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ContentsABOUT US

OUR TEAM

INDUSTRY ANALYSIS

BRAND ANALYSIS

CASE ANALYSIS

CONCEPT OF THE MONTH

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OUR PRESENCE

ABOUT US

VISION

The SIMCON - SIMSREE consulting club is an initiative started in 2012 for those students in pursuit of excellence in management consulting and strategic management. Aimed at creating awareness among the students about consultancy as a discipline, the club strives to maintain strong relations with top consultancy firms and provide platform to craft highly skilled & competent consultants from SIMSREE. The club is a resource for information about consulting and a place for students to obtain real-world consulting experience.

SIMCON provides an avenue of interaction among faculty, students and alumni through competitions, live projects, guest lectures, and conclaves. For this purpose the club has also been publishing its monthly newsletter – BEACON (BE A CONSULTANT) and maintains a FACEBOOK PAGE where latest news and development in the consulting industry are posted.

MISSIONTo create awareness amongst the students about consulting industry & its latest trends.

To maintain strong relations with top consultancy firms.

To provide platform to craft highly skilled & competent consultants from SIMSREE.

To provide exposure to students via competitions, live projects, guest lectures & conclaves.

Contributions invited:To make this feature a successful effort, we seek continued involvement and contribution from our readers, that is YOU. We invite articles, research papers, and trivia on themes related to consulting. Be it industry news, consulting trends, a joke, a cartoon or feedback, we are eager to hear from you. So go ahead, do your research, pen down your thoughts and mail your entries to simcon.simsree@gmail.com.

Best Regards,SIMCON - SIMSREE CONSULTING CLUB

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OUR TEAM

ARPIT agrawal

ASHAY DHURI

HUZEFA BODABHAIWALA

KARAN CHOPRA

NAMAN CHANDAK

praCHI KORE

SARANG KULKARNI

YOGESH MOHATA

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OUR TEAM

Aditya Singhal

Jasprit Taneja

Apurva GHUtukade

Mangesh Lavte

Niranjan Satam

priyanka hegde

Swapnesh sawant

vidhi Thakker

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INFORMATION TECHNOLOGYINDUSTRY ANALYSIS

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INFORMATION TECHNOLOGYINDUSTRY ANALYSIS

Industry OverviewIT industry is one of the largest industries in India in terms of market size. IT industry in India has grown after the year 1991 i.e. post liberalization. Indian software exports have grown at an annual average rate of more than 50% since 1991. The most important resource required for this industry is nothing but the manpower. In India, IT industry employs more than 10 million people. Another reason behind this huge growth of IT industry is ‘cost competitiveness in providing IT services. India can provide IT services at a rate which is 3 to 4 times cheaper than the rate in USA.

GDP Contribution Of IT Industry In 2015-16India is always dominated by service sector when it comes to GDP contribution. Following is the GDP contribution by IT industry in the year 2015-16

Structure Of IT Industry In IndiaThere are 4 major categories which come under IT industry and they are as follows

IT ServicesIT Services is a major part of IT industry in India. IT services include client, server and web based services. Opportunities in the IT services sector exist in the areas of consulting services, management services, internet services and application maintenance. IT Services are used by number users and these are as followsGovernmentBankingFinancial servicesRetail and distributionManufacturing

IT Enabled ServicesExtensive use of information and technology is done by many services. These services are categorized as IT-enabled services. The IT enabled services is the most important contributor to the growth of the IT industry of India. Some of the important services covered by the ITES sector in India are

Customer-interaction services including call-centersBack-office servicesData entry and data conversionHR servicesContent development and animationRemote educationData searchGeographic Information SystemsMarket research

Software ProductsSoftware products are among the most highly exported products from India. The software industry in India started in the 1970s and grew at a significant rate in the last ten years. Between 1996-1997 and 2002-2003, the Indian software industry grew more than five times from 2630 crores to 13200 crores. During the same period software and service exports from India grew by almost 12 times.

HardwareThe hardware sector of the IT industry focuses on the manufacturing and assembling of computer hardware. The consumption of computer hardware is high in the domestic market. Due to the rise in the number of IT companies, sales of desktops, laptops, servers, routers, etc have been on the rise in recent years. Many domestic and multi-national; companies have invested in the computer hardware market in India. 

Market Size

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Another categorization in the structure of India's IT industry is related to the market. There are two major market classifications - the domestic market and the export market. The export market, dominates the IT industry accounting for 75% of the revenue. 

As we can see, IT industry has grown tremendously over the years. IT industry has grown at a Compounded Annual Growth Rate of 12.51%. If we look at the CAGR of exports, it is 12.21% whereas CAGR of domestic market is 13.15%. This shows that, though exports are high in absolute numbers, domestic market is also growing at a rate which is better than exports. So, we can say domestic market also has a growth potential and can grow in tandem with the exports.

Majority of the companies in this industry have strong dependence on exports so currency rate plays an important role for these companies. If Rupee becomes weak against USD then this scenario is beneficial for IT companies as they generate more income in Rupee terms for same amount of work.

Major PlayersTata Consultancy ServicesTCS was founded in the year 1968 by Mr. J. R. D. Tata. TCS is an information technology services, consulting and business solutions company, servicing large global corporations across a range of industry verticals including banking, financial services & insurance, retail & consumer packaged goods (CPG), telecom, media & entertainment, manufacturing, hi-tech, life sciences & healthcare, energy resources & utilities, travel, transportation & hospitality and government sectors. TCS has the highest market capitalization than any other company in India and it is Rs. 502,202.97 Crores.

Infosys Infosys was founded in the year 1981 by 7 founders. One of the founders was Mr. N. R. Narayana Murthy. It is an Indian multinational corporation that provides business consulting, information technology and outsourcing services. It is headquartered in Bangalore, Karnataka. It is the second largest IT services company by 2016 revenues. Current market capitalization of the company is Rs. 239,111.94 Crores.

WiproWipro was founded in the year 1945 by Mr. Mohamed Hasham Premji. Formerly it was known as Western India Palm Refined Oils (WIPRO) Limited. Now it is known as Western India Products (WIPRO) Limited. It is an Indian Information Technology Services Corporation headquartered in Bangalore, Karnataka. Current Market Capitalization of the company is Rs. 118,890.08 Crores.

Tech MahindraTech Mahindra was founded in the year 1986 by Mr.

Anand Mahindra. Tech Mahindra Limited is an Indian multinational provider of Information Technology, networking technology solutions and business process outsourcing to the telecommunications industry. It is headquartered in Pune, Maharashtra. Current Market Capitalization of Tech Mahindra is Rs. 44,979.35 Crores.

HCL TechHCL Technologies Limited was founded in the year 1976 by Arjun Malhotra and Shiv Nadar. It is a subsidiary of HCL Enterprise. It was a Research and Development company in early days but it shifted to software services industry in 1991. HCL technologies Limited offers services like IT consulting, enterprise transformation, remote infrastructure management, Engineering and R&D and Business Process Outsourcing. Current market capitalization of the company is Rs.109,156.72 crores.

Government Initiatives1. Mr Ravi Shakar Prasad, Minister of

Communication and Information Technology, announced plan to increase the number of common service centres or e-Seva centres from 150,000 to 250,000 to encourage and enable village level entrepreneurs to interact with national experts. These experts can provide them guidance, besides serving as a e-services distribution point.

2. Department of Electronics & Information Technology and M/s Canbank Venture Capital Fund Limited are planning to launch a fund called ‘Electronics Development Fund’. This fund will be ‘fund of funds’ i.e. this fund will invest in several funds and these funds will provide risk capital to companies which are developing new technologies.

3. Government of India is planning to develop five incubation centres for 'Internet of Things' (IoT) start-ups, as a part of Prime Minister Mr Narendra Modi's Digital India and Startup India campaign, with at least two centres to be set up in rural areas to develop solutions for smart agriculture

4. The Government of India has launched the Digital India program to provide several government services to the people using IT and to integrate the government departments and the people of India. The adoption of key technologies across sectors spurred by the 'Digital India Initiative' could help boost India's Gross Domestic Product (GDP) by US$ 550 billion to US$ 1 trillion by 2025.

5. The Department of Electronics and Information Technology (DeitY) plans to start a digital literacy program, aimed at training over six crore Indians

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in the next three years to empower them for digital inclusion.

6. India and the US have agreed to jointly explore opportunities for collaboration on implementing India's ambitious Rs 1.13 trillion (US$ 16.58 billion) ‘Digital India Initiative’. The two sides also agreed to hold the US-India Information and Communication Technology (ICT) Working Group in India later this year.

Recent AcquisitionsTech Mahindra Acquires The BIO Agency LimitedTech Mahindra which is technology service provider has acquired UK-based digital transformation firm BIO agency limited. The acquisition was carried out in an all-cash deal for an enterprise value of up to 45 million pounds. Tech Mahindra acquired 100% shares of the company. The acquisition will also help The BIO Agency to make sizable inroads into the telecommunications and enterprise clients of Tech Mahindra

Cognizant Acquires Idea CoutureCognizant which is also a technology service provider has announced the acquisition of Idea couture. Idea Couture is a privately held firm that offers a broad range of digital innovation, strategy, design and technology services. Idea Couture will become a part of Cognizant Digital Works specializes in designing and prototyping products, services and business models that take advantage of latest technologies.

Future Outlook1. India is the topmost offshoring destination for

IT companies across the world. It companies have proven their capabilities in delivering both on-shore and off-shore services to global clients, emerging technologies now offer an entire new gamut of opportunities for top IT firms in India.

2. Social, Mobility, Analytics and Cloud (SMAC) are collectively expected to offer a US$ 1 trillion opportunity. Cloud represents the largest opportunity under SMAC, increasing at a CAGR of approximately 30 per cent to around US$ 650-700 billion by 2020. The social media is the second most lucrative segment for IT firms, offering a US$ 250 billion market opportunity by 2020.

3. The Indian e-commerce segment is US$ 22 billion in size and is growing at a high rate and thereby offering another attractive avenue for IT companies to develop products and services to cater to the high growth consumer segment.

ReferencesEconomy Watch – India IT Industry, NASSCOM – Growth of Indian IT Industry, IBEF – IT Industry, TCS Annual Report

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OMEGABRAND ANALYSIS

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OMEGA is one of the brands of the Swatch Group which is a well-known manufacturer in the watch market. There are 19 watch brands in the group, and each brand has different price categories in order to fit with different segments of customers. In each year, the group produces thousands of watches and these watches are sent to the group's worldwide network of distribution organization which makes their products well organized and allocated to the market.

OMEGA has a more than 160 year history in watch market. The brand was originally founded by Louis Brandt in 1848 in Switzerland. After Louis Brandt passed away, his business then passed to his sons, Louis-Paul and Cesar, who shifted the production from a traditional workshop to mechanized production. In 1892, the Brandt brothers manufactured the first watch (Minute-repeater) which can display hours, quarter hours and minutes. And in the year 1894, the 19-line caliber watch was presented, and used the symbol Ω as the brand to introduce to the public. Since then, the brand has taken an important role in watchmaking evolution, technology innovations and development making OMEGA a premier brand in the watch market industry. In addition, excellent marketing strategies have also made it a long lasting brand.

STPSegmentationSTP strategy denotes of Market Segmentation, Market Targeting and Product Positioning strategies. "Marketing segmentation refers to the division of a market into distinct groups of buyers with different needs, characteristics or behavior, who might require separate products or marketing mixes". Sarabia (1996) also states "Market segmentation consists of detecting, evaluating and selecting homogeneous groups of individuals, whether they are consumers or not, with the purpose of designing and directing competitive strategies towards them." Different age, income and social class may affect customers' preferences or their decision to purchase. OMEGA segmented the brand itself into sporting and pioneering spirit, in the luxury and prestige range. And for the customer, the brand focuses firstly on demographic segmentation. The product is not only for both genders but also for those who are in highly successful business level such as managers or enterprise owners. Since OMEGA set up the brand image as a sporting and pioneering spirit, customers who are interested in sports and care about the technology and qualities of a watch will fall into their customer market.

TargetingUpon identifying segmentation, targeting is the

next step to measure the attractiveness of a potential segment. Marketers will take action to invest resources in a group, and with the aim of turning the group into customers. OMEGA used a differentiated targeting strategy which means that they divided their collections into five series which include Constellation, Seamaster, Speedmaster, De Ville and Specialities series. The different series are for customers with different demands. For example, in the Constellation series, hours are decorated with diamonds instead of numbers which is suitable for customers who pursue status and style. Seamaster and Speedmaster series are targeted to customers who like outdoor activities. Customers who prefer understated luxury may prefer De Ville series. And for those who like to collect special design and limited quantity watches, the Specialities series must be the first choice.

PositioningWith perfect segmentation and targeting, the position stage will be the key point to launch into the market. "Positioning is the act of designing the company's offering and image to occupy a distinctive place in the mind of the target market." Apart from celebrities or rich people who wish to wear a specific watch to reveal their status, the functions of a watch are almost the same and there is no big difference between the watch itself. So it is important to display the brand image or unique features which makes the brand into a special item. OMEGA creates the image that when customers wear their watch, they may feel they are in a better social class, with fashionable and on-trend taste. Also the unique feature such as Seamaster series of OMEGA is made as a professional diving watch, which is suitable for customers who love diving activities. Moreover, co-axial chronograph is an exclusive technology that OMEGA owns which makes the product unique and special. Because positioning is connected mainly with the element of marketing mix, it is important to make sure that the marketing mix is well set in place. And this will be explained further in the next section.

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Product MixProductThere are numerous tools available to gain a competitive edge in the target market, but the most popular in marketing studies are the marketing mix, the 4Ps, namely product, place, price and promotion. Product is a tangible or intangible item that a company offers to their customers and is also an important element when starting a marketing action. It is not good enough to have an excellent marketing strategy; the product itself also needs to be desirable and attractive. In addition, the brand needs to have its own features or speciality to allure customers' motivation to purchase. OMEGA is one of the brands which specialized in design and is known for the quality of manufacturing. Its orientation as the technological innovator, outstanding quality, and the involvement in sports and design also makes OMEGA a clearly recognizable brand in the watch market. The sense of fashion and trend can also be attributed to OMEGA which is one of the most familiar watch brands at the luxury and high-end range of market. Moreover, consideration to customers is also of great importance to the brand. The global guarantee of watches makes OMEGA's service unrestricted by region.

PricePrice is the products' value which sellers would like to earn from the customers in exchange for the product. Most of the time, price is a major and essential element when a customer is selecting a product. But it doesn't mean that marketers are always using low price strategy to encourage customers to purchase. Sometimes, they will offer a higher price to emphasize the qualities and design of the products or even demarcate the status of the customers. For the brand OMEGA, it is allocated in the prestige and luxury range in the Swatch Group; however, only a few specific models are as expensive as Breguet, Blancpain, Glashutte Original, Jaquet Droz, Leon Hatot, Tiffany & Co in the same range of the group (Swatch Group 2010). For others, the price is set as a higher price but not the highest which makes customers feel they are having the highest quality products but with more value for money.

PromotionPromotion is an action to inform customers or buyers about goods, services, or ideas, in order to persuade them to purchase the products. To promote a product or brand, the company has to utilize different channels to contact with customers. As many watch companies did, OMEGA advertised its watch in different categories of magazines but focusing mostly on famous, high-reputation and executive level readers'

ones. In addition, holding seminars to introduce new products or giving public releases are the most common methods when promoting products. And the most valuable is that OMEGA sometimes shows up their brand names in international sports games, such as the Olympic Games, as an official timekeeper to promote and state the quality of their brands. They also invite celebrities as their ambassadors to establish their brand image. For example, male actors and athletes-George Clooney and Sergio Garcia, etc are the representatives of OMEGA Seamaster series. And for the Constellation series, they invite actresses and female athletes, Nicole Kidman, Cindy Crawford and Michelle Wei, etc as ambassadors of the products. Furthermore, the Speedmaster series is represented by astronauts due to the fact that this watch was the first worn on the moon. Last but not least, product placement in movies such as 007 or media is also a promotion method which the brand often used (OMEGA, 2010).

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PlacePlace is identified as "The availability of the product to the customer at the desired time and location." The parents company of OMEGA, the Swatch Group, has a global supply chain management system which makes OMEGA capable of sales to the various international subsidiaries, which are over 200 agents, providing them with up to date information on sales and inventories and open orders. And there are over 10,000 retailers across the globe located in department stores, airports, some selected boutiques and thriving cities giving customers easy access to their products.

Competitor Analysis In the watch market World, the major competitors of the Swatch Group include the Rolex Group, the Richemont Group, the LVMH Group, the Citizen Group, the Seiko Group, and the Desco Group.

Rolex Group Now, the nearly 100-year-old Rolex Group is the Switzerland's second-largest watch companies, with annual sales of more than 2.0 billion Swiss francs, and an amount of 3700 employees inside. The group only produces the Rolex watches and its brother brand Tudor table which always win the first sales year after year. Nearly 50% of the national annual production of gold has been used for the Rolex watches production.

Vendome Group Vendome Luxury Group is a subsidiary of Richemont which is the of 9th largest business group in Switzerland. It has a lot of luxury brands such as Cartier, Alfred Dunhill, Montblanc, the Portland game, and so on. Since 1988, Vendome Group has acquired three Swiss luxury brand table- Famous, Count, Vacheron Constantin. Then it expanded the business of Cartier from the jewelry field to luxury watches. Thereby, it ranks among the world's largest three producers of clocks and watches, with an annual sale of 1.5 billion Swiss francs.

Louis Vuitton Moët Hennessy Group The group LVMH in France is the world's number one luxury group. After bought the three Swiss watch brands -Yubao, luxury, and Ci Nite last year, LVMH Group leapt to the world's fourth largest watch manufacturer immediately. From then on, together with the Switzerland's three Groups - Swatch, Rolex and Vendome, the France located enterprises controlled the world’s luxurious watches a share of 80%.

Fossil Incorporation Fossil based in the United States is at the same rank as GUESS and DKNY which mainly operate watches.

Watch maker Fossil and the Swatch Company, a subsidiary of Swatch Group, brought the watch industry the fashion element together in the 1980s. Then, the two companies competed intensely both in the European and the United States market.

Basically there are four separatists in luxury watch market. They are the Rolex Group, the Swatch Group, the Vendome Group, and the LVMH Group. Among them, the three Swiss watch exports accounted for four-fifths of the total exports of luxury watches.

Marketing Campaigns By OmegaOnly Watch Worn On The MoonThe image and words of John F. Kennedy, the 35th president of the United States,  were used in a 2009 advertising campaign to sell Omega Speedmaster watches.  JFK’s image is there, big as life, as seen in the sample magazine ad copy at right that ran in the August and September 2009 editions ofWired  magazine, among others.  JFK is also shown in a TV version of the ad that used historical film footage from a 1962 speech he gave (clip below).  The magazine and TV spots were created around the 40th anniversary of the American landing on the Moon and the Apollo space program that Kennedy initiated.

Omega Speedmaster watches have history with the U.S. space program; the Omega Speedmaster Professional was the official watch tested and approved by the National Aeronautics and Space Administration (NASA) for use by U.S. astronauts in the 1960s.  In fact, a few of the watches eventually made their way to the moon with astronauts wearing them — a claim made in the upper portion of the ad in the small print

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beneath  the Omega  logo:  “The first and only watch worn on the moon.  20 July 1969.”

View From Up HereOmega’s latest multichannel push seems to be a brand awareness campaign since most of its mechanical watches are equipped with the Co-Axial chronometer movement, per the brand. 

The YouTube ad placement likely garnered awareness beyond the brand-operated digital channels where Omega first introduced the campaign.

Consumers who visited YouTube’s homepage April 5 saw the large banner ad which took up approximately one-third of the above-the-fold space on the site.

The ad showed a solar system that was seemingly being powered by the Co-Axial system. In addition to the brand logo and “Co-Axial Chronometer,” the ad stated, “Click to follow the astronaut and watch the full video.”

ReferencesOmega Watches, Luxury Daily – Omega Watches

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MTVBRAND ANALYSIS

ZARACASE STUDY ANALYSIS

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At Zara, speed and responsiveness are more important than cost. Other brands churn out fast fashion; Zara, which is based in Spain and is owned by the distribution group Inditex,  attempts the mind-spinningly supersonic.The founder, Amancio Ortega, founded Zara in 1975 in order to better understand world markets for his fashion merchandise. A decade later, he formed Inditex as a parent company for Zara, as well as several other retail concepts and suppliers that he had built.While Zara originated in Spain, it has stores in 86 countries today - in Europe, the Americas, the Middle East, and Asia. In 2012, Inditex reported total sales of US$20.7 billion, with Zara representing 66 percent of total sales (US$13.6 billion).The brand is renowned for it’s ability to deliver new clothes to stores quickly and in small batches. Twice a week, at precise times, store managers order clothes, and twice a week, on schedule, new garments arrive. The company produces about 450 million items a year for its 1,770 stores in 86 countries.To achieve this, Zara controls more of its manufacturing and supply chain than do most retailers. For Zara, its supply chain is its competitive advantage.Synergy Between Business And Operations StrategyZara’s overarching strategy is achieving growth through diversification with and vertical integrations. It adapts couture designs, manufactures, distributes, and retails clothes within 2 weeks of the original design first appearing on catwalks.

The company owns its supply chain and competes on its speed to market, literally embodying the idea of “fast fashion”.

Just In Time ProductionThe retail giant delivers fashionable and trendy numbers catered for different tastes through a controlled and integrated process – just in time.

Zara keeps a significant amount of its production in-house and makes sure that its own factories reserve 85 percent of their capacity for in-season adjustments. In-house production allows the organization to be flexible in the amount, frequency, and variety of new products to be launched.

The company often relies heavily on sophisticated fabric sourcing, cutting, and sewing facilities nearer to its design headquarters in Spain.

The wages of these European workers are higher than those of their developing-world counterparts, but the turnaround time is miraculous.

Zara also commits six months in advance to only 15 to 25 percent of a season’s line. And it only locks in 50 to 60 percent of its line by the start of the season, meaning that up to 50 percent of its clothes are designed and manufactured smack in the middle of the season.

If a certain style or design suddenly become the rage, Zara reacts quickly, designs new styles, and gets them into stores while the trend is still peaking.

Store managers communicate customer feedback on what shoppers like, what they dislike, and what they’re looking for. That data is instantly funneled back to Zara’s designers who begin sketching on the spot.

Zara also has extra capacity on hand to respond to demand as it develops and changes. For example, it operates typically 4.5 days per week around the clock on full capacity, leaving some flexibility for extra shifts and temporary labor to be added when needed.

This then translates to frequent shipments and higher numbers of customer visits to the stores, creating an environment of shortage and opportunity.

This strategy allows Zara to sell more items at full price because of the sense of scarcity and exclusiveness the company exudes. Zara’s total cost is minimized because merchandise that is marked down is reduced dramatically as compared to competitors.

Zara gets 85 percent of the full price on its clothes, while the industry average is 60 to70 percent. Unsold items account for less than 10 percent of its stock, compared with an industry average of 17 to 20 percent.

“Most companies are riddled with penny-wise, pound-foolish decisions to reduce cost,” says Kasra Ferdows,

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a professor at Georgetown University’s McDonough School of Business. “Zara understands that if they don’t have to discount as much, they can spend money on other things. They can see the benefit of this certainty and rhythm in the supply chain.”

This is also the reason why Zara can afford the extra labor and shipping costs needed to accommodate and satisfy changes in seasonality and customer demand.

Inventory ManagementZara is fully aware of the saying, “inventory = death”. It avoids piling up inventory in any part of its supply chain from raw materials to finished products.Inventory optimization models are put in place to help the company to determine the quantity that should be delivered to every single one of its retail stores via shipments that go out twice every week. The stock delivered is strictly limited, ensuring that each store only receives just want they need. This goes towards the brand image of being exclusive while avoiding the build up of unpopular stock.This quick in-season turnaround, from production facilities located close to Zara’s distribution headquarters in Spain, allows Zara to ship more often and in smaller batches. If the design Zara hastily creates in an attempt to chase the latest trend does not in fact sell well, little harm is done.The batch is small, so there’s not a ton of unsold inventory to get rid of. And because the failed experiment is over in a jiffy, there’s still time to try a different style, and then a different one after that.

Centralized Logistics“The secret to their success has been centralization,” says Felipe Caro, an associate professor at the University of California at Los Angeles’s Anderson School of Management and a business adviser to the company. “They can make decisions in a very coordinated manner.”

Zara sticks to a deep, predictable and fast rhythm, based around order fulfillment to stores.

Each Zara outlet sends in two orders per week on specific days and timing. Trucks leave at specific times and shipments arrive in stores at specific times. Garments are already labeled and priced upon destination.

As a result of this clearly defined rhythm, every staff involved (from design to procurement, production, distribution, and retail) knows the timeline and how their activities pan out with respect to other functions. That certainly also extends to Zara customers, who know when to visit stores for fresh new garments.

Solid Distribution NetworkZara’s strong distribution network enables the company to deliver goods to its European stores within 24 hours, and to its American and Asian outlets in less than 40 hours.According to Nelson Fraiman, a Columbia Business School professor who wrote a 2010 case study about Zara, the retail giant can get a product out from concept to store in just 15 days, while the industry standard is 6 months.At Zara, change doesn’t disrupt the system; it’s part of the system.This brand’s success story shows the strength of its operations. Its cross-functional operations strategy, coupled with its vertically integrated supply chain, enables mass production under push control, leading to well-managed inventories, lower markdowns, higher profitability, and value creation for shareholders in the short and long term.

ReferencesTelegraph – How Inditex Became World’s Biggest Fashion Retailer, Business Insider, Business Of Fashion – Zara, Zara - India

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PRODUCT PORTFOLIOCONCEPT OF THE MONTH

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A company should have a portfolio of products with different growth rates and different market shares to be successful. The portfolio composition is a function of the balance between cash flows. High growth products require cash inputs to grow. Low growth products should generate excess cash. Both types are needed simultaneously.

Four rules that determine the cash flow of a product are

1. Margins and cash generated are a function of market share. High margins and high market share go together. This is a matter of common observation, explained by the experience curve effect. 

2. Growth requires cash input to finance added assets. The added cash required to hold share is a function of growth rates. 

3. High market share must be earned or bought. Buying market share requires an additional increment of investment. 

4. No product market can grow indefinitely. The payoff from growth must come when the growth slows, or it never will. The payoff is cash that cannot be reinvested in that product.

“Cash Cows” are products with high market share and slow growth. They generate large amounts of cash, in excess of the reinvestment required to maintain market share. This excess need not, and should not, be reinvested in those products. In fact, if the rate of return exceeds the growth rate, the cash  cannot  be reinvested indefinitely, except by depressing returns.

“Pets” products with low market share and slow

growth. They may show an accounting profit, but the profit must be reinvested to maintain share, leaving no excess cash. The product is essentially worthless, except in liquidation.

All products eventually become either cash cows or pets. The value of a product is completely dependent upon obtaining a leading share of its market before the growth slows.

“Question marks” are low market share, high growth products. They almost always require far more cash than they can generate. If cash is not supplied, they fall behind and die. Even when the cash is supplied, if they only hold their share, they are still pets when the growth stops. The “question marks” require large added cash investment for market share to be purchased. The low market share, high growth product is a liability unless it becomes a leader. It requires very large cash inputs that it cannot generate itself.

“Star” is the high share, high growth product. It nearly always shows reported profits, but it may or may not generate all of its own cash. If it stays a leader, however, it will become a large cash generator when growth slows and its reinvestment requirements diminish. The star eventually becomes the cash cow, providing high volume, high margin, high stability, security, and excess cash for reinvestment elsewhere.

The payoff for leadership is very high indeed, if it is achieved early and maintained until growth slows. Investment in market share during the growth phase can be very attractive, if you have the cash. Growth in market is compounded by growth in share. Increases in share increase the margin. High margin permits higher leverage with equal safety. The resulting profitability permits higher payment of earnings after financing normal growth. The return on investment is enormous.

The need for a portfolio of businesses becomes obvious. Every company needs products in which to invest cash. Every company needs products that generate cash. And every product should eventually be a cash generator; otherwise it is worthless.

Only a diversified company with a balanced portfolio can use its strengths to truly capitalize on its growth opportunities. The balanced portfolio has

• stars whose high share and high growth assure the future; 

• cash cows that supply funds for that future growth; and 

• question marks to be converted into stars with the added funds. 

• Pets are not needed. They are the proof of failure in obtaining a leadership position during the growth phase, or of getting out and cutting the losses.

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ReferencesBCG Perspectives – The Product Portfolio