Organisational behaviour assessment at Abercrombie & Fitch - Assignment Example

 Organisational behaviour assessment at Abercrombie & Fitch Introduction Abercrombie & Fitch is a retail organisation that targets consumers between 14 and 30 years of age, thus providing fashions for a youth market. A&F is known for its risqué marketing efforts that continue to bring the business profit success with youth buyers, but at the same time scepticism from a variety of stakeholders in relation to its ethical advertising, sales and hiring policies. Abercrombie & Fitch operated 1,069 stores by the end of 2010, including 181 Abercrombie Kids outlets, 502 Hollister brand stores, and 18 Gilly Hicks stores in the U.S., Europe and abroad (euroinvestor.co.uk, 2011). The company further maintains revenue growth in relation to e-commerce sales websites that continue to grow each year. How the business functions as a multi-national organisation depends on the inter-connections between sales and marketing, in-store sales representatives, and premium pricing policies. Using the McKinsey 7-S model as the appropriate example, A&F centres its entire strategic business strategy on the shared values that drive the organisation, these being youth and beauty, with all other aspects built around the culture of youth, vanity and beauty. Its strategy, structure, systems, skills, staff, and style are built around these core values. This report identifies Abercrombie & Fitch and its successes and failures associated with the McKinsey 7-S framework and provides a detailed analysis of its strengths, weaknesses, opportunities and threats. Shared values, strategy, style and staff The shared values that drive the organisational culture at Abercrombie & Fitch are related to sex appeal and youth lifestyle. All of the store’s branded merchandise is focused around these aspects as well as the visual catalogue marketing depicting young and attractive models in order to gain attention from its desired youth target markets. Offers the CEO of A&F: “We go after the cool kids. A lot of people don’t belong in our clothes and they can’t belong. Are we exclusionary? Absolutely” (Handley, 2011, p.16). This phrase from the executive level indicates the importance of the culture of exclusivity that resides at this youth-oriented business, thus all elements of business development are centred around maintaining this appearance to the general consuming public. The goal of A&F is to reinforce that only certain types of customers belong in its branded merchandise variety and this is apparent in the training provided to its staff as well as how the business markets its brand name across the world. One of its competitors is Victoria’s Secret, a high-volume lingerie company (Talley, 2008), which further reinforces the level of culture that resides at the organisation. “Great companies rely heavily on their cultures to support development and growth” (Want, 2009, p.10). This is absolutely true with Abercrombie & Fitch as in order to ensure that strategy is linked with the culture, all of the in-store representatives must maintain this air of youth and exclusivity in order to justify its higher-than-average pricing policies and ensure customer loyalty against all other similar retail competition. Its most effective strategy is the development of the store’s sales catalogue which accounts for 45.2 percent of growth in sales (A&F, 2009, p.9). The catalogue, depicting youth actors with fit and svelte bodies provides the strategic sales medium that continues to appeal to individuals who find identity through Abercrombie & Fitch branded merchandise. “Strategic management is based on the belief that an organisation should constantly monitor internal and external events and trends so that timely changes can be made as needed” (Aluko, Odugbesan, Gbadamosi & Osuagwu, 2004, p.56). Abercrombie faces two dilemmas, however, in identifying appropriate strategy. First, the business receives positive sentiment and higher sales growth from its key markets because of its dedication to this exclusive and youth-oriented strategic focus. However, at the same time, its current marketing and promotional strategies continue to meet with public backlash about the ethical make-up of the business strategy and how it relates to youth buyers. For example, in 2009, A&F was forced to pay 8,000 pounds to a staff member who was fired because she did not meet up to the look policy currently in place as part of the strategic sales focus. The staff member supported a prosthetic arm and was later forced to work in the business’ store room rather than work on the sales floor (Lee, 2009). This is one example where shared values brought the business considerable negative publicity and questions about the ethical employment practices in place at the company. Under McKinsey’s model, this is why it is important to ensure that strategy linked with shared values as the core operational component does not endanger long-term revenue growth or cause problems with the external consumer audience. When shared values are at the heart of entire business focus and operations, there must be more emphasis placed on fair and balanced employment practices to avoid any negative losses to sales volumes and revenue creation. All other elements of the business strategy can be impacted when the shared values and culture are driven by questionable ethical practices. Abercrombie & Fitch definitely maintains its own unique style when it comes to promoting its brand name and merchandise and overall corporate image. “A&F’s exclusive positioning, limited availability, and new market entry make it extremely vulnerable to any inconsistency” (Ritson, 2008, p.21). This is why the business, if it is to consider its culture to be the heart of strategic policy development and style of operations, must perform external analyses to ensure that it receives more positive publicity than negative outcry over perceived unethical actions. For example, its catalogue has been referred to as “soft porn” and this perception has led to boycotts of A&F clothing and fashion accessories (Smith, 2005, p.28). The McKinsey model identifies that performance issues are deeply rooted when there is mis-alignment between all seven factors in the framework of business function. The largest problem facing Abercrombie & Fitch, under this premise, is that it continues to anger potential non-target customers and brings the business ongoing negative publicity that has short-term detrimental effects on profit creation. For example, in 2009, because of this adamant focus on a culture of vanity and exclusivity, the business posted a quarterly loss, forcing the business to, for the first time, consider an aggressive price-reduction strategy (Talley, 2009). This was the first time that this premium brand had to adjust its strategy and it was not based on internal issues, but on the perception that customers were feeling about Abercrombie & Fitch. This came on the heels of considerable outcry regarding a catalogue production that featured nude models who were posing in sexually-racy poses (cnn.com, 2011). There is a lack of flexibility associated with its hard-core devotion to image and youth beauty that further reinforces how all aspects associated with the McKinsey 7-S model can be affected when the organisation is not adaptable and when the very core values that drive forward strategic emphasis are constantly under public consumer scrutiny. SWOT analysis of A&F Before continuing further regarding the other systems that inter-link core values with operational strategy, it is necessary to conduct an analysis of the strengths, weaknesses, opportunities and threats that currently face the business. Strengths: Considerable available capital and a quality credit record. Strong brand recognition both domestic and international Strong customer loyalty allowing for premium pricing to continue The positive ability to appeal to non-target customers with vanity and youth marketing Cross-functional team development with a positive culture of loyalty and team dialogue The strengths maintained by A&F give the business considerable competitive advantages, especially as it relates to staff development and support for meeting business goals. Cross-functional communication, feedback, and dialogue are necessary to building a total quality management system and building positive profitable strategy (Brown, 2005). All of these elements reside at Abercrombie & Fitch which is a significant source of sales advantage over competitors such as Burberry and other fashion outlets. Weaknesses: Inflexibility related to core values that continue to bring negative publicity Little occurring in terms of evolution or change management No existing cost and value propositions in place Inability to create short-term profit strategies other than cost reduction during recession Abercrombie & Fitch has relied on its premium pricing strategies to ensure capital growth and expansion into international territories. However, because the business relies on its core customer loyalty and its internal core values to drive forward strategy, the business is unable to develop an appropriate contingency plan when sales revenues drop other than price reductions. This tends to cheapen the brand when customers witness these clearancing efforts which erodes its strategic position among competition and the exclusive-minded strategies that set the business apart from competition. There seems to be an air of belief at the company, from executive level to staff level, that the company will continue to draw customers, even when it is commonly understood that youth buyers are trend-focused and will easily defect in regards to price and merchandise. This is why A&F has sales revenues that grow sharply and then suddenly decline, leading the company to consider price reductions which has long-term negative consequences for the firm. The business is not one with competitive advantage when it comes to maintaining positive dialogue with external stakeholders other than its target youth consumer base. This is surprising considering this is a business with much longevity and is reaching its maturity stage in the business life cycle. Without evolution, strategy, staff, and structure will be impacted if the core values are not adaptable and flexible to changing consumer trends. Opportunities Target new markets with a differentiated and unique marketing strategy Reduce supply chain costs Hire external change consultants to champion contingencies for more flexibility in strategy Expand into developing countries such as India to gain new market opportunities rather than relying on a mature market for growth A&F must be more adaptable, as has already been identified, in order to remain the top-notch competitive force that has driven years of profit growth. There are also opportunities for innovation by enhancing the product line to include more than just clothing and accessories, expanding into youth-oriented music variety and even technology in-store. Again, the business does not currently appear to have long-term strategies for evolution that will likely have long-term revenue consequences. Threats Consumer backlash over existing marketing strategies Ease of entry for competition into the international fashion marketplace Strong buyer control in the fashion market Rapid growth leading to periodic capital depletion Fast fashion retailers such as Zara able to undercut A&F in price substantially A&F does not recognise that fast fashion merchandisers such as Zara maintain the ability to gain the attention of consumers as stores such as this are able to develop exclusive products at a much faster and cheaper pace than most retailers. The ability for other retailers to enter the fashion market where A&F operates also put the business at considerable risk for further revenue losses. The company expanded by nearly 40 percent in just three years backed by its capital reserves, a risky venture during a period of international economic recession. Again, it does not seem as if A&F fully understands that its buyer segment is trend-minded and today concerned about issues of pricing when deciding where to shop, thus threatening its premium pricing model. Structure, systems and skills In 2003, A&F received negative publicity regarding its choice of merchandise buying. One particular T-shirt offered to its customers read “Wong Brothers Laundry Service: Two Wongs can Make it White”, an insensitive merchandise buy related to Chinese slander (cnn.com, 2011, p.1). Though this is only one example, it does indicate the threats to the business model as it pertains to the systems that guide merchandise buying on the supply chain. Even though the salespersons and executive leadership maintain the business-oriented skills to ensure adequate financial and sales decision-making, systemic failures such as this as it relates to what appears to be a somewhat arrogant culture of vanity and exclusivity pose considerable risks to long-term positioning on the fashion market. Angering customers in China, and domestically, where the business relies on existing consumer loyalty does not seem to supersede the culture of vanity that resides as the core of A&F marketing philosophy. Structurally, the business is a typical top-down hierarchy where information and decision-making moves through layers of management. See Figure 1 for an organisational chart indicating the vertical hierarchical structure. This is a necessary structure based on the strategic policies of the business related to subordinate compliance needed in a retail sales environment and as a multi-national company requiring layers of management to succeed in multi-cultural sales environments. Figure 1: Top-Down Hierarchy of A&F As indicated by the organisational chart, each division reports to the lower-level management team, ultimately leading to in-store management and sales staff, much like most retail competition of its variety. The business’ strategy does not allow for horizontal management due to its multi-national presence and operations in Europe, the U.S. and other foreign nations. The balanced scorecard Abercrombie & Fitch research did not uncover the business’ use of a balanced scorecard as a measurement tool, which might also be considered a weakness in terms of how the company measures its performance achievements and long-term strategic policies. The balanced score card contains a variety of measurement questions about performance, strategy, finance, internal structure, staff performance appraisals, and important key indicators. No evidence of such a measurement system might be attributed to the company’s belief that the core values of exclusivity and vanity will continue to drive superior profit growth and thus believe that no changes or adaptations to current strategy are required to stay competitive and expansive. Recommendations for change A&F requires a system of measurement, thus a balanced scorecard or an internal auditing assessment team should be developed to identify strengths and weaknesses as it relates to core values and strategic focus. More emphasis should be placed on viewing the external marketplace to understand what negative publicity faces the company during a period where price reductions can lead to long-term brand image damage and reputational damage as a fashion leader. Change is necessary for a business to evolve and many fashion competitors reposition their companies during times of economic downturn or when price reductions are the only motivational tool available to gain customer loyalty (or secure it). A&F maintains the same in-store appearance that it has since its inception and continues to market to customers in the same methodology using risqué catalogues and youth-based fashion models to appeal to customers. At a period where the company is fast approaching maturity, in the business life cycle that next step is eventual decline. These declines have been seen at competition such as Old Navy, the Gap and other large retailers who did not consider contingency plans or consumer market expansion through new targeting and advertising concepts. The core values of exclusivity does not need to be lost, but requires a new flexibility to gain new market interest. Offers one critic of the A&F strategy and its reliance on a culture of vanity, “The next time you see the A&F signage on a T-shirt, or its moose on a polo shirt, I’ll bet its not attached to the svelte shoulders of a 20-something Adonis. It will be stretched across the flaccid girth of a balding and out-of-shape bloke who fancies himself” (Ritson, 2008, p.21). If this statement holds true in relation to the type of customers who actually clamour for A&F merchandise and this represents some of their non-target buyers, the business maintains excellent opportunity to use repositioned marketing strategy to ensure more revenue growth. The business moving toward its maturity sales and eventual decline as most retailers do needs to consider how to remain competitive even if the core values require restructuring in order to properly link strategy, structure, systems, and skills effectively for long-term market presence. “The brand’s embrace of physical beauty raised parental eyebrows and often intimidated the teens that shopped there” (Kang, 2005, p.B1). If the business is intimidating its most important buyer segment, the teenage and late adolescent group, there is opportunity for lost revenues that will only lead to more brand damage. Expanding the target market to include less-svelte youths and offering more diverse products for a larger consumer segment might be the only answer to avoid the current unpredictability in sales volume and growth. This requires innovation that will also require re-examining the McKinsey 7-S model and determine how better to establish a flexible set of core values so that the business can be restructured. This might require a more horizontal structure where decision-making moves upward and downward in order to achieve innovations, especially from in-store managers and sales reps who understand their clients in more detail as they have the most face-to-face knowledge of current buyer trends. Conclusion Even though A&F still stands as a revenue leader, the largest changes identified through research include a refocus on core values related to extreme exclusivity and vanity. Price reductions occurring periodically in order to sustain profit growth are causing reputational and brand-related damage that might be impossible or quite difficult to repair with growth in competition every year occurring across their operating territories. However, the business still remains dedicated to ensuring that all elements of structure, strategy, systems, style, staff and skills are in-line with its core beliefs: youth beauty and attractiveness as the core component for sales growth. Time will determine whether the business can remain a leader without proper flexibility in self-image. Figure 2: A Flatter and Vertical Hierarchy Suggestion References A&F. 2007. [internet] Abercrombie & Fitch Annual Report 2007. [accessed October 4, 2011 at http://library.corporate-ir.net/library/61/617/61701/items/295294/Final_AF_07Annual_Report.pdf]. Aluko, M., Odugbesan, O., Gbadamosi, G. & Osuagwu, L. (2004). Business Policy and Strategy, 3rd ed. Nigeria: Longman. Brown, P. (2005). The evolving role of strategic management development, Journal of Management Development, 24(3), pp.209-222. Cnn.com. (2011). [internet] Abercrombie criticized for selling push-up tops to little girls. [accessed October 3, 2011 at http://www.cnn.com/2011/business/03/26/abercrombie.bikini.controversy/index.html] Handley, L. (2011). Brand desire: thou shalt be coveted, Marketing Week. January 20, p.16. Kang, S. (2005). Style & substance: Abercrombie & Fitch tries to be less haughty, more nice, Wall Street Journal, Jun 17, p.B1. Lee, J. (2009). Abercrombie & Fitch, Marketing, London, August 19, p.17 Ritson, M. (2008). Abercrombie has XXL-sized problem, Marketing, London. July 9, p.21. Smith, R.D. (2005). Strategic Planning for Public Relations, NJ Lawrence Erlbaum Associates, Inc. Talley, K. (2008). Abercrombie bets on lingerie, Wall Street Journal. February 27, p.B9. Talley, K. (2009). Corporate News: Abercrombie plans to cut more prices, Wall Street Journal, August 15, p.B5. Want, J. (2009). Saving the company, Leadership Excellence, 26(6), pp.10-11. Read More