Advanced Organizational Behaviour Report: Espirit Holdings Analysis

This report provides a comprehensive analysis of Espirit Holdings, a global manufacturer and retailer of clothing and accessories. The report begins with an overview of Espirit's organizational background, including its mission, vision, and value proposition. It then delves into the company's strategic directions, organizational structure, and culture. A significant portion of the report is dedicated to external analysis, utilizing Porter's Five Forces and PESTLE analysis to assess the competitive landscape and external factors impacting the business. Internal analysis focuses on core competencies, capabilities, and human resource strategies, including a SWOT analysis. The report also examines Espirit's change management strategy, particularly the implementation of Lewin's Change Management Model, and concludes with recommendations for improvement. The analysis covers the period before and after the 2014 organizational changes. The report is based on the assignment brief from Robert Kennedy College University of Cumbria for the Organizational Behaviour module.

Running Head: ADVANCED ORGANIZATIONAL BEHAVIOUR
Advanced Organizational Behavior
Student’s Name
University Name
Author’s Note

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Abstract
Espirit have been occupying major market shares in three most important industrial sectors
including industry, health care and energy. All the businesses operating in these three sectors are
trying to reduce operational costs and enhance their productivity so that they are able to compete
with the global forces. In this situation, the market stability of Espirit has been evaluated in this
report. It is evident that although the existing markets have been well maintained by Espirit, they
have not been able to expand into new markets and product domains as their competitors have
been able to do. SWOT analysis have been conducted in this report which highlights that the
major market forces that can affect the business of Espirit are low because of which they will
experience stability in their operations. The strategic analysis of the organization has been done
from the perspective of both internal as well as external environment implementing the strategic
tools of porter’s five forces, pestel analysis as well as SWOT analysis. Internal analysis includes
and evaluation of the core competencies, capabilities as well as the human resource analysis
strategy implemented by Espirit. The change in organizational culture has been analysed under
the Lewin's Change management model. In the end appropriate proposals for improvement have
also been developed.

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Table of Contents
Introduction......................................................................................................................................3
Organizational background of Espirit..............................................................................................4
Mission, vision and values statement of Espirit..............................................................................4
Value proposition of Espirit.............................................................................................................5
Strategic directions of Espirit.......................................................................................................5
One Espirit strategy.........................................................................................................................6
Organizational structure of Espirit...................................................................................................6
Organizational culture at Espirit......................................................................................................8
External analysis..............................................................................................................................8
Porter's five forces analysis..........................................................................................................9
Internal industrial analysis.............................................................................................................15
SWOT analysis of Espirit..........................................................................................................15
Change management strategy of Espirit........................................................................................18
Unfreezing..................................................................................................................................20
Change.......................................................................................................................................20
Refreezing..................................................................................................................................21
Recommendations and Conclusion................................................................................................21
Reference List................................................................................................................................22

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Introduction
Espirit holdings is a public owned organization manufacturing clothing accessories, jewellery,
houseware, footwear and others under the label of Espirit. Along with Ratingen Germany, the
organization is also located in Kowloon, Hong Kong. Espirit is a typical organization of this
industrial category. There are many other similar organizations coming up in the manufacturing
and retail sector of Germany. The demand for branded and budget retail products is helping
similar organizations to find specific target markets all over the world. Companies like Espirit
specialize in various product categories and there in fishes is on making a market extension by
product and business diversification. They have also implemented unique Change management
strategy which has given their business a new start from the bottom level.
The parent brand of Espirit is based in Germany with their headquarters in Ratingen. However,
they have become one of the biggest product retailers in the world with a second industrial setup
in hongkong from where they operate their Asian markets. This report makes a detailed analysis
of the strategic management of the organization. In order to do so, a detailed analysis of the
external environment of the organization has been conducted in order to determine the factors
influencing the external business conditions. The researcher has also undertaken internal
environmental analysis in order to understand the strength and weaknesses of the organization
that helps or hinders them in tackling the external environmental conditions in business. In order
to understand the internal strengths and weaknesses of the organization the core competencies,
other organizational capabilities as well as the resource strength of the organization has also been
analysed. In the last section of this research study, a strong Emphasis has been laid on analysis of
the organizational change that they have implemented in order to change their business culture.
On the basis of the change strategy, the probable future business opportunities have also been

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analysed and appropriate recommendations for future improvement in theorganization has also
been provided.
Organizational background of Espirit
The company is a public listed manufacturer as well as retailer of clothing, accessories,
jewellery, houseware as well as footwear products. The headquarters are present in Kowloon
Hong Kong and Ratingen in Germany. The biggest grossing year of the organization was the
financial year 2007-08 when they were able to achieve sale value of 3.25 billion Euro. Currently
the organization has more than 900 retail outlets all over the world and the product distribution
of the organization takes place over 8500 wholesale locations. The brand is operating in more
than 40 important countries. They operate on a franchise based product manufacturing line and
Red Earth is a subsidiary cosmetics brand of the organization. in 2011 there was a short drop in
the valuation of the brand when the sales limit went down to 1.4 billion US dollars. Since 2012
the brand value started to go down and their Global reputation also decline. However, after
bringing down most of their stores in China, Hong Kong and other important markets like North
America and Canada, in 2014 an organizational change was introduced with the appointment
with the new CEO. This helps the organization to become fast moving and develop
reorganization as a manufacturing and retail brand once again.
Mission, vision and values statement of Espirit
The industrial mission of the company is to maintain the brand Awareness of being a premium
brand in all the product categories where they operate. The organization has the aim of setting
benchmark in manufacturing quality, distributing Network and also in providing impeccable
retail service. There clothing, hardware as well as accessories industry are most flourished driven

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by ingenuity as well as well integrated organizational culture which is the fundamental strength
of their workforce helping them to deliver every organizational goal.
Along with a market leader they have the vision of being responsible towards their business
environment, the stakeholders as well as the nature. That is why they use eco friendly packaging,
responsible marketing as well as sensitive recruitment strategies. this is the success strategy of
the organization that help them to become a popular Global brand in the year 2007. Their
organizational excellence is based upon achieving high performance as well as excellent
outcome for their B2B and B2C customers. DRIVING INNOVATION IS ANOTHER
SUSTAINABLE GOAL OF THE ORGANIZATION WHICH renders significant value towards
their customers.
Value proposition of Espirit
The urge of becoming a premium organization and the Global brand is the primary value that
help them to retain the pioneering position in their time. Their primary aim is to capture the
leading market position as well as occupy market Fame in the respective industrial fields where
their businesses are concentrated. Nevertheless their main goal is to ensure sustainable profit and
after the the joining of the new so, continuous traffic instrument is one of the basic objectives of
the organization along with increasing brand presence in most of the potential retail markets.
Strategic directions of Espirit
The basic focus of the company is developing and innovative line of manufacturing by means of
which they can reduce operating costs to ensure their sustainable presence in the growing
markets. The strategy which they follow is that of competitive marketing.

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They have a clear relationship with customers and the value proposition helps them to develop a
clearly dedicated set of customer group. The last value proposition of the organization is
increment of their brand popularity and brand equity.
Exceptional branding strategy
The organization took significant measures in order to overhaul their operations Kamal
distribution as well as landing by means of a high cost transformation plan. The shifted their
focus from the fragile market of Western Europe to the intensely competitive Chinese market.
They are now depending on a vertically integrated business model and the emphasis is on the
reestablishment of a value for money image for reversal of their fortunes.
Corporate Structure of Espirit Holdings
Espirit Holdings have strong organizational culture and a consolidated corporate
structure. The global listing shows that their market capitalization strength is equivalent to HK
$3.9 billion. AS an outcome, the organization is not able to attract the attention of too many
institutional investors. The institutional investors hold a market share equivalent to 54% in
Espirit holdings. The executive management team of the organization is answerable to a board of
directors. Significant shares of business are also held by the insiders. The value is approximately
around 11%. The organization is primarily concerned with retail as well as wholesale
distribution of lifestyle products which have been designed by the self developed brand of
Espirit. The company endorses more than 12 product lines. The company manages more than
1200 self owned stores outlets around the world. The regional business heads of the organization
have with them more than 1100 autonomous business divisions as wholesale point of sales. The
company has their operations spread across 25 countries. However, the two main business

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subdivisions of the brand are spread across Hong Kong, catering to the entire base of Asian
customers and Germany, Ratingen catering to the entire western market including the sales as
well as operations in USA also.
Organizational culture at Espirit
Espirit Holdings is a global organization which requires a strong organizational culture. The
company needs to ensure that all the departments and the three subsidiary units like clothing,
hardware, accessories and home care are held together and work towards a common goal. The
organizational culture of Espirit Holdings is referred to as ownership culture. This model of
organizational culture emphasizes that all business units are given equal importance in a way so
that there are respective business targets for all departments and Espirit do not depend heavily on
the sales of any individual business unit (Shams, Sharif and Kermanshah 2017). The primary
factors of organizational culture of Espirit is global management of all sub-holdings, , valuing
people and their inputs as well as orientation with all range of human resources. However, in this
context, Gattnar et al. (2015), informs that since 2014, Espirit had transformed in to a well
coordinated business and organizational culture. The communication channel of the organization
was divrged and flow of information was channeled to a particular line. The business objectives
are clear to the stakeholders other than those in the bottom line. However, after the
organizational changes were introduced in 2014, it can be expected that Espirit will be able to
display a more integrated business performance. The positive impacts of this organizational
change has already been cited in the positive growth of the business performances of FY 2015-
16, 2016-17 and even in 2018.
External analysis

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Porter's five forces analysis
Threat of new entrants
It is very difficult to achieve economies of scale in manufacturing and retail sector where the
organization operates. As an outcome, companies like Espirit that have a large and diversified
market gets the cost benefit advantage. This is why they have larger hold on the producers and
suppliers also. However, their market force is weak.
It is also known that product differentiation is strength of the company and Espirit also follows
the strategy of selling differentiated products rather than standardizing their sales on a unique
product line. There is a strong value of advertising as well as marketing activities of Espirit
which make the threat of new entrants weaker. Large product diversification requires high capital
requirements. This is another reason why new companies would not be able to compete with
Espirit. The company also invests heavily on market survey. Nevertheless because of highly
diversified product line, the access to distribution network for each product category is easy for
the new entrants. They can enter into any individual product category by setting up distribution
channel. From this perspective it can be argued that Espirit can lose business in individual
product categories as an outcome of this market loophole (Mandalaki and O’Sullivan 2016).
In summing up this section it can be highlighted that the biggest weapon for Espirit for tackling
the new entrants is their cost advantage. The product differentiation is another factor that will
help in keeping the new market forces away and thereby develop brand identification of Espirit
in every product category.
Bargaining power of suppliers

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In the first place, it requires mention that the number of suppliers in the industry where Espirit
operate is much more in comparison to the number of buyers. This implies that the price control
of the suppliers is weaker and thereby the bargaining power of the supplier groups is also a weak
force. Nevertheless, Espirit global brand procuring from various supply chains around the world.
Hence it is necessary for the company to rely on the most reliable and reputed supplier lines.
Hence, their supply line is less differentiated and Espirit have moderate switching cost. However,
the switching cost from the end of the suppliers is high because they are in transaction with a
global brand that accepts bulk supplies. Considering these factors, Aslam et al. (2018), argues
that the chances of forward integration of the suppliers is not a credible threat. However, in the
end it can be summarized that the strength of suppliers are critical to the success of Espirit,
considering the kind of industry where they operate. Hence, it can be concluded that the profits
of the company are closely related to the quality of products of the suppliers. Hence, it can be
argued that reasonable pricing from the end of suppliers is critical to maintenance of the profit
margin by Espirit. Considering all these factors it can be stated at last that the bargaining power
of suppliers is a moderate force operating on the company.
Bargaining power of buyers
Espirit operates in largely diversified markets where product categories are much more in
number compared to the number of companies selling them. As an outcome, it is not possible for
customers to remain aware of every individual brand selling the respective products. For
evidence, if a family visits a local market, they will prefer buying products from Espirit Holdings
outlets, which incorporates multiple product categories under the same roof. This is where the
Global brand name and standardized product quality of Espirit comes into play. Emphasizing on
the above scenario it can be highlighted that product differentiation rate is high in the industry

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and buyers will not be able to find alternative company producing any particular product. Hence,
although the switching cost will not be high for the buyers, the procedure will be complicated for
them. Lastly it can be summarised that the bargaining power of buyers is indeed a weak force for
Espirit (Gattnar et al. 2015).
Threat of substitutes
There are a very several substitute products which are available and not associated with the
brand name of Espirit in the industries where they operate. The substitute products are mainly
cost effective alternative of some of the product categories of Espirit which are produced by rival
brands. However, it can be expected that a premium brand like Espirit will have a classified
customer base. Regarding this view, it can be argued that the substitute products developed by
the rivals have the power to diversify the target market of Espirit. Moreover, Deakin and Reid
(2019), argues that it is less likely for the customers to switch to substitute products and
emphasizing on the above argument it can be commented that threat of substitutes is a
moderately high force for Espirit. In order to tackle the substitute products, Espirit can only
emphasize on providing greater quality products without alternating the price line.
Rivalry among existing companies
There are very few strong competitors of Espirit. There are alternative brands operating in the
individual product categories. However, very few organizations like Espirit have a big and
diversified product base. This makes market rivalry a strong force within the industry. However,
in the respective product categories Espirit face competition from their Rivals as well as major
brands with whom they collaborate. The top competitors of Espirit include AllSaints Ltd, Cato
Coporation, Tommy Hilfiger in the west and Guess??, Bob’s Stores and so on in the Hong Kong