ZARA

INTRODUCTION
The world of retail is flooded with hundreds of companies, but few have yet
to be noticed like Zara. Zara has captured the public’s attention due to its
efficient and unique business structure and turn around efficiency. Owned
by the Inditex Group and opened in 1975, Zara has over 1,560 stores in 70
different countries with over 10,000 new design launches each year. Louis
Vuitton’s fashion director has referred to Zara as, “possibly the most
innovative and devastating retailer in the world.”
The Inditex Group is made up of eight different retail sale formats, one
including Zara. Inditex operates on a fashion philosophy that boasts,
“creativity and quality design together with a rapid response to market
demands.”

More specifically, Zara operates with a lean organizational structure,

which emphasizes high performance. The lean organizational structure
also works to reduces the number of managerial hierarchy levels and
decentralize decision-making. This model limits the business’s focus on
redundant administrative procedures. From design to delivery it takes the
company only five weeks for a garment and only two weeks for an existing
model. This method shortens the product life cycle, which allows for
greater success in meeting consumer needs. Customer satisfaction is of
extreme importance to Zara and the consumer’s purchases truly shape
almost all of Zara’s business decisions. Zara and its lean organization
thrive on the use of information technology. Zara shops use this technology
to report directly to their production centers and designers in Spain.
Additionally, store managers use PDAs to check on the latest clothing
that’s been designed and place their orders based on the demand they see
in their store.

Moreover, Zara is also a vertically integrated company. Vertical

integration describes a company that has control over several or all of the
production and distribution steps involved in the creation of their product.
The retailer operates with a vertically integrated demand and supply chain
while most other textile chains rely on outsourcing and cheap labor,
whereas Zara owns its on textile dye house.

Zara has set up a well-oiled machine based on customer demand and fast
HIERARCHY
The founder and former CEO of Zara Armancio Ortega, remains a crucial
part the organisation as he sets the leadership and vision for the
organisation (Economist, 2016). He has a unique leadership and
management style whereby his preference is for close and personal
interactions and has a down-to-earth, humble and hands on leadership
style (Buck, 2014; Economist, 2016). His leadership style is very
introverted, where he has a very low profile and rarely appears in public
(Economist, 2016). This also translates into the organisation as a whole and
specifically their corporate culture where they do not advertise, but rather
they spend money on their stores and products (Buck, 2014; Economist,
2016). This is also reinforced in their leadership style of wanting to be
perceived as a high-end store where they are often located in high-end
shopping centres near to luxury brands (Buck, 2014).

The management style of the organisation is very consumer focused;

whereby Zara is always seeking to understand exactly what their
consumers want and then translate this into their product offerings (Buck,
2014). Zara rely heavily on their store managers to identify what customers
demands are so that they are able to translate this back into their
manufacturing (Ruddick, 2014). Zara’s leadership and management style
take a very transformational approach as they encourage their employees
to go beyond what is expected of them and promote an intrapreneurial
culture (Louw and Venter, 2013). This is evident in their leadership values
of teamwork, open communications and self imposed high-standards that
lead to a clear direction and guidance for their employees and the
organisation as a whole (Inditex, 2017). Their customer-oriented approach
is also extended to employees, as they encourage the growth and
development of their employees by offering training programmes (Inditex,
2015). Based on the above, it is clear that Zara have an effective leadership
and management in place as they promote learning and understanding
within their business model. Additionally, their leadership style correlates
with the strategies that the company use within their business model, that
will be discussed in detail later on, which creates synergy within the
organisation.

MANAGEMENT STRUCTURE
 

Management structure refers to how a company organises it management

hierarchy (Wharton, n.d.). At the top of the company is the CEO and
chairman of the Inditex Group, Pablo Isla (Hansen, 2012). Following is
Zara’s Board of Directors; their highest decision making body that controls
the company (Inditex, 2015). The Board of Directors set out the future
goals to be achieved by the company in order to maximize the value of the
company in the long term (Inditex, 2015). Duties of the Board include;
relevant decision-making when it comes to the administration,
management and representation of the company as well as delegating the
management of the day-to-day business of management teams, while also
assessing the competencies of senior management, and lastly to liaise with
the company’s shareholders (Inditex, 2015). Another key element of the
Board’s duties is to ensure that all their decision-making policies enforce
their social and ethical duties towards all their stakeholders (Inditex, 2015).
By having a Board with clear and identifiable goals that assist in managing
the organisation, they are able to effectively manage the organisation and
maximize the company’s value. Other committee’s include; an Audit and
Control Committee, a Nomination and Remuneration Committee and an
Ethics Committee (Inditex, 2015).
Additionally, the Zara uses a vertical integration strategy for their supply
chain, which allows them to have control over their production and
distribution and the benefit of this is that it saves time while accurately
meeting consumer’s needs (Inditex, 2017). Their value chain is as follows
(Inditex, 2017):

 
4.1.3. Zara: Strategic intent, values, vision and mission
 

Zara’s vision is “To offer products of the highest quality to all its customers
at the same time as striving to develop a business that is sustainable”
(Inditex, 2017).
This vision is line with Zara’s management style of focusing on consumers
needs as well as it depicts their humble leadership style, as it does not aim
to be the top brand in the world, but rather, they provide their consumers
with high quality products and develop a sustainable business.

 VALUES AND MISSION

Values refer to the manner in which the company hopes to achieve their
goals and manage the organisation (Louw and Venter, 2013).
Zara’s values centre around the idea of responsibility, whereby they have
established a Code of Conduct and Responsible Business Practices, which
guides the organisation and acts as a reaffirmation of the values and
principles of the Inditex Group that must be carried out in all professional
duties by the organisation and its employees (Inditex, 2017). The Code is
based on five key principles (Inditex, 2012):
 Ethical and responsible operations
 Compliance with laws and regulations
 Employee conduct
 All stakeholders shall be treated fairly and honourably
 Activities shall be carried out in a manner that most respects the
environment
 

Zara’s values clearly reaffirm their leadership and management style of

transformational leadership whereby they encourage open communication,
high standards and guidance for their employees.

A mission provides an organisation with a direction in which to develop

strategies that responds to changing trends (Louw and Venter, 2013).
Zara’s mission is as follows: “The Group’s brands strive to sell fashionable
products of the highest quality. Inditex is committed to its customers;
which means that its more than 162,000-strong workforce is focused on
staying true to its word. A state of the art logistics system centred in Spain
helps deliver new products to all of the Group’s stores twice weekly to meet
our customers’ needs” (Inditex, 2017). This mission of Zara is appropriate
to their leadership and management styles as it depicts their commitment
to their customers, high standards and open communication with
stakeholders.
 

Strategic intent uses targets of a desired leadership position in order to

guide a company to compete in an innovative way (Hamel and Prahalad,
2005). Zara’s strategic intent is to sell affordable, fashionable products at
the highest possible quality whilst ensuring sustainability throughout their
supply chain (Inditex, 2017). This again reinforces Zara’s leadership and
management style of high standards and focusing on consumers needs.
 

https://sbmldanielle.wordpress.com/2017/06/02/blog-post-title/

Centralisation and decentralisation

The extent of centralisation or decentralisation refers to the point of critical
decision making in an organisation which reflects patterns of authority in a
structure. In centralised structures decision making authority is within the
power of top management while decentralised structures, decision making
authority is delegated (Rollinson, 2005). The arguments in favour of
centralisation in an organisation entail the easier implementation of a
common policy, easier coordination and management control, preventing
sub-units from becoming too independent, over-head cost reduction and
faster decision making because of the smaller number of people involved.
In contrary, arguments for decentralisation include decisions being made
at a point closer to operational levels, increased responsiveness to local
circumstances, improved level of personal customer service, more flexible
structure, control is distributed more evenly which provides opportunity
for development for those lower down, and encouraging effect on
motivation and morale of staff. Basically, decentralisation tends to be easier
to implement in the private sector organisations than public sector ones
where procedures and protocols are the order of the day. Decentralisation
being a more flexible approach provides support for employee
participation and empowerment at all levels which increases innovation
and improves technology while centralisation ensures professionalism in all
activities by maintaining effective coordination and overall control of the
organisations activities as a whole. A mix of both such as being global and
local, practically being decentralised with a central control and authority
should produce an organisational advantage.
A vivid illustration of decentralisation is the Zara fashion enterprise (cited
in Mullins, 2009, p.596), where the company derived its success from
integration of design, production, logistics and sales within companies
globally rather than separating and outsourcing this different business
elements unlike its contemporaries in the fashion industry, while still
keeping control of all major operations in Spain. The company rejected
rigid organisational structures in favour of a more flexible approach which
comes from a highly integrated, fast and efficient form of communication
between its global network of outlets and central hub of operations in
Spain. The industry average time for introducing a design into the shops is
six to nine months; Zara achieves this task in three to four weeks. What is
peculiar here is that Zara only makes what is selling at the moment, store
assistants and managers constantly get information about what is selling
and how quickly it leaves the racks implying that local managers have a
strong influence on their store’s success and thus the company overall.

On the other hand, an illustration of centralisation is that of Nissan Motor

Company (cited in Certo and Certo, 2006, p.123), a successful global
automobile manufacturing company where the new CEO ordered calls for
the elimination of 30 per cent of production capacity in Japan due to recent
financial difficulties. The CEO’s plan is to help reduce expenses as well as
close offices in New York and Washington with a view to centralise
company operations in Japan to enhance success.

Span of control
This refers to number of subordinates who report directly to a particular
manager or supervisor. Span of control is larger at lower levels of the
organisation where responsibility is concerned more with the performance
of specific tasks. If span of control is too wide, supervising too many
subordinates effectively becomes difficult and stressful for managers as
well as planning and development, training and control. Narrow span of
control may lead to low morale and initiative of subordinates due to close
supervision level, and also increase administrative costs.

Channels of communication
Zara takes a multichannel approach to customer engagement as well,
communicating with customers via seven channels including five social
media platforms – Instagram, Facebook, Twitter, Pinterest and YouTube.
Information Systems and Information
Technology
Unlike other companies have to spend large amount of money to gain
advantages from Information Technology and then pay more money to
maintain it, Inditex invests very little on Information System which is
referred to simple Technologies “Application at Inditex are written and
maintained by an IT staff of 50, which accounts for less than 0.5% of the
company’s workforce” (McAfee, A 2004).

 Part of Zara’s Information System focuses on the communication

between its retailer’s stores and the head-quarter in La Coruña.
Every store of Zara is equipped with the PDAs and DOS based point-
of-sales (POS) software so that every order from customer will
transfer directly to the head-quarter for analysis purposes. This
system is also used for collecting customer comments and opinions on
styles and design thus will be used to support the design team to
provide exactly products that meet the real-time needs of market’s
demand.
 Another use of Information System in Zara is that the store’s
manager can order goods concerned to quantitative and design which
they think will sell best for their local markets. However, this
information transferring process is not using more complex
technology than dial-up internet to transmit the information twice a
week.
 Also, based on the Annual Report for Stakeholders (2007) Inditex
mentioned the implementation of Store Management Terminal
(SMT) at every store to strengthen the communication within store,
warehouse and management department.
 Another recent implementation of Information System is the Internet
Store (www.ZaraHome.com) which is brought out as receiving online
orders and feedbacks from customers.
 Besides that, computer aided design and computer aided
manufacturing (CAD/CAM) that converts designs into tangible
products. Designers use the CAD/CAM to quickly make the final
products based on customer’s demands.

Role of Information System and Information

Technology
One of the particular characteristic, known as a unique and a pioneer, of
Zara is reduced time in whole process from customers’ demands to
shipping fulfilled products to stores, supply chain. Like fashion shows in
Paris, Zara uses this fashion to draw the designs, transmit these designs to
Spain, and finalise them within 15 days; whereas, this process takes about
six weeks for other competitors do, according to Folpe (2000). One of the
methods of reducing lead time is the implementation of Information
Technology

Zara staffs have to use Information System in this process:

1. Computer hardware and software are used to design and store

design patterns.
2. Computers and internet are used to transmit these designs to Spain.
3. Computers and internet are used to communicate; emails, VoIP,
video conferences.
4. Information Technology is used to monitor, manage, and process
whole process of making products.

 The robotic system in factory is used to cut fabrics, software or

program is used to control robot in terms of cutting fabrics, printing
image on products, packing clothes, and controlling conveyer belts as
well.
 Information system is also used to communicate with suppliers where
to get materials, with divisions of operation inside the factory to run
whole process effectively and efficiently, and with distributors for
shipping as well.
 As part of the important processes. Recording feedbacks from
customers is crucial. And it has been strengthened by the
implementation of Information Technology.

As Jessup and Valacich (2008) said that Information System/ Technology

can help to do things faster, better, smarter. Zara has considered as
successful example of information and technology ethically.
H&M
In a world of fashion, where t rends change in every day and the image of
your own person matters, H&M pleased the needs of every person with
their product s and their motto: “low prices and good quality”. Not always
H&M was a global company, but like any other company, they started
from a lower level. The first store was opened in 1947, in Västerårs,
Sweden. This store was a local store with clothes for women and it was
called Hennes. In 1952 Hannes was opened in Stockholm and in 1964 was
opened the first store outside Sweden, in Norway. In 1968, the founder of
this brand, Erling Persson, started to expand in small scale by buying the
hunting and fishing equipments store Mauritz W idforss and the name of
company was changed to Hannes&Mauritz. From that year the company
started the production of men´s and children`s clothing. In 1976 was
opened the first store outside Scandinavia, in London, UK, in 1980 was
opened in Germany and Netherlands. Expansion continues in Europe with
the opening of a first store in France in 1998. Adverts in newspapers and
magazines are complemented by billboards using famous models. In 1998
e-commerce begins. In 2000 the first US store was opened on Fifth Avenue
in New York. In 2004 H&M was initiated designer collaborations starting
with Karl Lagerfeld, Stella McCartney, Viktor&Rolf, Madonna, Roberto
Cavalli, Jimmy Choo, Versace, David Beckham and others. In present
H&M is present on 47 markets and it has 2.600 stores all over the world.
The size of the organization needs a motivate workforce and dedicated
management. The high level of the company requires a good organizational
structure and the ability to motivate their employees. Therefore the aim of
this project is to find a link between organizational design and motivation
factors.

Hierarchy

Each brand is headed by a responsible individual and has local sales

organisations. Centrally, there are a number of group functions that
support each brand in order to enjoy the advantages of these common
areas, so that each brand and country works purposefully according to
central policies and guidelines.

The chief executive officer, who is appointed by the board of directors, is

responsible for day-to-day management of the H&M group and appoints
the members of the executive management team, which is fifteen persons
including the CEO. The executive management team is made up of seven
women and eight men, and comprises the CEO, CFO, the person with
responsibility for the H&M brand, the person with responsibility for
Portfolio Brands (which include COS, & Other Stories, Monki, Weekday
and ARKET), the person with responsibility for Business Ventures (which
include Afound and Treadler), the head of Business Tech and the CTO
reporting to that role, and the heads of the following group functions:
Expansion, Strategy & Transformation, Human Resources, Sustainability,
Supply Chain, Communications, The Laboratory and the Group Strategy
Counsel. Those responsible for other group functions are appointed by the
CFO.
 Holdings (%) Vote (%)

Foreign owners 17.2 8.3

Swedish owners 82.8 91.7
Share holders
 Sustainability strategy
H&M Group’s vision for sustainability is to lead the change towards
circular and climate positive fashion while being a fair and equal company.
We work according to our ambitious sustainability strategy produced
jointly with external and internal experts. Our sustainability work spans
the entire value chain, focusing both on our own operations and, together
with other stakeholders, the industry in general.
Growth and integrated channels
Our brands are reaching customers around the world – through online,
stores, digital marketplaces and external platforms. H&M Group
expansion is taking place with a focus on omnichannel sales. Physical and
digital channels are being increasingly integrated, and the store portfolio is
being further optimised to ensure a relevant presence in each market and
the best experience for our customers.

Facts and figures

Net sales SEK 198,967 billion in 2021
Around ~4,801 stores in 75 markets and 54 online markets
In the H&M group, 71% of the employees in positions of responsibility
were women in 2020
Increase in recycled or other sustainably sourced materials to 64% in 2020
(57%), with the aim or reaching 100% in 2030
Goal to reduce packaging by 25% by 2025 (from 2018) and for all
packaging to be designed for recycling, reuse or composting

H&M’s “Design, Production & Distribution”:

H&M is prominent for offering fashionable, modish styles apparels and
accessories with rapid change over. H&M ensures the best customer
offering in every market by maintaining the right pieces of stock in each
store that will best suit the customer preferences. H&M strives to provide
varied range of merchandise that incentivizes customers to both browse
and shop passionately. According to (Lu, 2014) H&M is headed by the
team of 100+ skillful, polished and artistic designers designing their craft
from H&M design center in Stockholm, Sweden widely known as “White
room”. The designers diligently plan and produce season after season
collections accomplishing its two-fold design process through long term
planning of collections which is done more than a year in advance and real
time design feedback that stems out of a customer driven product strategy.
The teams responsibly and meticulously do the flexible assortment
planning to ensure that every store feels updated on trends and patterns of
the merchandise as the demographics and geography significantly
influences the distribution of the merchandise. Therefore, high fancy
apparels are significantly produced in small quantities and mainly
distributed to the main big cities whereas, essentials are ordered in bulk
and are widely distributed around the globe. Furthermore, H&M closely
work with enthralling number of services to produce assorted range of
merchandise there about, H&M has 80- pattern makers, 800 +- suppliers
and 30- production distribution centers to be precise across the globe
making H&M the world’s second largest clothing retailer (MUÑOZ, 2015).
Henceforth, H&M core operation heavily relies on its profound designers,
creative directors and pattern makers to stay on top of the game, therefore,
H&M has wisely invested on their extremely talented, highly proficient and
diverse workforce around the globe, coming from japan, Holland, japan
and many more together to produce the right mix of article and accessories
and many other different products of H&M to catch up with the latest
trends, colors and reasonable prices and fit of the merchandise to suit their
customers interests using the service of Worth Global Styles Network
(WGSN) to forecast fashion trend and patterns in current times.
communication
H&M conveys all the newly made products to the customers by the
medium of Newspapers, Magazines, and Websites etc. H&M doesn't have
any industries but it works with 800 suppliers and around 2700 production
units. H&M keeps transparency by publishing monthly, quarterly, half
yearly and annually the financial reports.

Overview of H&M's performance.

A topline look at a few of H&M's key metrics from the last month.
Facebook
 Total Fans40,182,538
  Fans Gained72,252
 Fans Growth0.18%
Twitter
 Tweets5
 ProactiveRepliesRetweets
Instagram
 Avg. Engagement577
 Likes1,539,760
 Comments7,286
https://unmetric.com/brands/h&m#pricing

ZARA Vs H&M: Who does it better?

ZARA being the king in the Apparel Industry followed by H&M,
therefore, comparison of ZARA and H&M is of great significance in
evaluating their supply chain operations throughout the world.
ZARA, the leading firm in the Apparel Industry and also the youngest one,
is spread across 96 countries with around 2200 stores spread across these
countries. ZARA’s Supply chain is designed in such a way that a product
could be designed and have the same product sold in the store a month
later. Whereas H&M, the 2nd leading firm in the Apparel Industry and the
oldest one, is spread across 61 countries with around 4968 stores spread
across. ZARA follows a Vertically Integrated Supply Chain where it
manages its own supply chain, that is, the whole process is totally run by
them whereas H&M follows a Double Integrated Supply Chain where there
are more than one suppliers for the company. ZARA owns its production
activities and is solely responsible for its outcomes whereas H&M
outsources its production activities to suppliers and there are high chances
of delay in the production process. ZARA uses the fastest mode of
transportation to get the first mover advantage whereas H&M focuses
more on cost cutting and therefore uses the cheapest mode of
transportation, thus reducing the chances of getting the advantage. ZARA
uses Centralized Inventory Management System in order to ensure the best
for the customers at any cost whereas H&M uses Centralized as well as
Decentralized Management System which gives equal power to the
customers as well as the employees. ZARA uses Third Party Logistics
Provider named “Inditex Limited” which helps in reaching the market in
lesser than 48 hours across all the countries but is expensive whereas H&M
uses in house logistics service provider named “H&M International
Transportation, Inc.” which is cost effective but comparatively takes longer
time to reach its customer. The lead time of Zara is lesser than 2 weeks.
This means that ZARA can manufacture a product and make it available
in stores in lesser than 2 weeks. Whereas H&M takes 3 weeks to make the
product available at the stores. One of the reasons why H&M’s lead time is
more than that of ZARA because the production produce from the
suppliers are mandatorily to be sent to the central warehouse in Hamburg,
Germany. The longer the time H&M takes to make the products available
at stores, the more chances of losing its customers. The more the customers
they lose, the more it helps its competitors create a value for themselves. As
H&M does not own any of its factories, it has heavy dependence on
production and design in countries like Cambodia, Bangladesh & China,
since the labour is found cheap in these countries. There are high chances
of labour being unskilled in these countries and also there are chances of
delay in the production process due to uncertainty of events which would
make the customer wait for a longer time. ZARA owns all of its production
activities due to which it is able to reach the stores very quickly. A
customer does not want to wait for any product and if it does happen, there
are high chances that the customer might switch to other substitutes that
would accommodate their preferences and therefore it should be made sure
that the product is available at right place and at right time to the right
customer. H&M has its entire focus on price of the product whereas ZARA
focuses on the Value of the customer (Danziger, 2018). The concept of
selling it cheap in the market was prevalent in the older days but in the 21st
century, it’s not only about price but also about value created for the
customers by the product. Only selling the product comparatively cheaper
does not create value for customers, but rather the product should be
available at right format and at right time and with right quantity is what
customers look for these days. And this strategy is well adopted by ZARA.
H&M focuses mainly on Product. On a comparison with ZARA, H&M is
widely diversified in terms of products. In fact, according to the Annual
Report of H&M 2018, there is an excess inventory of $4.3 Billion which is
unsold. Whereas ZARA believes that it’s not only about the product but it
is more about experienced shopping, that is, designing new fashionable
trends which makes the customer come back for more passionately
(Danziger, 2018). H&M though has 4968 stores worldwide but 80% of its
stores are located in malls where it competes with other Fashion retailers
thus making it difficult to be attracted by customers whereas ZARA has
around 2200 stores worldwide and in 39 online markets. Most of the ZARA
stores are located in crucial areas which attracts more customers, precisely,
the loyal customers. Moreover, ZARA has the power to shut down the
stores which are anymore not profitable unlike H&M (Danziger, 2018).