MARKS AND SPENCER

How Not To Manage a Turnaround, Part two

We previously mentioned Lou Gerstner's book about the turnaround of IBM, a company that had fallen into a near-fatal state of atrophy. Readers may remember that it took nearly ten years before it could be confidently said that the culture of IBM had changed sufficiently to be able to assert that the company and its prospects had been transformed.

In one of the most insightful passages of the book, Gerstner recalls with some resentment the attitudes of investors towards the end of his first year as CEO. In summary, opinion was that Gerstner had 'achieved nothing' in this period, and the share price reflected investors' views. He observed ruefully that in the first year, he had:

• decided to keep IBM together and offer customers integrated system solutions, rather than leave it to them to do their own integration. This was a crucial and very brave move, as the outside world was baying for a classical break-up of the company, in order to 'release value'.
• Following this decision, he ejected a vast array of investment bankers, naming consultants and a horde of others brought in by his predecessors, who were sizing up the company for break-up.
• Then, he started to streamline IBM's elaborate and sclerotic organisation, getting rid of those whom he identified as the worst blockers of change, promoting new people and making a number of crucial outside hires.
• Gerstner used the first year to travel extensively inside the company, to make himself and his philosophy known to as many people as possible.
• Last, but not least, he initiated a major process of long-term cost reduction.

By the end of the first year, the scene was set for one of the most impressive corporate recoveries of recent years. Gerstner had assembled a strong team around him and promoted personally a vastly different set of values to those of 'old' IBM - the basis for a radical change in the culture of the company.

All of this was rated by many investors, who wanted some 'real' action, disposals, portfolio changes major, bloodlettings and the like, as 'doing nothing'.

Coming to M&S, much has happened since we wrote the first piece. Luc Vandevelde, the part-time chairman, has gone, the CEO has departed and a number of other senior managers have left. A major City figure has been appointed as chairman, and Stuart Rose, who is credited with the dramatic turnaround and sale of Arcadia to Philip Green, has been appointed as CEO.

Then, it has become rapidly apparent that M&S has been put 'in play', following a bid by Philip Green, who has been well known for some time to want to get his hands on M&S. Green's move has sparked a frenzy of speculation, with many hedge funds, arbitrageurs and others snapping up shares in the anticipation of short-term gain. It would appear also that many associates of Mr Green have been buying shares, and a different form of speculation is rife about the relationships between Messrs. Green and Rose. The latter bought 100,000 M&S shares on May 7, before he joined the company, but apparently after he had a short telephone conversation with Green.

Nobody is accusing Rose of legal impropriety, but Alex Brummer in the 'Mail' said, "It would have been astonishing if it had not crossed Rose's mind that Green - who had been repelled at the gates of Baker Street in 1999- would not be considering a second tilt at M&S".

Mr Rose has received strong support from his chairman, who said, "Stuart will not allow himself to be distracted from the job in hand - maximising value for shareholders".

Meanwhile, the world waits with eager anticipation to find out what Mr Green's next moves will be and Mr Rose is reported to be contemplating radical action very soon, disposing of or closing several lines of business, new ventures and less profitable stores. It seems very unlikely that he will be allowed the year that Gerstner took to appraise the business, its strategies and prospects, its culture, organisation and people - the world is looking for action to 'maximise shareholder value' more quickly than that.

In this rather frenzied atmosphere, readers might like to think what the likely outcomes will be for M&S, still one of Britain's best retailers (with far higher sales per square foot than Mr Green's shops).

Do you think that:

• Mr Rose will be allowed the 5 or 6 years needed to bring a real transformation in the M&S culture?
• Mr Rose will look for a transactional solution, merging or selling M&S, as with many of his previous companies?
• M&S will be acquired by Mr Green, or another predator, whether Mr Rose and his board wish it or not?

All in all, one wonders what the bulk of M&S employees are feeling. The scene hardly seems set for a carefully considered and planned change process.