost contact with
its customers’ needs and wants’. The business
environment ceased to be a source of ‘control and
feedback’. Front-line managers in the stores
did have direct contact with customers and the
competitive environment, but during the 1990s
these managers were being reduced in number
to save costs. For example, one manager may have
looked after as many as six stores over a wide
geographic location, e.g. Northern Ireland. As
consumer behaviour changed more radically,
even these managers were missing the changes in
customer behaviours, as dissatisfied customers
stopped visiting and spending in M&S stores.
Information was less available and was also more
likely to be ignored by Head Office. One
executive noted that ‘Up there [pointing to the
top of the building i.e. top management] are still
living a bygone era’.
Third, past M&S success invested individuals
with special interests in the status quo. Several
people, positions and departments became power-
ful and prestigious, because of the long-run success
A Study into the Failure of Marks & Spencer 23

10. of the company. Because these élite groups had so
much to lose internally, they became the vanguard
of the old paradigm. Both internal documents and
interviewees reported that dominant managers
and departments became conceited and obstinate,
resenting challenges and, ultimately, isolating
themselves from reality. As one respondent put it:
‘entering the board room meetings is like entering
another world – they lived in a world of its own’.
There is some evidence to suggest that some
executives’ resistance to change was based on
their fear of losing their personal status, resources
and influence over rival executives and depart-
ments, and not the belief in the necessity and
effectiveness of change for the good of the busi-
ness. One interviewee reported that while some
very senior managers fiercely resisted several
concepts such as e-retailing, when they left the
company they started businesses using exactly
the concepts they objected to in M&S. ‘We made
a mistake, we briefed them very well on these
concepts’, an IT manager commented. Powerful
managers were more concerned about their position
in the company and how change was going to
affect them, rather than looking for relevant
solutions. One interviewee explained manage-
ment’s mind set during the early stage of the
crisis: ‘all ideas were filtered through the question
– how is it going to affect me? . . . if the answer is
affirmative, it is passed on and suggested, if not he
will make sure it will not see the daylight’.
Fourth, M&S’s much vaunted human resource
management (HRM) practices became another
contributory internal factor. M&S’s recruitment
policies were internally focused, i.e. emphasizing
internal promotion, job security and careful
selection of individuals to fit certain career tracks.
The internal recruitment and promotion model
was believed to be a key contributor to M&S’s
success in the past. However when the organiza-
tion needed to change, they became a handicap.
The internally focused policies created a strong,
rigid, monolithic culture. One manager noted ‘we
were recruited by M&S at a young age, and most of
us did not work outside M&S’. As a result, when
change was needed, managers were unable to
change from the long-established ‘M&S routines’
and continued to behave according to previously
used ‘M&S procedures’. As a result, it was im-
possible for many people who had grown up in the
system, to appreciate that the old system was not
working any more. In entirely new circumstances,
that were changing radically and rapidly (c.15%
decline in like-for-like sales), management
attempted to follow old policies that no longer
fitted the new environment. In brief, management
failed to recognize the new reality and sought
instead to rationalize it. Platitudes to the City by
the Chairman, that sales declines were because
of ‘unseasonable weather’ or that ‘Grey was a
difficult fashion colour’ were arguably factors, but
they did not answer the underlying problems that
the company faced. The company’s ideals and
processes had frozen the firm in a bygone era. By
the late 1990s, as one executive described it, there
were two M&S’s. One, as perceived by its man-
agement, a world-class retail company with an
exemplar management: the other, that seen by
outsiders (industry observers and the City) and
customers, was a company ill-adapted to the new
circumstances and losing its market position and
image very quickly.
Fifth, ‘If it isn’t broke, don’t fix it’ was repeated
by almost all interviewees as one of the reasons
for failure at M&S. Rather than continuously
looking for new ways of managing the company
under changing circumstances, it continued to
preserve and do what was previously successful.
Because of its long and continuous success, M&S
had tightly adapted to its historical environment
and had such a strong trust in its management
paradigm that it could not respond effectively
to a changed business environment. It became
unable to deal with its new business environment.
Additionally, M&S not only stuck to its previous
routine procedures, but when change was under-
taken, the company initially exhibited modification
routines by using similar change and modifica-
tions made to the management and operation
systems throughout the company’s history. As
a result, types of change made in the past were
repeated. For instance, M&S resorted to lowering
marginal cost, not because it was believed to be
the best cure to the problem but as a solution that
has been used every time the company faced an
environmental jolt.
Finally, internally there were ‘political’ rumblings
within the company, particularly over the lack of
relationship between the Chairman and his Deputy,
and issues of succession. These probably dated
back to 1993 when Alan Smith departed from the
Board. He had been viewed by many as a likely
CEO but was incompatible with the then new
Chairman (Sir Richard Greenbury). The Deputy,
24 K. Mellahi, P. Jackson and L. Sparks

11. Keith Oates, had a close relationship with Alan
Smith and this seems to have caused the initial
breach. This was exacerbated by the Chairman’s
continuing antipathy for the stockmarket and the
City. The Deputy Chair was perceived by the City
as more personable and acceptable and was usually
given the role of spokesman at City briefings.
Increasingly though, it became obvious that there
was a lack of togetherness on a number of issues.
Interviewees spoke of having to see both individuals
when outlining projects, proposals and agree-
ments. Several of Sir Richard Greenbury’s actions
help to illustrate the nature of his influence at the
beginning of the crisis. First, he offered specious
explanations of failing performance to the City,
shareholders and staff (see above). Second, when
he learned that his deputy, Keith Oates, was seek-
ing clarification as to his succession, he fought an
internal battle to make sure the Board backed his
choice of successor, Peter Salsbury. A political battle
took place and the directors who were reported to
have backed Oates (who left) were ‘let go’. The
specifics of this do not really matter here (see
Bevan, 2001 for personal details). More funda-
mentally, the political in-fighting diverted manage-
ment focus from the crisis. At a critical moment in
the company’s history, where management focus
needed to be complete, management was preoccu-
pied with internal fighting and thus sidetracked
from the measures needed to react to, and man-
age the crisis. As the crisis worsened, Greenbury
resigned his position as Chairman, when he was
informed that he was to be voted out at the 1999
AGM. It is from this position of lack of succession
and wasted time, that a company outsider, the
Belgian, Luc Vandevelde (previously with Carrefour)
was recruited. He now has responsibility for
changing the company.
Discussion
The case-study analysis above has sketched argu-
ments around differing elements of the causes of
the failure in M&S. All sources are consistent in
pointing to the importance of internal factors as a
primary cause of the crisis. While some elements
of the crisis can certainly be justifiably understood
by the extensive changes in the external environ-
ment, internal factors had a critical bearing on the
timing and the extent of the crisis. The internal
factors were a permissive condition. For example,
the boardroom struggle resulted in executive
incapacity, lack of decisiveness and low external
credibility, which subsequently led to corporate
inertia and thus delays in understanding and then
dealing with the emerging crisis.
The case study provides evidence to suggest
that M&S was in a situation which was likely to
develop into a crisis. Blinded by its previous long
and uninterrupted success, and stubborn faith in
its ‘M&S way of doing things’, it failed to identify
a variety of external threats. Signals were ignored,
denied or, in particular, rationalized. The com-
pany developed a faulty internal assumption,
based on the fallacy that its reputation and brand
name would insulate it from the competitive
environment. As a result the company was not
able to prepare for any crisis.
We believe that the crisis was triggered by
external factors, in particular the changed environ-
ment of the 1990s. Overall however, our findings
provide evidence for the importance of the
internal factors. The crisis was a result of the com-
pany’s vulnerability, created both by manage-
ment’s misperceptions of their capabilities and
the situation, and also their improper response
to external forces. Management had neither the
vision nor the will to respond to external forces
and thus initially avoid decline or later to reverse
the downward spiral. These findings lend credence
to the OS perspective that the way management
react to and manage external changes are key in
understanding the causes of crisis.
Just after the crisis hit the company, data sug-
gests that managers did not scan the environment
vigilantly in response to a crisis stimulus. Inter-
viewees argued that this is not surprising in a
company with a monolithic culture falsely assum-
ing that ‘nothing will happen to us’. In addition,
the company’s rigid structure, cumbersome
reporting relationships and the complex mode of
operation were neither able to provide the Board
of Directors with accurate information about the
crisis, nor to be in a position to process the in-
formation to keep the crisis from escalating. Put
differently, the Board was isolated from the
real world, taking decisions based on previous
presumptions, habits and reflex actions and deny-
ing or ignoring disagreeable facts and reports. Its
own internal battle led to an inertia developing
amongst senior managers, followed by redundan-
cies which in their turn created a fatalism which
fed onto this inertia. Consequently, they turned
A Study into the Failure of Marks & Spencer 25

12. their attention to simplistic efficiency concerns,
such as identifying lower-cost inputs and finding
ways to use internal resources differently, rather
than dealing with the causes of the problem.
This study suggests that a number of external
forces in combination at a particular point in time
triggered the failure process. Furthermore, an
understanding of these factors alone is not suffi-
cient for an understanding of the way the crisis
escalated. For this it is necessary to look carefully
at the ambitions and characters of the individuals
who were running the company at the time. In the
case of M&S, an understanding of the company’s
executive Board before and during the crisis, their
values and objectives is necessary for an under-
standing of the failure process. Purely structural
explanations are inadequate. Whether this would
be true in the case of the failure of other organ-
izations, we cannot say, but work on the rise and
fall of big companies tends to substantiate this
view. Hall’s (1976, p. 361) study of the demise of a
newspaper company noted that the ‘egos of top
administrators clouded their judgment at critical
points in the magazine’s life cycle’.
Conclusions
In this article we have sought to make a con-
tribution to understanding the causes of failure in
successful organizations. Although this is primarily
an exploratory case study focused mainly at
identifying the causes of the crisis at M&S,
we believe that the findings presented here have
a number of implications and conclusions. We
present these by re-considering the broad aims of
the paper and the four themes developed through
the literature review.
Our first aim was to understand the causes of
failure in M&S. The case study and the discussion
above have presented our findings on M&S, and
there is no need to repeat the detail here. We
conclude that failure in M&S was due to a mis-
understanding of the external changes underway
in the retail and consumer environment. This mis-
understanding occurred because of a number of
internal factors which distanced the company’s
management from reality, combined with an over-
whelming belief in the strength of their own, and
the company’s position.
Second, we aimed to place this case study in the
context of the literature on organizational crisis
and failure. In particular, we believe the case
study follows Levine (1978) and Witteloostuijn
(1998) in demonstrating that both internal and
external factors are important in any crisis. The
balance of these for M&S has been presented. For
other companies, the balance and relative import-
ance of elements may well vary. If we consider
Levine’s (1978) typology of causes of decline,
then we conclude that in the case of M&S, organ-
izational atrophy compounded emerging external
environmental entropy problems. As the environ-
ment changed, management failed to react. More-
over, this failure to react and believe in the need
for new forms of change, was itself exacerbated
by the political vulnerability of certain groups
within the organization, who fought to maintain
their status quo. As the crisis progressed, so the
company realized that it had lost its legitimacy,
with suppliers and fundamentally with consumers,
and so the crisis spiralled downwards.
Third, we aimed to draw lessons for management
and future research. For company management,
we believe that there are two major implications
arising from the study. It is clear that a prolonged
period of uncertainty at the Board level is im-
mensely sapping throughout a business. Whilst
initially such divisions may not seem to affect the
operation of the business and the customers, in
reality they detract attention from key elements
of the business and if continued, lead to inertia
and loss of legitimacy. Board battles need to be
quick. Management must continuously measure
performance of the business in customers’ minds,
against other possibly new competitors and general
societal or market norms of expectation. Having a
powerful position or brand is insufficient. These
require constant re-evaluation and re-investment.
M&S did not continuously re-invest in the brand,
the stores or the operations, believing their position
was impregnable. In reality however, both exist-
ing customers and new generations of possible
customers were progressively perceiving M&S in
a less and less positive light.
In terms of research in organizational crisis,
we believe that despite its exploratory nature,
this case study has shown the relevance and rich-
ness of the method. It suggests that longitudinal
studies of organizations, both in ‘ordinary’ and
crisis times, have their place and can provide
insights. It also suggests that management
research has to develop a combination approach
to cover both external and internal factors. The
26 K. Mellahi, P. Jackson and L. Sparks

13. two are linked by business, but often separated
in research. We also believe that the M&S study
shows how our understanding of crisis could be
taken forward to consider a broader range of
external and internal factors.
Finally, we need to say something about M&S
and the retail sector. The failure of a successful
company in the retailing industry cannot be con-
sidered to be typical nor to embody the full range
of patterns of failures. Retailing is a distinctive
sector of the economy, both in terms of its
requirements on management (for example to
manage massively multiple site companies) and
because of its direct links to consumers. Yet some
of the dynamics shown here are surely not
idiosyncratic. The interaction between situational
factors and personal characteristics of the Board
of Directors as a major contributor to the crisis,
and the tension between different factions on the
Board are themes that transcend any particular
organizational crisis. Whether retailing is particu-
larly prone to such problems or whether such
crises are different in retail organizations is an
avenue for further research. Perhaps retailing, by
its nature and its dealings with consumers, could
be expected to have better protective mechanisms,
but less time in which to apply them, because of
the rapidity of consumer change and the direct,
rapid impact of these changes on sales.
Identification of general themes, of course,
pushes us in the direction of elaborating a general
framework, but we believe the state of current
evidence provided in the present study falls short
of developing a comprehensive framework. There
is an intricate web of internal and external factors
that need to be more fully integrated into the
study before such a framework would be possible.
For instance more attention could be paid to
factors such as the role of the financial markets
and global competition, particularly as these are
transforming retail markets. Several interviewees
mentioned global competition, but without pro-
viding any coherent explanation as to how it con-
tributed to the failure. Is this a ready and handy
scapegoat or is it a true causal factor? Other
internal factors also need more careful elaboration,
given the way in which organizational manage-
ment has been changed with the adoption of new
methods and technology.
We began with our observation that M&S had
iconic status in Britain, retailing and, it seemed, in
management literature. It is right therefore that
we conclude with a look to M&S’s future. Much
has now changed at M&S. Many of the previous
idiosyncrasies have been eliminated. Change is
underway within the business and much-needed
investment in stores and systems is being made.
The decision has been made to concentrate on the
UK market and to withdraw from other countries
and operations. M&S remains a huge (£8 billion
annual sales) retailer. The crisis however has
damaged its reputation, brand and position. Its
future remains on a knife-edge.
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