Reference no: EM133274967

Case: Most likely you have never heard of a business called Alshaya; the Kuwait-based business M. H. Alshaya Company does not have great name recognition. But that's exactly how the privately held company owned by the Alshaya family wants to keep it. To gain insight into the far-reaching nature of the Alshaya empire, however, assume for a moment that you are visiting Bahrain, Dubai, or Kuwait City on business but have a little free time. As it turns out you also need to do a little shopping so you decide to take in one of the huge megamalls that have sprung up in those places in recent years. During your outing you would see and might decide to eat and shop in stores such as The Cheesecake Factory, Pinkberry, IHOP, American Eagle Outfitters, Victoria's Secret, Pottery Barn, Williams-Sonoma, and Starbucks. Perhaps surprisingly, as it turns out, each of those stores and restaurants throughout the entire region are owned and managed by none other than M. H. Alshaya Company.

The Alshaya enterprise dates back to 1890. For much of its history the firm concentrated in the real estate and construction industries. In 1983, though, Alshaya acquired the Kuwait franchise for U.K. retailer Mothercare. The firm's managers immediately began to recognize that the profitability of its new business exceeded their projections and, with approval from the franchisor, started expanding Mothercare into other countries, including Turkey and Russia. As revenues and profits from Mothercare continued to grow, Alshaya began to prospect for other brands to add to its portfolio. In 2006 it acquired the Middle Eastern franchising rights for international clothing retailer H&M, followed quickly by regional franchising rights to Dean and Deluca (in 2008) and P.F. Chang's, Pinkberry, and Payless Shoesource (all in 2009).

Alshaya has continued to grow rapidly as a franchisee for dozens of retailer and restaurant chains, concentrating in the Middle East but recently branching out into Europe and Asia as well. Alshaya offers strong regional expertise-scouting locations, negotiating leases, hiring and training employees, and helping modify foods and other products to meet local religious amd cultural requirements. For example, foods with alcohol-based content must have their ingredients modified, but Alshaya tries to find alternative ingredients that produce the same appearance and taste. Although Alshaya modifies its stores to meet local customs, it also strives to maintain the character and experience that customers enjoy regardless of their locations. So, a Starbucks latte made in Dubai tastes just like a Starbucks latte made in Seattle and IHOP pancakes in Dubai look and taste the same as IHOP pancakes in Atlanta. And the store and customer "buying experiences" are also the same.

The firm currently operates more than 4,500 stores comprising more than 90 brands in 19 countries, and its stores occupy over 14 million square feet of retail space. Although much of its operations are based in the Middle East, Alshaya also has stores in Poland, Russia, the Czech Republic, the United Kingdom, and Morocco. The firm also employs approximately 60,000 people of 120 different nationalities.

To help staff its stores, Alshaya has also taken the unusual approach of opening its own training academies. Its first was the Alshaya Retail Academy in Riyadh, Saudi Arabia and its mission was to provide retail training and employment on graduation for young Saudi women. The firm has since opened two more academies in Jeddah and Dammam.

The firm is now looking to integrate some of its original real estate and construction businesses with its more recent retailing successes. For example, Alshaya is developing and constructing a major mixed-use development called Burj Alshaya in Kuwait. Several of Alshaya's more up-scale brands will be represented in the retailing sections of the development, but there will also be many other non-Alshaya products represented as well. As just one example, one major tenant will be a new Four Seasons hotel, that company's first hotel in Kuwait.

Alshaya uses a matrix design to manage its diverse and far-flung retail operations. The basic structure is centered on seven business units: fashion and footwear, food, health and beauty, pharmacy, optics, home furnishings, and office supplies. Each of these business units has its own president who reports directly to the CEO. So, for example, the food business unit president oversees Alshaya's Starbucks, Cheesecake Factory, IHOP, Texas Roadhouse, P. F Chang's, and other food businesses across all of their markets (23 food brands in all).

The matrix "overlay" consists of what Alshaya calls cross-border functional teams and includes human resources, finance, legal, property, supply chain, audit, IT, and customer care specialists. The firm's logic for this arrangement is that it enables Alshaya to rely on common metrics, policies, and reporting systems in a consistent manner. For instance, a common metric to measure retail sales is revenue per square foot of floor space and sales at the same location compared from one time period to the same time period a year later. By using common metrics such as these, Alshaya can then judge the performance of an IHOP restaurant in Kuwait City and compare it to the performance of IHOPs in Warsaw, Dubai, and Doha. All in all, then, Alshaya seems to be performing well, and its matrix design seems well suited for such a complex organization.

Question 1: What specific advantages and disadvantages does the matrix structure pose for Alshaya? Do the advantages more than offset the disadvantages? In what ways?

Question 2: As Alshaya continues to grow, how might its organiza-tion design need to be changed? Will the matrix design continue to be appropriate or will it need to be changed to something else altogether.?