Zara’s Organizational Culture and Structure PDF

Preview

Summary

Organisational Culture Assignment...

Description

RUNNING HEAD: Zara’s Organizational Culture and Structure

Zara’s Organizational Culture and Structure: A Spanish Success Story

Theories and Models of Organization OTMT 608.04 Masters in Global Business

Executive Summary Spain is an incredible country that offers its people and tourists a variety of lively experiences. Compared to the United States, Spain tends to be slow, relationship based, and manages their workforce differently—however Zara, a clothing and accessories retail store, tends to function more like an American company and has become a huge success for it’s founder and the fashion industry. By creating a centralized strategy that focuses on speed and responsiveness to consumers and their buying habits, instead of cost of supplies and production, Zara has been able to beat many other companies in the clothing retail industry and change the industry to focus more on “fast fashion.” They have thought everything out, as they built all their production facilities, headquarters, and distribution center in the same vicinity in Spain. This structure is set up in a way that allows everyone to work closely together to constantly get feedback from customers, stores, managers, designers, and planners, and keep satisfying everyone involved. Inditex, Zara’s parent company, has a functional structure, however the Zara brand has a hybrid structure, which allows everything to flow smoothly and quickly up and down the ladder. By providing their employees with training, benefits, and career development opportunities, Zara is able to keep their employees happy, which keeps their customers happy. Inditex also makes sure everything from the supply chain to the individual store and employee logistics comply with the company’s code of conduct which is based on their values in regards to taking care of the environment and its inhabitants. They have changed the way the fashion industry works and have grown at an incredible pace, spreading all over the world and being successful with zero advertising. Zara truly is a Spanish success story.

2

The Beauty of Spain As a country that prides itself in history, art, architecture, and cultural staples, Spain has become one of the most touristic places in the world. Although most tourists visit the two major cities in Spain: Madrid and Barcelona, the country is split into fifteen different regions, which have their own history, language and culture. Even though the Spanish live differently in each region, Spain as a whole has some traditions and cultural staples that are common amongst the majority of the country.

Spanish Culture is Different than in the United States Although Spain’s lifestyle differs within itself, the country and people as a whole are generally known for being very relaxed and laid back. As a high-context country (Appendix A), the Spanish focus a lot on living life, building relations with people, and enjoying the moment instead of planning the future. This can be shown through their knack for delicious food, their artwork, music, dances, sports, holidays, festivals, and siestas—the midday nap—which extends a lot longer than the typical lunch hour in the United States [ CITATION Dav \l 1033 ]. Overall, Spain has a different concept of time than the United States does. In the U.S. “time is money.” “For an American, time is truly money. In a profit-oriented society, time is a precious, even scarce, commodity” [ CITATION Lew14 \l 1033 ]. Americans are very individualistic and are always thinking about the next steps ahead of them instead of just focusing on the present and building long-lasting relationships before going into business. In the U.S., “If you’re early, you’re on time. If you’re on time, you’re late.” The

3

fast-paced lifestyle in the U.S. with constant appointments, schedules, and plans, is just not the way the Spanish live. Spaniards live in the present, on their own time, and “slowly” (as most Westerners would say). “As far as meetings are concerned, it is better not to turn up strictly on time for Spanish appointments. In Spain, punctuality messes up schedules…” [ CITATION Lew14 \l 1033 ]. With a different perception of time, life, and priorities, Spain functions differently than the U.S., Germany, or Switzerland, to name a few. Although Spain works differently than other countries do, specifically the U.S., there are some major companies that have made their way around the world and been extremely profitable, such as Banco Santander, Telefónica, and Zara.

Zara: A Spanish Success Story Founded in A Coruña, the Galician region of Spain, by Amancio Ortega in 1975, Zara has grown to be a Spanish—and global—success story. The retail store focuses on clothing and accessories that mimic the styles of high-end fashion lines, and sells the products at more reasonable prices. With great success in Spain, Zara inspired Ortega and his wife Rosalia Mera to found Inditex—which would become Zara’s parent company— and the parent company for seven other Spanish clothing brands, with Zara being the most well known around the world.

Zara’s Strategy is a Hit Zara itself grew and quickly expanded globally, beginning expansion in Portugal in 1988 and reaching over 2,000 stores in 88 countries in 27 years[ CITATION Ind15 \l

4

1033 ]. They introduced the world to fast fashion through their design, production, and distribution strategy that allows fashionistas to update their wardrobes biweekly. By producing most products in Spain and only outsourcing to neighboring countries such as Portugal, Morocco, and Turkey, Zara is able to have quick production turnover, which gets new products to each store every two weeks (Berfield and Baigorri, 2013). Zara was built on the idea that cost is less important than speed and responsiveness. If the company were to outsource their production to Asia, it would not be possible for stores to have new merchandise every two weeks—which is why Zara designs and produces its clothing in-house or nearby, with their headquarters, eleven Spanish factories, and distribution center, all in the same vicinity in Arteixo, a small Galician town in Spain.

Centralized Distribution When clothes have gone through the production process, they are sent to the distribution center (regardless of where they are produced) in order to be inspected and sorted. In Galicia, there is an underground monorail that transports all items produced in the eleven Spanish factories to the distribution center, which makes it a faster and easier process and allows Zara to maintain its strategy (Berfield and Baigorri, 2013). This strategy allows Zara to design and sell 104 seasons worth of clothing, instead of the normal four seasons every other retailer and clothing company sells for (Hungry Beast, 2011). Being able to sell more clothes quickly, allows Zara to beat its production costs that are higher due to the majority of their production being in Spain. “Inditex’s success is based upon its refined and fast supply chain responsible for providing its eight

5

retail formats with a high turnover of fashionable clothing and accessories at affordable prices and in low quantities. Through this process, Inditex avoids large inventory and risk, and promotes frequent buying” (Vincent, Kantor, and Geller, 2013). With zero advertising, a loyal customer base, quick product turnover, and local management and production sites, Zara ranked the World’s 58th Most Valuable Brand in 2015 (Forbes). Zara, along with the other seven clothing brands run by Inditex, has made Amancio Ortega one of the richest people in the world—he even briefly passed Bill Gates as the richest man in the world in October of 2015 (Alexander, 2015).

Organizational Structure: Easy Flow of Communication In its headquarters, Ortega has an office where he can oversee the entire process and interact with the designers, planners, and buyers. Having all of the main buildings and people involved in the clothing process nearby allows the company to communicate fluidly and quickly. Each store keeps track of what is bought as well as what is tried on and not bought, and that information is sent to the Spanish headquarters daily in order to understand consumer buying habits and trends that are coming in or dying out (Ruddick, 2014), which allows designers to “make changes to the initial collection based on demand” (Inditex). The individual store managers also place orders to headquarters twice a week, which is then worked on by the commercial team and the in-house designers to send the appropriate amount of each product. “Zara’s reverse-knowledge setup also allows for both explicit and tacit knowledge to be exchanged from the foreign units, back through the home office and then back out to the foreign units” (Bhardwaja, Eickmanb, and Runyan, 2010). Zara is able to have horizontal differentiation where there is an easy

6

flow of communication between stores, headquarters, the designers, buyers, and logistics teams, in order to vary products based on consumer’s preferences in different global regions. The flow of communication is crucial for Zara and has led to their success in the industry.

Organizational Structure As the parent company, Inditex has a multidivisional organizational structure where it gives each brand a significant amount of autonomy. At the top of the company, it holds a very functional type setting where everyone reports to the vice president who then reports to the president. There are some function heads that deport directly to the president such as CSR and the internal auditor, and there are some departments that report directly to the vice president, such as finance and administration, however these functional departments do not deal with the eight individual brands. Going down the ladder however, the structure shifts a bit, which provides the eight individual brands with some common support from the logistics and expansion team (as shown in Appendix B). The Zara brand itself has a hybrid structure (Appendix C), as employees report to store managers who report to the region manager who reports to the head of Zara, and within this structure Zara is divided into three different divisions: Women, Men, and Children. Each of these segments has different products, which are designed and selected by the designers and heads of those departments, and the stores are also separated into these three divisions leading to three store managers per store. However, all three divisions share some overhead resources within the Zara brand such as logistics, distribution, and accounting.

7

Within each store, Zara has a store manager who is responsible for communicating with headquarters and the employees at that store. The employees are also divided into their appropriate roles and departments in order to execute a smooth customer experience and communicate with the store manager regarding concerns, product placement, customer preferences, etc. These individual stores also have a level of autonomy in order to make the store managers feel like they are store owners—which is incentivized through commission based salaries.

Zara Takes Care of its Employees Zara does a good job taking care of its employees as well. In order to get the employee up to their standards however, human resources first provide them with training. “Training is crucial to Inditex's business which is based on a model that calls for continual innovation and teamwork. Our employees' training programmes are tailored to the needs of each and every one of our professionals. However, they all share a common denominator: everyone that works for the Group has to spend a certain amount of time training in-store, regardless of the position have been hired into” (Inditex). This type of training allows the employees to understand what goes on in the store, how customers interact with the store and the rest of the employees, as well as to understand why their job or position would benefit the company and how working for the company will benefit them. Employees feel like they are a part of the company and the community as their opinions and observations are important and encouraged in order to help better the brand. After training, employees are given various benefits such as health care (for fulltime employees), a 15% of discount (which many don’t believe is enough), and an annual

8

trip where the employees from certain regions can get together outside of work. Human resources also has its designers attend fashion fairs and exhibitions in order for them to get ideas for what is “in” in the fashion world and what will be the “next big thing.” Zara also provides their employees with career development options through the idea of promoting within the company “Internal promotion is no mere policy at Inditex: it is the only way the Group could have grown from 60,000 employees in 2005 to over 140,000 today. This growth was possible because we always rely on our own teams to drive the Group’s expansion” (Inditex). Working for Inditex in general, can allow employees from Zara to change their placement to another one of the seven brands under the parent company. Zara employees can also be happy because they work for a company that is considered up-to-date on social issues, such as being socially responsible, being environmentally friendly, and not participating in animal abuse or forced human labor. Inditex also provides training to employees and management who directly deal and work with the supply chain, in order to make sure they understand human trafficking and slavery and know how to respond if they run into situations that go against the company’s values.

Zara Cares About the World and Their Image Although Zara is in a fast-changing industry where it competes with various other companies in order to stay ahead, they like to differentiate themselves through their corporate social responsibility (CSR). There are a variety of factors that affects Zara’s

9

position in the industry, however one of the most important environmental sectors to them, is their raw materials sector. Over 50% of Inditex/Zara’s production occurs in Spain, however they receive raw materials from different locations in order to have a variety of textiles and materials. While receiving raw materials from various sources, they believe in taking care of the Earth, its animals, and its people—which means they want their suppliers to be aligned in the same values as the company. “All of the Group’s suppliers are bound by the social and environmental responsibility values that define Inditex and are enshrined in our Code of Conduct for Manufactures and Suppliers” (Inditex). In order to make sure their suppliers are complying with the code of conduct, Inditex has to implement some continual scanning practices. Inditex conducts audits of suppliers and outside production locations to make sure they are complying with the values the company cares about and their code of conduct regarding animal abuse and forced human labor or trafficking or slavery. “The audits are performed mainly by independent certified external auditors and also by internal auditors, without prior notification of the date the visit is to be performed” (Inditex). The audits include interviews with managers and employees, reviewing documents such as payroll pay, hours, and licenses, visiting and checking the quality of the facilities, measuring pollution and emissions, and creating an action plan to correct any incompliance. This type of audit allows Inditex to gauge their suppliers’ actions and make sure their supply chain stays congruent with the company itself.

10

Zara Does Well by it’s Employees, Customers, and the World All in all, Zara is a huge success story for Amancio Ortega, Rosalía Mera, the fashion industry, and Spain. Although Spain tends to be a more relaxed country, Zara changed the way things work, and incorporated speed into their strategy, which has helped them differentiate themselves from other Spanish companies, as well as from other companies in the fashion industry. By taking care of its employees, providing their customers with reasonably priced high-fashion items, and making sure the environment is also being taken care of, Zara has changed the way things work and has done a remarkable job.

11

Appendix A Low Context (United States) vs. High Context (Spain)

12

Appendix B

13

Inditex’s Organizational Structure

14

Appendix C Zara’s Organizational Structure 15

Works Cited

16

Alexander, D. (2015, Oct. 23). Amancio Ortega Briefly Passes Bill Gates To Become World's Richest Man. Retrieved Nov. 28, 2015, from Forbes: http://www.forbes.com/sites/danalexander/2015/10/23/amancio-ortega-brieflypasses-bill-gates-to-become-worlds-richest-man/ Baigorri, S. B. (2013, Nov. 14). Zara's Fast-Fashion Edge. Retrieved Nov. 28, 2015, from Bloomberg Business: http://www.bloomberg.com/bw/articles/2013-11-14/2014outlook-zaras-fashion-supply-chain-edge Forbes. (n.d.). The World's Most Valuable Brands: #58 Zara. Retrieved Nov. 28, 2015, from Forbes: http://www.forbes.com/companies/zara/ Hungry Beast. (2011, June 01). Zara Masters the Art of Retail | The Beast Files. Video. Retrieved Nov. 28, 2015 from https://www.youtube.com/watch?v=qhCM0F81vEg Inditex. (n.d.). Our History. Retrieved Nov. 28, 2015, from Inditex: https://www.inditex.com/en/our_group/our_history Jessica Vincent, P. K. (2013). Inditex Strategy Report. Bridges Consulting. Retrieved Nov. 28, 2015 from http://economicsfiles.pomona.edu/jlikens/SeniorSeminars/Likens2013/reports/inditex.pdf Lewis, R. (2014). How Different Cultures Understand Time. Business Insider. Retrieved Nov. 28, 2015 from http://www.businessinsider.com/how-different-cultures-understandtime-2014-5 Ruddick, G. (2014, Oct. 20). How Zara became the world's biggest fashion retailer. Retrieved Nov. 28, 2015, from Telegraph: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/11172562/Ho w-Inditex-became-the-worlds-biggest-fashion-retailer.html Thyberg, D. (n.d.). Spain & It's Culture. Retrieved Nov. 28, 2015 from http://traveltips.usatoday.com/spain-its-culture-14448.html

17...