Management of Caifu Investments Ltd - Coursework Example

? Management Report to the Board of Caifu Investments Ltd Executive Summary Zara and H & M are two of the competing brands which have immense growth opportunities and therefore great investment options for the potential investors. Caifu Investments limited is planning to invest in one of the companies among these two top brands of clothing retail business. The investors are interested in the management structures and the leadership styles of the organisation. This report makes a primary as well as a secondary research to scan the business environment of the two organisations and analyses the best prospects from an investment point of view. The critical analysis has been done to weigh the alternatives of investments in Zara and H & M. Contents Contents 3 Introduction 4 Company Profile: Zara 4 Company Profile: H & M 5 Secondary Research on the Management Theories and their applications 6 Management and Leadership Style of Zara 6 Management and Leadership Style of H & M 7 Primary Research on the Organisations 9 Analysis of the Questionnaire 10 Justification 12 Recommendation 12 Conclusion 12 References 13 Bibliography 14 Appendix 1: Interview Questionnaire 15 Introduction The strategic business alliances are the essential aspects of every business to survive in the long run. Investment companies are often willing to fund the expansion of the companies in various other international locations in order to make a profit out of such investments. Caifu Investment Ltd is looking for the opportunities in Zara and H & M and plans to invest in one particular company in order to make sure that the company is able to reap profits for Caifu in the long run. This report is presented to the management for a proper understanding of the business processes of the two companies both internally and externally through a primary as well as a secondary research. The various aspects of management of the two companies are analysed so that a proper decision can be made regarding best investment opportunity. Company Profile: Zara Zara is a popular retailer of clothes and accessories and is based in Spain. The company is based in the city of Arteixo in Spain. The company is a major [art of the Inditex group. The company is one of the leaders of the fashion industry and is the owner of a number of famous labels. The company specialises in its fast changing fashion products and the company is famous for updating the line of clothing as per the latest fashion trends that are in vogue. Most of the other brands in the fashion clothing retail industry generally update their product every three to six months. On the other hand Zara updates their product portfolio every two weeks which has made a record of having the shortest period of time for up gradation. The company makes record designs of more than ten thousand per year. Zara has not only remained confined to the Spanish markets or the markets of the developed countries but has also moved beyond that to the developing countries where it has offered a portfolio of low cost product to the local price sensitive customers. The company therefore has a brand presence throughout the world and earns revenue of almost 8 billion euro. The company has never invested in the marketing communications like advertising or the other methods of promotion of the brand. However, the company thinks that it is important to reach out to most of the customers of the world and therefore Zara has increased the reach of the customers through the opening up of more and more stores in various locations as well as expansion to the cities across the world where the clothes might have a considerable demand from the customers. Company Profile: H & M H & M or Hennes & Mauritz is also a fashion clothing retailer based in Sweden and has been serving the industry since 1947. The brand targets almost all the markets like men, women as well as children and teenagers. H & M has a brand presence in almost 43 nations and has human resources strength of ninety four thousand. This brand also aims at reaching out to its customers and has opened more than two thousand stores in various locations of the world. The company is claimed to be the second largest retailer of the brand and is considered to be the major market challenger to the leading brand Zara. The company has a very large design tem that controls the entire process of production of the brand and has contributed to the success of H & M. The company has annual revenue of 126 billon SEK. There are about 800 factories that contribute to the supplies to this brand. H & M is also famous for constantly updating the collections of the brand for the new customers as well as those who would come to the stores on a regular basis. The creation of these designs takes place in a centralised location where the designers and the pattern makers for the brand are placed. The company not only has a reach to the global customers through the huge number of stores but also has an access through the virtual world through the channel of e-retailing. These services are prominent in the markets of Germany, Finland, Norway, Austria as well as Sweden. The company has newly ventured into the interior designing collection which would cater to the household upholstery as well as the furnishing markets. The subsequent sections of this report will look into the various aspects of the management styles in these two leading companies in the fashion retail business and would try to understand the various nuances of the leadership that is carried out in these companies. This is done mainly with the help of a secondary research and then by a primary research done for both the organisations. Secondary Research on the Management Theories and their applications Management and Leadership Style of Zara The management style of Zara has been analysed by conducting a secondary research in this section. The leadership style is somewhat autocratic in Zara. This is because most of the cross border communication does not take place in the organisation continuing with the past legacy of Spain. The production process of the company follows an in-house format and the main production process in the Spanish territories of the company. This company however has limited relationship with the rest of the world. Zara has a closed governance structure. The domestic production pattern is considered to be a preferred pattern of operation. The product lines are delivered in much shorter spans of time. Zara has a greater level of internal control in the organisation. The processes in the company have a vertical integration pattern. This means that the different divisions and hierarchy are controlled form the centre. The company is mostly dependent on the activities of the designers who need to update the inventory in very short intervals. The company tries to keep the internal control mainly because of the fact that Zara would not be able to guide and control the suppliers in the proper fashion with the fast evolving fashion industry and the needs of the customers. The designers in the company are provided with a lot of flexibility so that the outfits are designed in the most fashionable manner and there is not situation of any fashion mistake in case of any of the outfits. Zara upgrades its stocks in very short spans of time because the designs are upgraded with the changes in the fashion industry. This means that the stocks of the clothing are produced in the small batches and in smaller quantities. Each of the stores displays and stores the clothing lines that are very much in fashion and represent the updated stocks. The distribution system in the organisation system is also very efficient (Baron and Greenberg, 2008, pp. 78-101). This means that there would be shorter lead times and the distribution of the clothing from the central production unit would take place in a fast forward manner so that there are fewer time lags between the transit time and the time of delivery to the stores. Management and Leadership Style of H & M H & M believes in the distribution of the production through its various locations mostly in Europe and Asia where the production units undertake the process in a fast-track manner. The suppliers of the company are connected to the main controlling offices which are about 16 in numbers. These units are mainly formed for the coordination of the production process and to make sure that the distribution of the clothing takes place in the most efficient manner. The suppliers on the other hand also get their work done through the subcontractors who carry out the actual production process. Thus if considered form the point of view of the lowest production unit the company the number of manufacturers would add up to more than 2700. For ensuring each of the processes to carry out in the most appropriate manner the company has to implement an efficient management styles so that the customer satisfaction is maintained and the demand for the products are met in the appropriate manner (Wernick, 1991, pp. 61-78). The organisation structure of H&M is a centrally located at Stockholm from where the operations taking place in the entire world is calculated. H & M has a tall hierarchy because it is difficult to manage the operations across the globe unless such divisions are made. The organisation can be divided into the different operations like Finance and Accounts, Marketing and Advertising, Interior, Research and Designing as well as Expansion (Porter and Lawler, 1968, pp. 71-89). There are other segments of management like the IT, CSR, Logistics, Security as well as the human resources department. There is a division of the operations at such levels of specialisation because the company aims to have the best management for each of the units of operations. The management structure for the company has been exhibited in the following table. Figure 1: Organization Structure in H & M The hierarchy that the company maintains is of a tall hierarchy because there are several managerial levels in the organisation. The head office in Stockholm controls the other Production and the country offices in the various locations. Most of these offices have the employees from the parent country as well as from the local countries. This is done mainly with the aim that the company would be able to understand the needs of the local customers. While the country offices take care mainly of the administration, human resources as well as the supply chain of the countries, the production offices take care of the operations and ensure that the best quality of clothing is produced with the best materials in order to provide the customers with the highest quality of the products (Fishbein and Ajzen, 1975, pp. 53-68). The company maintains a uniform strategy for all its strategic business units. Thus the strategy that would be applicable in a country in Europe would also be applicable for a country in the far-east. The company continues with a participative model of leadership in which the employees at every level are involved in the decision making process and the communication in the organisation takes place in a bilateral direction (Fred, 2011, pp. 29-48). This means that the employees are free to express their opinion about any action that the company intends to take. But this communication is limited to a particular location in a particular office and not across the international borders. Primary Research on the Organisations A primary research has been conducted to understand the existing management styles of Zara and H & M. In order to accumulate the first hand information about the management styles of the organisation an interview survey has been conducted. The questionnaire consists of a few questions relating to the organisation and the employees’ perception about each of the companies. The questionnaire has been injected in to employees of all the hierarchies. They include the sales people who are actively involved in the stores, the production managers, the designers, the senior managers from marketing and finance department as well as the Vice presidents of the Human Resources Department. The sample size of the survey is 10 for each of the companies. From the responses provided by the various employees of Zara as well as H & M, several facets of the management styles of the organisations come up which would provide a better insight into the inside of the organisations and help the investors understand which one would be a better option to invest in. The graph shows the various levels of the employees who have been interviewed for the survey about the management. This shows that there is almost homogenous distribution of the employees across the hierarchy considered in the sample. Analysis of the Questionnaire From the responses made by the employees certain questions that the employees may have about the management are answered. While in H&M the employees have stayed in the organisation for a longer duration in Zara the duration of stay is lesser. The main reason behind this is that the employees have a lot of freedom to express their opinion in the former compared to the latter. In case of the second question it was found that the autonomy of the designers was most in case of both the organisations (Barney and Hesterly, 2011, pp. 145-156). This is because Zara and H & M both rely on the fast moving fashion industry and the designs are the main attractiveness and the unique selling points for the brands. However, in case of the other functional areas the employees of Zara maintain that they get most of the instructions from their seniors. On the other hand the H & M employees have said that they have referred to their seniors from time to time but they have enough autonomy in the work that they do which adds to their job satisfaction (Cox, 2001, pp. 14-26). The lower level employees of Zara are found to be more satisfied with the remuneration that they are offered compared to the ones who work in the junior management of companies. On the other hand the senior management in H&M get a better salary compared to Zara. The designers of Zara are also the highest paid in the industry. The later part of the questionnaire consisted of the different facets of the two organisations. Analysis has been conducted for both the companies. In case of Zara it is seen that the company has an authoritative style of leadership since most of the communication that takes place in the organisation takes the top down approach (Robbins, 2004, pp.239-258). This means that the management of Zara is generally concentrated towards the central of the business operations. The employees are generally channelized as per the instruction from the Stockholm office. The distribution system of the company is also centralised. The number of competitors of the company is also large considering the fact that Zara has a greater number of consumer markets because it caters to the luxury segment as well. The organisation culture of Zara is very creative and the employees are always encouraged to be creative in the work that they perform. On the other hand in case of H & M, the communication among the employees is much greater. There is a lot of opportunity for feedback and the flow of communication takes place in a unidirectional manner. The senior management is always willing to involve the junior and the middle management level of the employees in the decision making process. The production units located in the different countries are also allowed to undertake the business in their own way as long as they meet the expectations of the parent company. The organisation culture is much freer flowing and the employees are willing to stay in the organisation for the span of the next five years. Justification Thus from the above discussion it is clear that in Zara the management is more centrally controlled and the employees are less satisfied compared to that of H & M. The liberties of the operations that are in the overseas market are lesser for Zara. This is mainly because of the centrally planned system of control. H & M on the other hand provides more autonomy in the processes and hence the employees and the independent production units are encouraged to increase their level of production and their efficiency in the production. The flow of communication also seems to be better in case of H & M. Recommendation The companies should create and design their products as per the needs of the client. H & M however seems to lag behind that of Zara. Zara is much more up graded in terms of fashion compared to that of H & M. The designers of H & M have to remain updated to the new designs from time to time to keep up with the pace of Zara. Zara on the other hand has to maintain better communication channels so that the employees feel more involved in the processes of the organisation and are more participative. Conclusion Thus from the analysis it is clear that H & M is a better investment option for Caifu Investment Ltd. because the management of the company is more stable. The company has decentralised the production processes in the different countries and therefore Caifu would be able to invest in the operations in the Asian Markets like China or the other countries where the brand may witness a lot of prosperity. These countries are emerging at the present day and therefore would make successful investment opportunities for the brand. References Barney, J. and Hesterly, W., 2011. Strategic Management and Competitive Advantage: Concepts and Cases. New York: Pearson Customs Publishers. Fishbein, M. and Ajzen, I., 1975. Belief, attitude, intention, and behavior: An introduction to theory and research. Reading, MA: Addison-Wesley. Porter, L. W. and Lawler, E. E., 1968. Managerial Attitudes and Performance. Homewood, IL: Richard D. Irwin, Inc. Robbins, S. P., 2004. Organizational Behavior - Concepts, Controversies, Applications. London: Prentice Hall. Baron, R. A. and Greenberg, J., 2008. Behavior in organizations. New Jersey: Pearson Education Inc. Cox, T., 2001. Creating the multicultural organization: A strategy for capturing the power of diversity. San Francisco, CA: Jossey-Bass. Fred, R.D., 2011. Strategic management: Concepts and case. New Jersey: Prentice Hall. Wernick, A., 1991. Promotional Culture: Advertising, Ideology and Symbolic Expression. London: Sage Publications. Bibliography Pearce, J. A. and Robinson, R. B., 2007. Strategic Management. New York: Mc Graw Hill Publishing. Glueck, W.F. and Janch, L. R , 2004. Business Policy and Strategic Management. New York : McGraw Hill Publishing. Appendix 1: Interview Questionnaire 1. What is your duration of service in the organisation? 2. How much autonomy do you have in the job that you have been entrusted with? 3. Are you satisfied with the remuneration that is being provided to you? 4. How is the communication process in the organisation? 5. What are the areas which makes the management of the company as success? 6. What are the key drivers of the business of the company? 7. What do you think is lacking in this company that the competitors have? 8. What are the strengths and weaknesses of this brand? 9. How is the organisation culture in your company? 10. How do you perceive the company five years down the line? Read More