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THE SECRET OF H&M GROUP SUCCESS IN THE


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UNIVERSITY OF THE WEST OF SCOTLAND

(THE SECRET OF H&M GROUP SUCCESS IN THE LAST DECADE)

AMRO RADEEF
Table of Contents

Table of Contents ................................................................................................ 1


1.Introduction:..................................................................................................... 3
2. Leadership: ...................................................................................................... 3
3. H&M Culture: ................................................................................................. 4
4. H&M Structure:.............................................................................................. 5
5. Stakeholders: ................................................................................................... 6
6. Macro-Environment: ...................................................................................... 7
6.1 PESTLE Analysis: ..................................................................................... 8
o Political and Legal aspect: ..................................................................... 8
o Economic aspect: .................................................................................... 8
o Culture/ Social aspect: ........................................................................... 9
o Technological aspect............................................................................... 9
o Environmental aspect: ........................................................................... 9
7. SWOT ANALYSIS: ...................................................................................... 10
o Strengths: ................................................................................................. 10
o Weaknesses: ............................................................................................. 11
o Opportunities: .......................................................................................... 11
o Threats:..................................................................................................... 12
8. Analysis of the Business Function: .............................................................. 13
8.1 Managerial changes analysis: ................................................................. 13
8.2 Financial performance: ........................................................................... 13
8.3 Marketing and Advertising: ................................................................... 14
8.4 Human Resources: ................................................................................... 15
9. Conclusion: .................................................................................................... 16
References........................................................................................................... 17
1.Introduction:
The Europe market of fashion has evolved in recent years. Especially, the Sweden

market which has become well known for the competitive price, good quality and modernity

(Sternö and Nielsén, 2015). The perfect example of Sweden fashion company is Hennes

&Mauritz (H&M) company which was founded in 1947 by Erling Persson (H&M Company,

2013b). H&M is one of the largest multinational clothing retail in the world, so, this paper aims

to investigate how its strategic direction and the strategy changes have led to this success in the

last decade. Specifically, this paper will analyse the strategic changes in the company

leadership, culture, structure, stakeholder’s strategy, environment and the business function in

the last decade.

2. Leadership:
leadership is the art of influence, it’s how to influence various people to work together

to achieve the business vision, mission and strategic goals (Weiskittel, 1999). H&M leadership

style has been influenced by the new CEO (Karl-Johan) in many ways (H&M Company,

2013b). These influences can be described from the transformational leadership perspective

which basically aims to develop the individual and social factors within the company to fulfil

the main objectives of the company. The following three elements of transformational

leadership clarify how this approach has helped H&M in improving its business concept (Bass,

1990).

 Individualized Consideration: it’s about the leaders’ ability to play the mentor role

by listening to the internal employees and external partners concerns and needs, then

providing them with the support and empathy they need (Howell and Avolio, 1993).

According to that, H&M leadership has planted values such as the entrepreneurial spirit,

3
straightforwardness, open-mindedness, believe in people and the “one team” into the

company culture.

 Intellectual Stimulation: it’s the leaders’ ability to use the employees’ ideas and

suggestions for evaluating the business issues and then take the risk of various

solutions. This ability stimulates the employees to be more creative and helpful (Bass,

1999). Accordingly, H&M new leadership has been built on giving the space for its

employees and partners to invent different collections and expansions in the fashion

sector every year. For example, H&M Sports range which was launched in 2014 (H&M

Company, 2014a).

 Inspirational Motivation: it is the leaders’ ability to motivate the employees with

power standards and showing them how important their part of working. Accordingly,

H&M new leadership designed many values and communication tools that motivate

and convince its employees about their important role (Bono and Judge, 2003). For

example, “you grow, we grow” is a value dedicated by the H&M leadership to show

how many self-improvement opportunities employees can capture during the work for

H&M (H&M Company, 2013b).

3. H&M Culture:

The management of H&M has improved and enhanced the company culture in the last

decade to fit with the Task Culture Model. This culture model based on the teamwork to

achieve the business goals and objectives through specific projects. Each team should contain

the appropriate mix of leadership skills, experiences and efficiency to provide creative

solutions and ideas. So, the power in the company is distributed among many types of teams

(functional areas) and every team can improve and develop its sub-goal in purpose to achieve

the overall goals and objectives (Trice, 1984; Sirmon, 2004). Furthermore, the company culture

includes many significant values which classified under the overall value “THE H&M

SPIRIT”. For example, the inclusive workplace value; H&M believe that people are the
4
success, it always tries to improve the workplaces with comfortable conditions (respect, fun,

integrity). Another important value is “you grow we grow”, H&M believe in its employees and

believe that everyone is a talent and creates a difference at H&M. finally, H&M believe in the

ethical long-term relationships with the suppliers and partners and always seek to build the

mutual respect (H&M Company, 2013b).

4. H&M Structure:
The company structure hasn’t radically changed in the last decade, but many

improvements have been added to go along with the company expansion strategy. For example,

H&M had 148000 employees and 1345 stores in 61 countries by the end of 2015.This number

has increased from 60000 employees and 1345 stores in 24 countries in 2006 (H&M Company,

2006a; H&M Company, 2015a). Hence, H&M adopted the matrix organizational structure

which consists of the vertical arrows and the horizontal arrows (Rowlinson, 2001). On one

hand, the vertical arrows here include that executive H&M management crew should achieve

the work efficiency in their functional areas in each country. In general, figure one shows the

main functional areas within H&M company.

5
Figure one - H&M functional areas

Adapted from Ding, (2011)

On the other hand, the horizontal arrows include that the country managers are

responsible to achieve the target profit and sales in their countries (Aoki,1986). Otherwise, in

order to control the company functions the significant polices such as manuals, code of ethics,

financial policy, guidelines and communication patterns are written in the prime departments

in Stockholm. After that they are transferred to the head departments and offices in each

country. Likewise, the daily work in each store is organized by detailed instructions issued

from the head office too (Chapman, 2005; H&M Company, 2011a).

5. Stakeholders:
Stakeholders are classified into two areas: internal and external stakeholders. On one

hand, H&M has developed many programs in the last decade to meet the interests and

6
expectations of its internal stakeholders such as the employees, managers and owners. For

example, in 2011, H&M launched the HIP – H&M Incentive Program which states that H&M

employees and managers can start to share the company profit increase after spent 5 years in

H&M and they will be paid when they turn 62 years. On the other hand, H&M has developed

its relationships with the external stakeholders such as customers, society, government,

shareholders, creditors and suppliers in order to achieve its success in the last decade. Firstly,

H&M has focused on sharing with customers it's conscious message about the respect for

human rights and for the environmental caring. Secondly, about the governments, H&M has

shown its support to many policies and codes like Tax Policy, Product Policy and security

policy. Thirdly, about shareholders, creditors and suppliers, H&M has depended on engaging

closely and providing correct, natural and transparent information to meet their needs and

maintain the relationship (Carroll, 19991; H&M Company, 2013b). Finally, about the society

H&M management department in 2008 developed a new sustainability strategy. What’s new

about this strategy that it’s a sustainability strategy more than just being a (Corporate social

responsibility) CSR strategy. Ingrid Schullström the CSR of H&M clarified that the big

difference here that the new sustainability strategy became a shared responsibility amongst the

whole departments in the organization. So, any sustainability issue affecting more than function

will be investigated via new decision-making forum named the Green Room (H&M Company,

2008b).

6. Macro-Environment:
The macro-environmental factors play an important role in the business success besides

of the business structure, culture and leadership (Sethi, 1979). So, each of PESTLE and SWOT

analysis tools will use in this paper in order to analysis what external factors H&M has faced

in the last decade.

7
6.1 PESTLE Analysis:
As analytical tool, PESTEL provides a bird’s eye view for the whole industry form the

following different aspects which generally help in analysing the whole environment (Yüksel,

2012).

o Political and Legal aspect: because of the H&M expansion strategy, foreign

countries are so important for two reasons. firstly, H&M have a huge number of stores

in foreign countries and always try to enter more and more foreign countries.

secondly, a large number of H&M suppliers are within foreign countries and as is

known H&M has no factories and mainly depends on these suppliers to produce its

own products (Thomachot and Student, 2008). Accordingly, as a multinational

company, H&M should fully understand and take into consideration every country’s

regulations before entering it. Particularly, it should pay more attention for imports

and exports regulations which can affect the profit margin, cost of goods and other

financial aspects. Otherwise, the local laws which concern about environmental

problems such as minimum wage, child labour and health standards should be

considered too (Mazzarol et al., 1999).

o Economic aspect: in the last decade, H&M has affected by the global inflation in

cotton costs in Pakistan, which is the biggest producer of cotton in the world. Because

of this inflation, H&M faces an increase in the production cost which affects the

potential profit for the company (Khan, A and Khan, M, 2010). Another reason for

production cost increase is the international trend that claims to increase the

employees' wage in the low-wage countries according to global minimum wage laws

(Konings and Murphy, 2006). Otherwise, the global recession in 2008 has affected

the customers’ spending patterns, so, multinational companies have to decrease its

8
products and services prices to go with the constantly decrease in customers’

spending power (H&M Company, 2008a).

o Culture/ Social aspect: in general, companies in the fashion industry always aims to

meet the customers’ expectation by producing modern and trendy products. But in

the same time, these products should also suit the customers’ fashion sense (Craik,

2003). H&M as a multinational company should consider that different cultures and

countries have different fashion senses. For example, European market prefers the

“fast fashion, whereas, the Asian market accepts the trendy fashion in a slower pace

than European market (Rocha et al., 2005). So, multinational clothing retail

companies usually build a partnership relation with local designers around the world

to redesign their products in local ways. Otherwise, producing environmentally and

following the basic ethical rules such as minimum wage and human rights represent

the main social challenges for every multinational company these days (Banerjee,

2008).

o Technological aspect: in the last decade, the technology has dramatically developed,

the customers became well informed about their purchasing choices through social

media and communications tools. Likewise, online shopping via the websites and

mobile apps also became one of the major ways of purchasing (Wang, 2010).

Therefore, multinational companies in the fashion industry have highly invested into

the IT and technological systems to meet the customers’ expectations and achieve the

effectiveness of performance. For example, 3D printing is one of the fascinating

innovation in the fashion sector which gives designers a space to be creative and

produce stunning digital designs (Petrick and Simpson, 2013).

o Environmental aspect: customers have become more self-aware about the

environmental issues in the last decade. That means customers’ purchasing choices

9
are strongly affected depending on how much environmentally the company acts

(Young et al., 2010). Hence, many of multinational companies has mainly focused

on adopting a sustainability strategy in order to occur the business operations in

environmental atmosphere (Dao et al., 2011).

7. SWOT ANALYSIS:
Based on the previous analysis of leadership, culture, structure and business external

environment, SWOT is used in this part as analytical tool to show how H&M has dealt with

the business environmental factors. This analysis occurs by discussing the company’s

strengths, weaknesses, opportunities and threats (Valentin, 2001).

o Strengths: the internal strengths have helped H&M to achieve the business success

and actualize its business concept in the last decade. Firstly, H&M has a strong IT

infrastructure which links the all stores with one centric warehouse. Also, the IT

system provides a direct connection between the designers and the production teams.

These links help in controlling and managing the channels in an effective way.

Moreover, H&M has many production offices which are located near to the suppliers’

factories. These offices enhance the relationship between H&M and its suppliers and

upgrade the communication too (Melville, 2004). Secondly, H&M has the efficiency

to finance its expansion strategy by its own sources. H&M depends on cutting many

extra expenses that are not necessary and use these savings to expand in new foreign

countries. For example, many of executives in H&M don’t have a special receptionist

(Petro, 2012). Likewise, H&M has adopted an edited supply chain without owning

factories and instead depends on purchasing huge quantities from suppliers. This

strategy caused decreasing in the costs which in turn led to competitive prices for

H&M products (H&M Company,2011a). Finally, the most important strength of

H&M is the powerful brand image. H&M is so commitment for its sustainability

10
strategy and consider the sustainability strategy as a long- term investment. Besides

the financial success, this strategy aims to achieve the social and environment success

for the company which in turn, enhance the brand image of H&M. For example, in

2014, the Fairness Award in Washington was given to the H&M CEO (Karl-John

Persson) as a result of the company efforts in developing the poor communities. As

well, H&M improve its brand image by the collaboration with famous celebrities in

their advertising campaigns such as Madonna and Beyonce. Likewise, H&M

cooperate with famous designers from different countries to spread the brand name

(H&M Company, 2014a).

o Weaknesses: depending on independent suppliers to produce H&M products is one

of the critical weakness for the company. However, H&M has a code of conduct

which suppliers must follow during the corporation with H&M. But H&M still

doesn’t have 24-hour control and observation for the suppliers’ factories, that means

unnoticed mistakes may occur (H&M Company, 2013b). Likewise, irresponsible acts

according to factories employees’ rights may happen by the suppliers which will

negatively affect the H&M brand image. Otherwise, another critical weakness of

H&M is that the centres of product distributions are mainly existing in Europe which

makes the distribution system is so slow because of the far geographical distance to

other markets around the world. This long time for products delivery badly affects

the H&M reaction time for competitors offers in the foreign countries (Ding, 2011).

o Opportunities: During the last decade, the online shopping has rapidly increased,

people these days prefer to buy clothes via online websites and mobile apps than

shopping from the regular shops. Also, online shopping offers many modern clothing

styles for customers who don’t have these styles in their own countries (Ha and Stoel,

2009). Increasing in the online shopping represents a gold opportunity for H&M to

11
expand its online stores and capture a higher sales revenue and profits across

countries such as South America countries and Russia (H&M Company, 2015a).

Another potential opportunity for H&M is its sustainability strategy. H&M has

amazingly developed its sustainability strategy in the last decade, therefore, H&M

could design and improve marketing strategies which go hand in hand with the

sustainability strategy. This combination aims to educate and increase the consumers’

awareness about H&M environmental actions and that because large number of

consumers actually don’t know about theses action. This opportunity gives H&M a

chance to capture this competitive advantage against its rivals in the clothing industry

(H&M Company,2014b).

o Threats: as we mentioned before, H&M has a great sustainability strategy, but it’s

too hard for multinational company like H&M to be 100% sustainable in all its

operations. Hence, H&M faces many environmental challenges such as heavy water

usage and tough working conditions. H&M is considered as one of the larger water

users in the clothing industry which put it under a high pressure to reduce the water

use (Martin and Shouten, 2012). Another threat facing H&M is the low brand loyalty

in the clothing industry. These days, consumers always searching for the best deal

which mean the best price and best quality. Consequently, competitors such as Zara

may take the advantage in producing higher quality products at competitive prices.

Particularly, Zara producing all its products in-house, whereas, H&M producing its

products abroad which gives the consumers an impression that Zara products quality

higher than H&M.

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8. Analysis of the Business Function:

8.1 Managerial changes analysis:

As is known the main task for the Chief executive officer is setting the strategy and stating the

vision and mission of the company. Moreover, CEO have many other duties such as deciding

the potential markets to enter and improving the long investment to guarantee the future success

of the company (Rockart and Treacy, 1982; Evans and Alire, 2013). In 2009, H&M had a new

CEO (Karl-Johan) who approved many existing strategies that developed by the previous CEO

(Rolf Eriksen) such as the H&M expansion strategy; which its goal to increase the number of

stores in existing and new markets by 10-15% yearly. Then, he started to invest in the E-

commerce, the internet, IT, mobile app sectors in order to capture the future opportunities in

these sectors (H&M Company, 2009a). For example, in 2013 a fully H&M mobile app was

launched to meet the high demand in this sector (H&M Company, 2013a). However, the New

CEO (H&M Company, 2013a p.15) stated that “In order to secure H&M’s future growth and

continued high profitability it is important for us to run our business in a socially and

environmentally sustainable manner” (H&M Company, 2012a).

8.2 Financial performance:

By the end of 2007 the H&M group sales increased by 15 % to reach SEK 92 billion

(including vat) and the profit after financial items grow by 21 % to became SEK 19 billion.

One of the key sources for the sales and profit increase in 2007 was launching a new brand

called COS (collection style) by H&M group (H&M Company,2007a). A closer look at H&M

balance-sheet during 2008 and 2009 shows that current ratio (working capital ratio) increased

from 2.89 to reach 3.25 in 2009.This increase indicates that H&M was growing into its capacity

and also indicates that the company can easily turn its assets into cash to pay its obligations

(H&M Company,2009a). Otherwise, Table One shows that the Asset Turnover ratio has

generally increased in the last decade which indicates that H&M management has the

efficiency to utilize its own assets into generating its revenue and sales.
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Table One- H&M Assets Turnover Ratios

Ratio/ Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Asset Turnover Ratio 1.98 2.04 1.89 1.93 1.92 1.85 2.02 2.04 2.15 2.23
(Average)

Adapted from H&M company Annual Report from 2006 to 2015

However, in general Table Two shows a high value of return of assets ratio, the values were

higher first period (2006 to 2010) than the second period (2011 to 2015). That because after

2010 H&M management started heavily investing into the IT department, sustainability

strategy and expansion strategy which affected these values. In general, the high values of

return of assets ratio in the last decade indicates that H&M management has efficiently

employed the company’s total assets to generate its profits (Jones, 2011).

Table Two- H&M Return of Assets Ratios

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Return on Assets 31.41 35.16 32.90 31.03 32.91 26.51 28.03 27.26 28.28 25.89
%

Adapted from H&M company Annual Report from 2006 to 2015

8.3 Marketing and Advertising:

H&M has followed the cost leadership as a marketing strategy to differentiate itself

from rivals in the clothing industry. To put this strategy on the right path H&M has edited the

traditional supply chain structure by depending on bought products from separate suppliers

rather than owning its factories. This long-term partnership allows H&M to produce a huge

number of products in low cost of products. Thus, H&M holds a high market share in the

international market and put entry barriers for competitors who can’t offer low prices with this

high quality and modern products like H&M (boag, 2012). Moreover, H&M as an international

company is not limited to customise a special campaign for every market. But instead, it tries

to globally enhance its brand image and use most modern ways of advertising. For example,

the collaboration with high talented professional designers and with fashion institutions such
14
as the collaboration with the French fashion house Lanvin (H&M Company, 2010a). Another

way of advertising is the collaboration with popular celebrities such as the popular singer

Madonna (H&M Company, 2006a).

8.4 Human Resources:

Because of the expansion strategy, H&M staff is constantly increasing, for example, by

the end of 2015 H&M had about 148,000 employees, while 16000 of them were employed just

in 2015. The importance of Human Resource Management (HRM) appears in integrating the

humans’ efforts with the overall strategies of the company. So, during the last decade, the HRM

strategies and improvements in H&M can be summarised into the following areas based on

Armstrong (2006) classification.

 Overall Policy and Employee Development: In the last decade the company HR

has developed many guides and manuals based on diversity, human rights, fair

wages and fight discrimination. Moreover, HR department focused on developing

the employee skills and personalities through many training sessions. For example,

H&M has developed a roadmap for a fair living wage (Figure two). Mainly, this

road map states a corporation between H&M group, factory owners(suppliers),

brands, factory employees and governments. The plan includes many activates:

improving the H&M sourcing processes, improving the pay structure at

factories(suppliers) and training of the factories employees (H&M Company,

2014b).

15
Figure two - H&M roadmap for a fair living wage

Adapted from H&M sustainability report (2014)

 Employee Relations and Voice: H&M has built its internal culture based on liberal

values which allow its employees to discuss their issues and suggestion directly

with their supervisors, management and trade unions. These values play a positive

role in protecting the employees’ rights. For example, H&M relationship and

agreements with European Works Council in 2008 (H&M Company, 2008a).

 Rewards: H&M adopted a new reward approach which is different from the normal

approach that just focuses on the financial site. This reward approach depends on

offering more and more opportunities for employees to interact with professionals

in the fashion industry and gather many attractive skills (H&M Company, 2013b).

9. Conclusion:
In the last decade, Hennes &Mauritz company has achieved its success in the global

fashion industry by recruiting its leadership, structure, structure, environment, and the business

function in achieving the business original concept “Fashion and quality at the best price”.

Moreover, the cost leader ship strategy, the expansion strategy and the sustainability strategy

represent the future keys for H&M to maintain and develop its success in the long term.

16
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