IT structure at ZARA is rather a unique one. It is because there is no position of CIO in the company and all issues concerning information technologies are controlled by the head of IT department that is a part of administration and systems department. It’s weird, isn’t it? At the same time, the head of IT has enough rights and permissions to conduct the activity in order to adjust IT features to the current way of things in order to improve selling and maintain a high level of system’s accuracy and security. Obviously, it is a hard job as the head of IT should always seek for the happy medium in the issue of “fast and secure”.
In my opinion, in order to see whether IT department really supports company’s business, we should focus on two conventional models. The first one is Porter’s Five Forces Analysis. This one is possibly the best to understand the current situation of both Zara as a large company and its IT department as a vital part of the global business. The second one is Value Chain. This model will be used to define potential issues at ZARA’s IT infrastructure and strategy. As a result, we’ll understand whether ZARA’s IT structure is effective enough or not.
ZARA IT infrastructure and strategy doesn’t support its business
So, let’s start with Porter’s Five Forces. Nowadays this method is widely used in many business niches to figure out whether the situation is good.
In case it’s bad, it can help figure out what could be done to improve the situation.
Power of suppliers
When it comes to suppliers, the first thing to start with is getting the understanding of which products they supply and which services they propose. In the case of ZARA, the main ones are suppliers of raw materials, producers of packaging, and representatives of sewing and dying industries.
When it comes to ZARA’s industry in a whole, the power of those suppliers is low. It is because the prices of fabrics are usually low while the entire cooperation is based on contracts. Thus, there is no problem in switching from one supplier to another in case this or that company does not meet the specified standards of cooperation.
However, when it comes to the situation with IT of the company, the power of suppliers is very high. This happens as ZARA has only one supplier of POS terminals, which operate under DOS. Taking into account that ZARA is the only customer that orders such type of terminals, the supplier can stop producing them and company’s IT department will have to adjust the whole selling system in the shortest possible time to the new terminals that operate under Windows or Linux. Therefore, the power of suppliers is both low from the side of the global business and extremely high from the side of IT features. In this regard, I suppose that IT department should think of upgrading the technical features of POS terminals because sooner or later the supplier will simply stop the production of these obsolete devices.
Power of buyers
This force is rather a debatable issue. From one side, the customers cannot influence the price change. However, they can simply switch to another brand in case the prices are inappropriate. From this point of view, the power is high. This situation is a common one both for an apparel industry and for ZARA’s case in particular. Therefore, the only way to decrease the strengths of customers is to present the high-quality goods at a suitable price. In that case, there will not be any need for the customers to switch to competitors, like H&M for example.
However, from the side of IT, the power of customers is neutral. Upgrading to new version of POS terminals is not likely to have any impact on sales.
At the same time, dealing with a new system can make it easy to check the availability of garments in other stores online. This could decrease customers’ strengths and increase their purchasing desire and, as a result, the sales may grow.
Barriers to entry
In the apparel industry, this force is at the medium level. Firstly, it is because currently, the brand market is stable. Therefore, it will take several years simply to try winning the markets. A lot of funds (about 4% of the revenue) are to be spent on promotion issues. Manufacturing is also not that simple to maintain. However, the most challengeable issue is setting up distribution channels. Concerning IT, its impact on that force is absolutely neutral in case of ZARA.
At the same time, the number of funds to start the business is many times less if compared to other industries. Moreover, any kind of boutique selling independent brands can be considered a competitor. That is why the level of this force is medium.
Substitutes
Despite the fact that ZARA managed to achieve the unbelievable level of customers’ loyalty (nearly 17 visits per year if compared to 3 in H&M, Mango, and GAP) the threat is high. For instance, copying of garments’ outlook can force the clients to buy apparel in other places with more suitable prices. However, the most consequent reason is relevant to IT aspects. The thing is that contemporary customers prefer purchasing online while ZARA’s website just gives the general info about the garments and does not provide the clients with buying possibilities.
Thus, clients can make purchases only in retail stores, unlike other market players, which propose both online and offline variations of purchasing. In case competitors start dealing with mobile apps that could grant the possibility to order apparels online, the number of ZARA visitors can significantly decrease. Therefore, such a poor situation around current IT peculiarities makes the strength of substitutes high.
Rivalry
This force is strong enough and the most important aspects concerning rivalry are as follows: switching and storage costs are low; the number of players and their similarity is high; the industry growth is medium. As a result, several competitive advantages can be seen and they are as follows: the lead time is short; the turnover rate is high; the number of designs is great; people like visiting ZARA stores.
Nevertheless, the key conclusion of the research above is that the current IT infrastructure and strategy is likely to hinder the business. Moreover, this fact may even be a key pitfall on the way to the future success of the company. So, I would recommend ZARA to upgrade existing POS terminals, review the issue of selling goods online, and adjust their website to remain among the fashion leaders in the long run.
ZARA potential issues: what are they?
I will use Value Chain model to figure out them.
Inbound Logistics
The key peculiarity of this activity is that ZARA purchases textile in the “gray” condition to be applied to the demands of the particular garments market during the season. All suppliers are connected to ZARA network to deliver the orders on time.
However, the buying process is controlled by purchasing officers worldwide. Thus, there is nothing to speak of logistic automation in the current situation. It means that IT structure should be developed to meet the requirements of fast logistics.
Operations
I think that ZARA has chosen an interesting way of satisfying customers’ needs by being always ready to adjust its collections to market peculiarities. It means that it may take just several weeks from the sketch to the ready apparel in the store. Assuredly, it is obvious that the quality of these garments will not be that perfect, but the role of IT strategy in that situation is hard to overestimate. Beyond doubt, it is organized in the smartest way ever.
Outbound Logistics
The interesting peculiarity of ZARA approach to this logistic type is updating stores’ stock once a fortnight and relocating the garments according to the peculiarities of the demand within the certain territory.
Marketing, sales, and service
Unlike popular market players in the apparel industry, ZARA does not spend 3-4% of the revenue on commercials. The expenses are at the level of 0.5%. This makes it possible to focus on stores’ design and profit maximization. The stores are located at the main streets and personnel wears clothes from ZARA collections. However, there is no possibility to buy online. It means that the customers are obliged to visit this or that shop in case they want to make a purchase.
Nevertheless, it is not a fault of IT department. It is an operating feature of the company that is not likely to change.
Well, let’s see the list of supporting activities.
Infrastructure and Human Resources
The responsibilities of stores’ managers are wider if compared to competitors’ staff. However, this fact accelerates the turnover velocity and leads to deep understanding of the market by managers. The number of employees is more than 60 000. Moreover, nearly 80% of the staff is represented by females. It means, there is no hint at gender discrimination in the workplace at ZARA.
technology and Procurement
Everything is great about the functioning of computer systems at ZARA head office and stores in various countries.
However, the ordering and POS terminals are obsolete that can restrain the business from the permanent growth.
So, I can conclude that ZARA should mandatorily upgrade its POS terminals and staff’s gadgets for placing the orders. Furthermore, IT department has the necessary rights and opportunities to make those vital upgrades, which could provide the company with additional benefits and increase the turnover velocity.
