Nottingham University Business School

MBA Programme
[Innovation Management (N14M76 MY) (SPR 13-14)]

A Journey over the Innovation of

(Individual Report based on Group Project)

[Racha Zohour Adi]; Student ID: [014132]

Original Copy [2]

Word Count: 3, 608 (Excluding Table of contents, References & Appendix)

 Innovation Management N14M76 MY [A JOURNEY OVER THE INNOVATION OF H&M]

Table of Contents

1. INTRODUCTION ..................................................................................................................................... 3
2. INNOVATION AT H&M .......................................................................................................................... 4
2.1. The Innovation Space Matrix ........................................................................................................ 4
2.2. Core Competencies ....................................................................................................................... 5
2.3. Dynamic Capabilities ..................................................................................................................... 6
2.4. Innovation Audit ........................................................................................................................... 7
A. Strategy: ........................................................................................................................................ 7
B. Processes:...................................................................................................................................... 8
C. Organization:................................................................................................................................. 8
D. Linkages:........................................................................................................................................ 8
E. Learning......................................................................................................................................... 8
3. BROAD RECOMMENDATIONS: ............................................................................................................ 14
4. CONCLUSION:...................................................................................................................................... 15
5. REFERENCES: ....................................................................................................................................... 16
6. APPENDIX: ........................................................................................................................................... 19
1. H&M COMPANY PROFILE ................................................................................................................ 19
2. Roth ells Fi e Ge e atio s of I o atio Model ...................................................................... 20
3. Po te s Fi e Co petiti e fo es: .................................................................................................... 21
4. Financial Benchmarking: ................................................................................................................. 22
5. An Example of Process Innovation:................................................................................................. 23
6. H&M Organizational Structure: ...................................................................................................... 24
7. H&M Sources of Innovation: ........................................................................................................... 25

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1. INTRODUCTION

I o atio is iti al fo a o ga izatio s g o th. I o atio a age e t apa ilities a e

fu da e tal o petiti e d i e s fo a o pa s su ess Elisa, 2010). In its basic definition,
I o atio is the successful exploitation of e ideas UK DTI 004) and in a more broad
explanation, u essful i o atio is the eatio a d i ple e tatio of e p o esses,
products, services and methods of delivery which result in significant improvements in
out o es, effi ie , effe ti e ess o ualit Al u 005). One of the most challenging
competitive industries in terms of the need for constant innovation is apparel and textile
sector.

The textile and apparel industry is one of the most dynamic industries, which are subject to
relentless change. Significant structural changes in global sourcing and price competition have
been altering the concepts and business models of this industry which is characterized by high
unpredictability and short product lifecycles. The latest trend in the consumer behavior is
moving towards (Fast Fashion): consumers are migrating from luxury and costly items to more
basic, practical and long-lasting models. Supermarket fashion has entered the competition such
as Tesco, Carrefour and Wal-Mart, and customers are now able to purchase basic and cheap
trendy clothes while shopping for food and other daily life products, which made it a
convenient solution for buyers who are in tight time. Online fashion retailing is similarly
growing. In apparel sales, Up to 15% is predicted to be through online purchases. Where the
online retail market has reached $11.47 billion in 2013 and the size of the market is tripled
(Mintel, 2008). These factors are putting more pressure on fashion companies to be more
innovative in their products and processes to survive in the fierce competition through
efficiency, rapidly and flexibly responding to demand where high quality, affordable price with
quick turnover of stock and rapid replenishment are governing the sector (Arrigo, 2010).

One of the pioneering companies to challenge the clothing industry by setting new business
models and raise the competition is Hennes and Mauritz- commercially called (H&M). This
report follows the group project on H&Ms i o atio Audit a d aims to provide a more
detailed study for the innovative performance of H&M through exhibiting its innovation
strategy and how ideas are promoted and impleme ted i the o pa s p o esses. Besides
the organizational structure of H&M, the linkages and extent of learning and knowledge the
company has grasped from the market. The report also provides some recommendations for a
future innovation strategy which can better improve the position of the company. For H&M
company profile, please check appendix.

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2. INNOVATION AT H&M

2.1. The Innovation Space Matrix

According to Bessant and Tidd (2013), the innovation matrix tool clarifies the perceived extent
of change towards the three types of innovation (incremental, radical and discontinues) for the
4 pillars of innovation (products, process, position and paradigm) and for services innovation.
By applying this tool to H&M, it is found that there are no discontinues innovations produced
by this company. It is a rare case in the apparel and textile industry and applies more to
technology sectors. But there are incremental changes in terms of enhanced and modified
p odu ts o lau hi g e a ds u de H&Ms a d po tfolio st ateg , such as COS as an up-
market brand with slightly higher prices. While the radical innovations of H&M in product lines
are represented by: the launching of homeware and home accessories through (H&ME) brand,
the accessories specialized store (&Other Stories), and seasonal collections designed by famous
designers or endorsed by celebrities. These products are radical for H&M, but not new to the
apparel and textile industry as other brands have already similar portfolio concepts, and it did
not shift the paradigm for this industry thus it is irrelevant to be considered as discontinues
innovation.

The incremental changes in processes lead H&M to an extended network of reliable suppliers in
many parts of the world as well as a global presence covering almost all regions. While the
radical change in processes for H&M is launching of online shopping and delivery service in
specific places in Europe and in the US.

H&M made a radical change by positioning itself as an effective practitioner and promoter for
sustainability through the launching for (Conscious Collection), where H&M promises its
customers of completely sustainable products starting from raw materials and moving through
operations and processes and ending by store delivery. H&M is the first reputable and valuable
brand and fast fashion retailer to heavily invest in sustainability. The below figure illustrates
these findings:

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Figure 1: H&M s Innovation Space Matrix Source: Author

2.2. Core Competencies

Companies like H&M who are market-driven are continuously striving for the development of
their internal and external capabilities which identifies their core competencies which in turn
differentiate those companies of their competitors (Prahalad, Hamel, 1990) and because
a kets toda a e e ol i g o sta tl , a o pa s apa ilit eed to e d a i Tee e,
Pisano, Shuen, 1997) for the purpose of rapidly and flexibly monitoring, aligning and responding
to changes on all levels. There are multiple competitive variables such as cost and quality which
are critical for success. However, those are not sufficient to attain preeminence over the
competition. Therefore companies need to shift the focus of their strategies from striving to
achieve the cost and quality model to more towards having the capability to innovate
(Zucchella, 2004). The core competencies for H&M are the ability to provide latest fashionable
trends at a low price, the deep knowledge and the capacity to research, predict and anticipate
emerging trends, and with its strong branding, H&M is even a trend setter amongst fast fashion
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companies. All this ould t e possi le u less the e is a effi ie t suppl hai which is a core
competency for H&M in comparing to most of the fast fashion brands.

2.3. Dynamic Capabilities

Dynamic capabilities represent organizational and strategic processes such as product

development and alliancing. The strategic value relies in their capability to employ and
manipulate the resources into value-creating strategies. Best Practices a oss the a e
considered as dynamic capabilities. Their extensive structural patterns differ with market
dynamics, sometimes they are robust and fluted routines in temperately vibrant markets and
sometimes they are fragile and semi- structured in high-velocity markets and they develop via
recognized learning mechanisms. Long-term competitive advantage relies in resources
o gu atio s Eisenhardt & Martin, 2000).

H&Ms dynamic capabilities are illustrated in the below figure:

Figure 2: H&M Dynamic Capabilities Source: Author

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2.4. Innovation Audit

A truthful assessment of innovation variables of a company such as the agility, creativity and
innovation capacity is crucial in order to advance the innovation in the organization. The
innovation audit tool designed by Tid, Bessant and Pavitt (2005) takes into account analytical
and numerical questions that can predict what is hindering innovation in the organization. It
also reveals about the o ga izatio s culture regarding empowering innovation. A deliberated
unbiased audit can detect the key zones for enhancement in innovation processes and in
corporate culture (Sloane, 2012).

The questionnaire fo auditi g H&Ms i o atio has ee pe fo ed on two sides: by the

team members and also by H&M employees at one of the local H&M stores in Kuala Lampur,
Malaysia. The results are presented below and more discussion is provided further:

Figure 3: Innovation Audit for H&M Source: Author

A. Strategy: The perceived strategy for both results (from team members and employees) is
approximate. Main feature is that there are too many stores for H&M and the expansion is
moving rapidly.

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B. Processes: The processes are perceived to be suitable and efficient for H&M employees
more than the team members.
C. Organization: O ga izatio s audit scored the same result approximately
D. Linkages: The linkages perceived by the employees are higher than team results, which
is due to different perception of the concept of linkages, for example, linking to celebrities
such as David Beckham and Beyonc was considered by employees as a great linkage, while
team members found other pitfalls which will be discussed further in the linkage section.
E. Learning: For learning and knowledge, team perceived that H&M is learning from the
market better than what e plo ees thought.

Each pillar of innovation at H&M will be discussed in the following sections and
recommendations will be provided based on audit findings.

2.4.1. Strategy

a) External Environment around H&M

The external environment around H&M is aggressively competitive. According to Michael

Porter (2008) the Five Competitive Forces around H&M are examined (Please check appendix
2).

b) Expansion Strategy

The expansion strategy of H&M has slightly shifted the focus of the company from achieving
profits. In a financial performance benchmarking with INTEDIX group and GAP (please check
appendix), it is shown that the profits for H&M are reducing and there is a slow growth of
revenue. The revenue in turn is decreasing as stores are expanding. H&M is having 10-15% new
stores annually and 90% of hosting countries are high income countries. This is in addition to
the franchising business model in the Middle East. H&M targets many market segments with its
brands and do promotion by designer collaborations, celebrities and social media. According to
Delft Innovation Model, these collaborations represents an Open Innovation Strategy , a d as
Closed Innovation , H&M has Increased the mobility of skilled labor force, extended venture
capital and used external options for unused resources.

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c) Recommendations for strategy Improvements:

Relook Expansion Strategy: H&M need to relook its expansion strategy through designing an
innovative one that meets the company goals and which is clearly communicated to the entire
organization so employees can better understand the overall vision of the company and
contribute in improvement process (Tid, Bessant and Pavitt, 2005). By auditing the company
strategy it is noticed that stores in countries where there is a high quantity of branches such as
US and UK suffer from low Revenue per Store (RPS) and that there is a saturation in the number
of stores which is above 200 for both countries. While stores like the ones in Japan, have a very
high RPS (60% higher than US and UK). It is recommended to increase expansion in countries
like Japan, South Korea and Russia rather than just focusing on US and UK. H&M should adopt a
more innovative strategy and explore new markets such as New Zealand and Taiwan (especially
with the nonexistence of Zara in those countries). As well as increasing its presence in Asia
pacific countries where the global middle income is rising. Also the franchising model is low on
profits and needs to be relooked. (Please check appendix for Financial Benchmarking)

Increase Online Shopping Service: Online Shopping and delivery Service should be expanded to
cover more areas especially where H&M does t ha e st o g p ese e. Currently H&M is
providing online shopping in US where it has the maximum store number through all the group
chains and where is the lowest revenue per store comparing to Japan and Russia.

Focus on all Generations: H&M should focus on Gen-Y as their shopping behavior is less
affected by the changes in economy, and should similarly focus on Gen-X and possibly provide a
brand that meets this generatio s eeds more sedate and demure fashion). Baby boomers
percentages are increasing in developed countries where society is ageing. Therefore it is
innovative to consider a brand targeted to this generation.

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2.4.2. Process
a) Scanning and Selecting Ideas:

According to the portfolio selection process model, H&M first build the knowledge about
fashio t e ds ased o i house desig e s o se atio s a d e pe tise a d ide tif the futu e
opportunities and threats for the proposed designs. Secondly, H&M links between the built
knowledge and the future business investment to ensure the feasibility and competency of the
proposed designs and the level on which resources are available (for example: materials and
suppliers, technological support). Finally, H&M pave the way for the business investment i.e.
the designer collection by production of new collections and marketing the collection globally.

With 160 in house designers and 100 pattern makers, H&M produces its wide range collections.
The design team consists of diverse members who represent all diverse dimensions in
o su e s data base, such as different age groups and different nationalities. Those teams
draw inspirations from a large range of sources such as cinema, music, art, magazines, trade
and catwalk shows, trend seminars and even street fashion. Then all these influenced ideas are
filtered into continuously updated collections. According to H&M, The main philosophy in
s a i g, ge e ati g a d sele ti g the desig s ideas is a out striking the right balance
between fashion, quality and the best price. And it always involves sustainability awareness.
That means a strong consideration for both people and the environment, all the way from the
sketch book to the customer H&M Official Website, 2014).

b) Supply Chain and Time:

The time variable for H&M is an essential aspect of the entire supply chain from the initial
stages of choosing materials and designs down to launching multiple stores globally. Most H&M
competitors stylists plans the collections for the coming seasons up to eight months in advance
before they are launched to the market although this contains high risk due to unpredictability
of demand and short clothing products life cycle . While H&M does t allocate that much of
time to plan the new collection, simply because there is a system of monitoring large fashion
houses collections and predicting the new trends in the market, so they design their items
following those trends, also designer collaborations significantly minimize the collection
planning time because designs comes directly from trend setters (Elisa, 2010).

H&M outsources its products from a large network of suppliers ensuring a great consideration
of people and the environment. Production offices are located in the sourcing markets for more
effi ie of the suppl hai . Lead ti es i H&Ms suppl hai a e et ee th ee eeks to si

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months. Basics and children wear are ordered in high volumes in advance while trendy items
are ordered in small volumes and shorter notice.

a) Recommendations for Processes Improvements

H&M should invest more in Allocating resources for innovation which can result in reducing the
lead time for delivery to less than the current time frame (three weeks to six months).
Monitoring and following the product through all stages and securing an efficient supply chain
with maximum saving of time are done through innovative IT processes. Information and
Communications Technology (ICT) is undeniably crucial to manage the massive size of data and
information that flows among the several company divisions, as well as amongst partner
companies. Inclusive real time order management systems can enable H&M to monitor each
item from sketch design to sell point. Digital design softwares can reduce the processing time of
new items as they are connected to computer aided machines and can apply the cut of the
design immediately to the fabric. Automatic sorters which divides items by color, type and
model reduces the time to deliver products to point of sale (Forza, Vinelli, 1997). The RFID
technology (Radio Frequency Identification) can enhance the process of monitoring products
along the supply chain and streamline the order entry process (Garrido, Ferreira, 2009).

2.4.3. Organization

The organizational structure of H&M is a matrix structure where members of the executive
management team are appointed by the managing director to lead their teams which in its turn
consist of 15 employees, six of them are women. The board of directors and the managing
directors are subject to audit committees to ensure complying ith the o pa s poli ies,
procedures, ethics and standards.

The team is responsible for Finance, Accounts, Buying, Sales & Marketing, Production,
Sustainability, Expansion, New Business, Brand, Communications, Investor Relations, Human
Resources, IT, Logistics and Security . The matrix structure promotes innovative leadership
where executive management team members are accountable for their di isio s support,
training and best practice, and for each country working efficiently in accordance with the
policies and guidelines issued by the Head Office. Country managers have overall responsibility
for sales, profitability and all departments in their country hi h illust ate H&Ms
Decentralized Globalisation strategy (H&M Official Website, 2014).

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According to Angle (2000), Innovation is a joint function of personal attributes and

organizational context, it occurs in a context that contains both enabling (can do) and
motivating conditions (will do) In light of this definition of organizational psychology, H&M
creates a e to o ga izatio in each new country store to guide this branch in the local
market and possibly the neighbouring market (if there is an expansion plan for it). For example,
US branches helps opening new ones in Canada, Hong Kong business assists introduction in
Japan. By this organizational model, H&M was able to reduce costs by avoiding large numbers
of centralized staff and encourages managers and employees through empowerment and
provides job rotation opportunities so the human structural capital is accumulated inside the
group.

The teams within H&M are mission oriented teams, they are empowered to take initiatives in
design and they have a clear sense of the vision of the company.

The li ate of H&M organization is innovative, they are committed to the Open Door Policy
where freedom and openness are empowered and conflicts and debates are welcomed.
Constructive employee relations, playfulness and humour, and a dynamic workplace are all a
key factor in H&Ms success as it believes that each single individual can create a difference
(The H&M Way Report). H&M ensures good relations with suppliers and ensures they commit
to the code of conducts and ethical standards of the company by having audit committees to
perform audit operations on suppliers as well.

Recommendations for Orga izatio s I prove e ts

H&M need to provide more autonomy and support for individuals to improve creativity and
innovation in the products and processes as currently the largest set of innovative designs are
produced through designer collaborations.

2.4.4. Linkages

H&M has developed strong industrial and organizational linkages that foster innovation; they
feature Guest-designers for collaborations such as Versace, Stella McCartney and Jimmy Co, as
well as fashion companies such as French fashion house Lanvin. H&M Design Award encourages
fashio s hool stude ts to p ese t thei desig s i a eputa le o petitio he e the i e s
collection will be offered in H&M stores, H&M also ensures having strategic alliances and
partnering with reliable suppliers who can help the company For Achieving an innovative
Sustainable Textile Production Chain such as (Solidaridad).

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The company invests in social media and mobile applications to engage in interaction with
customers and observing their needs and demands. H&M is also investing in celebrity
endorsements where it helps marketing their products. The organization capitalizes on training
and development of their employees especially in relating to sustainability, the company
partnered with the DO SCHOOL organization in a program that trains employees on how to
create sustainable green stores. And as corporate social responsibility, H&M engages in
partnerships and programs with a NGOs su h as the WWF fo water stewardship, Red
Cross for disaster relief and UNICEF for early childhood development, and much more.

Recommendations for Linkages Improvements

Educational Linkages: H&M needs to establish its linkages with educational institutes and R&D
organizations to better enhance its innovation capabilities, products and processes through
research collaborations and through communicating the needed skills and qualifications to
those educational institutes in order for them to be able to provide the company with those
skills. R&D is a major source of innovation in materials, fabrics, design technologies, operations
management and marketing techniques.

Lead User Experience: H&M need to engage more with customers and getting their feedback
to anticipate the actual needs and demands of customers; this can be achieved by emphasizing
on the innovative consumer-lead user experience, where those consumers can provide direct
input by experiencing products in advance of the market and engaging with product
development and manufacturing. They can specify alternative fabric textures, colors, patterns
and designs. Their proposals will be compared to the versions created by o pa s designers
who are trying to predict the palates of the market (R. Solomon & G. Englis, 2001).

2.4.5. Learnings

H&M has demonstrated learning from the market on all innovation pillars; they have good
relations with suppliers, and have the benchmarking procedures with other firms. H&M spreads
the knowledge and learning through the organization so each individual can benefit from the
experience.

Recommendations for Lear i gs I prove e ts

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H&M can develop their understanding of customer needs through lead users experience and
better interacting with customers. For example, they can appoint stylists in selected stores
where they can personally interact with customers and understand their needs while advising
them on their best style fit and report back the needs to the company to better enhance the
products. H&M also need to work on better relations with other similar firms in the industry to
share experience and learn.

3. BROAD RECOMMENDATIONS:

Stage Gate- New Product Development Map: H&M should adopt measuring tools to identify
key areas where development is needed. For example, by using a lead user experience to
enhance processes and linkages, a testing stage is added to the innovation process which will
be validated, and results will be better. Measurement and review method can then help
identify vital spaces for improvement. This can be represented through a stage gate new
product development map, illustrated as following:

Figure 4: Stage Gate- New Product Development Map- Source: Authors

The benefits of this model are as represented by:

1. Speeding up market response

2. Up surging chances of product success
3. Bringing together discipline into a normally disordered process
4. Cutting waste and avoiding or reducing re-work
5. Developing focus through gates where destitute projects are neglected or killed
6. Accomplishing effective, efficient allocation of scarce resources
7. Guaranteeing a complete process no critical steps are missing

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Construction of a Triple-A Supply Chain: A triple supply chain model consists of three main
aspects for a supply chain:

1. Agility: where the company responds flexibly, smoothly and quickly to unpredictable
market changes.

2. Adoptability: where a supply chain is easily structured and adjusted to meet market
changes, and supply networks are modified to meet and be aligned with strategies,
products and technologies.

3. Alignment: to create inducements for better performance.

4. CONCLUSION:

H&M is a highly competitive fast fashion company who was able to employ incremental and
radical innovation through all five pillars of innovation in business organizations, which secured
an excellent position for the company in the market. H&M is continuously working on
enhancing its market position and strategy majorly as a leader in sustainable fast fashion.
However H&M can work on enhancing its strategy and supply chain through shortening lead
times and using innovative IT systems. It can more engage a better organized innovation
process model that includes a testing stage and evaluation stages which increases product
success chances and minimize risks of failures. H&M can also better engage with educational
and R&D institutes to gain better and fresh innovative ideas. The learning process should be
systemized and applied to the whole organization. The mentioned recommendations are cost
effective but involve significant restructuring efforts and support. However, it will improve
H&M competitive advantages and contribute to a better financial performance and market
position.

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Fastcompany.com (2014) accessed at http://www.fastcompany.com/3026315/most-
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pdf as at 9th April 2014

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H&M.com (2014) From idea to store: Planning and Buying. Downloaded from
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and Organization (5th Edition). West Sussex: Wiley.

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6. APPENDIX:

1. H&M COMPANY PROFILE

Back in 1947 in Sweden, a clothing company named Hennes (in Swedish: for her) was founded
by (Erling Persson), selling only woman clothes. Later on 1968 the company acquired Mauritz
Widforss the Swedish retailer which used to exclusively sell men clothes and the company
name was changed to Hennes & Mauritz AB or simply H&M. It later became a multinational
company head quartered in Stockholm, Sweden, and serving countries worldwide. It is publicly
listed in NASDAQ as OMX of Stockholm. By the end of the first quarter of fiscal year 2014, H&M
group had 3,200 stores globally in 54 countries employing 116,000 employees. It announced
that sales including VAT amounted to Swedish Krona (SEK) 150 billion and a profit after tax of
SEK 17.3 billion which is an increase of 13% comparing to fiscal year 2013 and the same
percentage of increase for gross profit (H&M Financial Reports, 2014).

The group is adopting brand portfolio strategy and consists of six independent brands: (H&M,
COS, Monki, Weekday, Cheap Monday and & Other Stories) which collectively offer everything
from newest trends to basics for women, men, teenagers and children along with shoes,
accessories, cosmetics, skincare products, fragrances and a home interiors concept for
homeware and home accessories. 160 in-house designers and 100 pattern makers work
cooperatively to create the collections. The company does not own any factories and it works
with 00 I depe de t upplie s i stead, ai l i Asia (H&M Official Corporate Website,
2014).

H&M is ranked as the 5th Global Fashion Retailer and gained itself the same rank in the Worlds
Top 10 Most Innovative Style Company list 2014 a o di g to Fast Co pa & I . e site. Its
ranked #30 In Forbes Most Valuable Brands List and is the first fast fashion brand retailer
appears in the list. The company was named 2014 World's Most Ethical Company by the
Ethisphere Institute and the received the European Business Award back in 2011.

H&M was recently emphasizing on sustainability through its entire business operations and
products. It was awarded The Deloitte China Sustainability Award 2014 and ranked #11 in
Rank a Brand for Sustainability organization website he e its the top fast fashion retailer in
the list.

The philosophy and business concept of H&M is Fashio and Quality at the Best Price and
the company is achieving this vision by housing its own experienced designers, ensure an
economical mind and profound knowledge of fashion and textile while connecting to the right

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suppliers and keeping high control of all production phases that are outsourced to ensure
quality and commitment to standards. H&M buys large volumes of the right items from the
right markets and depends heavily on technology to ensure the highest possible efficiency. The
o po ate ultu e is H&Ms ut ost alua le assets a i athe , 00 , H&M states that
quality also means producing the items with minimal impact on the environment and under
good working conditions H&M Offi ial Co po ate We site, 0 .

2. Rothwells Five Generations of Innovation Model

According to Rothwell (1992) and his five generations of innovation management model, the
innovation management strategy adopted by H&M falls in the fourth ge e atio of Roth ells
model: (the Generation of Integrated Business Processes). This generation is relevant to fast
fashion industry as products life cycle is short and companies need to integrate processes with
p odu t de elop e t to offe the total o ept , by ways of integrating cross functional
innovation and parallel process of development within the company (Rothwell, 1992) and
throughout working with suppliers for production of new raw materials, collaborating with
designers to create collections and interacting with customers by getting their feedback to
predict the next trends. This generation accentuates on concurrent learning with suppliers and
customers. Furthermore, some of the fifth generation features are also notable in H&Ms
innovation management strategy, according to (Rothewell, , he states that a of the
features of 5G are already in place in innovators that have mastered the 4G process; parallel
and integrated operations, flatter structures, early and effective supplier linkages, involvement
ith leadi g usto e s a d ho izo tal allia es . Whe e the th generation emphasizing on
automating the whole innovation system in a company, it also emphasizes on vertical
linkages with customers and suppliers as they can be involved in creating new products and
horizontal linkages through partnerships and alliances hi h is see i H&Ms st ateg a d
will be discussed further.

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3. Porters Five Competitive forces:

Competitive Rivalry There are an ever growing number of rivals to

H&M such as Zara and Gap which are highly
fashionable like H&M, as well as cost conscious
and globally accessible. However, through its
production outsourcing, efficient supply chain and
wide range of items through multiple brands,
H&M was able to gain its current position
Threats Of New Entrants Although the threat of new entrants to apparel
industry is high, H&M enjoys the advantage of
having economies of scale as a retailer and a large
suppliers network along with accountable
corporate social responsibility which will make it a
very long and costly journey to new entrants
versus already established major market players
and until new entrants mimic the process, already
established companies will be in a very far stage
and better innovation capabilities.
Threat Of Substitutes The threat of substitutes for retail industry (there
is no substitutes to apparel) can be online stores
which are a high threat fo H&M if it did t
consider relooking the online store strategy.
Bargaining Power Of Supplier The bargaining power of suppliers is low as H&M is
a reputable brand with an aggressive expansion
strategy and able to have a large network of
suppliers worldwide for all raw materials needed.
H&M also is able to set its standards related to
sustainability for their suppliers.
Bargaining Power Of Buyer Bargaining power customers is moderate as
customers behavior is increasing towards brand
loyalty if this brand is providing them with their
needs of fashionable items with low costs and
constant collection update. But at the same time
the switching cost is low as there are also many
other rivals to H&M. And since H&M is a retailer
itself, there are no power for retailers as a
customer, and even in the franchising situation in
the middle east, H&M has control of the stores as
they are related to the company.
Ta le 1: Porter s Five For es- External Environment Analysis for H&M

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4. Financial Benchmarking:

Figure 5: Benchmarking with INDITEX & GAP Source: Authors

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5. An Example of Process Innovation:

The o s ious olle tio is a exa ple of H&M s losed loop pro ess i ovatio : as a leader i
sustainable fashion, H&M avoids waist and uses (no longer used) clothes as resources for new
products through recycling and redesign, it even launched a program to give purchasing
vouchers in exchange for returning of unwanted used clothes to be used in new products for the
conscious collection (H&M Official Website, 2014). Conscious collection is an innovative product
in comparing to the fast fashion market, in fact, H&M is the leading fast fashion company to
adopt this innovative strategy in sustainability, the process of producing this collection is
innovative as well. The perception of this collection was excellent in the market as consumers
are more aware of sustainability and LOHAS market segment is increasing. The process loop is
described in the below figure:

Figure 6: H&M Conscious Collection Concept Source: www.fashionwithaconscience.org

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6. H&M Organizational Structure:

Figure 7: H&M Matrix Organisation- Vertical and Horizontal HeadSource: H&M Corporate Governance
report 2006, http://about.hm.com/content/dam/hm/about/documents/en/Corporate%20Governance/
Corporate%20Governance%20Reports/CORPORATEGOVERNANCE_REPORT_2006_en.pdf

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7. H&M Sources of Innovation:

Figure 8: H&M Sources of Innovation- Source: authors

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