The Winning Look for the Year 2000
Is there any one best role model of the newly flexible and responsive corporation? Apple Computer? Federal Express? Honda Motor? Sony?
All four companies are good candidates, but if I were forced to choose among the pool of winners, I'd vote for Italy's Benetton Group. It is an unquestionable leader in several important areas: flexibility; responsiveness; creative use of technology—from cutting, sewing, and dyeing to information systems, internationalization, and organization structure.
Benetton, headquartered in an old villa in the small town of Ponzano, will sell about $1 billion of apparel this year. It will have more than 4,500 shops at year end, from Budapest and Sofia in Eastern Europe, to New York and Tokyo. The huge firm, though, with only about 1,500 people on its payroll, has more sales per employee than almost any company outside of the oil industry. Sales per square foot run several times the retail industry average, speed of response to fashion changes is perhaps ten times the industry average, and net profit has been an astounding 10 percent or more for each of the last two years.
Benetton has redefined the concept of market segmentation. In a five-block stretch along Fifth Avenue in Manhattan, you can find five Benetton outlets, bearing little resemblance to one another, except for the familiar green logo and the open design that is the franchisers' trademark. That is, a differentiated market segment for Benetton can be as small as one linear block in New York City.
Each of those shops usually spans only 600 square feet—small potatoes compared with The Limited Stores' 4,000 square feet per operation, and J.C. Penney, Co.'s more than 50,000 square foot per average store. While virtually all sites are owned by franchisees, Benetton even has redefined the usual franchise relationship. That is, the store owners have no formal franchise agreement with Benetton. This paragon of high technology operates by handshake agreements with its "agents," most of whom are chosen not on the basis of retail experience, as to whether or not they have "the right spirit." The informality of the agreement is but one tiny aspect of the big firm's enviable flexibility.
The tiny shops' information system/network has been written up glowingly in major data processing journals around the world. Information on sales is processed and sent forward immediately to Ponzano, and from there to the appropriate factory.
And the factory system is just as extraordinary as the retail outlets. Benetton owns nine factories, but it mainly relies on more than 220 small "workshops," each employing 30 to 200 people, who are not on the Benetton payroll. Once more, operating arrangements are informal and flexible.
But again, the flexible arrangements mask a very high-technology set-up. One observer described the typical workshop as a 300-year-old stone barn, housing a million-dollar, state-of-the-art flexible manufacturing system. The factory system is linked directly to the central information network, and it can respond in one week to new information from Miami or Prague; about 10 to 15 times faster than sluggish, traditional competitors. (The Limited system is an exception—its blazing speed rivals, and at times surpasses, Benetton's.) Perhaps the single most significant contributor to Benetton's unparalleled responsiveness is its practice of piece dyeing finished garments, which is a unique element of the factory technology. For instance, all pullovers, scarves, and shirts are cut and sewn or woven in the natural color of the thread. Garments are dyed at the last minute, depending on sales of green versus purple in each of its stores around the world.
At the hub is the largest segment of Benetton's payroll, the huge, fully automated distribution center, which handles most of the 43 million garments a year the company produces. (In another parallel, the distribution center of The Limited handles 200 million garments a year, which arrive from more than 200 far-flung, mostly Asian factories.)
At the center of the network is the Benetton family, especially the peripatetic chief executive, Luciano, who spends more than 200 days a year on the road, sniffing markets in every corner of the globe and instilling "the right spirit" face to face. His designer sister, Giuliana, plays a major role as well.
John Naisbitt made a useful contribution in his 1982 book, Megatrends, when he coined the phrase "high tech, high touch." Benetton is just that. On the one hand, its small stores and small, mainly family-run factories/workshops are managed by handshake agreements. On the other hand, you'll find the most advanced manufacturing, materials handling, and information systems technology that exists. So the advantages of small scale's flexibility (stores, factories) are coupled with advantages of large scale (the central network, purchasing, marketing muscle). Overhead is startlingly low (small payroll, tiny inventory—no garment is made before an order is first received). And, of course, Benetton is a true internationalist in an ever-shrinking globe.
Whether Benetton sustains its extraordinary, and entirely internally generated, growth or it stumbles, the company already stands out as a superb model that everyone from General Motors to Campbell Soup increasingly should emulate, if they are to thrive in the volatile years ahead.
(C) 1987 TPG Communications.
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