H&M Achieving Business Excellence

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Abstract

H&M is a Swedish-based company and one of the largest apparel retailers in the world, in terms of sales. The company utilizes the concept of fast fashion that comprises selling trendy, fashionable articles of clothing at relatively low prices. However, in the highly dynamic and competitive retail fashion domain, customer experience is critical and this study, therefore, sought to review the implementation, and ascertain the efficacy, of H&M’s Corporate Social Responsibility (CSR) in maintaining the company’s public perception. This objective was attained by implementing the EFQM Excellency model, which provides a self-assessment framework that could be applied to measure a firm’s strengths and identify its areas of improvement. The model is especially useful in reviewing what an organization currently does, and what it could do to provide excellent service and product delivery to its consumers, the society and other stakeholders, which makes it particularly convenient for our objective. H&M has a reasonably effective CSR implementation that has worked to iron out various controversies in the company’s past. The CSR is primarily concerned with providing good labor conditions for employees of the company and other H&M-affiliated entities including suppliers, manufacturers and factories. As a result, the company has implemented a code of conduct that is enforced on these firms and consequently helped present H&M as a responsible company. In more recent times, H&M has used its CSR to improve on the racial and ethnic inclusivity in the company, but the resultant repercussions of this implementation are unclear.

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Introduction

Hennes and Mauritz AB (H&M) is a Swedish clothing company that utilizes and maximizes on the fast-fashion concept of selling stylish and trendy garments are low prices. Initially, the company started out selling women’s clothing, with the brand being simply called Hennes, which translates to ‘her’ in the Swedish language. However, with the merger with a Stockholm-based hunting store, Mauritz Widforss, the company started selling both male and female clothes under a re-branded name “Hennes and Mauritz” (H&M, n.d.). This name was later contracted to the acronym “H&M” for easier brand perception. The product range in modern H&M stores is vast and ranges from clothes for men, women, teenagers and children, accessories, cosmetics, and footwear.

In the contemporary retail fashion market, H&M is a well-known fast fashion retailer due to the nature of its collections being designed, produced, and taken to market quickly based on the Fashion Week trends of the year. The company seeks to rapidly expand by focusing on consistently improving quality, advertising, and reduction of operation costs. Despite increased Internet and e-commerce integration, storefronts continue to be a strategic sales channel, and their stores are often situated in ideal business locations to offer maximum exposure and convenience to their customers. Catalogues and the Internet are also implemented to communicate effectively with their growing customer base. This approach works, like H&M, as of 2017 was the third-largest clothing apparel and footwear retailer in the world, after The Gap, and Zara by Inditex (O’Connell, 2020). A viable marketing approach, coupled with consumer convenience, has propelled H&M from a small storefront in Sweden to a recognizable global brand.

The business philosophy of H&M embodies its strategy. The business concept comprises to offer “Fashion and quality at the best price” (H&M Group n.d.). This concern with quality extends, not only to the product availed by H&M to the consumer but also in back-end operations. H&M does not conduct any manufacturing but instead relies on a network of suppliers who do it instead. These suppliers have to conform to a strict code of conduct to ensure proper labor conditions and chemical restriction. However, with a more recent public awareness of the increasingly destructive nature of the fast fashion industry in the production process, along with the economic and environmental repercussions attributed to the sector, H&M needs to review their Corporate Social Responsibility (CSR) as well if it is to maintain its public image. Strategic CSR ensures the development of more favorable and responsible businesses, in the face of mounting societal expectations and corporate pressures.

Consequently, the primary objective for this critical analysis is to ascertain the organizational efficacy of H&M in improving public perception through Corporate Social Responsibility while still maintaining its competitiveness. The specific objective derived from this broad aim is as follows: to assess H&M’s implementation of CSR and its efficacy in improving its public image.

Leadership and Strategic Planning

The leadership and organizational strategy at H&M are clear and unwavering, despite the highly dynamic nature of the fast fashion retail industry. The company is highly committed to its initial core values and vision, which helps create a definitive leadership structure under which the corporation operates and thrives. The current leadership and strategic planning are geared towards retaining and consistently improving consumer satisfaction for a better competitive advantage globally. It can be argued that the company is following a very concise, albeit generic, strategic plan but one that allows clear guidance towards the set goals.

With this leadership and strategic plan, H&M can avoid bureaucracy and leadership redundancies, which allows for a more streamlined approach to the achievement of their goals. The company also avoids many implementation mistakes through a strategic planning process that is guided by succinct procedures that are developed from market analysis and experience (H&M Group, n.d.). This scenario provides strategic management that allows an organization to move towards a desired direction cohesively. With a clear vision of the overarching company goals and a hierarchical leadership style, the management of each department can ensure that the appropriate activities and focus is maintained throughout their domain. Further, investments are consistently made based on organizational objectives and goals.

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Some of the more apparent effects of strategic management include a more vivid understanding, and consequently, orientation towards organizational strategies and goals. This is achieved, not only among managerial executives but also with the staff members in the organization. As a result, the company, in its entirety strives to operate in accordance with the communicated expectations within each fiscal year. This can be seen in the case of H&M through their consistent global market share growth throughout the years of operation.

However, a hierarchical leadership structure translates to fairly high bureaucracy levels within the organization. This means that decision-making is often cumbersome, and versatility is impacted. Decision-making capacities are fairly limited across employees who may leave employees at lower tiers feeling voiceless (Bonilla et al., 2019). The work environment within H&M is reasonably progressive, and several policies and a code of conduct are implemented by the company to ensure that their own employees and those contracted within their suppliers have a minimum set of work conditions met. Other than the bureaucratic approach to decision-making, therefore, employees are generally content with the current management strategies.

Customer Excellence

Providing an excellent customer experience is imperative within the retail sector. Customer experience entails how the consumer base primarily perceives, and their continued interactions with the company (Chen et al., 2017). Good consumer experience is often tailored and hedges on three essential elements, whereby the service provider is useful and therefore delivers value to meet the consumers’ needs, is usable, in that the value is easy to find and more so to engage with. Finally, it is enjoyable and emotionally engaging so its consumer base will want to engage with them (Chen et al., 2017). This consumer experience is assessed during a customer interaction, which is the actual two-way engagement between the consumer and the company, which ideally ends in a successful transaction (Chen et al., 2017). A customer will regularly make a judgment as to whether a specific company meets their needs, is enjoyable to interact with, and easy to use as well.

As a result of the fickle nature of customer experience, providing excellent service is challenging. A consumer will judge the company at every interaction, whenever they call the service center, visit the retail store, buy the company’s products, see an advertisement, or navigate to the company’s website. For H&M, this issue is exacerbated by the fact that it is a multinational company. This means that its cultural values ought to be aligned with a diverse set of cultural values and historical experiences for a vast number of different people all over the world. A truly diverse workforce would also be imperative to contextually address the customer experience concerns arising across the globe as well.

A significantly disastrous consumer experience by H&M is embodied in the ‘hoodie incident’. In this case, the fashion retailer emblazoned the phrase “coolest monkey in the jungle” and advertised with the hoodie being modeled by a black child. This, understandably raised racism concerns and outrage among black customers; alienating particularly the South African and African-American markets (Chen et al., 2017; Bonilla et al., 2019). This hoodie incident highlighted the Swedish firm’s detachment from its consumer-base and outlined the dire need for sensitivity to diversity.

Operations

H&M’s operations have arguably led it to be one of the most successful low-cost fashion retailers in the world. The company has a unique core operating and business model whereby they do not own a single manufacturing plant and are not directly responsible for the manufacture of any of their apparel. Despite this, the company has approximately over 5053 stores across 74 countries, and about 179000 employees (H&M Careers, n.d.). The company also handles a vast supply network, logistics and warehousing. To accomplish this rather impressive feat, H&M buys their apparel, footwear, cosmetics and accessories from a large selection of suppliers; effectively outsourcing non-essential operations to allow them to focus on their core business.

The company’s core business is streamlined to match their business concept of fashion and quality availed at the best possible price. H&M eliminates intermediaries and outsources the production of apparel which allows them to focus on the design and specification of various items, as well as the retail experience (H&M Group, n.d.). The end result is providing consumers with highly fashionable products that are aligned with the contemporary fashion and market trends and comparable quality but at a fraction of the price. Regardless, H&M close manages the production process to ensure fair labor and manufacturing processes are followed.

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This operating strategy, however, ought to be supported by a robust logical and infrastructure system. H&M employs a broad three-pronged approach that involves; strong relationships with their suppliers, manufacturing strategies, and finally, information technology adoption and implementation. The company has over 30 production oversight offices globally, which take up a mediating function with local suppliers to ensure efficient communication. These offices also function as checks and balances for the compliance of the company’s policy and code of conduct, maintenance of quality, and production prices. This relationship extends to mentoring factories to be models for others in emerging markets such as Cambodia and Bangladesh. This is achieved by emphasizing the importance of running an environmentally sound, efficient, and profitable factory. This stringent compliance with factory conditions helps manufacturers and H&M.

H&M is operating within a price economy. Consequently, the company requires effective inventory management where they place bulk orders in advance to account approximately 80 percent of their retail inventory, with the remaining 20 percent comprising quick to market items based on fashion and market trends (H&M Group, n.d.). These bulk orders significantly held the scale of the economy, as they keep production lines full, and allow H&M to provide competitive pricing. The company also offers two significant releases a year; their Spring and Fall collections, with each season having sub-collections that regularly rejuvenate the inventories. These sub-collections comprise trendier items with a short lead-time, while the Spring and Fall collections are conventional long-lead items.

An extensive Information technology infrastructure is also required to coordinate the brand’s numerous physical locations. In this case, an IT system is implemented to connect all H&M stores with corporate-level logistics, the central H&M warehouse, and procurement systems. This system also incorporates the research and development teams which helps the company maintain a fairly transparent commercialization process. With the increased popularity of e-commerce, this IT infrastructure is essential in bringing H&M into the contemporary marketplace.

Despite the efforts of H&M to ensure more eco-friendly manufacture processes, the company is susceptible to issues plaguing the operating initiatives of the fast fashion industry. The low apparel costs have led to sustained accumulation of cheap clothes that, in turn, have serious repercussions to human health and the environment. The operating platform of traditional releases, interspersed by several subcollections allows for trends to move quickly. Therefore, consumers are often feeling out of trend and in need of purchasing new clothes. As a result, more clothes are being discarded than can be sustainably recycled and disposed of, resulting in the fashion industry being the second highest polluter of the environment after the oil industry. Further, wastewater from factories contain toxins that often find themselves into water sources and contaminate aquatic, animal and human lives. This environmental impact of the fashion industry is gradually being sensitized, with mixed reception and uptake from the general public as well.

Measurement, Analysis and Knowledge Management

In any multinational retailer, data is critical for its daily operation and competitive positioning. For a company to hold a competitive position, companies would need to share knowledge among the required persons to be efficient effectively. Contemporary businesses have also popularized the idea of making knowledge explicit and understandable to all personnel levels and other stakeholders, which has resulted in companies adopting this policy. Consequently, many firms are implementing knowledge management architecture to make the process easier. The overarching goal of knowledge management within a firm is refining the available knowledge to ease attainment of the organizational goals by employing strategy, culture, and ICT.

In H&M, employees are placed in dynamic positions, which ensures that the information allocated to them is ever-evolving as well. Their competitive advantage lies with their employees, who often possess specialized knowledge (Gechevski et al., 2016). As a result, H&M can move their staff within the firm as they ascertain the best fit without losing any departmental value. This approach has inherent advantages and drawbacks. On the one hand, this approach ensures that an employee’s individual knowledge is allocated where it can create the most value for H&M as a brand. However, on the other hand, it would be difficult for H&M to accomplish high control and attain accurate, valuable information regarding their transferable assets. H&M also owns relatively little of its value chain due to the company’s unique business model, which places the firm in a rather precarious position.

People

H&M, as a multinational company, interacts with a vast number of people in various capacities daily. For its human resource, H&M employs approximately 179000 people across 74 unique markets (H&M Careers, n.d.). Furthermore, the company heavily relies on this human resource task force in various and critical capacities, including sales advisors, customer support personnel, visual merchandizers, information technology experts and so forth. As H&M operates within a price economy, they seek to keep their costs relatively low and, therefore, remove the intermediary, which leads to a heavily business to consumer model.

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The company requires its staff to embody the same values that govern the company, which includes an ambitious attitude and a keen eye for fashion. This is necessary as they seek to form a unique corporate culture that would be reflected in their interactions, and improve public perception. However, H&M severely lacks in an ethnically and racially diverse workforce. While there is sufficient gender diversity in the Scandinavian-based company, there lacks adequate racial integration, which led to a significant racial incident, and damage to the company’s overall brand among minorities.

Business Results

From H&M’s five-year summary, the company recorded revenues in the fiscal year of 2019 of SEK 232,755 million, which was an 11 percent increase in net revenues from the previous fiscal year of 2018 (H&M Group, 2020). Furthermore, the net profit was SEK 13,443 million, an increase of 7.5 percent from the fiscal year 2018 as well (H&M Group, 2020). The company, is as of the end of the year 2019, the third-largest apparel retailer, after The Gap, and Zara by Inditex (O’Connell, 2020). The largest market for H&M is Germany, which in the fiscal year ended in 2019 generated 3.5 billion USD in revenue for the company (H&M Group, 2020). The company has been posting impressive growth throughout the period and considering the growth of the fast-fashion domain. This growth can only be projected to continue in the short-term.

Advantage

In the case of H&M, an inherent advantage to developing a quality framework over adopting an existing structure such as the EFQM model would be the ability to customize and contextualize it to reflect the unique conditions of the company. Furthermore, this developed quality framework can be designed to address the apparent drawbacks of a globalized model such as EFQM, such as the inability to assess cause and effect. As a result, H&M can develop a highly unique framework that is appropriate for their utilization. A significant drawback, however, would be a more cumbersome process to generalize results for comparison. Since the adoption of a unique quality framework would mean an emphasis on metrics that are essential to H&M, there may be limited capacity for comparison with other entities which use an existing framework.

However, globalized frameworks such as the EFQM are popular for a reason. The primary strength of the EFQM model and many other globalized structures is the ability to be implemented broadly to measure a predefined set of parameters and compare with other relative companies. This comparative view can spur agile practices, the definition of culture, and address unique organizational challenges that may improve growth and performance in the short-term and long-term. However, sometimes, rigid standardization may inhibit innovation and creativity. Furthermore, the adoption of some of the global standard models may introduce costs that are relatively invariant to the benefits accrued from their implementation.

EFQM

The EFQM excellence model provides a self-assessment framework that can be implemented broadly to measure the strengths and areas of improvement for an organization across its activities. The model is often termed as the “Excellence Model” due to an emphasis on what an organization can do, or presently does, to provide excellent product and service delivery to its stakeholders, consumers, and the society at large (Escrig-Tena, 2019; Rodgers et al., 2019). The model operates on the premise that Customer Results, People Results, and Society Results are achieved through leadership that drives Resources, Partnerships, People, and Strategy & Policy, which consequently leads to excellence in Key Performance Results (Zárraga-Rodríguez & Álvarez, 2016). The results of an organization are what it achieves and often involves satisfaction among its consumers and the employees, with a positive impact on the community in general.

The EFQM Excellency Model
Figure 1: The EFQM Excellency Model

Given this study’s particular focus on how H&M’s policy and strategy influence customer satisfaction, the most relevant criteria in the EFQM Excellence model would be a combination of rules 3 & 7.

EFQM Framework for H&M; Policy and Strategy & Consumer Satisfaction

H&M is primarily concerned with making high-quality fashion accessible and improving the personal style of everyone. The target demographic for the company comprises men, women, teenagers and children. Through market analysis and experience in the fashion retail sector, H&M has honed in on what works best for its target demographic, and its overarching business imperatives. Its business concept comprises offering consumers quality and trendy fashion at a highly competitive price. In an attempt to capture consumer responses and satisfy their customers’ needs, H&M has a ‘customer service link’ on the H&M website, available right from the homepage. Here, an online client can leave their questions, browse frequently asked questions, leave a complaint, or browse essential information such as size charts.

H&M also addresses prevalent Corporate Social Responsibility issues in their communication channels, including the Internet, social media handles, and the H&M fashion magazine. This positive association of the company with CSR leads to better customer satisfaction and public perception, which translates to better sales. An example of this CSR dilemma was in 1997 when a Swedish expose broadcast the use of child labor in Philippine factories affiliated with H&M. This led to the development of the H&M code of conduct as a result, which heavily encouraged proper labor practices among affiliated factories and manufacturers. More recently, the hoodie incident led to the hiring of a diversity leader by the company to better improve diversity and inclusion within the top rungs of H&M management. In the contemporary market, clients not only buy products, but they are highly concerned with the manufacture and marketing process, which should ideally be friendly to society and the environment.

Consumer Experience

Regarding consumer experience, H&M highlighted an extensive detachment from their diverse client base. In Sweden, the home country of the brand, the only jungles available are urban, there are also no wild monkeys, and their black population is quite small. Furthermore, as is expected of a Scandinavian-based organization, the group board may have an admirable male-female diversity but is lacking in its racial composition. Few black Swedes are available in upper levels of management and critical decision-making positions. Contextually, few Swedes will also have experienced how the color of one’s skin can provide a definitive feeling of difference; a feeling of “us and them”. They also have little, if any, comprehension of these racial issues on a personal level.

However, as a multinational organization, the company ought to have an intimate understanding of the different sensibilities and cultures that their customers represent, as well as the countries in which the brand has a footprint. They ought to have recognized them and respected them as well; understanding how the branding would have borne offence, and rectify it accordingly. The need for diversity in senior management in H&M is apparent, as a black person’s voice in the decision-making may have saved the company from the debacle that followed. The hiring of a diversity leader for this purpose would also be a viable option. It would greatly show that the company is committed to addressing inclusiveness and diversity, which would salvage the otherwise tainted image among its minority customers.

Discussion

At H&M, the Corporate Social Responsibility (CSR) is primarily about its responsibility to human labor conditions, such as the elimination of child labor and the improvement of employment practices across its numerous stores, franchised properties, manufacturers, and factories. The CSR scope is rather limited as the other prevalent issues, which include inclusivity of minorities and environmental concern are rather vast and implementable only through compliance. However, H&M’s code of conduct regarding employment practices, and worker conditions are enforced by the company and requires suppliers and manufacturers to comply. As a result, H&M has created a positive image for itself as a responsible company. H&M uses CSR to foster and maintain effective relationships with its consumers and other stakeholders.

H&M stared their CSR platform in 1997 in response to a Swedish TV expose that found child workers in an H&M-affiliated factory in the Philippines. The result was a boycott of H&M brands by Swedish consumers and a serious decline in the company’s public image. However, H&M drew up their code of conduct and initiated CSR activities to improve their labor conditions, and after that to reduce the environmental impact of its manufacturing activities. A second incident, involving a perceived racial slur emblazoned on H&M hoodies caused an uproar from African-American communities, and H&M responded by removing the offensive hoodie from circulation, promising to improve on their inclusivity, and appointing a diversity leader who would improve the representation of racial and ethnic minorities in H&M management. Overall, H&M has implemented CSR in all its operations, and, therefore positioned itself firmly as a responsible company.

Recommendation

The H&M context draws specific attention to a company’s implementation of Corporate Social Responsibility in its sustainability vision. Despite not being perfect, H&M’s CSR provides a blueprint for companies from all over the world, and even in the UAE, on how to ensure responsibility when engaging economically, socially, and environmentally in both the present and the future. This responsibility vastly improves public perception, and in a contemporary marketplace where the consumer is acutely aware and interested in the process behind the development of a commodity, this would be an essential tool.

Conclusion

H&M has extensively employed Corporate Social Responsibility in most of its operations and with vastly mixed results. On the one hand, in response to 1997 expose of the multinational company regarding child labor being utilized in its factories, the company developed the H&M code of conduct, which was enforced by the company on its suppliers, manufacturers, and other H&Maffiliated businesses. This code of conduct seeks to improve worker conditions by imposing a minimum set of rules that must be followed in labor practice and ensuring the protection and maintenance of worker conditions. This code of conduct has been successful, and H&M has successfully salvaged its brand name from being boycotted over child labor allegations, to be a world leader in the fast fashion retail sector. In more recent times, an apparent deficiency in H&M’s lack of racial and ethnic inclusivity and diversity was exposed to the ‘hoodie incident’. However, the company responded promptly with an apology, discontinuation of the offensive material, and a promise to improve on its inclusivity vastly, and cultural and racial sensitivity. Overall, the company’s CSR strategy is relatively effective, and the public perception of H&M as a responsible company may have contributed to the world-leading levels of revenue. However, the scope of this study does not extend to cover the causative relationships between these two elements, and therefore further research into the company is warranted.

References

Bonilla, M. D. R., del Olmo Arriaga, J. L., & Andreu, D. (2019). The interaction of Instagram followers in the fast fashion sector: The case of Hennes and Mauritz (H&M). Journal of Global Fashion Marketing, 10(4), 342-357. Web.

Chen, S. C., Raab, C., & Tanford, S. L. (2017). Customer participation segments: An innovative path to service excellence. International Journal of Contemporary Hospitality Management, 29(5), 1468. Web.

Escrig-Tena, A. B., Garcia-Juan, B., & Segarra-Ciprés, M. (2019). Drivers and internalisation of the EFQM excellence model. International Journal of Quality & Reliability Management, 36(3), 398-419. Web.

Gechevski, D., Mitrevska, M., & Chaloska, J. (2016). Corporate social responsibility based on EFQM framework. Annals of the Faculty of Engineering Hunedoara, 14(1), 115. Web.

H&M Careers. (n.d.). Working at H&M; Get to know us and our workplace. H&M. 2020, Web.

H&M Group. (2020). Five-year summary. HM Group. Web.

H&M Group. (n.d.). About us. H&M. 2020, Web.

Rodgers, B., Antony, J., & Penman, D. (2019). A critical evaluation of the public sector improvement framework. International Journal of Lean Six Sigma, 11(2), 398-403. Web.

O’Connell, L. (2020). Sales of selected fashion manufacturers/retailers worldwide in 2019. Statista. Web.

Zárraga-Rodríguez, M., & Álvarez, M. J. (2016). Efficient information-related practices in companies committed to EFQM. The TQM Journal, 28(6), 798-813. Web.

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