Zara's Organizational Structure and Strategy

This assignment delves into the organizational structure of Zara, a leading global fashion retailer, and its influence on its strategic management approach. It requires an in-depth analysis of how Zara's unique structure contributes to its fast fashion model, efficient supply chain, and overall success. Students are expected to utilize frameworks like Porter's Five Forces and McKinsey's 7S Model to critically evaluate Zara's organizational design and its impact on the company's competitive advantage.

STRATEGIC
MANAGEMENT

Table of Contents
EXECUTIVE SUMMARY ............................................................................................................1
INTRODUCTION...........................................................................................................................1
EXTERNAL ANALYSIS................................................................................................................1
Effect of external factors on strategic management of Zara.......................................................1
Porter's five force analysis of Zara..............................................................................................3
INTERNAL ANALYSIS.................................................................................................................4
EFFECTIVENESS OF INTERNAL ELEMENTS AGAINST TO EXTERNAL FACTORS........7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................9
.......................................................................................................................................................10

EXECUTIVE SUMMARY
Zara is an international company and they want to retain their market share and as well as
to improve their sales and market share by making positive changes in their products and
services. Pestle, Porter's Five Forces and McKinsey 7-S framework are some models which is
used in this report. Changes are essential for a company which is working in the international
market so it is essential for them to be aware rivalry organisation and market demands. External
factors creates compulsion to make changes in organisation and internal factors can determine
how much changes they can do according to external factors.
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INTRODUCTION
Strategic management refers to as the implementations of decisions, initiatives and goals
that are made on behalf of investors based on the availability of resources and assessment of
various internal and external factors within an environment (Hill, Jones and Schilling, 2014).
Strategic management provides pathway for an firm that helps in specifying and developing
organisational objectives and ultimately achieving them. It is an art of formulating, implementing
and evaluating the cross functional decisions of business. Zara Company was established in the
year 1975 by Amancio Orgega located in north west part of Spain. It is of the leading retail
fashion company with approx 2692 stores in across 62 countries all over the world by the end of
2005. This report aims to showcase influence of internal and external factors on the strategies
and functional management policies of the company. In this report it is highlighted that there is
need for flexibility in strategic management and practical limits of corporate strategies.
EXTERNAL ANALYSIS
Effect of external factors on strategic management of Zara.
External factors are highly influential in roads of achieving organisational objectives.
These factors shapes the organisational strategies and decision making process. Strategic
management is important and needs to be planned according to the environment it is operating
and their potential effect the operations of organisation (Slack, 2015). Strategies are planned so
as to get competitive edge over the other and that cannot be analysed without taking care of
industry and competitors environment. Some of these factors that effect the working of Zara are
as follows:
 Political factors: Zara is an multinational clothing retailer and has its stores all across the
globe where it has to face many political conditions. Government makes political
decisions and are responsible for making political environment in country. Zara has to
make decisions according to multiple political environments and it changes from country
to country. Since political condition is changing throughout the globe and hence has to
change its plans effectively. Zara has its main distribution centre in Spain where it is
provided with stable political environment for its growth. Due to Brexit one of the major
political decisions of the current times, there will be change of policies throughout the

Europe especially in taxation system and free trade. Zara needs to make plans that will
reduce the effect of this political decision. Zara needs to invest in open market like the
countries of South Asia.
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 Economical factors: Spain is Zara main distribution centre of Europe which is stable
market. Zara is famous for its fashion it produces at cheaper rates especially in countries
like china. It is focusing to main its supply and demand chain, manufacture and
distribution of products so as to manufacture clothes in those companies where
production rates are lower as compared to Europe (Zalengera and et. al., 2014). In Europe
it supplies most of its products that are made in Spain. Economy has a greater impact on
strategic decisions of Zara. It works on the policy of Zero advertisements. Its competitors
are producing approx 2000 to 4000 items and Zara is producing 11000 products annually.
It gives Zara a competitive edge over others. It has shortened the delivery of products due
to excellent management of supply chain to approximately two weeks.
 Social factors: one of the most influencing factors in clothing retail industry is social
and cultural influence. With the growing income people are moving towards brands that
produces high quality and comfortable clothings. Zara has made its name in providing so.
Everyday fashion is changing and people mindsets are also shaping according to them, it
is necessary for Zara to have wide variety of clothes (Torres‐Rouff and et. al., 2015).
Understanding and predicting of seasonal fashions and making products according to it is
a trademark of Zara.
 Technological: To increase the number of products so as to meet demand and supply
chain it is necessary for this industry to look for the advancement in technology. Zara
looks for the cheaper production markets but the technology used is of high quality.
China being a technologically advanced country as well as cheaper economy provides
excellent balance for Zara to continue its production.
 Legal factors: Every organisation is under the specs of legal policies or Acts that are
made so as to protect the rights of stakeholders. In Europe the Employment acts are
highly powerful and the legalities are extremely complex whereas operating in countries
of Africa is considerably easier.
 Environmental: Zara is clothing retail industry hence has a large impact on environment
as the management of waste that is generated during the production of clothing
accessories needs to checked and properly disposed. Environmental factor is a cause of
structural change in last few decades.
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 Global competitors: Zara strategic decisions are largely based to overcome loses due to
other company business strategies. Zara with its high range of product variety has
competitive edge over others as its delivery system and production system is faster than
others. There is a very high brand loyalty associated with this company.
 Demography: Due to varied demographic conditions, companies strategies changes from
country to country. And managing them becomes an important task of the company.
Zara has opportunities in Asian and African countries for its expansion ( Dobbs, 2014). It has
good brand image which it can use in the expansion policy. It is easier because of its revenue
backup and brand name.
Zara face potential threats from its competitors like Gap, H&M as they are also looking for the
new markets and offer almost same line of products as Zara is offering. This could prevent
company from gaining sustainable competitive advantage.
Porter's five force analysis of Zara
Zara has made its name in the fashion retail industry and hence its five force analysis is
as follows:
 Buyers power: In spite of financial crisis in Europe clothing industry is on rise at
considerable rate. Due to high differentiation of products at such lower rates buyers resist
themselves from switching. Customers of Zara has high buying power as they belongs to
middle and lower class. There are other competitors also that provides same line of
products and this give call for more innovative products. In retail industry there is large
fight among suppliers and hence providing buyers with greater power of negotiating.
 Suppliers power: Due to intense competition in this industry and globalisation the
suppliers power has reduced. Suppliers are forced to sell its products at much cheaper
rates. Power of suppliers are weakened as they are forced to stick to provisions which
minimizes variation of design.
 New Entrants: Due to its brand image new entrants are lesser threats to companies
operations. But the power of new entrants of producing cheaper clothes is a threat to the
target market of Zara like middle and low class people. They have resources to develop
new line of fashion.
 Substitutes: In clothing industry substitutes are higher as compared to any other
industry. Zara faces a threat of duplicate fashion in many countries. This reduces the
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brand image of the company in term of quality and loss in number of sales. Design
variation and use of natural products are prohibiting substitutes.
 Rivalry: Brands like H & M, Gap proses threat for the market share growth of the
company. These companies also have good number of base consumers. They can only be
defeated in terms of Price war where cheaper clothes can be promoted by Zara.
INTERNAL ANALYSIS
As ZARA is working in the clothing sector so it is essential for them to make a better
change adoption abilities in them by which they can provide more better women clothings
against the desires of their customers (Naipinit and et. al., 2014). Demands and expectation are
regularly changed and women's are more concern about more better products and services so it is
essential for the company to make a more better products by consistently analysing their
customers details. Many companies are working clothing sector which are making a huge
competition in clothing market so it is essential for the company to focused on this competition
and committed to provide best products in retaining prices. Customers analysis can be help full
for them to make changes in their products, working style and delivery of services so they have
to use customer feedback system in the organisation by which they can analyse what are the
expectation of their customers from them which can be full fill by them to retain their customers
and take a competitive advantage of this.
Organisational capabilities against to changes can be analysed by McKinsey 7-S
framework, it can help to company to make a better change in the organisation by using thi9s
they can analyse where they can make changes in organisation how they can provide more better
products and services to their targeted customers. An analysis of ZARA is presented here to find
out company's ability to change;
Hard Elements
Strategy: Zara is concern about taking competitive advantage so they are regularly
having their eye on their targeted market. Marketing team is committed to take information from
their market by which they can make changes in their marketing and products. Quarterly market
research is conducted by them which helps them to make a better change in their promotions and
production as well (Král and Králová, 2016). This is helping to them to make a better change in
their products by which they are maintaining competitive advantage which helps to them to
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retain their market position. Operations strategy. John Wiley & Sons, Ltd. their clothing sector
industry of UK.
Structure: They are using tall structure of management which provides them a strength
of proper control on employees. It helps to them to allocate their work properly in their teams
which can help to them to accomplish their targets in the time also it provides a strength to them
to make a better grip on their employees which reduce the risk of mistakes from their employees
(Shiri, Anvari and Soltani, 2015). By this they have decentralized their power among the
managers which can help to them to adopt changes in organisation against market competition
and customers demands.
Sources: Organisational Structure of Zara, 2017.
System: They has experienced and skilled employees which are able to resolve minute problems
of their daily routine work. Either this, their managers are capable to resolve conflicts and issues
which is faced by their employees in their daily routine work (Ravanfar, 2015). Managers are
liable to resolve conflicts and issues which creates a system for their employees to make a better
change in the organisation.
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Illustration 1: Organisational Structure of Zara, 2017.

Soft Elements
Shared Values: Zara is using moral ethics to make their products, they are using quality
material in reliable prices (Naipinit and et. al., 2014). Most of the companies which are working
in th8is segment are focused to make profits but on the other side this company is working for
deliver a pure customers satisfaction by their products. Quality material and appropriate
measurement to design clothings are in the core of the employees.
Skills: They are huge focused to engage people which are skilled, they has recruited only
those employees which are having equivalent skills as per person specification. It helps to them
to deliver appropriate customer satisfaction. Skilled employees can perform in any type of
market conditions so they are having power to adopt changes as per the customers needs.
Style: Management is highly possessive regarding to needs of employees and they are
using democratic management styles which involved employees in decision making process and
also gives respect regarding to their suggestion. This is helping to them to make a better change
in their products to retain customers interest in their products and services. This will help to them
to make changes in their workings according to needs of customers and it can help to them to
become market leaders in short time of period. Democratic leadership style is best for them
because they are working in the international market so they are having a huge need of
involvement of their employees with their mind and soul in their work to deliver a proper
customer satisfaction.
Staff: It is the key factor of cited organisation, they are having several team which are
working to achieve their objective (Shiri, Anvari and Soltani, 2015). Designing is the key
element behind the product success so it is essential for them to make a better change in their
designing process and they have to make innovative and creative changes in their products which
can help to them to make a better change in their clothings. Team management is main element
of this which can help to them to make a better change in their working style by they can retain
their old customers interest in their products.
EFFECTIVENESS OF INTERNAL ELEMENTS AGAINST TO
EXTERNAL FACTORS
As Zara wants to make a lead on their market so it is essential for them to keep their eye
on their targeted market. After the internal analysis, it is analysed that all of these elements are
effective against to external factors. Political factors are having huge pressure on the company so
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it is essential for the company to make a proper change according to this factor. They are having
a legal and tax teams which are able to make changes in the organisation according to political
changes. Tall management structure can help to company to make change in their products,
social elements can make a compulsion because trends in clothings are regularly change so it is
essential for the company to make a better change according to customers expectations
(ANDREI and PRISECARU, 2014). System factor also can help them, managers are using
democratic styles in which employees are free to ask queries and give suggestion to their seniors
which can help to them to adopt change in actual conditions. Environmental factors are making
a huge compulsion on clothing sector, changes in climates creates compulsion on customers to
change wearing according to climate. So it essential for the company to modify their supply and
demands according to market demands also they have to provide appropriate clothings in climate
change in winter, summers and rainy season. Skilled employees are able to deliver products and
they are enough to analyse what are the requirements of customers and how they can full fill this.
Economical factors makes a huge impact on the sales of their products, inflation, purchasing
power creates a huge impact so their marketing analyser are enough to deal with this, they can
give their pre assumption to the higher management so according to this they can manage their
production, demand and supply chain (Dunkerley, 2016). So over all Zara is effective for
changes by which they can retain customers interest in their products by which they can increase
their market share.
CONCLUSION
Strategy is important part of business operations. Management of strategy helps in
achieving business objectives effectively. Various internal and external factors are responsible
for effecting business operations. Political, social, economic, technological, legal and
environmental factors are influencing Zara's strategic management and decision making. Buyers,
suppliers, new entrants, rivals and substitutes are threat to Zara operations and has to make
strategic decisions accordingly. There are various soft and hard elements that are present in the
organisation. Internal element is more effective as compared to external factors. Strategic
policies is one of the most important management issues that needs to deal with Zara.
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REFERENCES
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biogeochemical, and contextual analysis of the Larache cemetery, San Pedro de
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ANDREI, V. and PRISECARU, I., 2014. The use of PESTEL analysis in development of the
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