Zara Technoligy can Change Everything - Term Paper Example

? Zara: Technology can change everything Zara: Technology can change everything Zara was founded by Amancio Ortega, who in 2003 was still its largestshareholder and the richest man in Spain. Ortega had started in 1963 with clothing factories. Over time, he came to believe that retailing and manufacturing needed to be closely linked in the apparel industry, where consumer demand was notoriously hard to forecast. So he integrated forward, opening the first Zara store in La Coruna in 1975(Mcafee et al., 2007, p.3). The growth of Zara was phenomenal since its establishment in 1975. The success of first Zara store encouraged Ortega to open more clothing stores across Spain. It is often said that the innovation and ability to produce new products and services are decisive factors in boosting the growth of an organization. Zara did succeed in introducing new clothing products and trends in the market quite rapidly. Moreover, Ortega gave more emphasize to the production of new designs based on the rapidly changing industry trends, which helped him to compete effectively in the market. 1985 was a year which has huge importance in the history of Zara. Two major events occurred in this year that changed the entire face of the company. “First, Inditex (Industria de Diseno Textil) was formed as a holding company atop Zara, other retail chains and a network of internally owned suppliers. Second, Jose Maria Castellano Rios joined the company” (Mcafee et al., 2007, p.3). Being an expert in IT, Castellano did everything possible to incorporate computer related technologies at every corners of the company. He had realized that without computers and internet, no industry can look forward and he changed the face of the company from a low end clothing company to a high end technology based clothing company. It should be noted that the net margin of Inditex increased from 7.21% to 11.2% during the period of 1996 to 2002 (Mcafee et al., 2007, p.16). The above statistics clearly suggest that the company is growing in the right direction since the introduction as a result of the innovative business strategies and the judicious use of technology in all the functional departments. “At the beginning of 2003, Inditex operated 1,558 stores in 45 countries, of which nearly 550 were part of the Zara chain. For its fiscal-year 2002, Inditex had posted a net income of A438 million” (Mcafee et al., 2007, p.5). The growth of Zara can be better understood with the help of Michael Porter’s five forces model. Zara and Porter’s five forces model Michael Porter’s famous five forces model is used extensively at present in business sectors to analyze the competitive power of an organization in the market. It helps business people to realize their strengths and weaknesses. Since market is changing rapidly because of the rapid technological growth, no organization can secure their top spot in the market, if they are reluctant in making periodical changes in their business strategies. For example, the rivalry between Apple and Microsoft is famous. Even though Microsoft concentrated only in the operating system market, Apple diversified its portfolios to many other fields and they became the most valuable technology company in the world at present, pushing Microsoft far behind. In other words, organizations should make changes in their business strategies based on the changes in the market in order to keep their competitive power intact all the time. Porter’s five force model helps organizations to measure their competitive power at a given time period. Porter model can be used to foresee the future threats and opportunities and the organizations can plan well accordingly. According to Michael Porter, five competitive forces that may affect an organization are; Threat of substitute products, Threat of new entrants, Intense rivalry among existing players, Bargaining power of suppliers and Bargaining power of Buyers (Porter’s Five Forces Model, 2009). The following illustration makes these points clearer. (Porter’s Five Forces Model, 2009) Threat from substitute products is the first force which can affect the business of an organization. Threat of substitute products means the easiness in changing the consumer behavior to opt for substitute products. “The threat of substitute is high when: Price of that substitute product falls; consumers felt easiness in switching from one substitute product to another and willingness of buyers to substitute increase” (Porter's fives forces model : Industry analysis model, n. d). Gap, H&M, and Benetton are some of the major competitors of Zara or inditex. Gap seems to be the number one competitor for Zara. Net operating revenue of Zara in 2002 was only 3974 millions of euro whereas that of Gap in the same year was 13819 millions of Euro (Mcafee et al., 2007, p.15). The above statistics clearly suggests that Gap is far ahead than Zara as far as operating revenue is concerned. At the same time, it should be noted that Gap’s net operating revenue had fallen in 2002 compared to the 2001 statistics. In 2001, Gap’s net operating revenue was 1559 million Euro. At the same time net operating revenue of Zara increased from 3250 (2001) to 3974 million Euro in 2002(Mcafee et al., 2007, p.15). In other words, Zara is maintaining its growth in the positive direction whereas same thing cannot be said about Gap. However, H & M has shown tremendous growth prospects during the period of 2001-2002. On the other hand Benetton is not showing many promises during the same period. These statistics clearly suggests that Zara should consider H&M and Gap more seriously than Benetton. Threat of new entrants is the second force in Porter’s five forces model. It should be noted that current market is heavily globalized and the barriers to entry is very weak. Majority of the countries are wholeheartedly welcoming foreign direct investments to maximize their growth. Under such circumstances, Zara may face huge problems from overseas players. Clothing industry is vulnerable to industry trends. Clothing and fashion trends in one country can easily affect that in other countries at present. The intrusion of new designs of clothes from overseas countries may definitely cause worries to Zara. Industry rivalry is another major threat for the development of an organization. As mentioned earlier, Zara is facing huge challenges from Gap, H&M and Benetton. It should be noted that Gap is financially sounder than Zara and therefore they can cause huge problems to Zara or inditex. Bargaining power of the buyers increased a lot in recent times because of the availability of better clothing from overseas countries. It should be noted that Chinese products are causing huge challenges to products from other countries. China is capable of reducing the prices of its products because of the cheap labor available in China and also because of bulk production strategies adopted by them. Buyers can compare the prices of Chinese clothing with that of Zara’s clothing and it is difficult for Zara to reduce the prices of its clothing beyond certain limit. It should be noted that Spain is a country in which production cost and labor costs are higher than that in China. Bargaining power of the suppliers is the fifth element in the Porter’s five force analysis of an organization. If the suppliers have associations with many other organizations, Zara cannot bargain much with them. They can switch their attention from Zara to other clothing business people if Zara asks for more reduction in prices to the raw materials supplied by them. Zara and Technology One of the major success factors of Zara is the judicious use of technology at various sectors of the company. The company never went after readymade software to cater its business needs; instead it developed its own software for the use in various departments. Since the company is operating in many other overseas countries, it is difficult for Zara to use standard software throughout its units across the world. Salgado and his colleagues shared a preference for writing the applications they needed themselves rather than buying commercially available software. They felt that the company’s operations were unique enough that commercial packages would not be suitable. The fact that Zara did business in so many countries and currencies, for example, meant that standard accounting packages would have to be heavily modified and extended (Mcafee et al., 2007, p.8). Even for supply chain management Zara is using its own software or custom made software instead of readily available software in the market. The above strategy helped Zara immensely in avoiding the glitches raised by the commercially available or readymade software. Since all the software used in Zara are custom made, Zara IT department can quickly resolve IT related problems, instead of waiting for the services from external sources. At the end of each business day, each Zara store may upload the sales and inventory data to the main server so that the centralized office at La Coruna will get all the necessary information in time. Based on these make future planning. Personal digital assistance (PDA) is a new technology related feature implemented indetex stores all over the world. The order form using a Dell handheld is illustrated in the picture given below. (Mcafee et al., 2007, p.20). These handhelds or PDA’s are capable of taking and processing orders instantly also to communicate quickly with the central office. More over customer complaints and feedbacks can be attended more efficiently with the help of these PDA’s. The POS terminals in use within every store, in contrast, had remained essentially unchanged for well over a decade. They still used the DOS operating system, which in 2003 was no longer supported by Microsoft. Zara continued to use DOS, and the internally developed POS application that ran on top of it, because this combination had proved to be remarkably stable, effective, and easy to roll out and maintain over time (Mcafee et al., 2007, p.10). In short, Zara is not reluctant in using modern technologies. However, when it comes to operating system, they still put more faith on DOS than any other modern operating systems. It is a fact that DOS is helping Zara immensely on one side; at the same time, it is causing problems to Zara on the other side. Technology related problem in Zara Even though Zara is using technology judiciously in all its functional areas, the reliance on DOS for all IT related issues could be a big problem for them in future. It is a fact that Zara succeeded in using DOS without any problems as of now, it is illogical to use an outdated technology in the present era. It should be noted that DOS has many limitations in functioning as efficiently as Windows or Linux. Moreover, latest Window and Linux based operating systems are capable of handling many jobs at a time. In other words, modern operating systems are capable of multitasking whereas DOS is incapable to do so. DOS can do one thing at a time. Visual impacts of DOS are comparatively weaker than that of modern operating systems. Modern technologies such as internet, browsing, emailing, social networking etc are working perfectly in modern operating systems whereas such things cannot be worked efficiently on DOS. “The Gap and H&M, which were the two largest specialist apparel retailers in the world, ahead of Inditex, owned most of their stores but outsourced all production”(Ghemawat & Nueno 2006, p.4). In other words, competitors of Zara are using modern technologies and operating systems to get their works done from cheap labor oriented countries. It is difficult for Zara to outsource its jobs with the help of DOS operating system since controlling or monitoring of outsourced job is extremely difficult using DOS. Recommendations to fix the DOS based problem in Zara Zara should change its operating system from DOS to Windows even if DOS is capable of delivering the goods to Zara. While majority of the other firms in the world are using modern operating systems, it is difficult for Zara to conduct its business properly with the help of DOS. If price is a factor which prevents Zara from purchasing Widows, they should consider free operating systems such as Linux. In fact Linux is capable of matching Windows in every respect. It should be noted that social networks are currently used extensively by product manufacturers for advertising purposes. Social networks can be operation only on modern operating systems. Moreover, majority of the prominent organizations are currently relying heavily on internet for business communications and marketing purposes. Replacement of ODS with any of the modern operating system would improve the competitive power of Zara further. Using DOS instead of any other modern operating system is similar to using bicycles instead of cars for travel purposes. Both bicycles and cars are capable of helping person to reach his target. However, a bicycle can never provide the speed, comfort and convenience of a car. Same way, DOS cannot provide the same utility as offered by modern operating systems. In short, Zara should change its operating system from DOS to any of the modern operating systems. References 1. Ghemawat P. & Nueno J.L. (2006). ZARA: Fast Fashion. Harvard Business Review. September 6, 2007. 2. Mcafee A., Dessain V. & Sjoman A. (2007). Zara: IT for Fast Fashion. Harvard Business Review. December 21, 2006. Retrieved from http://www.carlospitta.com/Courses/Negocios%20Internacionales%20y%20E-Business/Readings%20and%20Papers/Parte%209/Zara%20(Harvard%20Case).pdf 3. Porter’s Five Forces Model, (2009), Retrieved from http://notesdesk.com/notes/strategy/porters-five-forces-model-porters-model/ 4. Porter's fives forces model : Industry analysis model (n.d.) Retrieved from http://www.learnmarketing.net/porters.htm Read More