Strategic Management of H & M Hennes & Mauritz AB - Essay Example

Strategic Management of H & M Hennes & Mauritz AB Strategic Management, according to Lamb (1984), is a relatively continuous process in its own and it directly measures the attributes of the business success in the core area of the industry expertise. It provides significant assessment of the product/service mix and gives the ideas and suggestions to achieve the desired goals and targets, being on competitive edge among the competitors. The whole implemented process is then further assessed after a particular time to see the extent of execution of plans and their success. Any further modifications, if needed, in the existing strategies or new additions to accomplish the goals according to the changing circumstances, technologies, environment, etc, are made. Occasional analysis is very important for measuring the effectiveness of the organizational strategies. H & M Hennes & Mauritz AB (operating as H&M) is a Swedish retail-clothing company, known for its fast-fashion clothing offerings for women, men, teenagers and children. H&M has the stated goal of "giving the customer unbeatable value through the combination of fashion, quality and price". We shall be studying its competencies and methods across five different factors found to be central in building and carrying out an effective Strategic Management. 1. Strategy and Organization: Organization is a relatively broader term and in a long term introduces itself as a stable social framework which exploits the environmental resources and directs them towards more organized form as a product; it can also be summarised as the social arrangement to distribute tasks to achieve a collective goal. This technological term depends on three elements of an organization. Capital and labour are primary inputs gained from the environment. These are further processed to transform these variables into product and services which are ready to be returned for the environment for future use. These are further empowered to get customer faith to uphold the key position in market and get maximum market share. Strategy is an action which is needed to direct the organization and its various components to achieve a desired state in the future. So each organization has its strategies across its various departments to derive the flow of actions across the globe. According to Barr et al., (1992), strategic change is not all of sudden but it’s an attempt by the organization to restructure itself according to the need of the present consumers and keeping the future in mind so that there is substantial shift in the priorities, hence warranting new things. It is the duty of the organization to implement these changes in more reproducible way and convey the message to the shareholders in the convincing manner. According to H&M, they are a flat organisation, encouraging employees to take up new challenges and try many different roles within the organization. Moreover, many in management today start their association with H&M on the shop floor. The business strategy of keeping fashion fresh, as if it were a perishable good, has helped H&M evolve continuously. It has encouraged continual growth; the company is present in 35 countries and has more than 1900 employees, with plans to reach 2000 by the end of 2010. With the uncertainty of today’s global economy; the acceleration of new information technologies; and increased competitiveness in the market place; there are significant elements of strategic thinking that are necessary to ensure the continued success of an organization. 2. Strategic Leadership: Strategic Leadership is defined as a person’s ability to anticipate, envision, maintain flexibility, think strategically and work with others to initiate changes that will create a viable future for the organisation (Ireland, Hitt 1999). It leads the organization on to the path of growth and success, while keeping vision in mind. So to fulfill these, all managers and executives should be well equipped with knowledge and latest technology to formulate and execute the strategies in more effective way. According to Stumpf, Fulmer and Bleak (2009), these changes require the visionary leaders who bring the necessary harmony among the workgroups of organization and changes to implement the directives in the right direction. Leadership goes beyond the management as it has more relevant higher expectations. Very well said by Stumpf and Mullen (1991) that to be successful it’s necessary to think differently how to use the available resources to their optimum utilization, which also provides sense of direction in the right implementation and maintains the balance between focussed analytical perspectives with the human dimension of strategy making. Engaging the managers in deciding strategies and the commitment of the each employee towards effective implementation provide the base to the organization to progress on the path of success. Strategic leadership constitutes the broad thinking about the market and organization in long term and accordingly strategies, and execute plans, placing right person at right place, utilization of resources in more purposeful way, leading from the front in the various core operating domains of organization, adapting new concepts of services, and regulate infrastructure, representing the organization to critical constituencies such as representatives of financial institutions, government agencies, customer interest groups, and labour; and maintaining relationships with these constituencies in more fruitful way with mutual benefits. A transcendent leader is a focussed leader who leads from different fronts according to the needs. Engaging one in these processes helps in acquiring self-belief and develops its personal and mental strengths in different times. It not only helps the leaders but also their followers learn a lot. Environment, strategy, and organization are the different areas but their alignment attributes the organizational leadership in more effective way rather than the simple one. As defined by House & Shamir (1993), charismatic leadership, sometimes used in place of transformational leadership, but most of the authors consider it as a component only with the followers’ faith in the leader as much as to emulate them accordingly. A good example of positive effects that a leader can have on the organisation is that of Karl-Johan Persson, chief executive of H&M, which is his family business. His leadership style is seen as very inspiring by Marcus Ostlundh, who started a media and corporate events company called European Network with Persson. His charisma has had a huge effect on the image of the company. His presence at new product and store launches are widely publicised by the media and it helped in building a healthy brand image for H&M. His successor Rolf Eriksen with his viewpoint of “company's success results from maintaining the right combination between fashion, quality, and price” also was instrumental in company’s rapid growth. Prior to Eriksen, management concentrated on high fashion clothing which resulted in costs going out of control. Eriksen shifted focus to cut costs and buying during season rather than before season which allowed reordering of popular styles and reduction in stocks of slower-moving items. Because of the change in buying strategy, inventories decreased from 14 percent of sales to nine percent. It was under Eriksen that H&M grew its presence in US as a cost effective but high on fashion clothing chain. 3. The Management of Strategic Change: According to Worley, Hitchin, & Ross (1996), strategic changes are time and need specific comprising the things to be changed at the right time and with right directions keeping future and newer approaches in mind. This can be due to the organization’s environment or reduction in organizational performance or may be both accounted for it. Here change management, which is accountable for reasons for changes, its form, and its response, etc., comes into picture. There can be various triggers that account for the necessary changes, including the continuing search for efficiency. This can be of ratio monitoring, conflicts between senior officials within organization, and also conflict between the employees and the organization. These conflicts arise when the employees don’t get the desired response for their contributions. Within the organization it can also be the result of the poor coordination of the Tasks, Technology, People, Structure and Management. Therefore self-assessment of the subgroups needs special attention to subside the changes. Further situation analysis and self-evaluation can play an important role. For the large organization where there are various departments, the need for coordination and internal communication keeps growing. External triggers sometimes play a greater role in change. There are various global marketing factors, recognition issues, demographic factors of location of plants, health and environmental issues that widely affect changes as reflected by ‘PESTLE’ framework like political implications of government, economic factors including exchange rates, global competition, social & demographic conditions, technological aspects like new inventions and development, legal hurdles, environmental implications of legislation, etc. They cannot be ignored. So incremental changes gain in strength at slow pace but are continuous and are highly significant. They may overcome employee resistance while transformational change significantly contributes towards restoring the relationships between organization and its environment. So the most economists suggest that organization should not lose its touch with its marketplace, otherwise there should be the need of more complex and fundamental transformational changes for the survival in global competitive market. Accordingly, Pettigrew & Whipp (1991) demonstrated that strategic changes are not short- terms changes; they, rather, have wide significant range and cover long-term issues. The capability of the organization to keep itself abreast of competitive changes, its adaptation quality on the time accordingly with optimum utilization of resources, and keeping the edges over the competitors in the global market are the key values of organization needed to be adopted to survive in response to changes. The strategic change for H&M was clearly their shift from being a high fashion chain of expensive clothing to one that provides ultimate value for money but being still high on fashion, even if it means compromising on quality. Its in-house designers quickly recognize trends by observing what the other more cavalier, more stylish, and more expensive designers are releasing and act by churning out designs that look very much like theirs. H&M, in spite of being a family-owned business, does not suffer from factors like nepotism, family conflicts, etc. This is so because the structure of H&M is flat with minimum hierarchy. Their stress on market responsiveness, highlighted through earlier example and continuous experimentation, hold them in good stead as a leading clothing retailer. 4. International Strategic Management: International Strategic Management (ISM) has its limits up to the global level which implies the continuous management processes at different times to implement better strategies to sustain itself in the more global competitive environment. So the need arises to develop and implement an international strategy for an organization to fight against its competitors. Various companies have stretched and established themselves up to the global level by being benefited from new technology and free trade agreements between nations. It has created competition between the multinationals and their managers to prove themselves globally competitive. Now in present scenario, it is up to the management how well they can devise their strategies according to global needs and reaps the market benefits ahead of their competitors in global market for long run. Here long vision for the organization comes into existence; the management also have the challenges to decide strategies which should be successful in the long run, while having the opportunities open in wide spectrum. A wide market research is needed to an organization to make itself aware of its services and products to a particular market and segment, their productions and availability of resources, their customers and the adaptability of the organization according to the above-mentioned needs. Learning about the competitors is also one of the important factors. Within the particular industries like pharmaceutical, electronics, software, various organizations have changed and acquired different strategies according to the customers’ need in long term, and benefited to a large extent, whereas a few industries still follow the traditional roots, they did not change according to the demand by market lest they should lose at the other end in long term business scenario. The same strategy has also been adopted by H&M which operates in 40 countries and has 87,000 employees all working to the same philosophy to bring you fashion and quality at the best price. As far as global approach is concerned, according to Ohmae (1989), first there should be global thinking in mind, only after one can think about opportunities overseas. As in the present situation, boundaries between nations have shrunk and newer information technologies have shortened the distance between nations, providing more opportunities. It results in the immediate introduction of goods and services in any corner of the world just in few minutes. Thus global needs lead to global products. The global expansion of H&M began in 1976 with its London store in Oxford Circus. In spite of slowing global economy and reduced consumer spending, H&M continued to grow across Europe and the USA in 2002. H&M's pre-tax income was $833 million in 2002, a 34% increase from that of the previous year, on sales of $5.8 billion. The growth was not just due to expansion; it was achieved though shrewdly tailoring its strategy to fit various markets. In Europe, H&M is more like a department store which sells a range of merchandise from edgy street fashion to casual basics for the whole family. The stores in the USA, however, are designed for younger and more fashion-conscious females. The menswear line, otherwise a strong seller in Europe, was not all that popular among American males. So, a number of the US outlets either cut back the selection or eliminated the line. Now H&M also has a presence in Asian markets. H&M opened retail outlets in Hong Kong in 2007, followed by new stores in mainland China in 2008-09. Sales in China accounted for almost 1% of global sales in 2009. Their first outlet in Beijing coincided with the launch of a new collection in collaboration with the designer Matthew Williamson in order to create more anticipation around the store opening among consumers. H&M’s presence in China is expected to continue expanding rapidly through new store openings, both in existing cities and by entering new cities where it can target the rapidly growing number of middle-class urban consumers. However, with no presence in Latin America unlike C&A and Inditex, H&M could benefit from entering the large markets of Brazil and Mexico where its low prices should help it build a major customer base. 5. Core Competence: Strategic intent, in terms of broader perspective, provides means for helping the organization to attain its vision. It significantly defines the organization’s vision to craft the strategies, enabling the organization achieve its goal in the distant future. The book, “Competing for the future” written by Hamel & Prahalad (1994) define ‘Strategic Intent’ as an ambitious and compelling dream that provides the emotional and intellectual energy for the journey into the future. To achieve the desired goal, the three key factors identified by Hamel & Prahalad (1994) are Sense of Direction, Sense of Discovery, and Sense of Destiny. First, a company must define its future, or in simpler terms how it perceives itself in future for a long term. Hamel and Prahalad (1990) suggest building "the best possible assumption base about the future." It simply indicates the entire management of changes necessary to solve the costumer-based issues in the long run of the organization, thereby including all changes related to product mix, competencies, services and consumer interface. This whole practice of the organization changes put the organization’s vision forward to accomplish; it must contribute to the end consumer’s experienced benefits. Any organization needs to focus on long term future. And to fulfil this vision, a team of dedicated professionals need to take charge and put ahead its strategies to set long-term goals. The resource-based view (RBV) is often used to establish the availability of resources of the organization. The basic principle behind it is that basis for a competitive advantage of a firm lies primarily in the application of the bundle of valuable resources at the firm's disposal. Accordingly, Grant (1991) also prevails that a resource-based view of a firm denotes to deliver edges over competitors by optimum utilization of resources, hence creating global advantages. RBV accounts for the advantages of the particular available resources with unique pattern so that it can provide edges over competitors. Sustainability of such an advantage will be determined by the ability of competitors to imitate such resources. Chaharbaghi and Lynch (1999), raise the issue of the development and modification of the available resources so as to outsmart the global market competition in future. This enables the organization’s engagement in proper management and development of resources. According to Teece, Pisano and Shuen (1997), dynamic capability of the organization attributes the capability to harmonize the internal and external competencies to face the challenges of the global competitive market of future. So, in present scenario the constant need of innovation is arising. The core competency of H&M lies in its brand image of being affordable fashion clothing chain. The strength of its presence in European and the US clothing market together with its ability to be popular among developing countries due to its low pricing are also its major pluses. The primary reason for H&M to be profitable lies in its effective supply chain management and very low inventory costs. In most stores, the inventory is overhauled as many as 8 times in a year. The potential for growth in plus size clothing market, which is substantial in emerging markets, can also be tapped for enhancing profits. Internet retailing being very important in this day and age should also be taken into due consideration by H&M. Their brand image of cheap but fashionable clothes shall be of huge advantage to them in pushing its online sales, even to customers without the access to H&M retail stores in their locality. The five important factors in strategic management do not conflict with one another and work harmoniously for H&M and help it maintain its position as one of the World’s best retail chains offering fashion at an unbeatable price. References: Barr, P. S., Simper, J. L., & Huff, A. S. 1992. Cognitive change, strategic action, and organizational renewal. Strategic Management Journal, 13: 15-36. Beer, M. & Nohria, N. (2000) “Cracking the Code of Change”, Harvard Business Review, May-June, 78, 3: 133-141. Chaharbaghi, K. &Lynch, R. (1999) "Sustainable competitive advantage: towards a dynamic resource-based strategy", Management Decision, Vol. 37 Iss: 1, pp.45 - 50 Eisenhardt, K. and J. Martin, 2000, "Dynamic capabilities: What are they?” Strategic Management Journal, (21), pp.1105-1122. Grant, R.M., (1991), The Resource-Based Theory of Competitive Advantage: Implications for Strategy Formulation. California Management Review; 33(3), pp. 114–135. Hamel, G. & Prahalad, C. K. (1990). “The Core Competence of the Corporation”, May-June, Harvard Business Review, 68, 3: 79-91. Hamel, G. & Prahalad, C. K. (1994).Competing for the Future, Harvard Business School Press. House, R. J., & Shamir, B. (1993). Towards the integration of transformational, charismatic and visionary theories. In M. M. Chemers & R. Ayman (Eds.), Leadership theory and research: Perspectives and directions (pp. 81−107). San Diego, CA: Academic Press. Ireland, R. D. and Hitt, M. A. (1999). Achieving and maintaining strategic competitiveness in the 21st century: The role of strategic leadership. Academy of Management Executive. 13 (1), pp. 63-77. Lamb, R. (1984). Competitive strategic management, Englewood Cliffs, NJ: Prentice-Hall. Ohmae, K (1989), Managing in a Borderless World, Harvard Business Review, May-June, pp. 152-161. Pettigrew, A. & Whipp, R. (1991) Managing Change for Competitive Success, Blackwell. Senge, P. (1990) The Fifth Discipline. The Art and Practice of the Learning Organisation, Doubleday. Stumpf. S. &Mullen, T.(1991). Strategic Leadership: Concepts, skills, style, and process. Journal of Management Development, 10(1), 42-53. Stumpf, S., Fulmer, R.M. &Bleak, J. (2009) "The strategic development of high potential leaders", Strategy & Leadership, Vol. 37 Iss: 3, pp.17 - 22 Teece, D., Pisano, G. &Shuen, A. (1997), "Dynamic Capabilities and Strategic Management.",Strategic Management Journal, 18(7),pp.509-533 Worley, C., Hitchin, D. & Ross, W. (1996). Integrated Strategic Change. MA: Addison-Wesley Publishing Company. Read More