THE IMPORTANCE OF STRATEGIC MANAGEMENT A Case Study Of H&M

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SAVONIA UNIVERSITY OF APPLIED SCIENCESUNIT OF BUSINESS AND ADMINISTRATION, KUOPIOTHE IMPORTANCE OF STRATEGIC MANAGEMENTA case study of H&MDing HuiruBusiness Administration Bachelor’s thesisInternational BusinessApril 2011

2SAVONIA UNIVERSITY OF APPLIED SCIENCESSAVONIA BUSINESSDegree Programme, optionInternational BusinessAuthor(s)Ding HuiruTitle of studyThe importance of strategic management, Case study of H&MType of projectDatePagesThesis27.4.201159 12Supervisor(s) of study1st Antti Iire 2nd Anneli JuutilainenExecutive organizationH&M in Kuopio,FinlandAbstractHennes & Mauritz (H&M) is a 100 billion Sweden company, engaged in designing andretailing of fashion apparel and accessories. The company offers a range of apparel,cosmetics, footwear and accessories for men, women, children and teenagers. H&Mprimarily operates in Europe, North America and Asia, and has a presence in over 38countries. The company is headquartered in Stockholm, Sweden and employsapproximately 87,000 people on a full-time basis.This thesis focused on the strategic management of H&M company. The main researchproblem was to make an in-depth analysis of its marketing strategy and how toimplement it. The main research method was a qualitative research by analyzing theircompany data, annual reports and making interviews with the manager, staffs andcustomers in Kuopio shop.The thesis starts with a general introduction and some background information of thisthesis work. In the theoretical part, it described the definition, process, benefit andchallenge of strategic management .In the practical part, an exhaustive analysis on thecompany’s strengths, weakness, opportunities and threats was made by using thedetailed figures.The result shows a clear image of the process of strategic management by H&M case.Some recommendations made for H&M help to improve their sustainabledevelopments and support a vivid example for many companies.KeywordsH&M, Strategic management, Marketing ,SWOT analysisNote

3TABLES AND FIGURESList of FiguresFigure 1 Organizational structure of H&M .5Figure 2 Strategic management model .8Figure 3 Four elements of strategic .9Figure 4 Environmental variables . .9Figure 5 SWOT analysis model .11Figure 6 Hierarchy of strategy .14Figure 7 Strategic decision-making process .17Figure 8 Benefits of strategic management .18Figure 9 Income statement .28Figure 10 The world of H&M .31Figure 11 Organization of auditors .33Figure 12 Working process of IT in H&M .36Figure 13 Corporate directional strategies .41List of TablesTable1 list of interview .25Table2 SWOT of H&M .37Table 3SWOT of ZARA 46

4CONTENTS1. INTRODUCTION. 11.1Introduction of the research . 11.1.1Backgound of the topic . 11.1.2 Research questions and limitations . 21.1.3 Structure . 31.2 Overview of case company-H&M. 42 Basic concepts of strategic management . 62.1What is strategic management? . 62.2 How to make the strategy . 82.2.1 Environmental scanning ( strategic analysis) . 92.2.2 Strategy formulation. 112.2.3 Strategy implementation. 162.2.4 Evaluation and control . 162.3The benefits of strategic management . 172.4The challenges to strategic management . 193. METHOD . 223.1Qualitative method . 223.2 Case study . 223.3 Benchmarking . 233.4 Data collection. 244 RESULT . 264.1 Environment analysis . 264.1.1 Mission . 264.1.2 Vision . 27

54.1.3 Value . 284.1.4 Goal . 294.1.5 Objective . 304.2 H&M fact . 304.3Strategy analysis . 364.3.1 SWOT of H&M . 374.3.2Strategy formulation. 394.4 Strategy implementation . 434.5 Evaluation and control . 444.6 Comparison between H&M and ZARA . 444.6.1 Introduction of ZARA . 454.6.2 SWOT of Zara . 464.6.3 Strategy of Zara. 484.7 Recommendation for H&M . 494.7.1 Challenges of H&M . 494.7.2 Recommendations for H&M . 505 CONCLUSION AND DISCUSSION . 525.1 Conclusion of this thesis. 525.2 Limitation of this thesis . 545.3 Suggestion for further research . 54RENFERENCE . 55APPENDIXS . 60Appendix 1 Questionnaire . 60Appendix 2 Group income statement . 63Appendix 3 Consolidated statement of comprehensive income . 64Appendix 4 Group balance sheet . 65Appendix 5 Sales including VAT by country and number of stores. 67Appendix 6 Five year summary . 68Appendix 7 Key ratios per quarter . 69

6Appendix 8 Segment reporting . 70Appendix 9 Parent company income statement . 71

11. INTRODUCTION1.1Introduction of the research1.1.1Backgound of the topicWhat can we do to make a company become successful and remain dynamic? It is acommon question we will ask ourselves no matter what kind of businesses we areengage in. Certainly we can not only rely on the traditional ways to insure the businesssafe. (Wheelen & Hunger 2005, 6.)Not too long ago, it is the only successful element for a commercial company to makeand sell excellent goods and services within its national boundaries.Most companiescan get profits by exporting products to foreign lands. Similarly, before the mid-1990s,a business corporation could be successful without using the Internet to maintain itssocial connections. But nowadays, it does not work, earthshaking change has takenplace. Globalization, the internationalization of markets and corporations, has totallychanged the way of modern corporations doing business. For purpose of reaching theeconomies of scale, it is necessary to achieve the low costs and low prices. Companieswhich need to be competitive begin to come up with “a global market” idea instead ofa national market. With the globalization of more industries, strategic management isbecoming an increasingly important way to track of international developments andposition a company for long-term competitive advantage. (Wheelen & Hunger 2005,6.)Meanwhile, electronic commerce presents a real challenge to the strategic management.Not only is the Internet changing the way customers, suppliers, and interaction

2between companies, it is making the change of the way companies work internally.(Wheelen & Hunger 2005, 7-8.)Strategic management, is it essential to be used in current business? How to implementit to take the advantage to the fullest? Therefore, given to these questions, theimportance of strategic management should be further investigated.1.1.2 Research questions and limitationsThe main focus on this research is to find out the significance of strategic managementin current society. The specific questions are as following:1. What is strategic management?2. How to make the strategic management?3. What is the benefit of strategic management?4. Is there any challenge of strategic management?The first question is to provide reader a clear definition of strategic management.When a corporation begins to pay attention to this issue, the organizer must be familiarwith it. Figuring out the definition is the primary step. The second question will give usbasic and important knowledge of strategic management. The consideration aboutstrategic analysis, strategic formulation, strategic implementation and strategicevaluation should be taken into. The third question concentrates on realistic benefitswhat the strategic management can bring to the organization. This is the most practicalissue we all care about. Besides, the challenge of strategic management also should beaware of so that it can be operated well in the competitive market.Due to the abstractness of this topic, I choose the world famous company, H&M as acase company. In order to achieve my goal-the importance of strategic management, it

3is needed to make an in-depth strategic analysis of H&M. The reason for choosingH&M is their successful business process strategy and huge popularity all over theworld. It has representative to illustrate this topic.In addition, this paper is commissioned by H&M retail shop in Kuopio, Finland.Through the analysis of their current strategy, they wish to have a profoundunderstanding of strategic management so that it can help them to improve theperformance constantly.However the limitation absolutely exists. The research focuses on a strategic analysisof H&M. Consequently the result cannot be applied to all kinds of organization. It justoffers a theoretical knowledge for any corporation who want to implement strategicmanagement well. The organization should make a correct strategic managementaccording to own situation. Despite the limitation, this research is still a good exampleto study.1.1.3 StructureThis thesis consists of five parts. In chapter 1, it starts with an introduction of the topic,background and the research questions. The reason for doing this research, why do thecase study of H&M and the four research problems are presented at the beginning. Inchapter 2, the basic concepts concerning strategic management are elaborated. Itprovides a theoretical foundation for the research. After that in chapter 3 themethodology is introduced which describes the choice of the methods and the processof data collection. Then the exhaustive results of case study-H&M are analyzed inchapter 4.The data mostly are gathered from the interviews with H&M staffs, officialwebsite and annual reports. At the end, the recommendations and conclusions aregiven.

41.2 Overview of case company-H&MHennes & Mauritz was established in Västerås, Sweden in 1947 by Erling Persson.Today, the company operates in 38 countries and employs 87 000 workers all around theworld. The main idea of H&M is to offer its customers a wide range of fashionableproducts with good quality and affordable prices. H&M continuously develops itscollections so that each customer can find something new every time they come into thestore. The collections are created centrally with approximately 100 designers, buyersand pattern makers. In addition to its permanent designers, H&M connects with topdesigners to create a fashion campaign. These designers have included Stella McCartney,Madonna and Karl Lagerfeld. H&M’s collections include women’s, men’s, teenagers’and children’s apparel, accessories, cosmetics and footwear. Apart from this, H&M hasrecently developed an interior design collection. The customers include people at allages and tastes, which is what H&M is going for. (H&M 2011a.)In addition to 2200 stores all around the world, H&M provides internet shopping andcatalogue sales in Sweden, Norway, Finland, the Netherlands, Germany and Austria(H&M 2011a).H&M outsources all production. The company has approximately 700 independentsuppliers, which are mainly situated in Asia and Europe along with 16 productionoffices. The suppliers have their own subcontractors and the overall amount ofmanufacturer units adds up to 2700. (H&M 2011a.)The turnover in 2010 was approximately 12 billion Euros. The target growth of H&M is10-15 percent for newly established stores every year. Therefore, H&M plans to employmore people and the estimated number is between 6000 and 7000 workers. (H&M2011a.)

5Corporate management is located in the head office of the company, in Stockholm.Besides the management, there are main departments for design and buying, finance,accounts, expansion, interior design and display, advertising, communication, IR, HR,logistics, security, IT and Corporate Social Responsibility are located in the country’scapital as well. (H&M 2011a.)The organizational structure of H&M is the following:HEAD umanCSROffices abroad:Production officesCountry offices(16)(16)Figure 1. Organizational structure of H&M (H&M 2011a).H&M’s corporate culture follows the typical culture of a global corporation. The goal isto treat the entire world as one market. H&M functions in various countries, but theplans and operations are same in all of them. H&M does not favor a specific countryfrom any of its market areas, but it implements its strategy similarly in all of them. Theidea is to offer the products to multiple segments, instead of marketing only for one. This

6is typical for a company like H&M that has enough resources to cover a broad selectionof markets. (Czinkota et al. 1999, 473.)2 Basic concepts of strategic managementThis chapter provides some basic concepts about strategic management whichinvolved the definition, the process, the advantage and challenges. The formulation ofstrategic management has been emphasized in the paper due to it is practicality toapply into the real strategy process.2.1What is strategic management?“Without a strategy, an organization is like a ship without a rudder, going around incircles. It’s like a tramp; it has no place to go.”-Joel Ross & Michael Kami (Fred 2011,35).Strategic management can be defined in various ways. According to Wheelen andHungers’ study (2006, 3), strategic management is a set of managerial decisions andactions that determines the long-term performance of a corporation. It involvesenvironmental scanning (both external and internal), strategy formulation (strategic orlong range planning), strategy implementation, and evaluation and control. Theyemphasize the analyzing and evaluating of external opportunities and threats in termsof an organization’s strengths and weaknesses. (Wheelen & Hunger 2006, 3.)From the perspectives of Dess and Miller (1993), strategic management is a processthat combines three major interrelated activities: strategic analysis, strategy formulationand strategy implementation.

7In the other way, Lamb (1984) states that strategic management is an ongoing processthat evaluates and controls the business and the industries in which the company isinvolved; assesses its competitors and sets goals and strategies to meet all existing andpotential competitors; and then reassesses each strategy annually or quarterly todetermine how it has been implemented and whether it has succeeded or needsreplacement by a new strategy to meet changed circumstances, new technology, newcompetitors, a new economic environment, or a new social, financial, or politicalenvironment.” (Lamb 1984.)Translating into a simple word, it can be understood as a process of strategyformulation, implementation and evaluation according to the figure 2. It is a way togain competitive advantages for an organization. Regardless of the size, the scale,every organization needs to adopt a well-planned strategic management to survive andcompete in the market and try to optimize for tomorrow following the trend of today.This is also the purpose of strategic management.

portunitiesObjectivesand sandProceduresPerformancePoliciesFeedback: Make corrections as neededFigure 2. Strategic management model(Wheelen & Hunger 2006, 1).2.2 How to make the strategyAfter having an overview of strategic management, we should figure out the process offormulating the strategy. Wheelen & Hunger (2006, 10) point out strategicmanagement consists of four basic elements. The

UNIT OF BUSINESS AND ADMINISTRATION, KUOPIO THE IMPORTANCE OF STRATEGIC MANAGEMENT A case study of H&M Ding Huiru Business Administration Bachelor’s thesis International Business April 2011 . 2 SAVONIA UNIVERSITY OF APPLIED SCIENCES SAVONIA BUSINESS Degree Programme, option

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