Organisational behaviour – Zara & Budgens

LSBM

Table of Contents

Introduction. 4

Task 1: Organisational structure and culture. 5

Organisational structure. 5

Organisational culture. 7

Relationship of structure and culture on performance. 8

Factors affecting individual behaviour at Zara. 9

Task 2: Approaches to management and leadership. 10

Leadership style of Oscar Perez Marcote (Zara) and Budgens. 10

Influence of organisational theory on management 11

Management approach of Zara and Budgens. 12

Task 3: Using motivational theories. 13

Leadership change affecting motivation. 13

Motivational theories applied to Zara. 14

Task 4: Groups, teams and behaviours. 16

Nature of groups within Zara and their behaviour differentiation. 16

Factors promoting effective team and teamwork at Zara. 18

Impact of technology on team’s functioning at Zara. 19

Conclusions. 21

References. 22

Appendix I 27

 




Introduction

The following is a report considering the overall organisation and the organisation’s behavioural characteristics of Zara; often compared with Budgens. Zara is a Spanish fashion retailer, controlled by Inditex group with a large number of other brands under its portfolio. Zara is considered a hugely successful organisation having endured competition from around the world and has grown at a steady pace over the years. Budgens is a branded chain food retailer in the UK, although established a century ago, it has not gained the same growth that Zara achieved. The following report hence considers Zara’s unique achievements, by comparing it with various theoretical models in connection with organisational structure and culture, leadership, motivation, teams, teamwork and overall employee behaviour.


Task 1: Organisational structure and culture

Organisational structure

An analysis of the organisational structure of Zara has to start at Inditex, the holding company of a range of brands which includes Zara, Massimo Dutti, Bershanka, Pull and Bear and others (Inditex 2015). Certain organisational activities of Zara come under the direct management of Inditex as some functions are shared with the other brands (Campito 2009). Budgens stores Ltd is a branded chain food retailer in the UK as a subsidiary of Musgrave retail partners after it was purchased in 2002 by Musgrave group (ACS 2015).

Zara has a complex structure, styled into a product based structure, separating company by products (Men, Women and Kids), but also activities (logistics, distribution and others). Budgens have a geographical structure with high decentralisation where the individual stores are owned and operated by independent retailers and hence a franchise ownership.

Figure 1 – Organisational structure of Zara and Inditex

Source – developed by author from various sources

Zara Budgens
Organisational structure
Holding company-Inditex Holding company-Musgrave Retail Partners
Product based structure for Zara. Separates company by products and activities (Sorescu et al., 2011). Men, Women and Kids (products) and logistics, distribution (activities). A combination of product and matrix structure for Inditex. Purchasing, design, logistics under Inditex uses teams of employees to take advantage of strength of functional groups. Geographically based structure. Units formed to serve specific markets and regions (Baligh 2006). Brand owner of Budgens performs logistics, distribution and purchasing, serving the independent store units.
Centralisation for the functional activities (design, manufacturing, Logistics, sourcing). Decentralised structure at Zara and other brands enabling decision-making by store managers. Franchised operations model and hence highly decentralised. High levels of decision-making power with the independent store owners.

Table 1 – Comparison of organisational structure of Zara and Budgens



Zara and Budgens are not comparable. Zara is a brand under Inditex, similarly Budgens is a brand under Musgrave retail. However Zara’s operations are controlled by Inditex whereas Budgens operates as a subsidiary of Musgrave retail. Budgens can be compared to Inditex as it is the brand owner and facilitates the decentralised franchise stores.

Organisational culture

Zara and Inditex have an organisational culture of team work, open communication, independence of decision-making, opportunities for growth and have high number of young employees (Eriksson and Jonsson 2011) Information flow from Zara and other branded stores under Inditex, gained from customers easily flows to the design functions at Inditex, which is then converted to trends, tastes and ideas. In spite of the large geographical footprint, Zara and Inditex are able to turn around the ideas into products facilitating not only faster communication but also faster distribution and quick turnaround times.

Budgens has been able to develop an organisational culture of independence of its retailers, who seem to have limited motivations and growth ambitions, although the brand owner encourages participative management and democratic leadership style (Neyroud 2010). One reason for Budgens organisational culture seems to be franchise based model as the independent retailers owning the franchise does not seem to have an appetite for risk taking. Zara on the other hand has open lines of communication between store managers, design teams, salespersons and the functional managers and the storefronts are information generation points. Continued innovation or focused innovation (design, spotting trends, logistics management) is the ultimate goal of the organisational structure of Zara which has enabled quick turnaround of new designs.

Relationship of structure and culture on performance

According to Ebert (2014) the culture has an impact on the design and implementation of structure based on assumptions, values, norms and attitudes contributing to frames of references from which the structure is developed. Contradicting such notion is the argument that structure institutionalises the culture and even changing the culture (Ahmed 1998). Hence it is not clear what is the role of structure and culture nature; however the close match between the two contributes to better performance (Burke and Litwin 1992). This viewpoint is further emphasised by Graca et al., (2015) arguing that organisational structure and culture has a mutual impact on performance.

In the case of Zara it appears that the performance is mainly owing to the culture of teamwork (rewarding and encouraging collective effort). It appears to follow a task culture and benefiting from power within teams (design, logistics, manufacturing) with employees focusing on solving particular problems (Robbins et al., 2013). Power in task cultures derives from expertise (Graca et al., 2015) and the influence of the matrix culture (expertise in teams) is evident for Zara. According to Ebert (2014) the right mix of skills, personalities and leadership, working in teams can be extremely productive and creative as is the case with Zara.

Similar to McDonald’s and Burger King, Budgens have been trying to increase the number of franchises from 2005; however it appears that competition from other branded food chain retailers (Tesco, Asda) has affected the growth prospects. It appears that franchise style decentralised structure is at a disadvantage with branded centralised structures. Zara with a branded centralised structure under Inditex was able to grow at a phenomenal pace and so is the case for Tesco, Asda and others in the UK.

Factors affecting individual behaviour at Zara





Organisational culture according Mullins (2006) directs individual behaviour by determining the assumptions, values, norms and attitudes and hence and intrinsic factor affecting individual behaviour. On the other hand organisational structure is considered as an external factor formalising limitations, division of labour, authority, grouping and coordination (Drummond 2000). Furthermore the individual behaviour induced by the structure when matching with the values or culture legitimises the structure and hence benefiting both the company and individual (Robbins and Judge 2014).

Zara has a culture of open communication, risk-taking among managers and teams and decentralised structure ensuring the store managers and store employees have a high degree of control and leverage with the top management. Such a culture and structure at Zara ensures that employees are highly productive in teams, accepting feedback from colleagues and sharing new ideas. The lean organisational structure emphasises a high performance and hence there is intense competition among teams to achieve their targets.

Task 2: Approaches to management and leadership

Leadership style of Oscar Perez Marcote (Zara) and Budgens

Oscar Perez Marcote is the director of Zara, however very little is known and available from secondary data sources about the leadership style of the person. Amancio Ortega is the founder and the largest shareholder of Inditex and the family members have significant control over the different companies and brands of Inditex (Walt 2013). When analysing the effectiveness of leadership style at Zara, it is necessary to understand the cultural factors behind leadership and according to Hofstede’s model and ranking of Spain, Inditex and Zara should have a hierarchical system, teamwork as a natural process and avoidance of confrontation. This is derived from the cultural dimensions of Hofstede (refer appendix I). The style of leadership of the founder – Amancio Ortega is considered autocratic (Hay Group 2007) and hence in line with the culture of Spain. However Spanish culture has high level of uncertainty avoidance (Hofstede 2015) which does not seem to be in line with the business strategy of Zara, particularly as it deviated from the competitors in terms of instituting just-in-time delivery of fashion products produced in small numbers.

On the other hand a step-by-step international expansion model adopted by Zara, very similar to the Uppsala model where it gained experience from domestic market before moving on to culturally and geographically close foreign markets (Vahlne and Johanson 2013) is an indication of the cautious approach. The leaders of Zara and Inditex identified the importance of quality, supply chain management and the dynamics of fashion industry where value is created by listening to the customers through the stores and communicating the information up the chain to the design and production teams. Zara has differentiated from the competitors through its customer influenced design, low volume, quick and just-in-time production and delivery to the customers.



Budgens has a participative management and democratic leadership style owing to the franchised business model and in line with the culture of UK. Budgens supports the principle of management by objectives (Musgrave 2012) and conducts regular meetings with the retail franchise owners during important decision making inviting suggestions and constructive criticisms. Hence there is high level of delegation within the entire organisation, nevertheless it has been unable to improve its position substantially. Budgens have also deviated from the core strategic business model of food retailing used by Tesco, Asda, Sainsbury and others in the UK who has been successful in their growth, but not Budgens and in this light it appears that the leadership has failed to analyse the dynamics of food chain retailing.

Overall, leadership at Zara can be considered efficient and effective from its growth, even though it has limitations, mainly owing to the culture of Spain. On the other hand Budgens leadership in spite of having favourable aspects of leadership based on the theory such as participative management, democratic leadership style, management by objectives, clarifications of roles, responsibilities and goals, taking in suggestions and constructive criticisms, have failed to live up to the expectations owing to the business strategy employed.

Influence of organisational theory on management

Organisational theory is a collection of approaches to analysing organisations (Schein 2004); however George and Jones (2012) notes that the concepts, methods and explanations involved in the theoretical positions are diverse. There are competing theories starting from the rational system perspective to the modernisation theory, the classical and the neoclassical perspective and the environmental perspective (Schein 2004). Organisational theories essentially are sociological studies and the conclusions about organisations and their relationship with the external and internal environment (Mullins 2006). Hence organisational theory has an influence on the structure, the culture, employee motivation, leadership and the management approaches and hence ultimately the effectiveness and success of the business (Schein 2004).

Every set of organisational theories has an influence on management and examples can be found in the case of Zara. The principles of scientific management or rationalisation and division of work through scientifically trained employees (Robbins and Judge 2014) can be identified in the separation of designing, logistics and production and using them to support the individual brands. The contingency theory, under the behavioural basis of ideas identifies that there is no single method in organising, leading and decision-making in organisations (George and Jones 2012). The external constraints have an important role in how organisations shape their behaviour, leadership styles and decision-making (Mullins 2006). As explained previously, Zara and Inditex have a top management controlled by the family and hence an authoritative leadership style; nevertheless can be considered successful due to its adaptation to its own environment (culture of Spain).

Management approach of Zara and Budgens

The differential approach of managing Zara and Budgens are quite clear from the performance of both companies. Quite contrary to expectations based on the theoretical models, Zara with strong family control at the top and an authoritarian leadership style has been able to perform much better than a participative leadership style at Budgens. Nevertheless it appears that Zara management has correctly visualised the approach to be taken in an integrated fashion retailing industry by developing leadership at all levels and incorporating teamwork for almost all the aspects of management. Even with the authoritarian management, the managers at every level are empowered to make decisions and also given channels of communication with the range of internal stakeholders (numerous teams in design, production, logistics and manufacturing). On the other hand in the case of Budgens, there appears to be too much empowerment at the retail level; however the franchise owners are considering themselves external to the company and looking after their own interests.

Task 3: Using motivational theories

Leadership change affecting motivation

The objective of leadership is to inspire, influence and guide (Armstrong 2009). Leadership according to Northouse (2013) is the ability to motivate, influence and enable individuals to achieve the objectives. There are several leadership theories and the leader member exchange theory formulated by Graen (1976) is an appropriate framework for evaluating any potential change in leadership affecting the motivation of employees as it concentrates on the relationship between the leader and the follower based on social exchange theory. According to the leader member exchange theory there are in-groups and out-groups (Scandura 1999); the in-group members are similar in many ways to the leader whereas the out-group members are constraints on the leader. Within Zara, a large number of employees appears to follow the leadership style of its director and hence are in-group members having empathy and are sensitive to the leader. Any change in leadership would disrupt the social exchanges between the in-group and the out-group and hence there could be friction between the employees is affecting their motivation negatively.



The process of delegation within Zara is at the higher levels were there is little control exercised by the management on the individual store managers and other employees. One reason is the leadership style of the director of Zara and can be considered from the Path Goal model of Robert House (1996). The path-goal model portrays leaders as defining the path to be followed by the followers and further the behaviour of leader when acceptable to the subordinates contributes to motivation. However Northouse (2013) feels that change in the leader do not have significant impact on motivation, but change in the leadership styles can. Furthermore according to Armstrong (2009) employee’s capabilities and motivation change; and situational leadership composing of directive unsupportive dimensions can have an influence on employee motivation. In this respect a change in the leadership styles can have an impact on motivation, but not due to change in the leader alone.

Motivational theories applied to Zara

Motivational theories can be divided into process theories and content theories (Sulsky 1999). One of the most creative process theory is the expectancy theory by Victor Vroom (1982) indicating the dependence of motivation on individual expectations about their own ability to perform the function and receive the desired level of rewards. Expectancy theory is in alignment with other process theories of motivation (Bassett-Jones and Lloyd 2005) such as equity theory; however deviates based on the thought processes of individuals and the concept of “desirability” of rewards. In simple terms expectancy theory is dependent on the relationship between the effort placed, the performance achieved and the desirability of outcome (Wigfield and Eccles 2000).

Zara and Inditex are considered as young companies based on the demographic profile of its employees as it hires very young and creative people, provides training and are given incentives for creativity. Young employees in the early stages of their career have certain expectations; Zara is managing to provide the desired level of rewards, and hence the applicability of expectancy based motivation is evident. Young employees works hard due to the expectations of achieving the performance standard set by the company and the potential for gaining highly desirable results such as incentives and progression in the company.

Another important process theories of Herzberg’s (1966) two factor theory pointing towards the factors in the workplace resulting in job satisfaction and distinguishing them as motivators or hygiene factors. Motivators are challenging work environment, recognition, responsibility and so on which gives positive satisfaction whereas hygiene factors are status, job security, salary, which are not essentially motivators, but if absent result in motivation (Herzberg’s 1966).

Both intrinsic and extrinsic aspects of rewards are fulfilled by Zara and hence certain factors of Herzberg’s two factor theory can be evidenced. Zara has ensured that the young employees are given status, security in the job and good levels of salary which are hygiene factors, but at the same time are providing them a challenging work environment enabling the creativity and provides them with responsibility in the jobs. The failure rate at Zara is very low and minor failures are not counted significantly which ensures better job security, but at the same time the company recognises the creativity of the employees.

Both expectancy theory and two factor theory are useful to managers. The managers must understand that employees will perform only when the rewards, both intrinsic and extrinsic are at a desirable level and hence the rewards have to be designed to ensure they are contributing to employee motivation. In the case of two factor theory, certain aspects if absent will cause dissatisfaction and even in the presence of significant factors of satisfaction will not lead to ultimate motivation of employees. Taking an example, a lack of job security in the job is a dissatisfier (hygiene factor) and if at the same time the company is ensuring other motivator factors or satisfiers, the employee might not necessarily be motivated.

Task 4: Groups, teams and behaviours

Nature of groups within Zara and their behaviour differentiation

One of the essential sources of competitive advantage of Zara is teamwork (Kuntz and Boone 2009) which is evidenced from the previous section on organisational culture, structure and the approach to management. The corporate culture of Inditex and Zara is based on teamwork, open communication and a dynamic and international environment (Kuntz and Boone 2009). Zara has developed creative teams consisting of designers, sourcing specialist and product development for each different product lines. These teams work on products for the season, varying and expanding the product mix. There are teams focusing on customer preferences, commercial teams would identify specific trends based on sales potential of different product lines in which information technology, and analysis of information plays a large role.

Figure 2 – Group behaviour model

Source Mataric (1997)



The behaviour in the groups is determined by external conditions, resources, structure processes, task, performance levels on satisfaction (Mataric 1997) as given in the group behaviour model above. The two major teams or groups in Zara having significant differences in behaviour are design teams and commercial teams. The external conditions imposed on the design teams are to come up with new designs based on input from the storefronts which could be successful, but the decision of the designs is taken by the commercial teams again taking input from the storefronts and the customers. The resources available to both the design and the commercial teams are same along with the structure. However the process of working in design teams and commercial teams are different. The design teams focuses on consumer preferences from a range of geographies and translates them to design, while the commercial teams concentrates on the commercial viability of the designs. The performance and satisfaction level of the design team would be in developing new designs and hence in creativity, whereas in the case of commercial teams it would be in the area of commercial success. Hence the behaviour of the members in the team would be different in terms of their personal characteristic, the roles they play, the task orientation and the role perceptions.

Factors promoting effective team and teamwork at Zara

According to Bruce Tuckman (1965) there is a sequence to the development of groups and hence a pathway for high performance. The various stages of the development are named forming, storming, norming, performing and finally adjourning which was added to the initial model for temporary teams (Tuckman 1965). There are various factors that contribute to an effective team formation and teamwork which can be analysed from the developmental model.

In the forming stage, team members are considered positive, polite and anxious; and leaders have a dominant role (Tuckman and Jensen 1977). At Zara, there is great emphasis on the role of leadership which contributes to the formation of effective team at the first stage. Storming stage, the team members exert themselves with the possible arrival of conflict due to the different working styles, possible challenge to authority and resistance of tasks (Tuckman 1965). To ensure that the teams move through the storming phase, Zara has established processes due to its bureaucratic structure which further ensures the team moves through the stage. In the norming stage there is a resolution of differences, appreciation of the strengths and weaknesses and a respect for the leader (Tuckman and Jensen 1977). At Zara, there are a number of young employees which ensures that the team moves through the norming stage very quickly, able to socialise, take constructive feedback and develop strong commitment; all due to the demographic characteristics of the employees. In the final stage of performing, teams are able to perform to the required standards and leaders are able to delegate the responsibilities. Zara has developed a large number of performing teams as is evident from the overall performance of the organisation and people leaving the organisation does not disrupt the performance of the teams.

Impact of technology on team’s functioning at Zara

Information technology has enabled Zara to correctly analyse product life cycles and in fashion products life cycles are very short, often less than one season. With the help of information technology Zara’s product teams, design teams, sourcing teams would work with commercial teams focused on identifying customer preferences. In order to facilitate communication the store managers have direct lines with the design and commercial teams. The design teams will have direct communication with the sales people responsible for each product line in different stores and even window designers. Zara stores can be considered as the main source of information for the product design teams from whom information flows to other teams within the company with the help of new technology. Based on the inputs from a range of teams working in the organisation the commercial team identify the taste for each country or region by taking particular input from the store managers, the sales people and even the window designers.

 


Conclusions

Zara and Budgens are two companies in different industrial verticals with a common feature of retailing. There are significant differences between both the companies. Zara is relatively young company whereas Budgens have been in existence for several decades. Zara is controlled tightly by the family under Inditex and it is integrated vertically to ensure that all the factors contributing to its success are within the management’s control. Even with the authoritative leadership style, Zara’s young employee base ensures that it continuously roll out creative designs based on customer input gained at the store level. On the other hand in the case of Budgens, which seems to have applied the prescribed theoretical models i.e. in the case of leadership and management, there does not seem to be any positive results forthcoming. Zara’s success owes partly due to its vertical integration and the tight control it exercises over different functions of the company based on teamwork and improved communication through integrated information technology.




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Appendix I