Zegna-Case-Study - Case study for Advanced Entreprenuership PDF

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Biljana Pendovska, Filemon Jankuloski, Ana Mucheva and Teodora Atanasova Advanced Entrepreneurship and Family Business Professors: Luca Gnan and Marjan Bojadjiev Assistants: Giulia Flamini and Ivona Mileva 22.06.2020 Case study: Zegna Group

1. What is the cultural configuration of the Zegna firm? Zegna is a business which began under the control of Angelo Zegna. As a child, he witnessed both wonderful and horrendous things, such as the births and deaths of people around him. These events opened his eyes to the hardships of existing in such an impoverished, rural area. Being in the presence of such events and in such an environment as a child, Angelo felt that a humanitarian approach towards leadership was absolutely necessary in building a successful entrepreneurship and he transferred this feeling to his son Ermenegildo. Angelo, born in 1924, and Aldo, born in 1920, both joined their father Ermenegildo’s business early on. As children, they spent each day after school and at least half of each school holiday working in the factory. Ermenegildo had a strong desire for his children to share his love for wool and fabrics, such as to carry on his legacy. He also had a strong desire for them to learn English, French, and German, as well as travel the world to gain some experience. He was a strict, but authoritarian man. So long as his children obeyed his rules, he allowed for them to enjoy some free time as well. Ermenegildo’s style of parenting became the foundation and basis in which the company would function and accept transgenerational family members into the business. When Ermenegildo’s children, Angelo and Aldo, had children of their own, they also knew that they needed to follow rules laid out by Ermenegildo in order to be integrated into the business. Zegna is built successfully based on the traditions and values previously aforementioned. These values may be redefined from generation to generation, however, in order to be able to adapt to changing times. The cultural configuration of Zegna is found within the values which are passed to children, and it is the duty of these same children, to pass the values onto later generations in order to preserve Ermenegildo Zegna’s legacy. 2. How do they score on innovation metrics? Zegna scores high on the innovation metrics. The family firm was innovating as soon as its conception, using English spinning machines to create some of Northern Italy’s first high quality textiles in 1930. Compared to the typically harsh conditions of factories, Zegna’s factories were light and airy. Zegna created suitable working conditions for its workers, which demonstrated the importance of the wellbeing of the workers to Zegna. Zegna also showed a lot of compassion and support to its community in several different ways. In 1932, Ermenegildo started a project called the Panoramica Zegna, a beautiful scenic road which connected villages together. Ermenegildo also had hospitals, sports facilities, and schools built in Trivero. In the third generation, Zegna started to focus on the production and sale of suits. Aldo and Angelo, the sons of Ermenegildo, were creating high quality suits industrially so that they could be accessed by the broader Italian population. This generation also introduced custom measured suits. Zegna’s innovation is displayed through the way they incorporate and take into the consideration the emotions and wellbeing of their workers, customers, and community into their business.

3. How does the Zegna family business model evolve across generations? It started as a small manufacturing plant by Angelo Zegna, who represents the first generation of leadership. The second generation came with Ermenegildo Zegna, who changed the way of working and leadership to a more humane approach. He wanted to be better than the English competitors so he started producing high quality textiles and created a trade mark which was unusual for this industry and supplied designers and private customers with fine fabrics. After employing 1000 workers, the company grew into Ermenegildo and sons. He invested into an environmental project which later on will be expanded into soft tourism. He continued to offer a flexible order and delivery conditions based on the actual fabric requirement to suit. In 1955, they expanded and employed 1400 workers. They concentrated on modernizing the manufacturing plants. The sons, Aldo and Angelo, as the third generation of leaders, expanded the business to production of custom made suits on industrial bases. The goal was to make these suits more accessible to people because it became more common to wear suits at the workplace. They created Zegna Confection. After this followed expansion and risk diversification strategy. They expanded to Spain with instant success and later on to Greece, which was a failure. Because of strikes and an unstable economy they opened a plant for men’s suits in the southern part of the Canton of Ticino and started making made to measure men’s suits which were an expensive luxury. After then, together with the fourth generation, they started manufacturing a lot of different products and expanded into retailing and opened the first retail store in Paris. The board of the company is made up of Angelo, three members of the fourth generation, and the trusted outsider Marco Vitale. The co-CEOs state that they are running the business as if it were a public corporation. Today, the fourth generation of leadership is consisted of cousins Gildo and Paolo who are faced with new challenges. They are expanding the business in several fronts and are pursuing a joint venture with Armani. 4. Which growth options have they been pursuing? After Ermenegildo Zegna took over the business, the company started producing high quality textiles which were applied to fine fabrics used by designers and private customers. Also, because Ermenegildo was such an ecologist and believed that everyone should give something back to society, he invested into hospitals, hotels, sports facilities and so on, which will later be even more expanded by the fourth generation. They built another road in Trivero and they promote environmental education and sport and soft tourism. Ermenegildo Zegna fabrics were imported in the USA and they sold them to migrated Italian tailors and they were the first branded product advertised on Italian trains. Before the death of Ermenegildo, the firm was a manufacturer of fabrics for men’s clothing, but because the tailors of men’s suits disappeared after a while, the third generation of leadership expanded their business activities into confection of readymade suits on an industrial base and launched Zegna Confection. They launched their first foreign plant for readymade suits in Spain. After opening the plants for men’s suits in Canton of Ticino, the next step was building on their expertise in ready-to-wear men’s suits they now also offered made-to-measure men’s suits because even the best manufactured ready to wear suit never reaches the perfections of something perfectly adapted to your body shape. The price wasn’t much different than that one of the ready to wear suits. After opening manufacturing plants in Italy, Spain, Switzerland, Mexico and Turkey, they manufactured different products like cover fabrics, suits, ties, knitwear, shirts, accessories and sportswear. After this, they moved to retailing and opened their first fully owned retail store in Paris. The current expansion is on several fronts, like softer sports line in the USA (Zegna sport), expansion in the market for women's clothing and a joint venture with Armani.

5. Assess the interactions of the family within this family firm? The founder of the company, the first Angelo Zegna, was aware that the firm needs to be left in the hands of his son and therefore he communicated the importance of the business to his son along with the entrepreneurial spirit. Ermenegildo built on this, became very growth-oriented and entrepreneurial and he passed this culture to his sons. Aldo and Angelo were groomed to become the natural successors of the company and their father communicated with them the company culture, the zest for further growing the business and the commitment to success. The two brothers shared ownership of the firm equally and they lead the company as an effective team. The older brother was the more rational thinker, while the other was more risk-driven and keen on innovation. According to a consultant in the firm, the main characteristic of their relationship was a ‘positive conflict’ – meaning they were always discussing and debating when it came to decision-making which resulted in bringing successful and rational decisions. However, they always remained professional, respectful and close. The fourth generation of leadership was again groomed to take over the ownership and management of the company one day, learning the importance of the roots of the company and the work of their fathers, grandfather and great grandfather, but mixing that with a modern outlook. The two new natural successors were cousins Gildo and Paolo, who eventually came to share the executive responsibilities with their fathers. The enthusiastic cousins wanted to take over managerial control from the third generation and wanted more freedom in the decision-making. The company consultant, Marco Vitale, was the one who encouraged them to not run away from the difficult discussions with their parents and speak up when they think they are right. Gildo and Paolo now have complete management control and continue to lead the company in the spirit of the family values and culture which include the principles of self-respect, discipline, hard work, honesty and trust, always remaining really close and continuing to respect each other. 6. What is your opinion of their governance structure? Governance is a system of structures, rights and obligations by which corporations are directed and controlled. It also provides the structure through which the objectives of the company are set, and the means of attaining those objectives, and monitoring performances, are determined. There are four types of governance in family firms: corporate, ownership, family and wealth governance. Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. The Zegna Group has a one tier corporate governance system with its board of directors which is made up of Angelo, who is the president of the company, three members of the fourth generation (two of them are the co-CEO’s Gildo and Paolo), as well as the trusted outsider Marco Vitale, who is a professor - a consultant and was initially brought in as a business process consultant in the seventies. It is possible for a family member to sell shares to another family member, but through a predetermined conversion applying a heavy discount on the share. The executive responsibilities and board duties have been passed onto the younger generation who had worked their way up through different functions. The Zegna Group’s philosophy is now based on long-term goals. They include voting control by the family to ensure continuity and solidity based on a shared ethical approach and the implementation of rigorous corporate governance. As we see it, Zegna Group has a great governance structure, their organizational process and the way they manage the firm has achieved tremendous success over the years. The aim is to spread a strong sense of ethical integrity and a corporate culture highly geared towards compliance with applicable laws in Italy and the other countries in which the Group operates. The familiar yet professional relationship is the backbone of their successful fourth generation leadership.

7. Does the family culture impact entrepreneurial growth? The entrepreneurial spirit had been passed on from generation to generation within the Zegna family along with the firm itself. It started with the old Angelo Zegna who grabbed the opportunity of opening a small spinning plant in an impoverished and mountainous area – that plant would grow to become one of the largest Italian family businesses. Angelo’s entrepreneurial spirit was passed on to his son – Ermenegildo Zegna – who would become one of the most important figures in the history of the company. He introduced new techniques of manufacturing, he was the first one to introduce a flexible order size per fabric and succeeded in introducing Zegna’s product to the American market. The entrepreneurial spirit he learned from his father resulted in the introduction of all these innovations that eventually helped the company grow. Just as Ermenegildo was introduced to the business in his childhood, so were his sons, Aldo and Angelo, groomed to become the natural successors of Zegna. They got a university degree, learned new languages, traveled abroad to learn about the best practices of doing business just as their father did. And they understood that they needed to approach the leadership of the company just like their father did: respect and protect the traditional roots, but always adapt and innovate according to the new conditions on the market. The fourth generation of the family was born into the already established family culture which was necessary to fit into in order to become part of the company, but it was also necessary for the entrepreneurial growth of the firm. As Angelo’s son Gildo explained, he and his cousins understood that there were certain rules of behavior they needed to follow if they wanted to enter the business - education, languages, university degrees and outside work experience. Each generation had to deal with a different market environment and had to adapt to the new conditions. Each generation of leaders became entrepreneurs in their own right and took the family business to new strategic levels, but by always building on the tradition. Ermenegildo needed to beat the European counterparts and modernize the manufacturing plant, Aldo and Angelo were faced with the reduction of tailors they sold their fabric to, so they needed to appeal to a larger customer base and start making suits on and industrial base. The fourth generation needed to advance the retail businesses and adapt to the ever-changing 21st century business environment. Other important characteristics of the family culture important for the successful work of the company, as the fourth generation of leaders understands are: self-respect, discipline, hard work, honesty and trust. They understand that if they lead the company respecting these principles and add perseverance, dedication and coherence as well as enthusiasm, clear ideas and dedication, their success is guaranteed 8. How successful do you think they are? What are the suggestions for the future? The Zegna Group is a successful business which has built on traditions and values as defined by earlier generations but which each generation has successfully redefined and adapted to the changed World. Today, Zegna is one of Italy’s most famous family driven enterprises. According to the company itself (Ermenegildo Zegna Group) “over the last century the business gene and entrepreneurial spirit has been passed down through generations, ensuring that the name Zegna remains a synonym of business pioneering. Growth has been possible through shrewd diversification of the offering, which now ranges from clothing to accessories. As well as strategies which have enabled Zegna brand to grow successfully throughout the World.” Zegna’s success is also due to the “strong, consolidated business culture that allows young talents to emerge and develop; the company-wide quest for quality; the constant focus on customers and people.” Its success philosophy is based on the principles of long-term objectives, family ownership to ensure continuity and a sound ethical commitment enshrined in a rigorous corporate governance system. For the future, Zegna is pursuing a dynamic expansion strategy on several fronts:

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The launch of a new, softer sports line initially in the United States, under the name of Zegna Sport Exploring opportunities in the market for women’s clothing through the acquisition of the Agnona business in Italy A new joint venture with Armani to manufacture men’s clothing in newly bought factories of the joint-venture under the Armani collection brand.

Researching on the internet we also found out that they are aiming to grow into new markets. In the next three years their aim is to have six new stores in Africa. We believe they should gradually pursue all of the growth options they have been considering. Their family name, good reputation and commitment to quality along with the socioemotional wealth they have established is sure to guarantee success.

References: Ermenegildo Zegna Group, History and Development: The Group Today, Ermenegildo Zegna Group, viewed 20 June 2020, < http://www.zegnagroup.com/storia_e_sviluppo/il_gruppo_oggi>. Schwass, J., The Zegna Group, case study, International Institute for Management Development, Lausanne, Switzerland....