Blog#4

Blog #4: Taking Strategy from Development to Implementation

-         ---Zara

Through readings, I found the importance on systematic strategy development advised in Bringing Science to the Art of Strategy [1]. The real process executed in house is hard to observe, but the contents highly make sense. Even we dealt with relatively simple cases in the case competition or group discussion, some cases progressed on a mere impromptu idea, all of sudden, with disrupting the sequence. The level of discussion went back and forth, making that development process much inefficient and ineffective. That systematic method learned must be implemented to induce the significant suggestion.

Reading these articles, I ran into the strategy of Zara, one of the largest apparel retailers in the world as the good example of strategy implementation [2]. Their strategy seems to focus on making the products easier to sell, not selling the products they make, which is completely different from other rivalries with strong emphasis [3]. Other fashion retailers usually forecast or make the trend or fads before the boom start. For instance, some retailer, such as Fast Retailing with UNIQLO, took multiple years to launch their products, such as HEATTECH [4]. On the other hand, Zara is unwilling to go ahead, but it is eager to sell the popular product after the trend and popularity get almost obvious. In other words, their position is interpreted as the fast follower: they will not become the leader in the industry, but they can catch extremely fast the trend observed on the market, selling the clothes which have much higher probability to sell than peers. This positioning is novel in the fashion retail industry.

Zara is also vertically integrated from designing, manufacturing, distribution, to the retail. This integration can fasten the speed of product cycle with the shortest lead time. Even though the transportation cost could be inflated, it ships the product by air for quick distribution. This advantage is combined with two sources: positional advantages that its HQ and factory are founded in Spain, which holds relatively cheaper wages in developed countries, and special capabilities of sophisticated supply chain management with extremely short lead-time [5]. That strategy gives too heavy burden for the supply chain: it requires a large amount of capital expenditure for the vertical integration, and investment and development on supply chain management system. Therefore, it is very difficult for competitors to replicate its strategy.

Zara’s inventory management is so unique that it is not afraid of being out of stock. It believes that that system encourages customers to purchase the favorable products at that time before others selling, and to frequently visit the retail store to check the current lineups. As this system makes the retail shores be a sort of billboard, it has very lower selling and generally administrative expenses (SGA) than other retailers. While the industry average of SGA/revenue ration is 3-5%, Zara’s ratio is less than 0.5%.

This fastness can be guaranteed by quick decision making conducted by small groups (3-5 members) dedicated for each clothes as well. In terms that they don’t have to wait the approval from the executives, the tension between top-down versus bottom-up is well maintained at the good status [6]. These advantages allow Zara to sell wide variety of products in small quantities as soon as possible.

 [References] 

[1] Bringing Science to the Art of Strategy (Lafley, Martin, Rivin, and Siggelkow, Harvard Business Review, September 2012)

[2] Rapid – Fire Fulfillment (Ferdows, Lewis, and Machuca, Harvard Business Review, November 2004)

[3] Have You Tested Your Strategy Lately? (McKinsey Quarterly, January 2011)

[4] The Heat Generation. Japan Technology wear, HEATTECH transforms what we wear in winter and transforms winter worldwide. (UNIQLO, November 2009)

https://www.fastretailing.com/eng/group/news/0911051700.html

[5] Can You Say What Your Strategy Is? (Collis and Rukstad, Harvard Business Review, April 2008)

[6] Good Strategy Execution Requires Balancing Four Tensions (Horan and Connerty, Harvard Business Review, November 2017)