Management Concepts Application: Zara - Term Paper Example

Zara – management concepts application “Management is tasks. Management is discipline. But management is also people. Every achievement of managementis the achievement of a manager. Every failure is the failure of a manager.” – (Drucker, 1999, p.7) Introduction The above lines show the importance of the role of managers to an organization. There are essentially four components to the functions of a manager – planning, controlling, staffing, and organizing. Planning is essential to identify the goals and objectives of the organization and to formulate the strategies for achieving those goals. Organizing helps in ensuring that these activities and formulations are implemented properly. Staffing is concerned with the employment and the training of the recruits. Controlling is that function which ensures that the effectiveness of the firm is in line with its goals. If not, then the activities are brought in sync with the goals. (Jones and George, 2008) Certain managerial concepts like decision-making, management of planning and strategy, managing organizational culture and change and managing conflict, communication and negotiation are essential components applicable for all these functions. Decision-making depends a lot on information, which needs to be correct in order to provide suitable outcomes of the decisions. For instance a decision in planning requires information regarding the future probabilities. Forecast figures at times provide good guidance in such decision-making process. A hierarchical structure depicts decision making at the three levels (top, middle and low) of management. Based on the types of decisions taken, the top management is known as the strategic management standard, the middle and lower management levels are respectively referred as the tactical and operation standards of management (Barlow, 2009, pp.12-13). Managing strategy is essential to every function of management. Managing conflicts provides security and stability to a certain situation. This can be achieved through communication, which leads to negotiations. In the organizations or work places conflicts might be expressed in different forms. It usually initiates when a certain person or a group begins to understand some differences arising among them and the individual interests, beliefs and goals are in opposition. Such conflicts might even take place when an individual interest goes against the group interest or the common organizational goals. Negotiations are carried out to zero-sum outcomes. (Carsten, Drew and Gelfand, 2007; Jones and George, 2008) Negotiations might be carried out at the individual level or even at group level. Communication might be carried out either on a face-to-face basis or by adopting the aid of technology in order to achieve the desired end of negotiation. In order to understanding the implementation of these managerial concepts in practice, the paper has considered a multi-national firm called Zara, a fashion apparel retail business and a part of the Inditex Group. It is headquartered in Spain and has its shops and stores worldwide. Strengths and weaknesses Zara follows an extensive expansion strategy and over the period of the last five years the company has showed a tremendous annual growth of 26 percent. (D’Andrea, and Arnold, 2002). The expansion policy adopted by the company is exclusively design driven and the company successfully introduces about eleven thousand styles per year. (Fraiman and Singh, 2005). In the year 2005 the company became the market leader in the industry by removing Hennes & Mauritz from the top position. (Tiplady, 2006). With the advent of globalization a fast and effective marketing strategy is what counts for a company who wants to survive in the market. (Douglas and Wind, 1987). Following the concentrated marketing strategy Zara alone contribute to about seventy percent of the total sales in the Inditex group. (Mcafer, Dessain, Sioman, 2004). It has continuously and consistently pursued an expansionary policy. Its strategic advantage as well as communication system has worked to the best of its advantage. However despite all Zara being in apparel business faces some common disadvantages. In topical times customers are allocating more funds from their budget towards other useful products like electronics, healthcare etc. on one hand their taste changes fast and on the other the price they are ready to pay for their choices have come down. (Anderson and Lovejoy, 2007) This is a real challenge to the company whose centralized system of distribution might give away any time. This is also a weakness despite the strengths of cost effect products, fast delivery and application of information technology. The company continuously faces challenge from its local and global competitors. Its euro-centric nature and over saturation of offices all over Europe is also a weakness of the company. (Mital, 2009) Despite all, the company’s managerial effectiveness cannot be ignored and this is where its main strengths lie. Managing decision-making Decision-making lies at the center of such a marketing strategy. What is noticeable with regard to decision-making at Zara is the speed of the process and its de-centralization. Zara employs young fashion designers who usually make fast decisions and are asked to reduce the number of reviews and redesigns. Any bad decision is not punished seriously in order to prevent providing any disincentive for innovations. The business model of Zara has been based upon the connection of demands of customers to manufacturing segment and the manufacturing to the distribution system. The decision-making for a fashion apparel business is essentially based on the preferences of customers, which might undergo sudden changes. It is important to capture these changes and improvise these new tastes in the product line. The company has shown that the trick was to capture the changing tastes. Zara manufactures its new line of production while the trend is still hot and does not believe in piling of inventory. In order to facilitate the prompt decision-making, responsibilities were given to the stores, which are present worldwide. These stores are the “eyes and ears” of the company. (Anderson and Lovejoy, March 2007) Decisions taken at the lower level of management were crucial to the company. This is reflected in the store managers’ decision with respect to the kind of clothes to keep in their stores. The control is centralized but the decision-making is allowed to some extent even at the store level. It is the stores, which are more acquainted with the tastes of the customers. These store managers placed the orders for the clothes and accessories which would meet the ongoing demands rather than sell simply what the headquarter assigns to them. A single team does not decide the concepts and designs of the products at Zara. These products are developed and undergo changes overtime. Specific collections are managed by small teams dedicated to individual sections in the store pertaining to men, women and children. Usually a team comprises of a couple of designers and two product managers who are involved with buying the cloth material, fixing of prices and placing the orders for the items required. (Mcafer, Dessain, Sioman, 2004) The immediate next to the product managers of the team are the store product managers whose work was to survey the changing consumer trends and also assist in transfer of items from one store to another according to the need of time. They work in close association with the designers and the other stores and consumers. Their work is essentially to help the product managers of the team decide about what designs to sell and what to get rid of. With the help of vertical integration of logistics they have managed to shorten the supply chain response from the normal 20-30 weeks to approximately 8 weeks. (Anderson and Lovejoy, March 2007) They believe that customer’s sense of fashion changes on weekly basis and not on season basis. Their well-connected operational mechanism helps the managers to take fast and suitable decisions. It is natural for a multi-national like Zara especially in a business where demands will shift almost on weekly basis to engage in a flexible decision-making regime where decisions are welcome from all levels. The headquarters are more concerned with the social responsibility (example, working conditions of the factories), business ethics and the brand image of the company rather than what to sell, when and where. These decisions are passed on to the middle and lower levels of management whoa re expected to know the customer best. Managing planning and strategy Planning and strategy formulation is aimed essentially at enabling the business to take fast decisions and cater to the changing customer demands. The most significant strategic dimension that Zara proved in the past three years is its capability to get used to the market fluctuations and its thorough lean inventory coordination. Even before, the company showed its competitors in the manufacturing industry that market flexibility along with smart inventory administration system is sometimes more successful than economical labor as far as the effectiveness and growth of the company is concerned. (“Zara Clothing Retail Model Based on lean inventories and market flexibility could change the future of marketing”, 2001). The company also has fruitfully applied a successful supply chain management by which it has improved its speed and precision in reaching out to different economies of the world. In short they have roughly transformed the traditional way of achieving business. To identify the basis of their strategy the Ansoff’s Matrix might be presented as follows: Source: Botten & McManus, 1999, p.79 The Ansoff’s Matrix depicts the strategies of the companies in the case of the products and the markets. The columns of the matrix depict the products – existing and new while the rows picture the markets – existing and new. The firms strategize according to the portfolio. Using the Ansoff’s matrix shown above, one might analyze Zara’s strategy. The first step of the above-mentioned uprising is absolutely its market penetration strategy. Zara with its speed of delivery and intense brand management program has encouraged the current customers to purchase more of its products. The company actually centers on market penetration after observing certain weaknesses among its competitors. When evaluated against its close competitor Swedish retailer Hennes & Mauritz, Zara walks fast in its supply chain and this factor is responsible for their high speed of new product introduction. In the fashion clothing industry time is a very critical factor and Zara exploits it optimally. The company also pursues the strategy of market development where it brings in the existing products in new markets. In its market development strategy the company initially recognizes potential user groups in its present sales areas. (“Zara Clothing Retail Model Based on lean inventories and market flexibility could change the future of marketing”, 2001). Secondly, Zara also centers on discovering new locations and new economies and this is an incessant process that they follow. This focused strategy can also be regarded as an plus in favor of the company as sometimes, rapid expansion of market causes several degrees of troubles due to the different communal and cultural background of the different states. (Bradley, 2005) Also with rapid expansion the company gets uncovered to the political and administrative dangers, which at times influence the business. (Rugman, and Hodgetts, 2003). In its market development strategy Zara mainly prioritizes developed fashion economies of the world. The company has twenty retail outlets in Belgium, forty-eight in Portugal, ninety-eight in France. (“Zara Clothing Retail Model Based on lean inventories and market flexibility could change the future of marketing”, 2001). On the other hand, in emergent economies like China and Thailand, Zara has only seven and three retail outlets respectively. The company capitalizes on its store design to attract the target customers. This factor is intimately connected with effectual customer communication. (Lea-Greenwood, 2002) In their product development strategy Zara resorts to new product development and its time gap from designing to the point of sale is very less. Zara positions its product as “affordable fashion” and it clearly denotes that it does not desire a label of luxury products on its brand. That enables the company to target a huge number of customers at once. The target customer base of Zara is fashion alert as well as price responsive in nature. (“Zara Clothing Retail Model Based on lean inventories and market flexibility could change the future of marketing”, 2001). Diversification is also significant as a plan for Zara because the company needs to provide for the widely different tastes of people coming from different ethnic backdrops. For instance the Mexicans favor bright colored summer dresses while Swedish people are fond of pink and pastel shades for the summers. (“Zara: a dedicated follower of fashion”, 2007) Planning is an essential component of a company, which follows a flexible organizational framework. Zara supervises all the parameters of its operations. With careful strategy and plan Zara uses its own fabrics and most of its items are designed and produced in-house which reduced dependency on the suppliers. Its design centers are supported by ready and practical data. This saves time and the need for warehousing of the products owing to good inventory management as mentioned above. The vertical integration strategy has enabled such flexibility in its operations. The cost it spends on its employees or overheads are cut back by refraining from huge investments in advertisement and cutting costs of inventory maintenance. The central allotment system of the company facilitates it to distribute all newly introduced products to the stores. The company in order to counterbalance the manufacturing cost (as the labor cost are higher in Europe) produces in small batch. This strategy is off course supported by its rapid inventory turnover strategy as the generated customer demand is met within a short span of time. (Fraiman and Singh, 2005). Managing conflict, communication and negotiation As mentioned before, the key to bring about proper conflict management lies in proper communication and negotiation. Firstly with the centralized control of Zara conflicts and misunderstandings are unlikely to arise. A company with a well-knit communication system guided by efficiently working information technology is likely to resolve its conflicts faster than usual. Offcourse owing to the vertical integration strategy conflicts might arise, but Zara resolves these issues tactfully and in a timely manner. With ample provision at its disposal, the company is ready to face any unexpected problems or disruption in the operation. Its close monitoring system often kills the conflict raising issue at its very budding stage. Proper communication system helps in feeding the appropriate data to the manufacturing center from the retail shops. Every level of management can keep in continuous touch with each other. The computers installed at the stores and the hand-held computers enable the sales personnel and the product managers to communicate the feedbacks of the customers to the headquarters. (“Zara: a dedicated follower of fashion”, 2007) The management structure is decentralized despite a central control system at work - “… its flexibility comes from the use of a highly integrated, fast and efficient form of communication between its global network of outlets and the central hub of operations in Spain, combined with possibly one of the more sophisticated just-in-time (JIT) operations in the world” (“Zara: a dedicated follower of fashion”, 2007). The style of management followed is participative in character and this is necessary to maintain the global status. Permissive style is not followed in this case as the control is centralized. The different branches are integrated through well-knit communication system. Negotiations are carried out fast with the help of an efficient information system at work. The top level of management also knows when and how to communicate. Without this communication system it would not have been possible for the company to keep track of the tastes varying according to different ethnicities. For instance in a recent case of conflict concerning a factory at Bangladesh with poor working condition, the Javier Chercoles, the director of Corporate Social Responsibility of Inditex group on his visit to the store warned the owner to improve the conditions or the deal would be closed. Such ultimatum comes at the right time and for the right cause. (Bayley, January 2010) Environmental and social responsibilities are well conducted and monitored by the company. This is where the top management level interferes with the operations and does justice to the reputation of the company. Concluding remarks From the above study we may say that Zara has done justice to the different concepts of management especially managing conflict, communication and negotiation, managing planning and strategy and managing decision-making. In the face of changing preferences as well as shift in the budget of consumers especially with respect to the allocation towards clothing, it is essential to formulate a flawless strategy or a plan in order to capture these hard to pin down customers. Decision-making lies at the core of the operational procedure owing to the demand of its business and speed of operation. On the other hand the well-knit communication system on one hand supports the implementation of the formulated strategy and facilitates appropriate decision-making. It is important for almost every personnel at the Zara stores to have a basic knowledge of information technology and need to know how to handle computers such that communication might be consistent and fast. The vertical integration system coupled with the instant communication and negotiations has made the process of decision-making and implementation faster and easier than before. References Anderson, K. and J. Lovejoy. (March 2007). 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