Saturday, April 16, 2011

Blog # 5- Can you say what your Strategy is

ZARA can say what its Strategy is

zara1.jpg

Interestingly, the article “ Can you say what your strategy is? ” starts with whether an executive or employee summarize a company’s strategy in or less than in 35 words. The article states that only a handful of executives have the answers to this question and the companies, whom these executives work for, prosper.

According to the late Mike Rukstad, a law professor, there are 3 essential components of a well-designed strategic plan- objective, scope and advantage. To succeed in the business world, an executive should be absolutely clear on the 3 components. The authors add to the discussion that advantage forms the essence of a business strategy. What distinguishes the business from its competitors is the key to achieving your goal. Advantage is complemented externally and internally by a value proposition- what more benefits do we provide and a description of activities-how can only your firm deliver such a value proposition.

Take the example of Zara, the flagship chain store of a Spanish group Inditex S.A. Its founder, Amancio Ortega, has well defined objectives, scope and advantages. Zara’s objective is to achieve growth and profitability. Over the years, Zara has created its footprint in 45 countries with 531 stores in prime locations across Europe, America, Asia and Africa. The brand continues to grow and gain presence in other cities. As per the article, a business’ scope comprises of 3 dimensions- customer / offering, geographic location and vertical integration. Zara follows these dimensions by targeting young, price sensitive and trendy customers. Zara gets a wider market of customers because it does not define its target by segmenting ages and lifestyles. It offers products for customers ranging from women (60%), men (25%) and children (15%). You will never find a a Zara store in a non-prime location. For example in New York, Zara has its biggest store in the heart of Manhattan on fifth avenue.

Zara holds several advantages over its competitors. It offers fashionable clothes at a lower price and is an early adopter of the latest styles. It can get a newly designed garment to its store within 2-3 weeks whereas its competitor would take 4-6 months. It can achieve this since it controls its supply chain from design to retail. Unlike most competitors, Zara does not outsource its manufacturing to emerging markets such as Asia. It prefers to hold all its operation at Spain and this I consider a “trade-off” but also a “sweet spot”.

The company also creates scarcity, which leads to desirability amongst customers in a creative industry such as fashion. Shoppers wish to get hold of the stylish garment before anybody else. Every year, Zara only discounts around 18% of its stock, a significantly low percentage as compared to its competitors’ stocks, who offer discounts to 36-40% stocks annually.

The message Zara sends to its customer is that clothes should be freshly baked. Clothes are perishable items and are not worth storing in the closet for a long time. Rather, they be consumed quickly. The employees and executives of Zara understand the message to be delivered and follow the right path when it comes down to planning and making strategies. Though there is trade-off of not outsourcing manufacturing to developing markets, the business of Zara is yet successful.

Questions

1. Why can’t competitors of Zara such as H&M or Gap differentiate itself like Zara does. Are the strategies of Zara very difficult to follow?

2. If it’s a dirty secret that most executives cannot articulate the objective, scope and advantage of their business in a simple statement how should one hire the right executive?

Sources:

1. “Can you say what your strategy is” by David J. Collins and Micahel G. Rukstad.

2. http://www.harbott.com/2011/03/03/analysing-zaras-business-model/


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