In 2001, CNN euphorically described Zara as “a Spanish success story” (CNN, 2001). Thirteen years later, Tobias Buck of The Financial Times called the Spanish fashion brand “one of the most striking corporate success stories of recent years” (Buck, 2014). Having started as a small fashion store in A Coruña, Zara is now the flagship brand of Inditex, the biggest fashion retailer in the world.
However, Zara’s success is not cast in stone. Simon Irvin of Credit Suisse, criticising Inditex’s recently lacklustre financial performance, noted that business models were not likely to remain brilliant forever, and that Zara’s parent company were no exception to the rule (Buck, 2014). Having said that, numerous attempts have been made by competitors to copy Zara’s successful business model and thereby eliminate the firm’s competitive advantage. For instance, C&A purposefully hired away Inditex managers (The Economist, 2012), while Mango outpaced Zara in terms of sales in Spain, Zara’s home market, by copying Zara’s approach to manufacture the majority of its garments in nearby countries, as well as its product offering (Baigorri, 2013).
In light of these developments, it is essential for Zara to measure its performance timely and carefully, and identify ways in which the firm’s future performance, against the background of its business model, may be improved. The Balanced Scorecard (BSC) is the right tool to achieve this, as it translates a firm’s strategic objectives and competitive demands into a coherent set of performance measures (Kaplan & Norton, 1993a). In particular, the BSC complements financial performance measures, usually reflecting past performance, with operational measures in the areas of customer satisfaction, internal processes, and a firm’s innovation and improvement activities, all of which can be said to be drivers of future performance (Kaplan & Norton, 1992).
Table of Contents
1. Introduction
2. Analysis of Zara’s stakeholders
2.1 Stakeholder identification and role descriptions
2.2 Stakeholder interests and implications for draft BSC
2.3 Assessment of stakeholders’ power/interest levels and implications for draft BSC
3. Analysis of Zara’s strategy
3.1 Introduction of strategy map
3.2 Explanation and justification of strategy map
4. Development of a suitable BSC framework
4.1 Identification of KPIs
4.2 Explanation and justification of KPIs
4.2.1 Financial perspective
4.2.2 Customer perspective
4.2.3 Internal business perspective
4.2.4 Innovation and learning perspective
5. Analysis of potential practical issues
5.1 Likely practical issues
5.2 Potential ways to overcome practical issues
Objectives and Topics
The primary objective of this report is to develop a draft Balanced Scorecard (BSC) for Zara, a leading global fashion retailer, to measure its performance effectively and identify areas for future improvement. By aligning the company's strategic objectives with specific performance measures, the study aims to create a framework that balances traditional financial metrics with operational drivers of future success.
- Identification and analysis of key stakeholder groups influencing Zara’s business model.
- Development of a strategy map illustrating cause-effect relationships between strategic objectives.
- Identification of relevant Key Performance Indicators (KPIs) across four BSC perspectives.
- Evaluation of practical challenges in implementing a BSC and strategies to overcome them.
Extract from the Book
3.2 Explanation and justification of strategy map
Generally, profit is defined as the difference between revenue and cost. Hence, an increase in profitability (SO 1) may be achieved through one of the following combinations of SO 2 and SO 3: an increase in revenue at a constant cost level, a decrease in costs at a constant level of revenue, or a combination of sales growth and cost reductions.
Revenue growth, in the case of Zara, is contingent on the company adhering to CSR standards (SO 7), frequent introducing new, attractive designs (SO 4), and offering a superior price-performance ratio (SO 5). Concerning SO 7, not adhering to CSR standards may generate negative publicity and thus discourage customers from purchasing Zara products. For example, when Greenpeace urged Zara to eliminate all discharge of hazardous chemicals from its supply chain and clothes, tens of thousands of people emailed and tweeted directly to Zara to support the claim (Greenpeace, 2012). This indicates the effect negative publicity may have on the attitude of Zara’s customers and, consequently, on the company’s sales.
Summary of Chapters
1. Introduction: Outlines the success story of Zara and argues for the necessity of a Balanced Scorecard to measure and sustain performance amidst intense competition.
2. Analysis of Zara’s stakeholders: Identifies and categorizes key stakeholders and assesses their power and interest levels to determine their impact on the BSC framework.
3. Analysis of Zara’s strategy: Presents and explains a strategy map that visualizes the cause-effect relationships between Zara’s strategic objectives.
4. Development of a suitable BSC framework: Identifies specific KPIs across financial, customer, internal business, and innovation perspectives and provides justifications for each.
5. Analysis of potential practical issues: Discusses implementation hurdles such as top management time constraints and organizational opposition, offering potential mitigation strategies.
Keywords
Balanced Scorecard, Zara, Strategy Map, Key Performance Indicators, Retail Management, Stakeholder Analysis, Supply Chain, Fast Fashion, Performance Measurement, Corporate Social Responsibility, Business Analysis, Competitive Advantage, Operational Efficiency, Customer Satisfaction, Strategic Management.
Frequently Asked Questions
What is the fundamental purpose of this work?
The report aims to design a draft Balanced Scorecard for the fashion retailer Zara to help the company translate its strategic objectives into a cohesive set of performance measures.
What are the primary areas covered in the report?
The report covers stakeholder identification, strategic mapping, KPI development, and an analysis of practical implementation challenges.
What is the core research objective?
The objective is to identify how Zara can measure its performance effectively beyond mere financial metrics by using the four perspectives of the Balanced Scorecard.
Which scientific approach is utilized?
The report employs strategic management analysis, including stakeholder theory and the Balanced Scorecard methodology developed by Kaplan and Norton.
What is the focus of the main section?
The main section focuses on developing a strategy map and selecting suitable KPIs that reflect Zara’s unique business model and competitive environment.
What characterizes the key performance indicators mentioned?
The KPIs are characterized by their ability to measure both static performance and dynamic drivers, such as design-to-market time and CSR adherence.
How does Zara's vertical integration influence the proposed KPIs?
Because Zara keeps much of its production in-house, the KPIs are specifically tailored to reflect responsiveness, supply chain investment, and the speed of translating customer feedback into fashion.
Why are unannounced audits included as a KPI?
Unannounced audits are crucial for ensuring the integrity of CSR standards, preventing outsourcing partners from preparing for inspections and thereby reflecting the true working conditions.
How does the strategy map link financial results to operational processes?
The map uses cause-effect logic to show how internal operational successes, such as quick design translation, directly lead to revenue growth and superior price-performance ratios.
- Quote paper
- Marvin Mertens (Author), 2015, Development of a Draft Balanced Scorecard for Zara, Munich, GRIN Verlag, https://www.grin.com/document/301172
