Reference no: EM133223210

Mini case: Zara: The Capabilities behind the Spanish "Fast Fashion" Retail Giant

Amancio Ortega built the world's largest fashion empire through his Zara branded products and company-owned stores. Through his management approach, Ortega became quite wealthy. In fact, in 2015 he was the fourth wealthiest person in the world (with a worth of $64.5 billion). This placed him behind only Bill Gates (the wealthiest of all), Carlos "Slim" Helu and family, and Warren Buffett.

Headquartered in La Coruña, in Spain's Galicia region, Ortega founded the Inditex Group with Zara as its flagship brand. Despite Spain's 24 percent unemployment rate and crippling debt, in 2012 Zara increased its revenue 17 percent. Also in 2012, Zara averaged a new store opening every day, including its six thousandth store launched on London's Oxford Street. Although the influence of the economic environment (an influence from the external environment that we examined in Chapter 2) affects Zara's success, the way Zara uses its resources and capabilities as the foundation for core competencies (core competencies are capabilities that serve as a potential source of competitive advantage for a firm over its rivals) demonstrates the value of understanding a firm's internal organization.

Ortega built this successful business based on two critical goals: Give customers what they want, and get it to them faster than anyone else. To do "fast fashion," as it is called, there are several critical capabilities that must be in place. The first critical capability is the ability to design quickly; the design pace at Zara has been described as "frantic." The designers create about three items of new clothing a day, and pattern makers cut one sample for each. The second critical capability is the commercial sales specialists from each region where Zara has stores. They provide input on customers' tastes and buying habits which are reported through store managers. Each specialist is trained to keep an eye on what people are wearing, which Ortega, as well, does personally since founding Zara. As such, Zara has a team approach to match quick and creative design with information coming in from the sales staff through regional specialists and sector specialists to operationalize new fashion ideas.

Zara's supply chain is also managed much more efficiently than those of other companies. The logistics department is the essence of the company. Rather than waiting for cloth to come in after designing, Zara already has a large supply of basic cloth and owns its own dyeing operation to maintain control and speed. Zara's objective is to deliver customized orders to every store in its empire with a 24-hour turnaround for Europe, the Mideast, and much of the United States, and a 48 hour turnaround for Asia and Latin America. The frequent shipments keep product inventories fresh but also scarce since they send out very few items in each shipment. This approach compels customers to visit stores frequently in search of what they want and, because of the scarcity, creates an incentive for them to buy on the spot because it will likely not be in stock tomorrow. Accordingly, Zara's global store average of 17 visits per customer per year is considerably higher than the average of three visits per year for its competitors.

Until 2010 Zara did not have an online strategy. Unlike most retailers it has used very little advertising because it has focused on a rather cheap but fashionable approach. The fashion draws the interest of customers and, thereby, created a huge following on Facebook, with approximately 10 million followers. This compares favorably to other competitors such as Gap. The rarity of the individual pieces of clothing gives customers a sense of individuality. This creates a stronger potential for Zara to pursue an online strategy relative to its competitors.

Most Zara stores are owned by the parent company, and many of its suppliers, although not owned by the company, are considered long-time, relationshiporiented partners. As such, these partners identify with the company and, therefore, are loyal. This approach also sets Zara apart and makes its strategy difficult to duplicate because all of the various facets and capabilities of the company fit together through a unified culture. As noted above, Zara also operates its own dyeing plant for cloth, giving it significant control over its products. Likewise, it sews many of these garments in its own factories and, thus, maintains a high level of quality control and an ability to make quick changes. Overall, the company has a unique set of capabilities that fit together well as it manages activities to produce "fast fashion," which creates demand from their customers and loyalty from their partner suppliers.

Question 1: What influences from the external environment over the next several years do you think might affect the way Zara competes?
Question 2: How easy or difficult do you think it would be for competitors to imitate Zara's supply chain as a capability?
Question 3: Is getting products to customers as quickly as possible an outcome that you believe would create value in industries in addition to clothing? If so, which industries and why?
Question 4: What value does Zara create for its customers?
Question 5: As you study how Zara competes and the capabilities it usesto do so, are there areas of the firm's operations you believe might be candidates for outsourcing? If so, what areas and why might those be outsourced in the future?

Mini case2: Unilever Cooperates with Many Firms and Nonprofit Organizations to Implement Its Strategy While Creating a More Sustainable Environment

Unilever, a European-headquartered (in both the Netherlands and the United Kingdom) consumer products company, is committed to using a sustainable environment strategy while manufacturing its large array of food and beverage products. Historically, consumer products companies, especially those from Europe, have pursued the multidomestic strategy, needing to adapt their products to each country or region market. Accordingly, most have implemented their strategy using the worldwide geographic area structure. Many consumer product companies, such as Avon, have begun to use aspects of the worldwide product structure to become more efficient. This is also the case with Unilever. However, Unilever has continued to emphasize geographic areas, but it has done so using the transnational strategy while implementing the combination structure to meet local market responsiveness as well as global efficiency objectives. Moreover, its CEO, Paul Pullman, who took the job in 2009, has also suggested, "our purpose is to have a sustainable business model that is put at the service of the greater good."

Accordingly, Unilever created a manifesto in 2010 called the Sustainable Living Plan. This plan calls for Unilever to double its sales at the same time that it cuts its environmental footprint in half by 2020. One goal embedded in this plan is to source all of the firm's agricultural products in ways that "don't degrade the Earth." Unilver also has a campaign promising to improve the wellbeing of one billion people by "persuading them to wash their hands or brush their teeth, or by selling them food with less salt or fat." It seeks to realize many of these goals through cooperative strategies with other profit-seeking organizations as well as nonprofit entities.

In 2010, for instance, Unilever signed a contract with Jacobs Engineering Group Inc. forming a global (overall corporate) alliance to facilitate the efficiency of Unilever's capital improvement projects around the world. Unilever has 250 manufacturing sites and is expanding aggressively, especially in developing and emerging economies, to support its ambitious growth goals. Unilever expects emerging economies to drive 75 percent of its growth in the long term. The alliance with Jacobs Engineering will be managed out of Singapore and will provide engineering services for Unilever's manufacturing facilities around the world. Both companies will "work as a team to insure their sustainable growth model," implement cost reductions, and "drive co-innovation and implement the harmonization and cross-category standardization of designs." The alliance will also work with supply chain team members to increase speed to market with designs that "reduce carbon, water, and waste footprints across its manufacturing sites.

In alignment with marketing growth goals, Unilever has initiated the Unilever Nutrition Network. This organization has divided the world into six regions and focused on providing world-class nutrition and health innovation. Its goal is to generate ideas to facilitate sustainable product launches and improve existing products while strengthening their brand value. As part of this overall strategy, Unilever has used Salesforce's Chatter technology in the implementation of its new social marketing platform. This technology allows local markets and distributors of Unilever products to share insights and best practices with the marketing team from Unilever to help drive its "crafting brands for life" strategy.

In a recent Sustainable Living Plan report, Unilver described how it is working with a number of nonprofit, nongovernment organizations (NGOs) to help address real issues, facilitate solutions for suppliers for improving sustainable living, and reach customers in society at large who need information to improve their sustainability approaches to life with better food security and poverty alleviation. Initiatives include partnering with the following NGOs: the Consumer Goods Forum; the World Business Council for Sustainable Development; the World Economic Forum; the Tropical Forest Alliance 2020; Refrigerants, Naturally; the Global Green Foundation Forum; and Zero Hunger Challenge and Scale-Up Nutrition initiatives supported by the United Nations.

Interestingly, Unilever no longer provides quarterly earnings guidance reports and suggests that this has allowed it to focus shareholders on its longer-term goals. Furthermore, since Pullman took over in 2009, Unilever has sustained its positive growth trajectory with better income performance and associated stock market performance. As can be seen, it is accomplishing these things through better organizational design, lofty objectives, but also by using a number of cooperative strategies with many organizations outside the organization, such as Jacobs Engineering and many NGOs.

Question 1. Why have consumer product companies headquartered in Europe historically used the multidomestic strategy? In your view, is this an effective choice of international strategy for these firms? Why or why not?

Question 2. To implement its "sustainable business model," what types of strategies is Unilever considering for use and why?

Question 3. What organizational structure will Unilever need to use to reach its sustainability objectives?

Question 4. What issues about organizational structure surface as a result of Unilever's proposed strategies and objectives regarding sustainability