H&M Case Assignment Sample Assignment

Case Assignment: H&M in fast fashion: continued success

Questions

1. In which areas does H&M have strategic capabilities and what are they?
2. What are H&M’s threshold and distinctive resources and competences?
3. In what areas and functions do H&M’s strategic capabilities provide for competitive advantage?
4. To what extent can they be sustained?

Background

H&M’s strategy and competitive position

• The company has been tremendously successful in fast fashion and has a range of strategic capabilities.
• The roots of the H&M ‘spirit’ can be traced back to the 1940s when the first store was opened by Erling Persson, whose legacy and philosophy for keeping business simple is still influential in the corporate culture.

• H&M relentlessly continues to emphasise the long-term view and expansion story. In that regard, successful replication of its business model is a key to the survival of the Swedish fashion retailer.
• The business model, commonly referred to as fast fashion or ‘cheap-and-chic’, emphasises high fashion at prices significantly under those of competitors.
• While H&M pays special attention to having the right design team to capture and respond to the market trends, the cost advantage is being threatened by rising input prices and rivals with lower cost structures.
• The flat and simple organisational structure has also been more challenging to preserve due to H&M’s tremendous growth.
• Another possible challenge is that H&M is lagging behind its main competitor in key emerging markets in Asia and South America, which contributed to H&M falling behind Zara in terms of market capitalisation.
• Thanks to its long-term advertising campaigns with high-profile celebrities, H&M enjoys a clear brand recognition and reputation advantage over its major rivals like Zara and Gap.

Assessment of H&M’s strategic capabilities

Resources possessed by H&M

Physical facilities – These include, e.g. production offices (which are primarily responsible for coordinating with commissioned and approved suppliers and factories across the globe), distribution centres and warehouses.

Intangible assets – These include the H&M brand name, which has strong reputation/equity, and IT systems, which are continuously improved in order to ensure supply and demand match and to monitor customer needs and preferences based on sales patterns.

Human resources – These include strong leadership, i.e. three generations of the Persson family, whose legacy and influence is key to H&M’s culture, as well as a committed and highly motivated workforce, whose personal qualities matter much more than formal qualifications and credentials.

Financial – The long-term commitment by, and majority ownership of the Persson family provide a strong financial foundation for H&M.

Competences

Culture – The business model of H&M is aimed to deliver latest fashion at best price, in a simple way and through a committed workforce. To deliver this, H&M relies on its strong culture where values and norms like employee involvement, experimentation, pace, informality, initiative taking and decentralisation are highly encouraged and praised.

Replication – As far as H&M’s growth strategy is concerned, replication is the most important competence the company relies upon. In order to open up a sufficient number of new stores each year, H&M minimises the use of formal rules and procedures and instead prefers to equip its employees with tacit skills via experiential learning in the field. This way, the ‘spirit’ is replicated at a faster pace with minimum variability.

Design – Centralised design activity not only enables faster response to ever-changing market trends in fashion, but also ensures that H&M can remain novel and original.

Store concept – H&M always prefers to have its stores in the best business locations and makes sure that the window displays are periodically changed and updated to garner continuous customer attention and that internal design of the store is arranged in a way to give the most convenient in-store experience for customers.

Marketing and CSR – H&M uses conventional marketing channels to create high brand awareness as well as social media to follow and collect customer feedback and suggestions. Corporate social responsibility is a key competence for H&M, given that the textile/apparel industry is under constant scrutiny and that H&M is one of the more visible actors in this market.

Competitive Advantage & Sustainability

• H&M derives much of its sustained competitive advantage from its unique organisational culture and related human resource management, its ability to replicate the same store concept worldwide and its overall strong brand and market position.

• The organisational culture in H&M is heavily influenced by the strong persona of founder Erling Persson.
• Unique position of the H&M brand as being equal to high fashion with quality at low prices; virtually shaping the fast fashion segment of the apparel industry.
• The H&M spirit and values developed by these leaders are central in recruiting and training new employees around the world. H&M is thus able to successfully replicate its culture and business concept in different stores around the globe, which enables the company to grow at a steady rate.
• The track record of H&M also attests to the fact that its unique culture, leadership and the HR practices of H&M are valuable strategic capabilities, which give the company a sustainable strategic edge.
• H&M enjoys competitive advantage over its rivals, but where long-term sustainability of their position is only temporary.
• Both their particular and flexible store layout and their unique design collections are valuable and rare strategic capabilities.
• Purchasing is another area in which, the competitive advantage of H&M can be regarded as temporary.
• The large number of small- and medium-sized vendors and suppliers enable fashion retailers of various sizes to have buying power during negotiations.
• H&M is at competitive parity with its competitors. These include supply chain management (SCM) and finance.
• H&M has a sophisticated SCM system, which makes it a valuable resource.

1. To what extend can other fashion retailers be successful in imitating H&M’s success?

2. What should H&M and CEO KARL-Johan Persson do to sustain and further strengthen H&M’s competitive advantage?

H&M in fast fashion: continued success II

Imitating H&M’s success

• H&M can mitigate risks associated with the erosion of competitive advantage due to imitation.
• However, the H&M’s competitive position not only depends on its own management of strategic capabilities, but what their competitors do and how the environment changes.
• H&M’s competitors (e.g. especially Zara) have similar competences for catching/shaping fashion trends as well as opening up stores in popular locations and designing window displays and interior layouts in a way which provide a convenient and appealing shopping experience to the customers.
• H&M has a sophisticated SCM system, which makes it a valuable resource. However, the resources that SCM is built upon (i.e. IT systems, warehousing facilities and logistics systems) are readily available for anyone to acquire.

Zara’s SCM system is in fact superior to H&M’s. Although the Persson family provides financial stability, this is also the case for H&M competitors.

Sustainability and strength of the competitive success

• H&M can turn its temporary competitive advantage and the areas of competitive parity into a more advantageous and sustainable position.
• H&M’s competitive position not only depends on its own management of strategic capabilities, but what their competitors do and how the environment changes.
• Develop new possible strategic capabilities; H&M can develop or new ways of managing existing strategic capabilities. H&M started out as a small player with creative and imaginative ideas about the fashion industry and shaped new and unprecedented strategic capabilities in this industry.
• Internationalisation into foreign markets and replication play a central role in H&M’s overall strategy (export, multidomestic, global and transnational).
• ‘Cheap-and-chic’ is an essential element in H&M’s overall business model. Therefore, the company is under constant pressure to keep its cost structure under control.
• Pressures for economising are getting even stronger with increased competition coming from companies from emerging economies. In order to lower costs, H&M centralises much of its supply chain management, purchasing and procurement systems.
• The company uses standardised design collections, store concept and HRM practices across the globe.
• H&M defines its strategy based on high pressure for cost minimisation and low pressure for local responsiveness.
• H&M is yet to establish full presence in Asian markets, where additional adjustments and adaptations to domestic demand preferences in terms of design collections might be required. Thus, H&M might start to feel stronger pressures for local adaptation and this may render ‘global strategy’ a less viable option in the future.
• The flat and non-hierarchical organisational structure of H&M makes it possible to grant higher autonomy to different subsidiaries and stores all around the world. This higher autonomy is often considered an essential pre-requisite for higher local responsiveness.
• Growth through replication is central to H&M’s business model.