Category: Management

H&M and Next Comparing Paper

Executive Summary

This paper is a strategic management report, which compares H&M and Next companies choosing the most appropriate for further investments. Moreover, it provides a thorough analysis of their operations. The report reviews various policies and interventions that the management has incorporated as a means of upholding the company’s competitive edge. In the introduction, there is a diligent outline of the current challenges that the organizations are currently facing. In addition, the paper analyses the backbone of the company’s profile, and it is clear that both organizations started their business as women's collection stores. Moreover, the success of both companies resulted from geographical expansion in addition to robust online engagement. There is also a SWOT analysis that describes in detail the elements of strengths and weaknesses of both companies. These organizations face almost identical strengths, opportunities, weaknesses, and threats because they are operating in the same industry.

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In compliance with the corresponding recommendation, the report outlines managerial challenges and the respective ways of handling these issues. Moreover, the paper analyses the mode of communication and code of ethics employed by the two companies as well as the rationale behind the choice of each structure adopted by the respective organizations. Due to the conducted analysis, it is evident that there is little difference between the companies regarding the strategies employed in their operations. However, H&M possesses better reach, has a higher return on the capital, and provides more inclusive management. Thus, Caifu should invest in H&M, but they must proceed with the utmost caution in identifying the right brands or the combination, in which they plan to invest.

  • Introduction

Nowadays, a high level of competition characterizes the markets of any organization accompanied by the constantly reducing disposable income of the customers. Moreover, the companies run their business during a period of a high level of information exchange. This phenomenon increased customers’ demands, which continue to be unique and dynamic. The responsibilities of the management have become more complex since the goal is to guarantee the company’s competitiveness in an environment where the performance of the economy is poor and the customers’ demands are changing rapidly (Mcgee 2014). To demonstrate the intertwined connection of management and realignment, the corresponding theories have developed through three distinct phases of classical, neo-classical, and modern management theories, such as systems and contingency approaches. The classical theory of management incorporates scientific management, and bureaucratic management in addition to administrative management. The classical management theory emphasizes the need to increase organizational and worker efficiency through the application of management practices (Rehman & Afsar 2012). A thorough observation of the interaction between the various inputs to the production process allowed the management to make the appropriate decisions, instructing the execution of tasks in a specified manner aimed at achieving the highest results. The classical approach to the corresponding performance is because the manager seeks the best ways of predicting the worker’s behavior. Prominent contributors to the classical theory are Frederic Taylor with his scientific theory of management, and Max Webber with his bureaucratic theory of management (Abbas et al. 2016). Neoclassical management is widely accepted as a reaction to the shortcomings of the classical theory, emerging in the 1920s and covering the human aspects of employees and organizations. The new demand for the management is to employ the proactive spirit whereas market dynamics play a major role in the realignment of the management. Because both organizations, namely H&M (UK) and Next (UK), operate in the fashion industry, they are facing a scarcity of resources, increased competition, and diversity in customers’ demands forcing them to incorporate creative business operations as a means of remaining competitive.

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The scarcity of resources is the major challenge faced by these respective companies due to the recession effects leading to the need to uphold the element of sustainability. In the context of H&M, the intention is to ensure that they operate in a manner that is economically, socially, and environmentally sustainable. To meet these demands, the company intends to ensure that its performance requires fewer resources and engages in projects that empower the communities around their areas of operation. On the other hand, Next is also experiencing the issue of scarce resources. Consequently, the company ascertains that any new store meets the financial feasibility test before committing the profit (Next 2017 (1)). Moreover, the given organization has introduced strategies aimed at ensuring that it adopts more efficient product sourcing to minimize the cost of operation.

Competition is another challenge affecting companies. This phenomenon is due to increased globalization. There is an increased number of companies that engage in the fashion industry (Yoo & Kim 2016), which is also the case in the UK market. Consequently, this has led to the strategic management policies being utilized by the two companies. Regarding the policy of Next, the company has realigned its operation to increase its focus on customer service and satisfaction (Next 2017 (1)). This realignment has been reduced both in the retail and directory. In addition, the company intends to ensure the expansion of its Next directory customer base as well as corresponding spending. On the other hand, H&M entered deliberately into a partnership with Ellen MacArthur Foundation to improve its business model (H&M 2015). In addition, the company relies on innovation as a means of improving its competitiveness. They enhance this strategy through the utilization of a join forces approach with open forums where different parties exchange their ideas (H&M 2015). Both H&M and Next companies have employed viable means and ways of ascertaining that they remain profitable in a poor-performing economy and a very competitive environment.

Company Profiles

H&M is one of the most successful fashion companies in the world, which provides a combination of many brands, namely H&M, Cheap Monday and Weekday, etc. Each of the company’s brands possesses a unique identity. However, all of them have one common feature, such as the intention to dress their customers sustainably. The company started its operation in 1947, with the single womenswear located in V?ster?s, Sweden (H&M 2017(1)). However, the company developed its business and became a worldwide competitor in the fashion industry with approximately more than 4,300 stores in 64 different markets. Their growth has been present in the form of geographical coverage into the new markets as well as on the online platform. The success of H&M resulted from a total commitment by its 161,000 employees who are highly motivated in serving their customers. Moreover, the company reached this phenomenon due to their respect for the individuals. To ensure that they meet the demands of the customers, H&M involves new employees annually; for example, the company engaged 13,000 new colleagues in the year 2016 (H&M 2017(1)). It is worth noting that the primary goal of the organization is to ensure that it provides its customers with the best products focused on its model of endless possibilities.

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On the other hand, Next started its operation in 1982 as a stylish shoe and accessory store for women. Further, they developed their business and started to offer men and children collections in the following years. Nowadays, Next, boast 500 stores which the company provided in the UK and Ireland markets as well as over 200 stores in 40 countries in the entire world (Next 2017 (4)). This expansion of the given organization is due to the high diversification over the years. In 1988, Next opened its first mail order operations that were characterized by catalog retailing. Moreover, in 1999, the company started engaging in online shopping. In addition to the improvements in its customer’s experience, the company has introduced initiatives such as “next day delivery.” The organization has employed more than 50, 000 people and 44% of the directors are females (Next 2017 (4)). Moreover, the company has a sub-company called NEXT Sourcing that has employed 3,700 people in 12 countries. It has also involved 2,700 employees within the different factories owned by the Next brand (Next 2017 (4)). It is worth noting that the primary intention of the company is to ensure that it operates in a manner that upholds the spirit of corporate responsibility as well as to run its business responsibly.

SWOT Analysis

  • H&M

Strength

Diverse workforce

Joint force structure

Global brand awareness

Sustainable based business model

A range of brands

Efficient online presence

Opportunities

Opening of the wider market through globalization

Online expansion

Increased demand from the millennials

Weaknesses

Association with suppliers in countries that do not respect human rights, such as Cambodia and Bangladesh

Poorly performing share prices

 

Threats

Increased competition from GAP Inc., Tesco, and New Look, etc.

Reduced disposal income by the customers.

Increased labor costs.

  • Next

Strength

A sustainable based business model

Inclusive management

Global market presence

A robust online presence

Opportunities

Improved awareness of fashion leading to the increased demand

Online expansion

Global expansion

Weaknesses

Poorly performing share prices

Marginally increasing sales value over the years

The increased cost of operations

Slow decision-making process

 

Threats

High competition from H&M, Arcadia Group, and Debenhams, etc.

The increased cost of adopting new labor regulations

A high level of customer preference changes

Discussion

It is possible to conclude that both companies are experiencing almost identical challenges and opportunities. Such a situation is present in the same industry and country. Moreover, the share performance in both companies has decreased. Such a situation occurred due to the slow economic performance that has resulted in the suppressed levels of customer expenditure leading to low demand for both companies. However, Next company has been facing a prolonged period of marginal shifts in the total sales value. Regarding H&M, one may agree that it is more a team-based company as compared to Next. Furthermore, the organization channels more effort towards utilizing the tool training among the employees (Next 2017 (4)). However, in compliance with the SWOT analysis, the only significant difference between the companies is that Next has been facing a slow performance regarding net sales. Moreover, Next has also been experiencing the rising cost of operation. Another conspicuous challenge relates to the decision-making, where Next management has established the need to quicken their decision-making process in addition to the improvement of the company’s short lead time products (Next 2016). In addition, both organizations are facing high competition accompanied by shifts in the labor sector that have negatively affected the cost of operation.

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Different Challenges in General Management Functions

H&M

  • Planning

It is worth noting that H&M is highly focused on the need to uphold a sustainable based operation as well as fashion service. To follow this trend, the management of the company has faced planning challenges, for example, in the case of design preparation, where the main aim is to create sustainability without compromising the style, price, or quality (H&M 2015). A similar situation occurs in the case of transport planning, where the main goal is to ensure that the company delivers its products at the right time, while, at the same time, playing an active role in reducing carbon emissions.

  • Organizing

Being a multi-national company, the organization of the workforce is critical to ensuring that they uphold consistency in quality both concerning products and services. However, this is a common challenge for H&M, where the management has an important responsibility to ensure that the company’s values are present among the employees. For example, according to the sustainability report presented in 2015, the company was facing the challenge of upholding its values in the sub-companies. Moreover, such a problem emanated from the high level of diversity among the employees (H&M 2015). The main task of the management was to choose the best platform to ensure that adhering to the company’s values does not compromise the need to appreciate the unique traits of different market spheres.

  • Leading

It is possible to evaluate the leading issues of the investors using two contexts, namely internal leadership and external leadership capacity of the company. An investable company has constructive internal leadership while, at the same time, it influences the industry. H&M exploits internally a team-based leadership, where the management aims at involving more people in the formulation of the company’s policies. Moreover, the management undertakes an intentional action to ensure that diversity is upheld in its leadership strategy. However, they consider that it is possible to guarantee this innovation using a multitude of voices and diversity. Furthermore, it is possible to manifest managerial challenges of H&M connected with leadership in the form of the right influence in the market, ensuring that they follow the law (H&M 2015). The current challenge faced by the company is the establishment of the right partnership with the NGOs and other players as well as ensuring that they introduce systemic changes.

  • Controlling

Regarding the issue of control, the variables of interest include both internal and external control capacities. H&M implements control policies to ensure adherence to the respective values and code of ethics. At the same time, they ensure that the suppliers follow the set guidelines. The task of H&M management regarding control is to ensure that their suppliers observe the required code of conduct in their working environment. However, the management of the company succeeded to find a solution, according to which they employed a full-time team of auditors. These people bear the responsibility of ascertaining that all active suppliers respect and observe the set rules. Another controlling challenge is to ensure that suppliers follow the corresponding requirements even those in the countries that are yet to observe minimum age for the laborers, particularly those in the Far East. To overcome this challenge, the management has also employed full-time workers who perform as announced and unannounced auditors to ensure that their associated suppliers do not allow underage (H&M 2017 (2)). Therefore, it is evident that H&M faces different managerial challenges. However, they provided relevant safety measures to caution against unexpected issues in the company.

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Next

  • Planning

The greatest challenge that is affecting Next company regarding planning is the introduction of new police aimed at reducing the cost of its operation. The task of the Next management is to search for new ways and means of reducing its expenses without jeopardizing the quality of its products and services. One of the important strategies crafted by the management of the company to solve this challenge is the encouragement of constant innovation (Next, 2016). The organization received substantial investment directed to the improvement of its efficiency.

  • Organizing

It is worth noting that Next is also facing organizational challenges in the form of stock availability problems in the market. This is due to the diverse changes exhibited by the customers. For example, during the second half of 2016, the company’s directory suffered from poor stock availability, which was associated with a sharp switch from the customer’s demands that preferred “New In” (Next, 2016). To overcome these challenges, the management has increased the directory’s stock for both the summer and spring periods. Another issue of organizing was the difficulty to ensure that there is consistency in the quick delivery of products and services across the markets. This problem was common in China and Russia, where the delivery used to take more than six days. To solve this issue, the management decided to improve the efficiency in already established hubs across the market instead of opening more of them.

  • Leading

The greatest challenge facing Next regarding leadership is their dependence on the managerial team matters. For example, the management team bears responsibility for the implementation of tasks concerning designs as well as a selection of products and services (Next 2016). Moreover, they do not receive any input from the employees who have direct contact with the customers. However, the company is slowly integrating the input of the employees in the form of improved orderly succession.

  • Controlling

Regarding the issue of control, the company has robust management who ensure that the company’s affiliates follow the set rules and regulation. One of the critical control challenges is present in the form of ascertaining consistency in customer experience across the market. Moreover, the company must establish a solid market command. Consequently, the management decided to follow the expansionary strategies and put more effort to improve the efficiency of the company.

Organizational Structure of communication and Code of Ethics

Communication is another tool that helps a company improve its success by encouraging constructive sharing of information. At the same time, H&M has employed a horizontal communication structure under “joint forces for solutions” where all the parties, including the employees, have an opportunity to share their thoughts regarding the matters of enhancing the company’s welfare. According to the expectancy theory, motivation among employees depends greatly on their understanding that effort is accompanied by the desired results. Thus, encouraging the employees to use effort-reward will empower them into better players (Peters 2015). However, in Next, the company employs a more systematic horizontal structure in communication. In this case, the management plays the role of information givers, while other parties are information takers (Nickols 2012). For example, the management relays financial information to the employees as well as organizes irregular meetings with their representatives annually (minimum twice per year) (Next 2016). While communicating with the respective organizations, both companies utilize a top-down structure, in which the management plays a major role. For example, Next intends to improve its efficiency by refusing to open more stores coming from the mother company’s top management. It is worth noting that H&M faces the same situation regarding the adherence to the set policies, according to which the top management is responsible for the audition communication. Furthermore, the suppliers do not have any input and follow the stipulated mode of engagement with the auditors. The corresponding approach intends to ensure that one should follow consistency while offering service to the customers in the market.

Regarding the code of ethics, both companies behave in a particular way implementing strict control over the issue. They undertake corresponding actions to ensure that all the relevant parties follow their respective norms. Concerning H&M, their strategy is evident regarding underage workforce and suppliers’ code of ethics. For example, the company ensures that child labor is not utilized in the process of production. Moreover, there are specific standards that the suppliers have to meet despite their location, such as basic conventional human rights (H&M 2017 (2)). On the other hand, Next is also determined to ensure ethical operations in the market where it operates. For example, the company has adopted the UN principles of human rights and ensures their implementation (Next 2016). Moreover, the company puts much effort to ascertain that all its suppliers comply with the Next’s Code of Practice “COP”, according to which they have to observe the rights of all employees.

Moreover, the code of ethics plays a critical role in safeguarding the ideals and image of the respective companies. In any industry, one of the critical tools that provide a competitive advantage for any company is image. The reason is that it emphasizes the company’s identity within its market segment. Because both companies adopted the strict strategy related to their code of conduct, it allows them to possess a good image in the market as well as ensure that the rights of all relevant employees are safeguarded.

Conclusion and Recommendations

In compliance with the current analysis, it is evident that both companies have a sufficient reach, recognized brand, and possess a resounding market share in the respective areas where they operate. Moreover, both companies are publicly traded. This implies that they have high returns on the capital. In addition, from the SWOT analysis, it is clear that both companies are experiencing almost identical challenges and have similar opportunities. Therefore, according to the recommendations obtained from the report, Caifu should invest in the company considering its reach, return to equity, and managerial approach to the exchange of ideas.

Considering the above facts, it is recommended that Caifu make their investments in H&M company. This decision is based on the fact that it has 4,300 stores in 64 different markets as compared to Next’s 200 stores in 40 markets. Consequently, it is possible to state that H&M is a more established company than Next, which implies that it is stable. In addition, the management of H&M is more inclusive. This is a critical approach to the current situation whereas any additional information in the table presents an improved competitive edge. According to Maslow’s theory, inclusivity ensures close connection among the employees, which provides them with a sense of belonging ultimately improving their productivity (Hanson et.al &2016). Moreover, regarding return on equity, it is an evident fact that Next has been suffering from the low increment in sales volume as well as from the increased cost of operation. Therefore, these two critical factors undermine the profitability of a company proving that H&M is a better choice. However, Caifu needs to appreciate the fact that H&M is a combination of many brands. Finally, they should channel better analysis towards the identification of the specific brand or their respective combination to obtain higher rewards from their investments.

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