Managment Operation - Case Study Example

1 Stevensons Case Stevenson is primarily a dyeing unit and was dependant for its work through its parent CV from whom it got major of its work of dyeing knitwear but it also got work from other high fashion retailers who were market leaders in their field. Dyeing is a specialized work but Stevenson’s specialty was to develop colour recipes and these are valued in the market even today. In fact this is one singular reason why they still get business from the high street retailers. While retailers still seek recipes from Stevensons, not many of them will give them the dyeing jobs. The reason for this fall in business has been the change that has come about due to change in strategies of garment manufacturers, including knitwear manufacturers all over the world who have outsourced a major portion of manufacturing activities to low cost regions of the world. While the ethics of this move is still being debated, the fact is that this has meant closing down of all manufacturing operations and shifting this activity to the Far Eastern countries where this can be done at a fraction of costs. Even the distance and logistics costs do not add up significantly and the practice has become the established norm for the industry. Fashion is however a volatile industry. Styles, colours and designs change ever so frequently that stable and predictable production is impossible. The process itself comes under so much pressure that time lines get stretched. Schedules are however of great importance as the season for every variety typically last from 12 to 16 weeks. Leftovers from the season are disposed off at heavy discounts as there will be new styles in the next season and stockholding is neither possible nor practical. This means longer lead times have to be given to manufacturing units. As a trade off, production has been shifted to the Far East, the feasibility of dyeing in England does not offer any advantage to the retailer. In knitwear the ecru garment was dyed after production at the last stage to enable stores and the merchandisers to decide on colour schemes closest to the point of sale to take into consideration the latest trends in consumer buying behaviour. This was quite feasible when the garment was manufactured close to the dyeing facility. But with production moving to distant lands, this meant that the delivery time was elongated and this gap widened, leaving little choice with the merchandiser or the stores they supplied to. The dyeing at the production end was also not up to mark and quite a percentage would have to be re-dyed or reworked for finishing at the store’s end. This added to costs. As trade off, the Far Eastern producers preferred to first dye the ecru yarn and then produce the knitted garments. But this choice, although cost effective, added to the problem that colour schemes had to be decided much earlier at the yarn stage and in case of any miscalculation of market trends, either wrong coloured garments would fill shelves and warehouses; or the required colours would not be available; resulting in loss of sales in both cases. This also meant with ending up with unwanted stocks that had to be sold after season at heavy discounts. This gave opportunity to Stevensons to offer this facility to the stores, but this was limited work. Stevensons considered the possibilities and offered a choice to the large retailers. They calculated the cost of an ecru garment dyeing was only 35p higher than the garment made out of dyed yarn. So if the Far Eastern producer produce an ecru garment and shipped it to them, they would dye it at a nominal additional cost to retailer that would be more than covered up by reduction in loss due to wrong or non-availability of right colours. The trade off would offer more time to merchandisers to decide on colour schemes most likely to sell in the market. The Stevenson proposition was a win-win formula but somehow it could not be translated into business. The question now is what strategy is required to convince the retailers and their merchandisers to accept this proposition? 2 Competitive Advantage The heart of strategy lies in its competitive advantage (Porter M.E. 1980). When a firm becomes different by offering value, quality and some attributes through which it offers some uniqueness then it will become an above average performer in its industry. But to arrive at this stage the firm must make difficult choices. In a later essay Porter M.E., (1966) redefined strategy to be a combination of differently performed activities. While the activities remain the same, the approach taken to perform or enact them is the strategic decision that pays off. There are some hard choices to be made here. Choices means trade-offs and this results in giving up some activities in preference for others. This is a difficult choice as it restricts the organisation to a particular set or sub-set of segmentation. But excellence cannot be achieved without trade-offs. An organisation cannot perform two separate set of activities to position itself with two set of standards as it will then fail to compete with its rivals. Trade-off is important as it limits the organisation’s offering but they certainly raise the level of the offer to such heights that the rivals cannot match it. Here is where the concept of Fit comes into play. A fit is when ideally all activities relate to each other in a tight way and when each is as strongly linked to the other like a chain. Further more each link in the chain is equally strong so that the fit is complete and such a fit cannot be copied. 3 Attitudes All Buyers have an opinion about a product or service formed out of experience, and information. These are perceived over a period of time. Companies attempt, through their marketing strategies, to garner this opinion in favour of their product or service. However the customers have usually built an attitude towards the company and its products. The strategy is to persuade the buyers to purchase this product or service. Extensive use is made of the Elaborate Likelihood Model and this theory provides the most efficient way to persuade the targeted segment for producing an attitude change. The company needs to communicate the message in the most effective way for the audience to respond. There are basically two ways of forcing changes in attitudes. These are the two routes to persuasion. One is the Central Route and the other is the Peripheral Route. Petty and Cacioppo (1981) have defined Central route to be one that looks at attitude that has developed as a result of issue related arguments. This means that this attitude is well thought out and has encompassed all possible views on the subject. Usually this attitude is also rather rigid and not changeable as it has already considered alternatives. Elaboration or explanations tend to impact attitude changes. In such cases careful evaluation of the content of the message is made through the central route to test the strength of the arguments and attempts are made to change the mind-set of the customer. If successful, the result is strong change in the attitude. On the other hand the Peripheral route is subject to change based on either positive or negative attitudes. When the views have not become unyielding or rigid they are likely to be either for or against. However these are triggered by some event or phrase/word or activity that sets off this attitude. Here the message is less important but the attack is on motivation and emotions of the buyer. If successful, the result is a change in attitude but since it is a play on sentiments, it is comparatively weak. The central route fabricates a major positive attitude change, while the peripheral route uses six different signals or cues to draw a quick response with a slight shift in attitude. Both routes involve message elaboration. The central route is used to examine ideas, wrap up their merit and consider possible consequences. The peripheral route is used to offer a quick accept or reject judgment without going into the depth of the matter. These cues relate to reciprocation, consistency, social proof, liking, authority and scarcity. These six cues automatically lead a person to the peripheral route. By character ELM is a scientific theory that portrays people as reactors to a motivation. It provides a platform for making a desired reaction or assists in making attitude change possible.  Indeed it is a fairly accurate model of how attitude changes are achieved and it also shows the difficulty in producing a major or long-term attitude change. The theory clearly and simply explains both routes of persuasion and the ideal circumstances for each. But despite being scientific in approach it is not possible to verify it through the traditional falsification test of true and false. Petty and Cacioppo (1981) conducted studies to arrive at the above conclusions. The study revealed that when perceptions are fixed or rigid, reactions of customers are predictive. People will react in an identical way in a comparable situation. When perception is flexible or unclear then people look for cues or indicative signs to take a positive or a negative attitude. Central and peripheral progressions are a continuous occurrence but there is relative variance in the impact of these processes from time to time. The Elaboration Likelihood Model (ELM) serves the purpose of conveying an explanation of information to test the probability of the likely change in attitudes through the message. The level of motivation these can generate, and the ability of the buyer, will have a bearing on the outcome. There is no doubt that to be effective an appeal must match the attitude. Arguments will be perceived as being better if they match more with the way the customers view their world (Cacioppo et al 1982). It must be remembered that personal relevance plays a great role and once the company can show it cares for this the result will be in strong persuasion. (Petty & Cacioppo 1979). It is therefore further suggested that trustworthy and credible sources be used to expound this fact for lasting persuasion. (Eagly, Wood, & Chaiken 1978). Indeed Petty, Cacioppo, & Goldman (1981) emphasize that high expert sources led to more persuasion than inexpert sources. 4 Marketing Strategies Four different reasons influence a buyers’ decision. They are also known as 4Ps as explained by McCarthy (1964). This needs careful study to understand customer behaviour. 1 Product. The buyer is greatly influence if the product or service is perceived as useful for him. Its uniqueness is the attraction. The impact it will have on his overall scheme of acquisitions is important to him. 2 Price. The price is not usually a stand-alone factor. It has to be comparable with other products or services but with weight given to factors like quality and delivery schedules. He also considers price in context of the privileges attached to it. 3 Promotion. The importance of the product or service is highled with relevance to buyer status. 4 Place or Time of offer. It is of great value to the buyer if a product or service is offered to him at a place and time that suits him. 5 Relevance It has been established by Porter (1985) that buyer power influences purchase decisions. But communication of the relevance of the product or service is very important. This communication should be persuasive enough to influence the decisions of the buyer. It is apparent that Stevensons have not been able to communicate properly with its buyers as such they remain unconvinced of the usefulness of the proposition made by them. It is suggested that they use peripheral methods of persuasion and skilfully send the message across to the decision makers who are the merchandisers in this case. Studies carried out by them with help of industry sources on expenditures, losses and lead times should be cited as proof mitigates doubts. They should also strongly put across the fact that their unassailable positions in quick delivery, due to their fast dyeing methods requiring only 11 hours completing the batch was an added advantage. Together with their traditional supremacy in making original recipes puts them in a very competitive position. Above all they need to convey with conviction that they offer reliability and consistency which means that they can reduce pressures on stockpiling and help in direct reduction of losses that occour due to heavy discounting. 6 The Zara Case The uniqueness of Zara stands out from the crowded Fashion Industry as a manufacturer and retailer that churns out over ten thousand styles every year through its 350 stores spread worldwide and yet is able to deliver any style from order to shelves in an average of 15 days. This is and amazing feat and it stems out of very tightly controlled supply chain management. It becomes even more astonishing when it is explained that, very much against industry norms, Zara produces 50% of its merchandise in house in Europe, produces only in small batches, sells at higher prices than competition, makes a better margin, sells from its own stores, buys 90% of the fabric from its captive source and airfreights most of its products. The company keeps only 10% average stock in its store against competitions 14% to 17%, has lead delivery time of 15 days instead of months which is the industry norm, spends on 0.3% of its sales on advertising compared to 3-4% by rivals and encourages stock-outs instead of holding huge inventories that are prevalent. These radical departures are consistent and give a year on year growth of 20%, unheard of and unprecedented in the Fashion Industry. It is an established fact that long lead times and uncertainty are major contributors to inefficiencies in supply chains further contributing to disruptions and loss of sales resulting ultimately in deep discounting to get rid of stocks at the end of season sales. The only way out is tighter control of the supply chain and Zara has managed this to exemplary level. The vertical integration they have adopted is not seen elsewhere in the industry. They have broken down or removed every barrier in this supply chain by evolving a method of rhythms very much like the Takt practiced in assembly lines operated by Toyota. This lean practice has ensured smooth flow of the product from designing concept to the store shelves. This defies the modern concept of the theories of competitive advantage that lay emphasis on the fact that external environments dictate how companies fit in to become competitive. Surely the method of outsourcing for competitive advantage is obvious for all to see and measure the results. The question arises as to how Zara achieves this by defying conventional wisdom? 7 Environments and Organisations Environments have a great impact on companies. In current thinking organisations are socially constructed systems that share values and meanings (Burrell & Morgan, 1979; Pfeffer, 1981; Weick, 1979), and the mission of the management is to promote and develop these shared meanings in order to achieve their objectives of fitting the organisation in its environment. It is this fitting act that is strategy. Another accepted concept of strategic management is that organisations and environments are real in nature, measurable and at different ends of the spectrum. The art is in finding equilibrium between the two and that is strategy. With this perception strategist proceed to find successful combinations of the organization/environment through strategy. This paradigm has been challenged by Smirchich and Stubbart (1985) who claim that current theories wrongly perceive that environments dictate strategies and that environments themselves are a creation of actions of organisations. They argue that all actions by all people in the organisation contribute to the development of the environment. This is almost diagonally opposite thinking. They break the existing assumption that organisation is entrenched in and confined within the environment. Ordinarily strategists make imaginary linkages between events, objectives and activities and create the environment. But for Smirchich and Stubbart both the environment and the organisation are results of what they term as “enactment”. They support this radical thinking by stating that the social interactions of the important members of the organisation produce both the organisation and the environment. This novel virtual framework simulates and creates the environment. Resultantly it is the patterns of activities that are labelled as organisations and environments and paves the way to find new strategies. It becomes the job of the strategist to find meaning and interpretations of these activities or enactments to determine strategies. The enactment theory decidedly discards the idea of a concrete, material organisation/environment nexus and adopts a socially created symbolic world (Winch 1958). There is no such thing as an industry and it is the pattern of activities that end up as manufacturing or distribution. This gives rise to new methodologies of managing in the enacted world. The managers do not set objectives; rather they seek answers to questions like what to do and where to go. This creativity forms the strategy by thinking out of the box. This is what gives shape and meaning to desires rather than trying to fit a mould that might be meaningless. They forgo traditional thinking and try novel methods thereby creating unprecedented values. Enactments are really about doing things differently and will mean discarding past practices, forgetting previous learnings, innovating and persuading the masses to go along with thinking and acting out different perspectives. 8 The Zara Enactment Model Zara adopted the route of enactment suggested by Smirchich and Stubbart (1985) and fashioned an organization that created its own rules. Their owner and the managers thought out of the box and creatively and deliberately threw conventional wisdom out and brought in practices close to the ground. The made their whole supply chain customer oriented. With information technology to assist them, the made the customer, his needs, wants and even desires the focal point of their strategy. They made sure that the information flew backwards from the stores who generated requirements base on customer feedback. This reduced the uncertainties as they worked closely with the market and could predict the needs ensuring the tight supply at the right time. 9 Conclusions Porter’s views are from the prevalent school of thought in management strategy. He is traditional and bases the tangibles as the five forces of power that need to be satisfied through strategy. However, Smirchich and Stubbart have taken a different view of strategy and they believe that the power lies in the hands of the organisation that can shape the need or demand. They work in almost a virtual environment that defines both the organisation and the environment out of their own actions. In conclusion it is difficult to deny tradition but equally impossible to ignore radical thinking. One common thread runs through both views that for a strategy to be successful, things have to be done differently. Operations Management is an art that uses different theories and applies what is best suited in their own conditions. The success of any organisation depends on its ability to understand its customer but the route adopted should be one that will focus on consumer satisfaction. 10 Bibliography Burrell, G., & Morgan, G. (1971), Sociological Paradigms and Organizational Analysis: London: Helnemann. Eagly A. H., W. Wood And S. Chaiken (1978), "Causal inferences about communicators and their effect on opinion change". Journal of Personality and Social Psychology, Vol. 36, pp. 424-435 McCarthy, E.J. (1964), Basic Marketing, Richard D. Irwin Homewood, IL. Petty, R. E., & Cacioppo, J. A. (1979). Issue involvement can increase or decrease persuasion by enhancing message-relevant cognitive responses. Journal of Personality and Social Psychology, 37, 1915-1926. Petty, R.E., and Cacioppo, J.T., (1981) The American psychologist 36 (5), pp. 441-456 Petty, R. E., Cacioppo, & Goldman, R. (1981). Personal involvement as a determinant of argument-based persuasion. Journal of Personality and Social Psychology, 41, 847-855. Pfeffer, J. (1981), Management as Symbolic Action; The creation and maintenance of organizational paradigms. In L. L. Cummings & Barry M. Staw (Eds.), Research in Organizational Behavior (Vol. 3, pp. 1-52;. Greenwich, CT: JAI Press. Porter, M. E., (1980), Competitive Advantage. New York: Free Press. Porter, M.E. (1985) "Competitive Advantage", The Free Press, New York. Porter M.E., (1966), What is Strategy, Harvard Business Review. Smirchich, L. and Stubbart, C., 1985, Strategic Management in an Enacted World, University of Masschusetts, Amherst, Weick, K. B. 1979, The Social Psychology of Organizing. Keadlng, MA: Addlson-Wesley. Read More