like other well-known apparel make ne. ie aibo™ major product expansion strategy in the het equi many smaller branded othingand when panies and started many new brands of its e ways Boal Was 10 achieve Brealer operit- rie SOP) hat sing Sale8 would also result in fei By 2006, it had grown to 36 different brands, ae sues had soared from $2 billion to over aes profits had not kept pace. In fact, profits were Maa cons wee sng a operational elieny foot oe enormous complenty and expense involved ye te igso many brands.” smi aiporne reeruited a new CEO, Wiliam Li ind a way 0 turn around the troubled com- ssa mons he deeded to reverse course, shrink pas Nit and move wo & new form of organizational feeamapgc would once again allow it to grow—but (pe ne nereasing profitability. CEO MeComb's, 2 9 fet find 2 new organizational structure that (o% fe the problems associated with managing its iwsprands. He believed the company had devel- ‘of complexity” due to its rapid growth and reanizational structure. had created five different apparel di sen manage its 36 brands: brands were grouped ssotigennt divisions according to the nature of the spor aseesories they made. For example, luxury ei ines ike Ellen Tracy were grouped into one seat dothes for working women such as its signa- jana Buchman brands were in tye Lis Claiborne and D: snd: trendy, hip clothing directed at young custom- rah sits Ivicy Couture line were in a third division, ‘Swen A separate management team controlled each jriomn, and each division performed all the functional Stvites like marketing and design needed to support ishands The problem was that over time it had become ‘iseingly difficult both to differentiate between apparel toad in each division as well ay between the brands of sent divisions because fashion styles change quickly sponse to the demands of changing customer tastes. ‘Snauts were rising because of the duplication of aetivi- ‘esteeen divisions, and increasing industry competi- ‘vs resating in new pressure to lower prices to retail Sesto protect sales __ikCom decided it was necessary to streamline and tt Li Chaiborne’s organizational structure to meet {Ssnpng need of customers and the inereasing Com Spamintine pecan fhe eowth of pra tel SFist, he decided that the company would either fol ie sane try comple 0! ‘The company a aiborne Refashions Its Structure of its 36 try to sell license, of if necessary close aero he best team and foces on the remaining 20 tH N07 cuter chance of generating good profis in the FUME | ging. scided to change its © manage these 20 brands, he decided t0 Chane TACT isions shrink from five sated an entire level .d him to eliminate of top manage the duplication ‘ail functions across the nal structure and to to just two. This elimin: ‘ment, but it also allowe in marketing, distribution, and re st savings vid te atone and so would result in major cost SINE fans are now its retail divi The two remaining divisi ‘ called “partnered brands” Its new structure Is Mt Jed to “bring focus, energy and clarity” to the way each £7 Non operates, The retail division, for example, fs FEYPT ble fer the brands that are sold primarily through 1 Claiborne’s own retail store chains, such as its Kate Spade. re chains. The goals of Lucky Brand Jeans, and Juicy Coutur srouping together its fastest-growing brands is (9 ANOW di- sional managers to make better marketing and distribu- Tom decisions to attract more customers. For example, Liz Claiborne plans to increase targeted marketing on direct Tabels to 3% to 5% of annual sales and to find ways to Bet rew clothing designs more quickly to its store to compete wath chains like Zara that are able to innovate new clorh- ing collections almost every month. The company ako plans to open 300 more stores in the next few years to ade to its 433 specialty stores and 350 outlets stores.” In contrast, the problem in the wholesale division. which sells branded apparel lines such as Liz Claiborne and Dana Buchman directly to department stores and other retailers, is to reduce costs to slow down the growing threat from private labels. For example, sales of Macy's private labels increased almost 10% during the 2000s. If managers of the wholesale division can find ways to i= prove operating efficiency, it can offer stores like Macy's Tower prices for its clothing to encourage them to stick with its brands. Similarly, if the division's managers can find ways to reduce costs such as by turning inventory ‘over more quickly, sharing marketing costs, and so forth, then even if the prices they can charge do fall, they can still inerease profits. Wholesale managers are also part- nering with department stores to develop exclusive lines of branded clothing so both parties benefit. For example, they reached an agreement with JCPenney to launch a line called Liz & Co. that will be sold only in its stores; so far sales have been good, and both partners have enjoyed er profits. ‘Thus CEO McComb realized that to reduce complex- ity and allow cach division to build the right merchandis-- 486 PART 2* ORGANIZATIONAL DESIGN ecessary to change Liz Claiborne’s re, From grouping clothing products into divisions based on their quality or price, he changed to two market divisions where clothing brands are grouped accor-ding to the needs of each division's customers— either the people in its stores or the retail chains that buy its clothes to resell to individual customers. The real prob- lem is that each division faces a quite different set of stra- tegic and operational problems, and with its new structure managers in each division can now focus on solving the specific set of problems to achieve the best performance from their particular brands. In 2010, McComb’s hope ing culture, it was mi organizational structur is that in the next decade the company’s sales will rapidly, but this time its new structure will lead 19,2 efficiency and effectiveness and so rising profitably Discussion Questions 1. What were the problems with Liz Claiborne’sg, organizational structure? 2. How did McComb change Liz Claiborne’s structure to improve its effectiveness? Go to the Web and find out how his design changes have worked.