Documente Academic
Documente Profesional
Documente Cultură
Contents
Executive Summary ................................................................................................................................ 4
1. Strategic Analysis ............................................................................................................................... 5
1.1. External Analysis .......................................................................................................................... 5
1.2. Internal Analysis ........................................................................................................................... 7
1.3. Organizational Analysis ................................................................................................................ 9
1.4. International Analysis................................................................................................................. 11
2. Identification of Key Strategic Issues............................................................................................... 12
3. Future Strategic Options .................................................................................................................. 14
4. Strategy Evaluation and Selection ................................................................................................... 18
5. Justification of Recommendations and Action Plan ....................................................................... 23
References ............................................................................................................................................ 26
Appendix............................................................................................................................................... 27
2|Pag.
Executive Summary
Founded in the 1947 in Sweden, H&M is today one of the biggest fashion retailers in the
world. In a fragmented and mature market like the fast fashion industry, H&M has been the
leader and has been gaining market share and high revenues. Its success is due to its unique
ability in managing the value chain to lower the costs and to its network of suppliers and
fashion designers that allow the brand to differentiate from competitors. The company has
been a family business since the beginning, and during the time it kept following the
principles and culture that are the basis of its organizational structure. In fact, in spite of the
high internationalization and the impressive growth of the company during these years,
H&M has not changed its spirit and keeps offer the customers fashion and quality at the
best price. The following report aims to analyse the company and suggest future strategies.
The analysis found four key strategic issues that the company should consider:
-
In order to address those issues, the company is recommended to pursue the following
strategies:
Short term:
-
Market development
Franchising
Long term:
-
Market penetration
Related diversification
The first part of the report will analyse the company from different points of view (market,
resources, organizational and international). The second part will identify the strategic
issues the company is facing. The third part will list several options of strategies that H&M
could pursue, while the forth part will evaluate and select the best strategies. Finally, the
last part will suggest the action plans to implement the chosen strategies.
3|Pag.
1. Strategic Analysis
The strategic analysis will be conducted on the external, internal, organisational, and
international levels. The analysis has been conducted by using theory concepts and tools
that can be found in the Appendix, while the following tables will summarise the
conclusions of the analysis and will list the strategic issues identified.
Strategic Analysis
Strategic Analysis
PESTEL
(Appendix A)
the industry
of the cotton
B
V
Porters 5 Forces
(Appendix B)
competitors
EV - 5 Forces
(Appendix C)
online campaign)
4|Pag.
(Appendix D)
segmentation)
(Appendix E)
differentiation strategy
segmentation
(Appendix F)
(Appendix G)
Possibility of innovation in
(Appendix H)
The main challenge that H&M faces is the rivalry. In fact, according to the external analysis
the market is highly competitive, with high buyer power (Marketline, 2013). The reasons are
the nature of the market (fragmented) and the fact that H&M is losing its first mover
advantage, since the fast-fashion industry is becoming mature and more companies can
follow the same best-value strategy. However, the external analysis also revealed some
5|Pag.
opportunities to lower the costs and to enter in new markets/segments, and therefore
achieve higher profits and market share.
6|Pag.
Strategic Analysis
Strategic Analysis
Historical analysis
(Appendix I)
B
V
Resources analysis
(Appendix J)
analysis
(Appendix K)
7|Pag.
(Appendix L)
markets
bloggers
(Appendix M)
cost/value drivers)
further
(Appendix N)
sales
The internal analysis revealed that H&Ms main resources and capabilities are the brand
image and reputation, the highly-efficient value chain, and the network of suppliers and
designers. However, competitors have their own resources and capabilities that can
represent a danger for H&Ms leadership in the industry. The analysis also revealed some
opportunities that the company could consider in order to improve its position in the
market.
8|Pag.
Strategic Analysis
Strategic Analysis
Stakeholder analysis
(Appendix O)
Culture analysis
(Appendix P)
Scandinavian countries
responsibility)
(Appendix Q)
the company
image
H&Ms organizational structure and culture is strongly related to the Scandinavian spirit.
This is one of the companys distinctive features but it could also become a problem in other
countries where the culture is different.
The fact that H&M is a family business could be a problem for the other shareholders
because they do not have decisional power.
9|Pag.
Finally, the organizational analysis found that even if the company is not involved in any
urgent ethical issue, there will be the possibility to be a proactive company by anticipating
the stakeholders concerns.
10 | P a g .
Strategic Analysis
Strategic Analysis
I
N
analysis
country
(Appendix R)
Standardization / adaptation
analysis
market
The international analysis found that H&M follows a broad standardized differentiator
strategy. However, there would be possibilities to adapt the products further in order to
better meet the demand in host countries.
11 | P a g .
Short Term
- Unexploited opportunities to improve the
cost/value advantage
capabilities to grow
long appropriate
revenues
High Urgency
Low Urgency
company
pressure
The rationale behind the choice of the key strategic issues is whether the identified issues
are urgent or not. Then, they have been divided according to the time that the company
needs to address them.
In the case of the short term strategic issues, the justification is the risk or the missed
opportunity for the company if it will not solve them. Solving the first issue is essential,
because H&Ms strategy is based on low cost yet differentiation, and the opportunities that
the company could exploit by improving the cost/value advantage must be considered as a
key resource for H&M to increase its competitiveness. Similarly, the company should stretch
its resources and capabilities by following growth strategies. This would increase the size of
the company and it would mean more global presence, with the opportunity to gain profits.
12 | P a g .
Similarly to the short term key strategic issues, the strategic issues that need a longer term
to be addressed have been chosen over the other issues because they would have more
impact on the company if they will be solved. There are opportunities to change the
product but time is needed to develop strategies and maybe technologies. Therefore, even
if this issue can affect the companys future, it will take longer time to be solved. A problem
related to the companys growth is the risk that the organizational culture is not long
appropriate. According to the organizational analysis, there is the risk that it could create
higher turnover and lack of responsibility in countries other than Scandinavian; however,
the culture can be considered as difficult to change, therefore H&M would need more time
to address this issue.
To conclude, four key issues have been identified that the company should address. The two
short-term issues are opportunities to increase the cost/value and to leverage resources and
capabilities. The two long-term issues are the opportunity to develop new products and the
risk that the companys culture is no long appropriate. The next section of the report will list
some strategic options that the company could consider to address the key strategic issues
found.
13 | P a g .
Levels of strategy
Strategic option 1
Strategic option 2
Business
Business
Specific level 1
Consolidation strategy
Market penetration
Specific level 2
Franchising,
Internal development
Broad level
internal development
Functional and supporting
Increase franchising
Both of the strategies recommended to solve the first issue are based on the business
strategy of the best-value provider. Since H&Ms success comes from the offer of fashion at
the lowest price, the hybrid strategy could be considered as a distinctive capability that the
company should exploit. For this reason it is essential to lower the costs yet to keep the
product differentiated from the competitors. In order to do so, two different strategies can
be employed. The consolidation strategy would allow the company to save resources and
increase the efficiency of the value chain. The methods are the franchising, that would
appear more suitable for the companys culture and would require less investment, and the
internal development of different distribution channels (from catalogues to online sales)
and online marketing. The market penetration strategy would add value (or perceived
value) to the product and the brand image by employing more famous designers, strength
14 | P a g .
the relationship with suppliers (in order to gain higher-quality items at a reasonable price),
start collaborations with fashion bloggers top increase the companys presence on the web
and give the image to be a firm commits in the social concerns.
Levels of strategy
Strategic option 1
Strategic option 2
Broad level
Business
Business
Specific level 1
Market development
Market penetration
Specific level 2
Internal development
Target environmental-concerned
customers
-
classical style
The external and internal analysis found several opportunities that the company could
exploit to gain market share and increase the revenues. The first option is the market
development. H&M could enter new markets that are similar to the markets in which the
company already operates, such as South Africa, Australia and South American countries.
Moreover, the company could target more segments by offering plus size clothes, more
collection like the Conscious Collection for the environmental-concerned customers, and
classical style clothes for families. The second option is the market penetration. Since one
of H&Ms capabilities is the ability of design products according to the companys own style,
some campaigns that attempt to change the key success factors of the apparel industry
from fashion to personality would benefit H&M over its competitors. At the same time, the
company should develop its distinctive style in order to differentiate itself from competitors.
15 | P a g .
Levels of strategy
Strategic option 1
Strategic option 2
Strategic Option 3
industries
Business
Corporate
International
Specific level 1
Product development
Related diversification
Transnational strategy
Specific level 2
Strategic alliances
Horizontal integration
Internal development
Broad level
Produce clothes
with innovative
materials
-
Produce clothes
with recyclable
products to cosmetics
markets preferences
industry
-
materials
H&M has unexploited opportunities to further develop its products. In order to do this,
three strategies can be pursued. By differentiating the products through the product
development, the company can be innovative in the materials that its suppliers will use to
produce clothes. The research and development of the new fabrics could happen through
strategic alliances with firms that operate in the chemical and textiles industries (C. Bowman
and D. Faulkner, 1997). The second possible strategy is the diversification in related
industries such as cosmetics, home textiles and sport apparels. The last option is the
transnational strategy. It involves the change of the international strategy from broad
standardized differentiator to broad adaptive differentiator and it would result in a
customisation of the products according to different markets. This strategy also includes the
opportunity to switch to suppliers closer to the host countries so that the higher costs of the
missed economies of scale are compensated with the lower costs of logistics.
16 | P a g .
Levels of strategy
Strategic option 1
Strategic option 2
country
International
International
Franchising
Internal development
Broad level
Specific level 1
Specific level 2
Functional and supporting
stores
-
The options to solve the last key strategic issue are two, both to be pursued at an
international level. The option of franchising would increase the autonomy that the stores
already have and this would allow the managers of each store to deal with the employees in
a non-standardised way, according to the culture of the country. The internal development
would instead keep the decisions more centralised, and the company itself would decide
how to adjust the system so that it is efficient in each country. The managers can adjust the
organisational system by developing a task culture where it would be more appropriate
than a personal culture, or by providing the descriptions of jobs so that the more clarity
helps the employees to deal with their tasks.
17 | P a g .
Strategic choices
Suitability
Acceptability
Feasibility
In a context of
economic crisis and
high competition, the
The strategy would
shareholders could
Consolidation
further
strategy
chain, by saving
(+)
stores to franchising
resources
(+)
(+)
Unexploited
companys culture
opportunities to
(-)
improve the
cost/value
advantage
Market penetration
leverage H&Ms
term agreements
resources and
capabilities
(+)
The long-term
H&M
investment because of
relationship with
(+)
famous designers
Stakeholders would
(-)
convenient
companys
commitment in ethical
(+)
issues
(+)
Two directions have been found to solve the first strategic issue. The first one
(consolidation) appears to be suitable because it would exploit the companys opportunities
and therefore the issue would be solved. It could also be feasible because it would not need
any new competence or resource (neither financial). However, it is only partly acceptable
18 | P a g .
because even if the shareholders could agree, there would be the risk that the franchise
stores do not suit the companys culture and this could result in losing the brand image.
The second direction to be examined is the market penetration. The strategy appears to be
suitable to address the issue and acceptable from stakeholders, but the feasibility is limited
by the financial investment required to collaborate with famous designers.
Between the two directions just analysed, the most suitable for H&M is the market
penetration. It would allow the company to stretch its resources and capabilities to gain
market share in the countries in which it is already present, being more competitive.
KSI
Strategic choices
Market
Opportunity to
development
Suitability
Acceptability
Feasibility
The strategy
identified
be accepted by
(+)
shareholders
costumers
(-)
(-)
leverage resources
and capabilities to
It could be accepted by
grow
shareholders because it
advantage because it
(-)
is based on its
brand image
Need of implement
resources and
(+)
Market penetration
capabilities
(+)
(-)
The two directions that H&M could pursue to address the second issue are market
development or market penetration. Both options are suitable, but market development
appears a risky strategy that could not be accepted by shareholders. On the other hand,
market penetration could be accepted because it could increase the brand image. However,
both strategies need massive financial and non-financial resources to be implemented.
The recommended strategy is the market development, because it needs less resources and
capabilities comparing to market penetration.
19 | P a g .
KSI
Strategic choices
Product
development
Suitability
Acceptability
Feasibility
Risks of strategic
alliances can be a
to not agree
difficult
(+)
(-)
(-)
Stakeholders would
Opportunity to
Related
diversification
products
(+)
company grows
(-)
(+)
Transnational
strategy
company to develop
has to switch to
required
(-)
(-)
countries
(-)
In order to exploit the opportunity to develop the offer of its products, H&M could follow
three different strategies. The product development is suitable but maybe not acceptable
from the shareholders because it involves the alliance with another company. Moreover,
the difficulty in finding the ally for researching and developing new materials makes this
strategy little feasible.
The second strategy is the related diversification. This is a corporate strategy that would
solve the issue identified and that would probably be accepted by the stakeholders because
while the suppliers could expand their business with the company with related products, the
shareholders would gain more dividends if the company grow. However, this option
requires high financial investments and the entry in new industry could be risky because
H&M does not know the market and the competition can be higher.
The last option is the transnational strategy. This option appears to solve only partly the
problem because is more focused on the adaptation of the existing products according to
the taste of the host markets. Moreover, the suppliers could not accept it since according to
20 | P a g .
this strategy H&M should switch from the current suppliers to other closer to the host
countries in order to keep the costs low. Finally, the feasibility is not sure because the
strategy involves the change in the value chain and high financial resources.
The best option for H&M therefore appears to be the related diversification. This strategy
would allow the company to enter new industries and therefore exploit its brand image and
power to get better prices on the new products.
KSI
Strategic choices
Suitability
Acceptability
Feasibility
no financial resources
(+)
stores
needed
culture of the
(-)
(+)
organization is not
Franchising
Risk that the
long appropriate
Internal
development
(+)
the company
capabilities
(-)
(-)
The company has two choices to address the risk that its culture is not long appropriate. The
first is to implement the franchising. H&M has already some franchise stores but by
increasing the number in the countries that do not have a Scandinavian culture, the
company could manage the employees in a more efficient way. This strategy could
nevertheless not be accepted by the shareholders, because the franchising system does not
guarantee the control of the stores. However, this strategy could easily be pursued by H&M
because the company already has resources and capabilities and there is no need to
financial investments.
The second option is the organic growth or internal development. H&M should change its
culture in the environments in which it is a problem (high turnover, lack of responsibility).
The strategy addresses the issue but there is the risk that it would not be accepted by
stakeholders because the culture of the company can be considered as one of its distinctive
21 | P a g .
resources. Moreover, the change of culture would require long time and resources and
capabilities.
The recommended strategy is therefore to implement the franchising, so that in every
country the managers of the stores could adapt the organization system to the culture of
the country.
22 | P a g .
5. Justification of Recommendations
and Action Plan
After having analysed all the options that H&M could consider, in the following paragraphs
the recommended strategies will be presented and specified into the long-term and shortterm periods.
The recommended strategies for the short term period (1-2 years) are market development
and franchising.
-
Market development
This option has been chosen because it is a growth strategy that would allow H&M
to employ its resources and better manage its cost/value activities by entering new
markets and segments, perhaps before competitors.
The required finance to enter new countries and target new segments is massive,
but the company own enough resources and capabilities.
The level of risk is acceptable because the expected result is that the company will
gain profit from expanding the business.
This strategy would probably be accepted by H&Ms stakeholders because it would
result in further expansion for the companys business.
Time frame
Action plan
- Research on opportunity in new markets (South America, South Africa, Australia)
Month 1
Month 3
Month 5
Month 6
23 | P a g .
Franchising
The franchising strategy has been chosen because it appeared to be the easiest way
to adapt the organizational culture to the host countries culture. Store managers
already have franchising-mind behaviour and therefore the implementation of the
strategy should be easy.
Moreover, this strategy would not require financial resources, while the company
already has resources and capabilities for franchising.
Franchising has some positive outcomes such as the low risk and the low costs (S.
Price, 1997); however, some stakeholders could not accept to adapt the companys
culture to the host countries.
Time frame
Month 1
Action plan
- Research on countries which cultures do not fit the companys organizational
principles
Month 2
Month 6
The recommended strategies for the long term period (2-5 years) are related diversification
and market penetration.
-
Related diversification
The strategy of horizontal diversification has been chosen because it allows the
company to grow further and exploit its brand image (J. N. Kapferer, 2012).
In spite of the high capital and skills required, this strategy could be accepted by
shareholders because the growth of the company will raise the dividends.
However, the risk of this direction is the higher competition in related industries.
This strategy would also solve the strategic issue possibility of more investments
because of high revenues.
Time frame
Action plan
Year 1
- Create a networks of suppliers for providing cosmetic, sport apparel and home
textiles
Year 2
- Start offering the new products in the shops to monitor the customers response
24 | P a g .
Year 3
- Implement the offer, advertise the products and eventually create specialised stores
Market penetration
The market penetration strategy has been chosen because it would leverage H&Ms
resources and capabilities and increase the companys market share and brand image.
The required finance to collaborate with famous designers is justified by the return of
investment, and the company would be able to use its own financial resources rather than
debts.
However, stakeholders would agree with the strategy because it would make the company
growth and it is not risky.
This strategy would also solve three more strategic issues:
-
Possibility that solving some key ethical issues (wage levels, pollution and fuel waste)
benefits the company
The strategy can be implemented during a period of four years, because the building of
networks and brand image require long term projects.
Time frame
Year 1
Action plan
- Increase of the number of long-term suppliers
- Strength the relationship with famous designers
Year 2
Year 3
Year 4
25 | P a g .
References
-
Kapferer, J. N. (2012) The new strategic brand management, CPI Group, Croydon (5th
ed.)
Porter, M. (1985), Competitive advantage. Free Press, 1230 Avenue of the Americas,
New York, United States of America.
Porter, M. (2008), The five competitive forces that shape strategy, Harvard
Business Review, Vol.86(1), pp. 78-93
Regnr P. and Yildiz H. E. (n.d.) H&M in fast fashion: continued success?, Stockholm
School of Economics
26 | P a g .
Appendix
Appendix A. PESTEL Analysis
Political
Recent trade agreements within Asian countries would simplifier the export
from suppliers to new markets in the same region
Raise of taxation in some European countries could affect the demand in those
countries
Economic
Raise of production costs in Asia could lead to increase the price of the
products or to change the suppliers
Raise of price of cotton can result in whether the raise of the price of products
made of cotton or the use of less expensive materials
Social
Ageing and obesity in Western countries can change the demand, creating new
segments of the market
Awareness in safe and natural materials and in environmental issues can either
create new segments of the market and raise the cost of the product
Technological
IT systems could help the company to enter in new markets and to have a
more efficient value chain
Environmental
Pollution and waste policies can raise the production costs for the company
The production cost can decrease by using recycled materials and new energy
sources
Legal
27 | P a g .
Analysis
-
Cost advantage is not absolute (quality and brand image are also
important)
28 | P a g .
Impact on 5 Forces
to be fashion
power
development of materials
rights
29 | P a g .
High
Price/Quality
Low
Broad
Narrow
Market Segmentation
30 | P a g .
Predictions:
new stores.
Competitor: Gap
Objectives: Maintain the market share in spite of
Predictions:
more in advertisement.
31 | P a g .
Competitor: UNIQLO
Objectives: Gaining market share outside Asia.
Predictions:
32 | P a g .
Low-Cost
(H&M, Zara, G.U.)
Young Women
Young Men
Teenagers
Mid-Market
Specialist
Luxury
Navy)
Tam.Tam)
Armani)
on quality and
clothes
quantity
items
quantity
items
items
clothes
Families
quality
more
33 | P a g .
Analysis of Competition
clothes
Speed of response to
Quality of materials
changes in fashion
priced items
Capital requirements
34 | P a g .
35 | P a g .
H&M can rely on remarkable financial results: the gearing ratio of 3.01% shows financial
Financial
strength, while the company operates with a massive cash flow of 2,799.654
Resources
The company does not own any stores or factories, therefore the physical resources are
Physical
limited to 50 production offices around the world and one centralised design office in
Stockholm
Intangible
Technology
Resources
Reputation
st
H&M was ranked 21 among the top 100 most valuable global brands. This shows that the
brand reputation and awareness is very high.
H&Ms human resources have personality and attitude more than formal qualifications: they
Human Resources
are self-driven, ready for taking responsibility and make decision and capable of leading
Reputation
The company has never been involved in cases of suppliers that do not respect human rights
in low wages regions
Designers reputation
Innovation
Architecture
Strategic assets
Core Competences
-
Research &
Development
Find inspiration in the internet and street fashion along with the catwalks
Flexibility of costs
Product design
Marketing
Management
information
Operations
36 | P a g .
37 | P a g .
Valuable?
Rare?
Imitable?
Exploited?
Competitive
implications
The firm can enter new
Brand name
yes
yes
no
mostly yes
Brand reputation
yes
yes
no
mostly yes
yes
no
yes
mostly yes
famous designers
yes
yes
yes
yes
Optimise location
yes
no
yes
mostly yes
H&M
Inditex
Target Market
Product
Place
Promotion
Price
- teenagers
- young men
- young women
- children
- young men
- young women
- children
Distinctive fashion
at medium-low
quality
- leased stores
- online sales
- catalogue
- franchise
- stores
- internet
- campaign with
celebrities
- social media
- iPhone app
The company has a
policy of zero
advertising
- stores
- direct sales
Brand building
Banana Republic
has the highest
price, Gap has the
lowest
- stores
- online sales
Brand building
Gap
- young men
- young women
- family
UNIQLO
- men
- women
- casual clothing
- high-quality
garments
- international
fashion
- casual clothing
- fashionable
- value-priced
- womens sports
apparel
- fashionable basic
clothes
- natural
authenticity and
femininity
38 | P a g .
Firm Infrastructure
-
Matrix country/function
Human Resource Management
Inbound Logistics
Operations
Outbound Logistics
- Avoidance of placing
- Famous designers
- Daily shipments
- Centralised design
- Minimised store-
- IT systems provide
- 50 production offices
keeping of merchandise
information on
- Central warehouse
centrally guided
- Turnaround speed of 20
days
activities
Sustainability of cost
advantage
Procurement
- vertical linkages
factories
- optimise input costs by hiring
- input costs
reputation
- location
resources
Design
Warehouse
- location
- input costs
resources
- location
buy them
costs
Sales
39 | P a g .
High
Keep Satisfied
Key Players
Groups of pressure
Customers
Government
Managers
Major shareholders
POWER
Minimal Effort
Keep Informed
Minority groups
Media
Community
Suppliers
Minor shareholders
Low
Low
INTEREST
High
40 | P a g .
TASK CULTURE
-
PERSONAL CULTURE
-
41 | P a g .
Ethical issues
Suppliers
working conditions
wage levels
resources waste
pollution
Logistics:
fuel waste
pollution
Community
loss of jobs because the production is in other countries
working conditions
pollution (suppliers and logistics)
fuel waste
Estimate cost
Estimate cost/benefit
42 | P a g .
Risk that shareholders do not agree with the companys strategies and are not satisfied with the little power
they have
Opportunity to be proactive with some groups of pressure
Possibility of more investments because of high revenues
Possibility that solving some key ethical issues (wage levels, pollution and fuel waste) benefits the company
-
Need to low the cost in order to overcome the rising production costs in Asia, the crisis of Euro
and the rising price of the cotton
Opportunity of lowing the costs through the internet (direct online sales, less expensive online
campaign)
Unexploited
opportunities to
Possibility to change the value chain in order to low the costs further
improve the
Opportunity to overcome the distribution channel catalogue because of cost and the
cost/value advantage
It is important to overcome the competitors superiority in brand image (Gap), low price
(UNIQLO) and fashion (Inditex)
Risk of tough competition with UNIQLO because the company will probably expand in the
western countries and it has the same target market
Risk that competitors gain advantages in segment markets before H&Ms entry
Possibility to gain more profit by adapting the products further, according to the taste of each
country
Possibility to improve the distinctive design of the products in order to further differentiate
Opportunity to
develop the offer of
products
Possibility to adapt the products according to the taste of the host market
Possibility that having more suppliers as long-term strategic partner could bring some benefits
Opportunity
leverage
Possibility to strength the relationship with the network of suppliers and designers
Possibility to expand the social media presence by beginning collaborations with fashion
and
to
resources
capabilities
43 | P a g .
to
bloggers
-
Unexplored segments of the markets due to change in demography and societal concern
Risk of high turnover in the human resource because of non-conventional system without job
descriptions and titles
Risk that the human resource system without job titles and description causes lack of
responsibility and high turnover
Risk that the culture based on a flat organization system would not be accepted in non-
grow
44 | P a g .