Internal environment: organizational analysis

This chapter will include an organizational analysis of H&M internal environment. Each of the aspects of internal organization of company such as corporate structure, corporate culture, value chain etc. will be separately analyzed and described in the following chapter.

When it comes to the corporate structure of H&M it is important to notice that the company is currently structured as a matrix organization. This type of organization is used mostly because of the high number of company’s departments all over the world. A matrix organization is horizontally laid out and product-based. (See attachments for “Matrix Structure”)

One of the aspects of matrix organization is to have employees report to more than one manager at a time. This makes different managers to come together in order to accomplish a common goal and avoid duplications of for example products, marketing and human recourse etc. In addition, the type of organization chosen by H&M allows departments work closely together, communicate more with each other and be better in solving issues. This in order makes the matrix organization more flexible and quick in the company’s response to customer needs and market changes. Also it should be mentioned that the matrix structure encourages employees and managers to communicate with each other on the same level. This means that any team member can freely make suggestions before managers make decisions. Due to this, employees feel themselves more valuable and important part in the decision making process. Employees’ satisfaction and motivation increases due to the same reasons. When all Employees are a part of the decision making process more knowledge can be used in the innovative process in the company. However there are some disadvantages of this type of organization. It is difficult to coordinate if the management team is weak and it takes a lot of time to for matrix team members to get used to working in this kind of structure. Finally, team members may ignore their functional responsibilities.

Every business has its own style, own culture. As for H&M company, it is focusing on core activities, however, it still manage to remain control over the whole value chain. H&M’s culture is influencing the whole organization. The culture and the spirit of H&M are based on their belief that common sense, responsibility, and innovation are the guidelines for H&M’s cooperators. The culture is a tool that is guiding employees and partners. When performing an outsourcing process the tight control of the different phases is most of the time lost. Therefore, a strong culture complements the control and they are important characteristic to H&M’s business model. Finally, it is important to say that the culture of H&M is very tense and it requires a lot response and hard work from company employees.

Companies like H&M who are market-driven are continuously striving for the development of their internal and external capabilities which identifies their core competencies which in turn differentiate those companies of their competitors (Prahalad, Hamel, 1990) and because markets today are evolving constantly, a company’s capability need to be dynamic (Prahalad, Hamel, 1990) for the purpose of rapidly and flexibly monitoring, aligning and responding to changes on all levels. There are multiple competitive variables such as cost and quality which are critical for success. However, those are not sufficient to attain preeminence over the competition. Therefore companies need to shift the focus of their strategies from striving to achieve the cost and quality model to more towards having the capability to innovate . The core competencies for H&M are the ability to provide latest fashionable trends at a low price, the deep knowledge and the capacity to research, predict and anticipate emerging trends, and with its strong branding, H&M is even a trend setter amongst fast fashion companies. All this wouldn’t be possible unless there is an efficient supply chain which is a core competency for H&M in comparing to most of the fast fashion brands.

H&M’s message and philosophy is “Fashion and quality at the best price” through the same advertisement in all markets). To make this possible H&M has a design and purchasing department, which makes all the clothing collections. New clothes and accessories arrive to H&M’s stores almost every day. H&M is able to move a garment from design to the hanger in just twenty days This business model is called “fast fashion” and is used by many fashion retailers. “Fast fashion” requires a highly responsive supply chain that can support a product assortment that is periodically changing.

H&M does not have any factories of its own, relying on a network of external suppliers managed through two departments: Buying and Production. The buying function focuses on customers, fashion and composition of the range. H&M’s method of production is customer-driven. The company puts a lot effort into research and prediction of emerging trends, both through traditional research means and innovative ones such as street trends. This activity is carried out by central staff and by national offices which are responsible for detecting new trends. H&M purchases garments from around 750 suppliers: 60% of production takes place in Asia and the remainder mainly in Europe. Every stage in the logistic chain is controlled by H&M, acting as importer and wholesaler, as well as a retailer. Continuous IT development provides support to H&M logistics. While the stock management is primarily handled within the H&M organization, transport is contracted to third parties. H&M has a strong distribution channel. In 1998, H&M began its “shopping online” service which has since been continuously improved. Stores continue, however, to be the main distribution channel. The strategy behind the owning of a proprietary network is that H&M can maintain control of the expansion strategy and of business locations. IT is a crucial tool along the entire value chain. Individual stores are connected with the logistics and procurement departments and the central warehouse. From central departments, it is possible to follow sales of individual items, thus feeding an intelligent procuring system. The company relies on IT integration between the central office and the production offices. Communication between departments takes place electronically, including design and product development.

To sum up, the H&M company is a big figure in a fashion retailer market. Due to its internal environment H&M became number one company in the Europe that has strong culture and structure. This chapter contains mostly descriptive information in order to show how a big “fashion giant” is controlled and managed internally.

Done by Anuarbekov Daniyar