The Case of Company XYZ
Company XYZ in China is experiencing increased threat from the local competitors, Company ABC and Company DEF. Company XYZ specializes in the design, sales and marketing of clothes and accessories and the company’s capabilities and experience in handling an outsourced production in China are central to their ongoing success. XYZ has three main brands in China who face competition from local companies: YOU, ME and THEM. A key aspect of XYZ's strategy thus far has been the adaption to local conditions. This organizational structure has entailed that XYZ employed a total of two designers Holmsteen & Jensen in addition to a team of Chinese designers. In order to be competitive, the clothing industry in China began to focus on own brand manufacturing (OBM), this meant that a growing number of Hong Kong companies such as Bossini International Holdings Ltd and the Giordano Group, choose to brand their own designs as OBM estimated profit margins of 50% higher than own design manufacturing (ODM); a process that meant the buyers could either use the designs of the Hong Kong companies as they were or modify them to fit their own particular needs. So, how does Company XYZ design and implement the necessary organizational changes? The first step is to identify the change management in XYZ; the second step is identify the type of innovation required for Company XYZ to design and implement the necessary organizational change; the third step is to identify the continuous improvements (CI) within the model of organizational change and performance and the fourth step will be to identify tools for managing innovation within the construct of the development framework.
Company XYZ in China is experiencing increased threat from the local competitors, Company ABC and Company DEF. Company XYZ specializes in the design, sales and marketing of clothes and accessories and the company’s capabilities and experience in handling an outsourced production in China are central to their ongoing success. XYZ has three main brands in China who face competition from local companies: YOU, ME and THEM. A key aspect of XYZ's strategy thus far has been the adaption to local conditions. This organizational structure has entailed that XYZ employed a total of two designers Holmsteen & Jensen in addition to a team of Chinese designers. In order to be competitive, the clothing industry in China began to focus on own brand manufacturing (OBM), this meant that a growing number of Hong Kong companies such as Bossini International Holdings Ltd and the Giordano Group, choose to brand their own designs as OBM estimated profit margins of 50% higher than own design manufacturing (ODM); a process that meant the buyers could either use the designs of the Hong Kong companies as they were or modify them to fit their own particular needs. So, how does Company XYZ design and implement the necessary organizational changes? The first step is to identify the change management in XYZ; the second step is identify the type of innovation required for Company XYZ to design and implement the necessary organizational change; the third step is to identify the continuous improvements (CI) within the model of organizational change and performance and the fourth step will be to identify tools for managing innovation within the construct of the development framework.
A model of Organizational change and performance, (Burke, W. Warner & Litwin, George H. 1992).
To understand the history of the organization, a timeline has to be constructed. Using the Burke-Litwin model of organizational change and performance, there are two main factors critical to Company XYZ performance: understanding the external environment and structure, (Burke, W. Warner & Litwin, George H. 1992). The model highlights which organizational variable influences more directly with other variables. It also shows the differences between transformational and transactional dynamics in organizational behavior and change. The model represents the external environment box as the INPUT component, and the individual and organizational performance box the OUTPUT component, (Burke, W. Warner & Litwin, George H. 1992). When the feedback arrows goes in both directions this indicates that organizational performance affects the system's external environment via its products and services, and the organization's performance may be directly affected by its external environment (e.g. a change in government regulations or market trends). The remaining boxes in the model represent the throughput aspect of general systems theory, (Burke, W. Warner & Litwin, George H. 1992). Looking at Company XYZ external environment there are two main factors to consider 1) the increasing number of local competitors in the market and 2) as highlighted earlier the industry shift from ODM to OBM choosing to brand their own designs as oppose to designing them. When we look at the first point, this is as a result of second point. Furthermore, when we look at the local competitors in Hong Kong, their market was in mainland China and so whilst their production was located in China, they managed all their operations from offices in Hong Kong and could therefore, not move as fast as Company XYZ. Therefore, Company XYZ had a strategic competitive advantage over their local competitors in Hong Kong. However, the local competitors from mainland China not only could reach their market faster but could also operate at lower price margin. This means that Company XYZ has to look at innovating their current component of the value chain to mitigate the risks associated with diminishing profit margins in productions. This leads us to the second point that Bestseller China had to look at moving from ODM strategy to OBM strategy.
Next, looking at the current structure of Company XYZ, of one Danish designer for each brand with the team of Chinese designers and the management team: Holmsteen and Jensen. Keeping in mind the Company XYZ Holdings key success was the European Style of the product designs, further explaining the composition of the design team. This internal structure for Company XYZ Holding Company poses a significant threat to Company XYZ, the subsidiary's survivability and sustainability in the market. As highlight in the external environment discussion earlier Company XYZ proposed structure would need to outsource the design process and focus on the brand process (OBM). The OBM strategy will allow them to maintain their marketing strategy of “selling the European lifestyle.” This means that XYZ has to a) have a clear framework for connecting their value proposition with the CUSTOMER not designer as per current structure b) ensure the continuity of the personal brand(s) of each employee to be aligned with XYZ brand of European lifestyle, and c) ensure continuity of employees to focus their behaviors to consistently deliver a brand customer experience.
Type of Innovation required
By using the theoretical framework of unit and level of analysis approach, (Linton 2009), they are two key main areas of innovation that Company XYZ should be mindful of 1) technology innovation – from the perspective of product, service and process, (Linton 2009) and 2) social innovation from the perspective of organizational, group, individual and the industry, (Linton 2009). From the technology innovation point of view Company XYZ would need to relook their product innovation of selling European lifestyle – Danish designer lenses; to the new lenses of service innovation - brand marketing perspective of selling European lifestyle. This is in response to the shift in the industry market trend of OBM – social innovation. This is further highlighted in the case-The Chinese Market that there is a growing group of fashion-conscious, young consumers living in the big cities, mean that Bestseller is selling to a brand-conscious consumer driven by the fashion industry. This change from ODM to OBM may be deemed as radical innovation prompted by the external environment that Company XYZ finds themselves in. So, now that we have identified the type of innovation(s) required to move Company XYZ from ODM to OBM strategy, how can they implement this? One of the many modes of implementing innovation in a company is the theoretical framework of Continuous Improvement, (CI).
Bestseller China and CI and Radical Innovation (RI)
There are stages in implementing CI in an organization . According to the CI model there are 10 critical behavioral norms which must be present. The CI model for managing change and innovation allows for a top down / bottom up; planned, strategy driven and “emergent” contributions to strategy development. XYZ can integrate various levels of the value chain model using the PDCA cycle (problem identification/solution and implementation proposals. From CI point of view this is how XYZ will be able to respond to adopt changes in their structure to meet the OBM strategy. However, how can they better manage this innovation from an external point of view – radical innovation. From the theoretical framework, RI is described as a product, process, or service with either unprecedented performance features or familiar features that offer potential for significant improvements in performance and cost. We see this in case of OBM strategy from a study how companies like XYZ adopting this strategy can stand to gain profit margins of approximately 50% higher than the conventional ODM strategy. As a result, this will creates a dramatic change in the way XYZ places importance of Danish designer’s designing the clothes to placing importance on services-brand marketing and management that will enable to transform XYZ existing markets and hopefully create new ones. Using the RI model, O’Connor, 2006, XYZ, will be able to adopt a strategic outlook at how to manage this radical change in their organizational structure highlighted above. However, what would the implementation action planning around the processes identified in this model. By using the Star-gate model of innovation, Cooper 1986, XYZ can look forward to a more practical application for implementing the OBM innovation.
Managing innovation within the construct of the development framework.
Using the of key activities, decisions and transitions plans, (Applegate, Lynda M., Harreld, J. Bruce ). Stages for each activity highlighted in the Stargaze Innovation model.
Conclusion
Company XYZ is advised to address the four steps highlighted in this proposal for the design and implementation of their organizational structure (OBM): 1) identify the change management in the company; 2) identify the type of innovation required for XYZ to design and implement the necessary organizational change; 3) is to identify the continuous improvements (CI) within the model of organizational change and performance and 4) will be to identify tools for managing innovation within the construct of the development framework. The CI, RI and Stargaze Model are critical to consider in relation to managing innovation in Company XYZ. Without these management tools in place XYZ can easily risk losing their market share to local competitors who have adopted the market-driven innovation strategy of OBM.
Copyright @ 28 March, 2011 on MBA Change and Innovation Management Case Exam. Adapted to BlogSpot by Tambudzai Ndoro, Non-Executive Director of Global Business Assignments Inc,
No comments:
Post a Comment