H&M Organizational Strategy - Case Study Example

H&M organizational strategy Introduction Currently, the world is changing fast because it is experiencingtechnological developments, expanding markets, mergers, and acquisitions. All these changes coupled with new philosophies and government legislations are exerting pressure on firms to change and stay dynamic (Rudolph, 2008). H&M is a multi-billion Sweden company dealing in designing and retailing of fashion apparel and accessories. H&M offers their customers a wide range of products including apparels, footwear, and cosmetics for men, women, children, and teenagers. It is headquartered in Stockholm, Sweden. The history of H&M is traceable to 1947 when ErlingPersson started the company under the name of Hennes&Mauritz. In spite of the 2008 financial crisis, H&M still did very well through its effective strategy. The data and information in this paper has been derived from company’s profiles and statistics, consumer data, and trade data. These are then complimented by information from the books, journals, business databases, blog posts, websites, and encyclopedia articles. Background of the Company Historical Background ErlingPersson started H&M Company. Persson formerly worked as a salesman in Sweden, and he was driven to start this company by his fascination with the America’s classic apparels specifically from Barneys and Mack. Persson came to United States after the Second World War. Persson opened his first store called Hennes which means ‘hers’ in Swedish. Originally, the Company sold women’s clothing only (International Directory of Company Histories, 1999). Hennes was started in 1947 in Vasteras, Sweden and later in 1968, Hennes acquired a men’s sportswear company called MauritzWidforss. After the acquisition of MauritzWidfoss, the Company was renamed ‘Hennes&Mauritz’ hence the abbreviations H&M. The Company later opened stores in Norway in 1964 and Denmark in 1967. In 1970, H&M introduced a children’s clothing line and later in 1978, it became an all-family clothing shop. The strategy to expand its clothing line made H&M successful such that by 1976, it had entered the British market and by 1990’s it has numerous outlets all around Europe, and they were all doing good. In this period, H&M became the leading retail store and the fifth largest company in Sweden. In 1994, H&M recorded SKr 13.5 billion in sales, with 70 percent coming from Sweden and 30 percent from their international venture. After establishing its brand in Europe successfully, H&M entered the United States apparel market in 2000 (International Directory of Company Histories, 1999). Current Status Currently, H&M operates 3,500 stores in 55 countries. H&M has an employee base of 116,000 people. H&M is ranked as the second largest clothing retailer in the world after Spain-based Inditex, which is a parent company of Zara. H7M’s company mission is “to offer fashion and quality at the best price”. According to H&M (2007), their mission is easily accomplished by eliminating middlemen, doing high-volume purchasing, purchasing of right products from the right market, ensuring that there is efficient distribution of products, and being cost-conscious at every stage. The best place to start in H&M’s organizational strategy is with the customer perspective; its competitive stance since these defines the crucial aspects of the company’s strategy. People go to H&M for affordable and fashionable apparels in an attractive funky retail setting. The key elements that are measured relate to price, to the extent to which the offer is fresh and up-to-date. The value chain is also important in delivering benefits to the customers. H&M value chain H&M has a history of being a company that has developed in an environment characterized by very few factor advantages because of its product design location. According to Haberberg&Rieple (2013), H&M carries out its design works in its head office in Sweden. Clothes design has not traditionally been one of the Sweden’s sources of national competitive advantage. One would have expected such a large multi-national to have its design office in cities such as Milan or Paris. However, H&M seems to have realized that there are some unique benefits that accrue to its decision to design its products in Sweden. The Scandinavian countries are popular with their strong logistics and transportation industry. Secondly, Sweden is well known for its national culture of internationalizing. According to Erez&Earley (1993), the national culture reflects the core values that represent peripheral values and beliefs of individuals. Hofstede’s model of national culture is important in analyzing the organizational strategy of H&M. According to Hofstede’s model (1980), national cultures differ by four dimensions. They include power distance, uncertainty avoidance, individualism-collectivism, and masculinity-Femininity (Hofstede, 1980). Judged based on Hofstede’s dimension, Sweden rates high on individualism, low on uncertainty avoidance and masculinity. This has been associated with organizational cultures and employment practices that favor relationship-building and cooperation, resulting in an ability to handle complex matrix organizational structures with dual bosses and numerous lateral relationships. These lateral competencies are evident in H&M’s case, and they are associated with successful internationalization. Buying and Production H&M does not produce its raw materials because it does not have its factories. It outsources all production. The Company sources its raw materials from its network of external suppliers. It has over 700 independent suppliers who are located in Europe and Asia and other production offices. The Company has 22 production offices located all over the world. The personnel in the production offices is usually selected locally in order to mediate between the buying department and external suppliers. The production offices were established to eliminate the miscommunications that used to appear where differences occurred between designers’ suggestions and final products. H&M has a specific procedure that it follows when ordering a new product. According to H&M (2011), the suppliers have their subcontractors who make the overall amount of manufacturer units to reach 2,700. Corporate Management and Culture H&M’s management board is located in its head office in Stockholm. The second level management includes the department heads for design and buying, accounts, finance, interior design and display, communication, logistics, IT, security, IR, HR, advertising, expansion, and Corporate Social Responsibility. H&M’s organizational culture resembles a global corporation’s typical culture. H&M treats the entire world as one market. The strategies of H&M are similar in all countries of operation. When implementing its strategies, it does not favor any specific country. Its products are offered in multiple segments. Due to its wide operation, the Company is required to have enough resources to cover a broad selection of markets (Czinkota,Ronkainen, I. & Moffett, 1999). H&M Strategy H&M has developed its strategy well which has made it one of the global leaders in the apparel industry. Its management has in place a comprehensive strategy, carefully formulated aimed at enabling the Company to achieve its mission. A company’s strategy is usually divided into corporate strategy, business strategy, and functional strategy. The main focus of H&M’s strategy is to offer low priced products and differentiation. Its supply chain is based on ‘Just in Time’ management system. The delivery time of H&M products ranges from 2 weeks to six months depending on the complexity of producing a product. According to H&M (2009), the company also saves costs by having a production outlet in China where the company has established partnerships with cheap suppliers that produce fast and cheap. Key Stakeholder High asset utilization Perspective High-profit margins Revenue Growth Customer Affordability Fashionability Store perspective attractiveness Supply chain Design Property portfolio management process management Internal Processes Information Management Architecture of partnerships Learning Information Motivation Key skills And growth databases Figure 1. A possible strategy map for H&M Corporate Strategy According to Wheelen& Hunger (2006), the corporate strategy is the direction taken by the organization in order to realize success in the long term. H&M has established its growth strategy based on covering the market at a fast pace by opening new stores outlets every week. This may be explained by its rapid growth from 1,500 stores in 2009 to 3,500 stores that are currently operational. It is crucial for a business to track its international development as well as the position of the organization to ensure that it maintains its long-term competitive advantage (Wheelen& Hunger, 2006). The company produces new apparels and accessories from time to time to ensure that customers will find something unique every time they visit H&M stores. Business Strategy Business strategy may be defined as the company’s attitude to react to its competitors. H&M’s competitive strategy is very aggressive as it does not cooperate with other companies. Rather, it maintains its competitive advantage by lowering the prices of its products as it has been observed. In 2010, H&M recorded a turnover of 12 billion Euros. It targets a growth rate of 10-15 percent for newly established stores every year. International Strategy Due to the domestic size of the Swedish market, H&M has to expand internationally if it wants to grow, and Swedish environment is known for offering good access to the international market by offering relevant and reliable information. In its international expansion strategy, H&M establishes the market characteristics of its customers in all countries. According to Dawson (2007), when a company ventures into a foreign market, it must pay attention to that particular market’s characteristics. H&M tracks the culture of the market that it operates in and the people’s consuming behaviors. Before it enters a foreign market, H&M collects all the relevant information regarding the people purchasing power and consuming behaviors. For instance, when H&M was opening an outlet in Shanghai, it collected the information and established that most of the people in China have the same level of purchasing power as in Europe. It also established that the region is fast developing (Facts about H&M, 2007). Strategic Management of International Franchises Strategic management is critical to international expansion of H&M. There is a great need for H&M to keep track of its increasingly diversified operations. The international business environment has a tendency of changing from time to time. The recent trend shows that FDI has outgrown trade across the world. This development requires organizations to coordinate and integrate diverse operations with a united goal. The objective of H&M is to offer high-quality products to its customers at a low price. According to Kleindl (2006), international retailers must control their global brand image when they franchise their business. Failure by H&M international retailers to maintain store and product quality can hurt the image of the larger store franchise. H&M’s management should use world leadership in efficient logistics systems in order to eliminate excess inventory and increase sales. Large sales volumes can enable H&M to increase its profits and expand its growth within a short period. After duration of time, H&M will manage to roll back prices due to the efficiencies it might gain in distribution and purchasing. Since many apparel competitors are capable of providing low-cost, high-quality apparel manufacturing, H&M needs to move ahead in terms of quality in order to maintain its competitiveness eve as it ventures in the international apparel market. Therefore, it is important that it supplies only appropriate quality and control all cost to increase profit. According to Rosenau& Wilson (2014), the most important factor in the survival of all apparel companies irrespective of their positions in the market is to maintain and enhance their reputation for high-quality products and value for money. H&M has built its reputation over the years. The management has to establish strict standards and ensure that it maintains and improves these standards. It should conduct a day-to-day monitoring of its international franchises to ensure that every employee in these outlets adheres to these standards. Currently, consumers are very keen on the quality of the brand (Rosenau & Wilson, 2014). Competition is also high in terms of number of brands. The winning strategy for H&M will be communicating these standards both verbally and in written form. SWOT Analysis According to Jobber (1995), SWOT analysis is the analysis of an organization’s advantages, shortcomings, favorable factors and club externals. It is the tool that the management uses to measure its weaknesses and mitigate them with its strengths. SWOT analysis helps the organization to understand itself better and make proper organizational strategies for future. This paper presents the SWOT analysis for H&M in order to establish the basis for laying future strategic plans. The SWOT has been prepared based on the information and data from annual reports and official website. The strengths and weaknesses originate from inside the organization while the opportunities and threats originate from the external environment. In terms of strategic analysis, SWOT analysis is the most important tool. Strengths Strong brand image Low Prices Leader in the global market (2nd) Celebrity endorsement Strong presence in multiple markets Price does not affect the quality Strong social media presence Throw-away fashion Company website and blog Opportunities Possible new upcoming markets in Asia Online marketing (social media) Mobile Marketing Increased word-of-mouth in both male and female audiences Promote current sustainability practices Weaknesses Poor customer service Lack of consistence due to a variety of suppliers and manufacturers Brand awareness of individual apparel brands sold in stores Threats Secondary competitors such as Charlotte Rouse and Express Primary competitors such as Zara, Topshop, Forever 21 and Urban Outfitters. According to Alatalo (2011), H&M has a cost saving management that allows it to offer very competitive prices to its customers. Marketing Mix 1. Product H&M business concept is to offer quality products at the best prices possible. It produces products that are environmentally and socially sustainable with their products having the label of their country of origin. Prints on H&M’s products do not cause racial, sexual, political or religious offense. Product Designing Before 1980, H&M was sourcing most of its products from Asian countries and then re-sold them in its stores. The Company established its design team in 1987. Currently, H&M has more than 100 internal designers based in H&M’s headquarters in Sweden. These designers oversee all design works in the company. The design work is done in consideration of fashion, price, and quality. The products are produced according to the demands of the customers. According to the design director Margareta van den Bosch “if it’s too complicated on a hanger and if it’s too avant-garde, maybe it’s not us. You can have everything, but you have to think about the right quantities” (H&M, 2009). H&M’s team of designers is drawn from Europe, America, and Africa in order to capture the requirements of the customers in every market. The designers track the fashion industry, college fashion, media and film fashion, and street fashion (ICFAI, 2008). Every concept has its team of designers, pattern makers, buyers, assistants, and controllers. In addition to its designers, the company also uses the skills of top designers such as Karl Lagerfeld, Madonna, and Stella McCartney. Most recently, the company developed an interior design collection (H&M, 2011). 2. Price H&M’s price strategy is designed on the basis of their customers’ requirements – low prices and high-quality. Maintaining low prices while providing high quality products represents one of the biggest challenges for H&M. H&M manages this by outsourcing the production to countries where labor and prices are low and also by conducting strict cost control plans. 3. Place Currently, H&M operates 3,500 stores in 55 countries. Its stores are located in prime locations with high concentrations of visitors. According to H&M (2014), its inventory refreshed every day. Stores receive direct command for correct adjustment in its 3,500 stores. H&M has also launched online sales in several areas. Well-known fashion retailers are highly advantaged to attract a wide range of customers. H&M has taken advantage of their well-known image to launch its products in the online apparel market. This step is intended to capture online customers who may not manage to access the physical stores. H&M distributes its products through its stores which are complimented by online shopping and catalogs. However, in 2006, H&M cooperated with franchise Alshaya in its expansion strategy and also to allow easy distribution of its products to the Middle East. The main reason H&M decided to franchise is because it is not possible to operate wholly-owned subsidiaries in the Middle East. This was an exceptional case because H&M does not use franchising as one of its expansion strategies. H&M mainly expands through organic growth, financing its new market entry with its cash reserves. Through its distribution channels, the company has realized fast and profitable growth. In addition to its stores, H&M provides internet shopping and catalog sales in Sweden, Finland, Norway, Germany, Netherlands, and Austria (H&M, 2011). 4. Promotion H&M’s highest target is young women who seek for fashionable clothes that are lowly priced. H&M has a multi-channel promotion strategy that includes sales promotion, advertising, and internet promotion. This promotional strategy increases its exposure to the wider market. Other promotional outlets include websites, blogs, and magazines among others. H&M’s promotional materials have two features namely; fashionable style of posters and price tag attachment on every item. A simple look at H&M website will reveal that the price is placed in a strategic position. This is different from the way its competitors place their prices. H&M competitors place their prices online but their price tags are small compared to those of H&M. Recommendations It is recommended that H&M strategic plan should involve providing the correct blend of price and financing to a properly recognized market segment. H&M should place more emphasis on the outlets that look promising. The company should, therefore, scan the broader external environment of its target market. The management should exert total control in distribution and logistics if it intends to continue offering low-priced products to it existing and potential customers. H&M should also have knowledge of transportation of products from its designing stores to the retail outlets. To realize utmost success, it is recommended that H&M ensure that quality standards not only apply solely to the products but also throughout the organization. This includes human resources professionals, product development teams, and all other levels in the organization. Finally, the key to that survival and prosperity is the rigorous maintenance of these standards. Strict standards and close monitoring will keep H&M at the top of the game and the forefront of the marketplace. The executive management of H&M should ensure that it strictly maintains these standards by monitoring every employee within the Company’s outlets. Greater emphasis should be paid to the quality standards of product designs, raw materials, and designing principles in order to ensure that the products are commercial and maintain the reputation of the brand. H&M should also seek to enhance differentiation and improving the uniqueness of its brands and activities through the use of technology. Technology can be used in monitoring the market as well as operations within the international franchises. Technology will be the major enabler and it will ease the work of the management. References Czinkota, R., Ronkainen, I. & Moffett, M. (1999).International Business. Orlando: Harcourt Brace & Company. Dawson, J., (2007). Scoping and conceptualizing retailer internationalization. Journal of Economic Geography.Vol.7(4). pp.373-397. Erez, M. and Earley, P. (1993).Culture, self-identity, and work. New York: Oxford University Press. Haberberg, A. &Rieple, A. (2013).Strategic Management: Theory and Application. Oxford: Oxford University Press. Hitt, M., Ireland, D., &Hoskisson, R. (2005).Strategic Management: Concepts: Competitiveness and Globalization. South-Western: Cengage Learning H&M (2008). Annual Report 2007, [online], H&M. Retrieved from http://www.eyemagonline.net/core/main.php?PROJECTNR=100081&SITEID=13fb8 H&M (2009). (online) Annual Report. Retrieved fromhttp://about.hm.com/us/annualreportarchive.ahtml H&M (2010). About H&M. Retrieved from http://about.hm.com/us/abouthm__abouthm.nhtml H&M (2011).Annual Report. Retrieved from http://about.hm.com/us/annualreportarchive.ahtml H&M (2014).Annual Report. Retrieved from http://about.hm.com/us/abouthm__abouthm.nhtml Hofstede, G. (1980). Cultures Consequences: International Differences in Work-Related Values. Beverly Hills: Sage. ICFAI Center for Management Research (2008), H&M’s Supply Chain Management Practices.ICMR Case Collection. Retrieved from http://www.icmrindia.org/casestudies/catalogue/Operations/OPER066.htm International Directory of Company Histories. (1999). Hennes&Mauritz AB. Retrieved from fundinguniverse: http://www.fundinguniverse.com/company-histories/Hennes-amp;Mauritz-AB-Company History.html Jobber, D. (1995).Principles and Practice of Marketing. Berkshire: McGraw-Hall. Kleindl, B. (2006). International Marketing. Mason: Cengage Learning. Rosenau, J. & Wilson, D. (2014).Apparel Merchandising: The Line Starts Here. New York: Bloomsbury Publishing Inc. Rudolph, P. (2008). Strategic Analysis: Deutsche Bank. Norderstedt: GRIN Verlag. Wheelen, T. & Hunger, D. (2006).Strategic Management and Business Policy. Bloomberg: Cram101 Incorporated Read More