Zara: Fast Fashion, Case Study Example
Words: 2727Case Study
Most companies strive towards achievement of competitive advantage in a sustainable manner. This is achieved sustaining the profits of the firm in excess of its average profits. Competitive advantage has two dimensions according to Michael Porter, i.e. cost advantage and differential advantage. The existence of a competitive advantage in a firm is marked by its ability to offer similar benefits at costs that are lower relative to that one of the competitor which is termed as cost advantage. The benefits may also exceed those of the products offered by the competitor in which case it becomes differential advantage (Porter, 1998, 276).
It therefore implies that, competitive advantage is a facilitator for creation of high value for the clients alongside huge profits to the firm. Cost along with differentiation advantages represent positional advantage because they give the position of the firm as leading in differentiation aspect or the cost aspect in as far as the industry is concerned.
Creation of a competitive advantage is achievable through utilization of available resources together with existing capabilities to come up with a differential product or a structure of a lower cost. It is the duty of the firm to position itself through an accurate choice of differentiation or low cost with regard to the industry. Decision making in this respect is part of competitive strategy adopted by the firm. The firm is also confronted with the task of determining the breadth of the targeted market segment (Porter, 1998, 256).
The competitive advantage at Inditex is resource based since it has been able to make use of all resources as well as capabilities for the purpose of creating a sustainable competitive advantage which has been consequential to creation of a superior value. The resources together with the capabilities of Inditex have proved to be superior relative to those of their competitors. The competitor is thus unable to replicate the products of Inditex
Inditex has been able to use its distinctive competencies comprising of capabilities and resources. The end results have been high efficiency, enabling innovation, high quality products and responsiveness of the customers. Capabilities aspect of a competitive advantage at Inditex has been achieved through effective utilization of resources. Inditex consequently has been in a position of marketing its products faster relative to competitors. The capabilities are embedded in Inditex routines and can never be documented in the form of procedures and therefore it is latent to the competitors.
Developing a competitive advantage at Inditex requires the use of cost advantage as well as differentiation advantage. Inditex has strived to build its competitive advantage with the of resources as well as capabilities in attempts of arriving at lower level of cost structure as well as differentiated products. Inditex has positioned itself in the industry through accurate decision making with regard to these aspects
Developing a competitive advantage at Inditex should also take an account of creation of a value chain which includes some activities that are performed in series. Along with these activities of creating value in the organization, it is also important to take account of value systems that the company should operate in. these include vertical activities both upstream suppliers as well as the downstream channels. The success of the organization in attaining a sustainable competitive advantage depends on the performance of the firm in the activities responsible for value creation in an approach which shall result to the creation of an overall value as compared to the competitors. Creation of superior value in Inditex is achieved as a result of adopting low production costs while at the same time considering delivery of superior benefits to the clients which also implies to differentiation.
Inditex has built up its competitive advantage with the aid of McKinsey 7s of Planning. This has been achieved through improving Inditex performance, evaluation of potential implications of future changes, alignment of its processes as well as departments in the face of potential merger or acquisition and determination of best approach of implementing its strategies. Inditex has adopted seven elements associated with McKinsey which are classified as follows:
Hard Elements: these implies elements which can be identified with ease and can be influenced by the management. They include strategy statements, the organization charts together with reporting lines, IT systems and the formal processes. In this category we have:
Soft Elements bears some difficult in their description, their influence is based on culture and they are not tangible. In this category we have the following
- Shared Values
Below is a diagrammatic representation of the McKinsey 7s elements and their interdependence as applied in Inditex
Each of the elements has been applied in Inditex to build a sustainable competitive advantage. Inditex has used the element of strategy as a plan which has been developed for the purpose of maintaining as well as building a competitive advantage with respect to the competitors, The Gap, H&M, along with Benetton. The element of structure has been tailored in a manner to explain the structure of the firm and the chain of command. Inditex has also implemented systems of daily activities in addition to procedures that are followed by the employees as they perform their duties. Shared values are also in place at Inditex which also represent the superordinate goals. These forms the firm’s core values as demonstrated in the firm’s corporate culture and the ethics of work. Another important element at the epicenter of competitive advantage of Inditex is the style of leadership that has been adopted. The leadership styles are tailored to facilitate tapping of all the potential inherent in the members of staff of the organization. The capabilities of the members of staff are also important elements in the competitive advantage of the company. Lastly, the element of skills is also important towards building competitive advantage at Inditex. The skills as well as the competencies of the employees at Inditex play a crucial role in the building of a competitive advantage at Inditex.
McKinsey 7s are applicable at Inditex to align the perspective of the organization. With the use of the seven elements, the general performance of Inditex is greatly improved. The elements are also resourceful tools at Inditex for the purpose of evaluating potential impacts associated with future changes at the firm. The elements also facilitate for alignment of departments as well as the internal processes in a situation of a possible merger and acquisition. They are also a core determinate in implementing vital strategies within the organization.
Inditex has ever taken keen interests in the appropriate alignment of McKinsey elements with the use of a checklist. The starting point involves with the analysis of the shared values in the organization. This entails checking for their consistency to the structure, the strategy as well as the systems applicable in the organization. In case there is any inconsistency, then a consideration for appropriate changes is considered. The next step involves an evaluation of hard elements. The manner in which each element props up the other is critically evaluated. In case a need for any change is identified, then that is the right course of action. This is followed by the analysis of the soft elements. The possibility of supporting the hard elements is keenly evaluated and any appropriate changes are adopted if the need arises. In the course of adjusting and also aligning the evaluated elements, it may be imperative to make use of iterative and in most cases it is a process that is time consuming. This is imputed to the need for adjustments followed by reanalyzing the manner in which other elements are impacted along with their alignment. The final results attributed to improved performance are consequently worthwhile.
One important focus for Inditexis the determination of the level of its competition in the industry. Determination of whether the firm frequently identifies new opportunities is also an important consideration in gauging its competitive advantage. Inditex also needs to analyze whether its preference is based on focusing one market while improving its efficiency or whether they just relax targeting to react to changes that take place in the marketplace.
Inditex has overtime indicated incredible diversity in the course of their operations as well as competition. The strategies put in place for customer attraction are unique. The functional strategies that the firm pursue are important considerations in building the competitive advantage of Inditex. This is coupled by identification of the most appropriate structure worth adoption and the most strategic decisions to be made.
Considering the systems that are in place for the sake of running the organization, it is important to give a consideration to the financial, document storage, communication as well as the human resources. Availability of internal rules as well as processes which are properly monitored and also evaluated for the purpose of keeping the team on the right track is also an important component of Inditex competitive advantage. The company has also considered corporate and also a team culture which also makes significant contributions. The strength of the values in the organization and the fundamental values that form the foundation of the organization and the team also contributes towards strengthening competitive advantage at Inditex. The style of management and leadership at Inditex is participative in nature and this style is effective in running the operations of the firm. The employees and also the team members at Inditex are cooperative and competitive and this is another source of a competitive edge at Inditex. Inditex is an organization with really functional teams.
How Inditex Makes Use of the Model
Good performance at Inditex requires a proper alignment of the elements in a manner that they mutually align one another. The role of the model is identification oif the area requiring realignment in the direction of performance improvement especially the maintenance of a stable alignment at the time of changes. Inditex has made use of McKinsey model for analysis of the current situation, the future situation which has been proposed and identification of the gaps together with the inconsistencies existing between them.
Inditex has been able to build up its competitive advantage with application of some strategies. As compared to its competitors, Inditex had adopted a broader vertical scope in consideration of most of its production as well as stores. A social strategy was in place at Inditex dealing with dialogue amongst the employees, the suppliers, NGOs, subcontractors as well as the local community. Inditex also had an immediate initiative in place involving an approval a code of conduct that was internal to the firm. A department of corporate responsibility was also in place that harmonized the operations of the company.
Inditex has also revolutionalized its process adjustment to the trends as well as differences in markets in addition to greater emphasis on information system of a high frequency. Inditex values the importance of frequently communicating to the store managers which was perceived to have equal importance to the sales data of the IT system. The issue of capability has the implication of the ability of the company in making use of available resources in the most effective manner. In Inditex, this has been realized through a demonstration of their ability to avail their products to the market ahead of their competitors.
Inditex also uses policies of product merchandising to build up its competitive advantage. The strategies in practice include product line transformation, emphasizing it abroad and reasonable physical quality. Segmentation of product line is another important strategy applicable to build up its competitive advantage for Inditex with distinction between female, male as well as children lines. Further segmentation is evident in females’ line in consideration of variation in prices, age targets as well as fashion content. The prices for their products are determined centrally and it is lower as compared to that one of the competitors for similar products. The supply chain is also short and efficient which is responsible for maintaining percentage margins for the company. This facilitates for a considerable reduction in the cost of advertisement as well as markdown requirements.
Competitive advantage in Inditex is also based the freshness, attractive ambience and scarcity of their products. The sense of freshness is based on rapid turnover of their products in which case, they are able to introduce new designs constantly. The shoppers are aware of the arrival of new designs in the stores and thus they shop accordingly. Inditex also opted for their investments in the prime locations while considering presentations in the storefronts and this helps to project the image of the business. The company aspires for the entry of their clients in beautiful stores where they access the most recent fashions. Inditex has conditioned the mind of the clients that if they like a certain product, they must buy it at that particular time since it may be unavailable on the next visit thus a climate denoting scarcity along with opportunity has been created in the minds of the customers (Porter, 1998, 156).
Another important strategy applied by Inditex to build up its competitive advantage involves the use of stores operations. The stores serve the purpose of the face of the company to the entire world and as a source of information. The locations of the stores are highly visible. The stores portfolio of the company is actively managed. In case of an evolution in the shopping districts in addition to the traffic patterns, Inditex took the initiative of occasional relocation of the stores. Store window display in Inditex stores was also implemented under a centralization program and this facilitates for the promotion of the market image of the company.
The seven Ss model of McKinsey are applicable in the situation of Inditex to effect the effectiveness of the team. In case of poor performance within the organization or the team, then this is an implication that some of the elements are inconsistent and they can only be identified through revising the elements in the model. On identification of the existing inconsistencies, the management has the responsibility for realigning internal elements in the direction that they should facilitate for achievement of the goals as well as the values of the organization.
It is important for Inditex to efficiently analyze status of the organization based on the 7 elements and the actual status of every single factor. This is a potential channel to propel the organization as well as the team to higher levels of prosperity. McKinsey is the most appropriate framework that facilitates asking the most appropriate questions although it is not automatic that all the answers will be arrived at. This situation requires application of knowledge of the highest order, experience as well as skills.
Inditex’s competitive advantage can be sustained through consideration of a number of aspects. The options available to Marta Ortega include the use of systemic innovation which is achieved through complex interactions of the stakeholders of the company, other organizations as well as environmental factors. The duty of Marta Ortega is to account for the returns from technology together with innovations and match them to technological development alongside complementary expertise in areas like manufacturing, human resources, customer relationship, product distribution and marketing.
The other area to look at is the vigor of organizational culture which is fundamental to the competitive advantage of Inditex. Thus, Marta Ortega should maintain an organization culture that is innovation-adept, a culture of employees’ commitment in pursuing the mission as well as the cause of Inditex. This is a sure way to position Inditex to a path of success.
Marta Ortega should also acknowledge the fact that Inditex has a goal of achieving sustainability in its competitive advantage behind its marketing strategy. The strategic decision involving product strategy and manufacturing strategy should be aligned towards competition. Another important consideration for Ortega is enhancement of coordination in the chains and expansion as the company opened multichain locations.
Joint venture offers an avenue of penetrating new markets in which case barriers of entry have been identified. This is another strategic option available to Ortega to make sure the competitive advantage developed overtime is sustainable. In most cases, the barriers to entry is associated with difficulties of accessing retail spaces that are prime more so in the centers of big cities. The management of Inditex through entering in to joint ventures is a possible strategy that bears fruits with respect to its competitive advantage. It is however important to take great caution with this regard because a lot of complexities are associated with split ownership.
Porter, Michael E., Competitive Advantage: Creating & Sustaining Superior Performance Free Press. 1st Ed. 1998.
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