AN EFFICIENT VALUE CHAIN,

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1 2 nd Annual EuroMed Conference October 26-28, 2009 AN EFFICIENT VALUE CHAIN, OR A SERVICE VALUE NETWORK? BEST PRACTICES DERIVING FROM ZARA FRANCESCO POLESE 1 - ANDREA MORETTA TARTAGLIONE 2 - SANDRA SARNO 3 - LUCA CARRUBBO 4 Abstract Today Service Economy suggests new ways of conceptualizing value processes, within and among firms, represented in terms of value creation and service provision. In this paper we attempt the investigation of the influence of this changes in business deepening the emerging concept of service and the evolution of network theories. To fulfil this purpose the paper analyzes the evolution of business strategies and governance theories, such as Service Provision (Value) Chain and Service Value Network, in order to detect scientific advances suitable for business behaviour in today competitive arena. To support and integrate the developed theoretical considerations we have deepened an interesting case study represented by Zara, a multinational enterprise successfully operating in fashion sector. This business, in fact, accomplished its successful strategy through a valorisation of both value chain positive traits and service value networks advantages 5. Keywords: Service Value Network, Service Economy, Retailing, Service Value Chain, Service Dominant Logic. 1 Associate professor of Business Management, Cassino University; polese@unicas.it. 2 Researcher in Business Management, Cassino University; morettatar@yahoo.it. 3 PhD, CNR-Irat (Service Research Institute within Italian National Research Council); sandrasarno@virgilio.it. 4 PhD student in Business Management, Cassino University; l.carrubbo@unicas.it. 5 Although authors share responsibility for the entire work, output of a common research and development effort par.1.1, 4.1, 4.3 may be attributed to Andrea Moretta Tartaglione, par.2 may be attributed to Sandra Sarno, par. 1.2, 3, 4.2 may be attributed to Luca Carrubbo whereas par.5 may be attributed to Francesco Polese. Electronic copy available at: 1

2 1. The evolution of business relationships 1.1. From value chain to value constellation In order to actualize firm government interpretations to nowadays international paradigms of business management, it is useful to highlight the gradual evolution characterizing business value chains. In last decades Porter s value chain model has provided a view of firms exchanges analysis by considering the flow of goods and services from raw materials to consumption as unit of analysis; the model, indeed, suggests a supplier value chain with a traditional approach, principally focusing on internal factors that affect business performance and value creation capacity (Porter, 1985). Accordingly every company occupied a position on a value chain following a defined way in which in upstream, suppliers provided inputs, the company then added value to these inputs, before passing them downstream to the next actor of the chain and the customer value was grounded in the assumptions and models of an industrial economy (Porter, 1980). In this view, supplier centricity was the crux of most management and marketing studies in line with a goods-dominant perspective. The provider was the value creator developing an inside-out process that added value to a product and delivered it to a customer through an exchange transaction. Value was created inside the production process and it was reflected in the market sale price (value in exchange). Finally market s actors performed different actions the supplier is the value builder, while the customer is the user outside the value chain. This linear model doesn t seems suitable anymore with today s dynamic and complex environment, which require a higher level, reticular view of interorganizational exchanges at both the conceptual and practical level. Nowadays, businesses internal factors are not the only contributes to value creation, since businesses are no longer left alone in their value creation processes (Håkansson, Snehota, 1995); hence, the model has lost part of its validity, and new models have been proposed in an attempt to capture the relational essence of value creation (Parolini, 1999). For this reason emerging models have been proposed and discussed within a customer value chain ranged from supplier-centric lean production to customer-centric lean consumption (Womack, Jones, 2007), leaving from classic value supply chain and going to a value constellation (Normann, Ramirez, 1995), as the cornerstone of the creative value process. Within value process, thus, value creation is not anymore a sequential and linear process delivered from one business to the next in the production chain; rather it is a contemporary, circular, iterative process in which value is co-created in a constellation of co-operant actors. Therefore the key strategic task seems to be Electronic copy available at: 2

3 the reconfiguration of roles and relationships among this constellation of actors in order to mobilize the creation of value in new forms and by new players (Normann, Ramirez, 1993). The underlying strategic goal of new this emerging theoretical proposal is to create an ever-improving fit between competencies and customers. According to recent logics of participation and co-creation, actors may be interrelated with closer entities in any step of chain; in respect of new network theories applications: in fact many to many networks are involved in a networked system (Gummesson, 2008a), characterized by relationship interactions, resources sharing (information and knowledge) and common purposes, allowing to increase global value chain and to develop a convergent and useful service thinking (Polese, Minguzzi, 2009). Indeed there are many more stakeholders involved in these processes, that may well be represented by a reticular value system identifiable as a network Towards network value Networks are difficult to define and decline. The concept has been developed in many disciplines, from biology to computer science, mathematics to organizational theories, and social theories to business. Within business theories, it has been addressed according to various methodologies and focus, dealing with, for instance, its genesis, structure, governance or strategy (Polese, 2004). The nature and characteristics of the relationships between the single entities of the network can be attributed to and included in the relationships that pass between the aggregate s centre and periphery. With reference to structure, the elements that make up the service system network can be identified in the centre, peripheral units (single firms/actors that make up an aggregate, which are also called network nodes), connections, and in the structure created by network connections and its operational properties. A network s coordination mechanisms can have rules and be planned, supervised or managed by an authority. It is clear, however, that harmonic development is facilitated by the structural homogeneity and proximity of the aggregate s peripheral entities. This is like a homeostatic process of balancing internal and external components, factors, and resources in order to attain a more powerful equilibrium (Beer, 1975), whereas equilibrium refers to satisfactory status, maximizing the beneficial effects on the participants, whether they be citizens, clients, partners or other kinds of stakeholders/oversystems (Barile, 2008; Golinelli, 2009). Therefore, we may assume that every network is made up of many peripheral entities that are connected among themselves, but also carry on relationships with the environment outside the network, following a dense social relational 3

4 pattern. A virtual centre has the task of connecting the entities that make up the aggregate, not only from a structural point of view but also from a systemic point of view, allowing each entity to communicate with the others while contributing to the final goal of service systems networks. In this sense, its management functions as a meta-regulator of relationships, as it directs and monitors the reticular system. It must also make the intrinsic final goals of the network clear by encouraging its finalized development. Despite the scope of directing and managing service systems for overall benefit and diffuse value creation, the processes that generate value are nonlinear, non-predictable, and difficult to handle, especially for the numbers of actors involved in both the production system and the consumption/market system. In other words, within these systems, value is created following a many-to-many logic (Gummesson, 2008b). This kind of network indeed renders obsolete previews concepts of value chain, by which the sequential chain doesn t exist anymore 6. Today the model is questioned by the system arising from the synergic co-operation of many actors with constant interactions and experiences sharing, based upon knowledge and capacities which represent a fundamental part of the pursued exchange 7. Thus the network and its complexity 8 need to be addressed in order to better comprehend the potentials and challenges of these value creation models. Thus economic actors cannot be considered apart from other organisations or from their operating context (Castells, 1996; Barabási, 2002; Capra 2002; Barile, 2008). Participating entity in order to face environmental complexity (Hakansson, Ostberg, 1975) indeed stimulate interactions along the business, social, and political dimensions of every context. In today s scenario, network studies, including studies of economic behaviour, resource allocation, collaborative advantages and the importance of alliances, roles, and cooperative strategies (Castells, 1996; Gulati, 1998; Capra, 2002), contribute to the conceptualisation of the value network (Allee, 2000) as a 6 In the past, according to G-D logic paradigm (in which the goods are traditionally understood to be dominant in strategic production), the use of the necessary resources to create value was confined in terms of the value chain (Porter, 1985), while information and know-how were exchanged with the product, this model worked well. 7 Today, through culture development and technology progress, you can transfer information and expertise regardless of their correlation with physical goods, "liquefying" the information (Normann, Ramirez, 1995), and allowing companies to focus on their core competencies and outsource other activities. 8 To estimate the complexity of service value network we can assume a descriptive methodology of systems as evolving networks, defining the status of a value network as the set of nodes (or actors) involved in a given transaction and consumption process, depending not only by the number of players involved but also by probability these actors are involved in transferring the service to the customer (Basole, Rouse, 2008). 4

5 model of inter-organizational exchanges, an attempt to address the increasing intricateness of inter-firm relationships. This new system is pushed by a more and more connected economy, extending the value constellation concept toward a set of activities linked together to deliver a value proposition at the end consumer (Parolini, 1999). A so defined Value Network represents a complex sets of social and technical resources that work together via relationships to create economic value in the form of knowledge, intelligence, a product (business), services or social good (Allee, 2000), highlighting the key role of social relations and technologies to promote and sustain enduring and competitive value exchanges among actors (Polese, Mele, 2009). 2. The Service Provision (value) Chain Service-oriented thinking is one of the fastest growing paradigms in IT, with relevance to accounting, finance, supply chain management and operations, strategy and marketing inside so-called service systems. According to new dominant logics in international literature today, Service Systems are work systems, in which human participants (providers) or machines perform (resources) work together using information, technology, and other resources in order to realize products and services for internal or external customers (users). Inside Service Systems specifically relevant are the balance of responsibilities between providers and customers, the importance of commitments that govern instances of service delivery, and the amount of effort that goes into back-stage preparation versus front-stage customer interactions (Alter, 2008), highlighting concept as complexity, resilience, speed, and efficiency. We believe that Supply Chain Management as well has to consider these elements, solving daily problems through new adequate interpretations of firm performance (under service logics foundations) and sustainable planning of business government, focusing also on Smart Service Systems, and the role of operations tools for business competitiveness. Today firms recognize the need to have employees with the right skills, in the right place, at the right time, working to align, create, and update job roles and job role skill sets in order to support the growth areas that will be needed globally across production and deliver units. Many companies provide on-going, year-long learning and exchange (focused on key Smarter Planet initiatives), business acumen, global leadership and global delivery. This learning constantly fosters connections among global leaders in major and growth markets for purposes of businessfocused collaboration via interactive session, workshops, discussion threads, and jams. 5

6 According to Service Theories and System thinking, value generation process is generally managed inside operating systems through internal components and resources activation and integration, in order to increase their competitiveness and therefore to enhance their survival chances (Mella, 2005; Golinelli, 2008; Barile, 2008). These relational systems are open systems immersed in contexts in which they operate and from which they acquire the external resources necessary for the development and fulfilment of their intrinsic goals (Golinelli 2009, Barile, 2008). Now they are also considered as dynamic configuration of resources (people, technology, organisations and shared information) that creates and delivers value between the provider and the customer through service (Spohrer, Maglio, Bailey, Gruhl, 2007). Systems are always linked and interested to their context valorising well-known environmental relations; inside them, available resources are set up by specialized skills and knowledge (generally understood), that can become important factors for business success and value creation (Grandinetti, 1994; Rullani, 1994), with the aim to create also the basis for systematic service innovation (IfM, IBM, 2008). Thus, for competitive advantage, nowadays organizational and strategic policies of business management focus on knowledge development, competences enhancing, information diffusion and technology progress. Knowledge is a foundational resource for firms economic growth (Vargo, Lusch, 2004), often referred to techniques (Mokyr 2002), considered as skills and competences that actors use to gain productivity (Vargo, Lusch, 2004; Capon, Glazer 1987; Nelson, Peck, Kalachek, 1967); furthermore we can assume that successful firms learn most quickly in a dynamic and evolving competitive market (Dickson, 1992). The virtuous process of competition and the information provided by profits result in competition being a knowledgediscovery process (Hayek 1945; Hunt 2000), leading to sustainable business development. Finally, for technology as know-how for business competitiveness, we can identity three basic components of technology: (1) product technology (i.e., ideas embodied in the product), (2) process technology (i.e., ideas involved in the manufacturing process), and (3) management technology (i.e., management procedures associated with business administration and sales) (Capon, Glazer, 1987). Thus a maintainable advantage usually derives from outstanding depth in selected human skills, logistics capabilities, knowledge bases, or other service strengths that competitors cannot reproduce and that lead to greater demonstrable value for the customer (Quinn, Doorley, Paquette, 1990). Competitive advantage in terms of capabilities or skills, is especially related to market-sensing, customer linking, and channel-bonding (Day, 1994). The 6

7 only true source of competitive advantage is the ability to conceive the entire value creating system and make it work (Normann, Ramirez, 1993). According to emerging Service Logics, these views imply that operant resources, specifically the use of knowledge, competences, information and technology are at the heart of competitive advantage and performance (Vargo, Lusch, 2006). The use of these elements as the basis for competitive advantage can be extended to the entire supply chain, or service-provision chain, in which we can find many flows, not only related to physical elements (as in the goods-centred model), but also referred to the existence of other elements flows, such as information. Therefore it seems that the emerging focus on service stresses the inadequacy of traditional sequential and transactional models between businesses along supply chains. Constellation and parallel/iterative models have been introduced, as well as service systems models; these models seems to be able to valorize the contemporaneous multiple actors role to value creation: there is not a transfer of something to the final consumer (as suggested by traditional supply chain models); instead clients directly participate to consumption experience. Supply chain, today, is hence really a service provision (value) chain, centered around a service culture and orientation, rooted upon co-creation logics, based on networks more than chains, fully coherent with a system culture aligning the interest, capacities and need of every actor to the whole benefit, which, in turn, result empowered for the benefit of every participant to the system. Then, the emerging Service Provision (value) Chain shows roles and directions of new generation processes for business competitiveness in nowadays context of service economy (see Fig. 1). Customer satisfaction and business competitive performances are referred to cyclical way, typically involving suppliers, producers, clients, dealers and final customers. Following our considerations, each of them can be considered as a partner of previous process and a promoter of subsequent one; then suppliers can become sub-suppliers, producers represent co-suppliers, clients appear as co-producers, customers like prosumers contributing to a new vision of business activities, analyzed by strategic and managerial perspectives. Figure 1: Service Provision (Value) Chain flows 7

8 Service Chain Actors Service Products flows Supplier Producer Dealer Retailer Customer Information flows Money flows Value flows Source: Our elaboration The Service Provision (value) Chain framework augments the work system framework by introducing activities and responsibilities that are associated with services (Alter, 2008). The service value chain can outline service-related activities and responsibilities of service providers, producers, delivers (on negotiated commitments), clients and customers (individuals, groups, communities or organizations). These activities may occur before, while, and after a specific service at any level of agreement (tacit or explicit). The new value chains also include all the information that flows within a company and between a company and its suppliers, its distributors, and its existing or potential customers. Supplier relationships, brand identity, process coordination, customer loyalty, employee loyalty, and switching costs all depend on various kinds of information (Evans, Wurster, 1997). The link between actions displayed by supplier and customers can be termed offerings (Normann, Ramirez, 1993); the offerings value is established only partially in terms of the activity which the supplier has poured into these, since in these offerings they crystallize (Normann, Ramirez, 1994). Therefore Service Provision (value) Chain can be represented as a networked service system, in which actors cooperate in synergy to define a common way for global sustainable competitive advantage, under service-centered logic and multi-relational approach for cycle-organization and governance. 3. The service value network Recently the service concept has change a lot. Starting from Porter s considerations, many interpretations about it occurred. At first, services were considered as activities associated with providing service to enhance or maintain the value of the product, such as installation, 8

9 repair, training, parts supply, and product adjustment (Porter, 1985). Services were differentiated from products on the basis of four characteristics, namely intangibility, heterogeneity, inseparability, and perishability. Later this service view was challenged by the awareness that offerings are characterized by bundled solutions comprising products and services. Finally, services are now considered as acts performer for others, including the provision of resources that others will use (Alter, 2008). Of curse there is a strict link between new considerations of service and modern value creation interpretations. However Service Idea is not new (Borgonovi, 1996, Rullani, 1997; Baccarani, 1997), but in line with the changes in interconnected global markets, dynamic and characterized by strong turbulence, now we can detect an increasing presence of services in all productions. In nowadays Service Economy (Levitt, 1981) firms, including industrial companies, always attempt to enriching their offerings with the services addition, looking for interaction opportunities, respect and loyalty, not traditionally involved in the physical asset itself, reviewing business role and its relation to the market (Grönroos, 2000). The classical logic, based on the clear separation between producers and consumers and on the simple distinction between goods and services, are now called the logic of the past (Drucker, 1993), against recent interpretations based on networked relationships, continuing interactions, value co-creation (Ravald, Grönroos, 1996; Grönroos, 2008), today all these elements are considered more confident and faithful with the modern economy (Rust, 2004). Thus, goods can be considered as an appliance for services provision (like a real contributions for effective value in products) and service can be defined as the application of specialized competences (operand resources, knowledge and skills) through deeds, processes, and performances for the benefit of another entity or the entity itself; the Service then, represents the general case, the common denominator of the exchange process, service is what is always exchanged (Vargo, Lusch, 2004; Vargo, Lusch, 2008) 9. Consumers are not interested in products and services as such, but are attracted by their representation as needs solutions, or clients benefits (Zeithaml, 1988; Maglio, Spohrer, 2008). The customer does not draw directly the value from the product itself, but by the use, transformation and consumption of it (value in use, Lusch, Vargo, 2006) and from reticular interactions (Hakansson, Snehota, 1995); then the product value derive from its benefit of the related service (Venkatesh, Penaloza, Firat, 2006). 9 The service is also considered as a system of interacting and interdependent parts, involving people, technologies and business activities (Maglio, Srinivasan, Kreulen, Spohrer, 2006), constantly related to the outside, in order to implement its own distinctive characteristics and to achieve and maintain a sustainable competitive advantage. 9

10 Today consumers play a central role, demanding product and service customization, quick responses and high levels of service quality (Allee, 2000). Consumer is no longer target customer (like value destroyer or value receivers) to whom companies can simply allocate and promote their supply, but is central element (Moller, 2008), also present in the stages before consumption 10, an available and competitive resource (Vargo, Lusch, 2004b), an effective participant (Alter, 2008) in production processes, definable then a prosumer (Vargo, Lusch, 2006) of value co-creation, and therefore a real value co-creator. Therefore, under service logics, customers really provide a significant plus for production (co-creation) and therefore they may well be intended as fundamental for competitive and sustainable advantage achievement (Woodruff, 1997). Consequentially firms have only the opportunity to make their own proposition for market value (value proposition, Vargo, Lusch, 2006) and then the value is not created inside a mere production process reflected in the market sale price (value in exchange). In light of this view the firm is fundamentally a value facilitator, but during interactions with its customers. the firm may in addition become a co-creator of value (Grönroos, 2008). The application of the resources generates an experience for the involved actors in terms of benefits, feedback, knowledge, and emotions (value-in-experience, Vargo, Maglio, Archpr Akaka, 2008). The only match between business capacities and customers needs is therefore guided by on-going relations, able to generate durable loyalty and competitive advantage (Cantone, 1996; Lusch, Vargo, O'Brien, 2007). This view of value creation emphasizes the focus on core competences and their complementarity; actors contribute to the value creation process by focusing on their core competence and cooperating with other network actors, such as suppliers, partners, allies, and customers, through various and different value constellations. In this way, they can assure their requirements and actively satisfy clients needs within an hypothetical virtuous cycle, in which every actor (considered as participant Alter, 2008) contributes to the offer valorization (Stakeholder value, Christopher et al. 2002), within a Service Value Network (Allee, 2000). The introduction of Service Value Network lead to new interpretation of participants role inside supply framework through service. As a result, service providers will only receive any benefit when consumers are satisfied and delighted enough since the purpose of every business is to create a customer 10 Normann and Ramirez (1993, pp ) argue that value creation should not be considered in terms of the outdated value-added notion, grounded in the assumptions and models of an industrial economy, but in terms of the value created through coproduction with suppliers, business partners, allies, and customers. 10

11 (Drucker, 1993). In this model the service provider is the focal actor in the service value network. In some industries, the service provider is merely an aggregator of multiple products and services and it provides these in a bundled and integrated fashion to the consumer. In other cases, it is an enabler to other service providers (Ramirez, 1999). Service providers should therefore ensure that products and services they provide delight and satisfy their consumers, managing both B2B and B2C relationships, anticipate consumer needs, and address environmental changes and consumer demands. Figure 2: Service Value Network Participants Provider (Supplier) Enabler (Stakeholder) User (Consumers) Value proposition Stakeholder Value Value in use Service Values Source: Our elaboration Finally, enablers tend to have an influence on some or all actors in the value network. Examples include government agencies, financial institutions (e.g., banks) and infrastructure providers (e.g., utility, facility, and transportation). The inclusion of service concepts within the service value chain framework leads to characterizations of service systems (Alter, 2008). Terms such as complexity, resilience, speed, and efficiency can be used to describe any work system. Some of the additional characterizations, specifically relevant for service systems, include the relative balance of responsibilities between providers and customers, the relative importance of commitments that govern instances of service delivery, and the relative amount of effort that goes into back-stage preparation versus front-stage customer interactions (Alter, 2008). 11

12 Indeed, business development entails reconfiguring roles, actions, and interactions and relationships among economic actors. This value coproduction view emphasizes that economic actors hold different roles in relation not only to different counterparts (one is one s suppliers customer; one s customers supplier), but also to a single counterpart (Ramirez, 1999). Among actors, customers play a key role, since they demand a personalised product/service, high-speed reactions, and high levels of service quality, influencing in this way every other actor s behaviour. Service providers are of course also part of the system, offering different kind of services and often anticipating customers needs. Another key element is represented by networks enablers, which favour interactive exchange processes and coproduction, facilitating the essential development of relationships. In network activities there is also a need to consider the less visible relationships among all of involved entities (suppliers, enterprises, individuals, clients, stakeholders), which really contributes to the competitiveness of the whole system (Polese, 2009). Each node that acts as a part of service business processes represents a foundational partner and supports the whole system in its enjoyment of network advantages (resource-sharing, synergic interactions, common purpose, group power) for global value creation. According to a relational optic (Gummesson, 1993; Prahalad, Ramanswamy, 2004), the S-D logic suggests that all actors in the process of value creation are considered as dynamic, operant and active resources, enabling reticular/networked interactions (Lovelock, Gummesson, 2004; Achrol, Kotler, 2006), oriented to balanced centricity (Gummesson, 2008b); therefore, activities and entities are not associate to dyadic relations, but always close to many to many relationships (Gummesson, 2008a) that seldom can be limited to relationships among business actors, and have to be considered within a wider set of actors which include many more involved parts, thus starting from B2B relation and comprising B2C, C2B and C2C (Gummesson, Polese, 2009). These relations are then consciously determined and finalized to a necessary mutual satisfaction (Womack, Jones, 2007; Lusch, Vargo, O'Brien, 2007) in function of a systemic consonance and competitiveness (Golinelli, 2009). The shift toward a network approach to the services ecosystem also changes the concept of value creation. While early research focused on value created at the relational level, value for consumers is now created at the network level, in which each actor contributes incremental value to the overall offering. The conceptualization of the value chain within a service value network, as mentioned above, then infers that competitive advantage may be related not only on individuals actors capacities, but also on every actors ability to 12

13 reconfigure its own service systems, in accordance with its own competitive strategies and to the other actors of the value constellation in a co-competition logics (Brandenburger, Nalebuff, 1997; Stabell, Fjeldstad, 1998) Empirical evidences deriving from Zara In order to contribute with empirical evidences to the displayed theoretical discussion a successful business analysis was undertaken. In fact, given the difficulty in evaluating our theoretical propositions through deep and rigorous statistical analysis, also for the complexity of the investigated object, the empirical research has analyzed only this case study (Vicari, 1992; Yin, 2002; Gummesson, 2007), represented by Zara. Investigating best practices deriving from Zara, we could deepen business processes management for successful retail, in the attempt to highlight service solutions and best performances in fashion world and in nowadays service economy. 4.1 The establishment of Zara within global arena Zara is the most important textile chain of the Spanish group Inditex, born in 1975 with first Zara shop in La Coruña, still the location of the group headquarters. Its founder, Amancio Ortega Gaona, understood from the very beginning that textile business needed a strong segmentation of the offer, hence realizing M&A strategies worldwide pursuing the coverage of all market and clients segments. Figure 3: INDITEX Group World presence Source: ZARA 2008 Now the group counts 8 distribution chains and is present in more than 70 countries in the world with stores, therefore representing one of most successful global retail network. In this global chain every distribution unit is 11 In which the consumer has a central role, and represents a partner with whom the company must work together to improve the value of the product / service (Naumann, Shannon, 1992). 13

14 really an independent strategic business unit, with its own goals and resources, leaving to the hub just central services (Business Support Area and Corporate Department) and net governance (see Fig. 3). Figure 4: ZARA Organization chart Top Government Corporate Department Business Support Area Managerial Control Comunication and Logistics Finance Information Technology Source: Our elaboration on ZARA 2008 Marketing direction ad human resources division, on the other hand, are organized with a matrix structure in which the coordinates are represented by division-product and by geography. Of course Central Marketing Direction monitors every single unit s performance, delivering specific goals in line to keep an integrated strategy for the whole group. However there is a commercial responsible for each brand, who coordinates referents of every nation in the world. These as well coordinate a staff of managers every one of which leads a limited number of stores. On the other hand Human Resources Direction has a division in each country in which, depending on the stores number, there is a directing unit who manages local actions. 4.2 Zara s business model Business acting on the global scene basically compete upon cost and time factors, depending on the international approach based upon global sourcing or upon vertical disintegration. The first option balances the concepts of globalization and outsourcing, enabling the externalization of productive activities to suppliers, thus keeping internal control only upon strategic and value adding activities. This approach implies a production delocalization, fragmenting on an international basis business productions (Corò, Volpe, 2003), pursing a technical partition of production cycles and the consequent spatial differentiation in allocating internationally different industrial process phases (Arndt, Kierzkowsky 2001). In textile business usually international strategies are rather accomplished through a vertical disintegration of different production cycles realized via an international sub-contracting with foreign 14

15 firms suppliers of finished goods or parts. Often this is related to an upstream network reconfiguration in the business stimulating, around delocalized plants abroad a new local supplying network (Camuffo, 2004). Therefore global business competing in international scene need to redesign their value chain looking for strategic options capable of rationalizing it valorising opportunities and constrains displayed on an international basis both from a geographic point of view (delocalization/internationalization), and from the structural one (integration/externalisation). We can detect different competitive behaviours (see Fig. 4): Business keep control principally upon design, logistic and distribution activities, externalising productions and referring to external suppliers (The Gap e H&M); Business maintain internally design and production, and maybe distribution, relating with franchising strategies to the majority of stores worldwide (Benetton); Business keep control and property over the whole international chain with property stores, production plants and even totally controlling almost every business partner and/or supplier (Zara). Figure 5: ZARA Competitive position Internalized Production level ZARA Benetton H&M The GAP Internalized Distribution level Source: Our elaboration on ZARA 2008 Zara dynamic growth, hence, was characterized by an almost total ownership of stores in foreign countries (89% of stores is 100% Zara property), especially in key nations with greater growth rate expectations, low risks and 15

16 longer lasting management previews. In smaller countries with great cultural differences accepts franchising strategies, leaving to joint ventures strategies the mitigation of entry barriers in protected markets (i.e. USA, Japan). 4.3 Empirical Evidences Zara s success is build upon both cost strategies and to time to market strategies; however the key factor is indeed the second one 12. Even though Zara has accomplished efficient design and marketing analysts managed upon a central basis, in fact, are principally performing depending on competitive process of product capable of outstanding time to market from the commercial input to designers till the delivery to worldwide located stores. Usually time competition of business is managed through domestic location of suppliers chain, in order to minimize lead time and successfully apply quick response technique 13. In other worlds the chain should be short and agile so that every actor can behave with flexibility, rapidly and efficiently. Zara has accomplished this goal concentrating within a local production system its production steps thus reducing lead time o 14 days 14. Apart from the geographical closeness, Zara reached a close relationship among chain participants via vertical integration strategies, thus with M&A actions. Zara has internalized its business controlling 100% of half of its tissue suppliers and maintaining control over other suppliers with rigid agreements and contracts realizing in this way a performing and flexible chain. Today Zara is almost always a first mover in fast fashion accomplishing season collections that change every two weeks 15! This strategy causes positive performance of logistic management too, since Zara warehouses are not overloaded with products, but have usually products for just a few days in rapid transit for stores and shops. The strength of Zara group is hence based upon two elements of its value chain: production and logistic, which are indeed Zara two major competitive factors of its business. Zara production is essentially parted in 80% fashion products and 20% basic products (these last with longer life cycle, sensible to prices (t-shirts and 12 In fast changing context processes need to be designed according to an integrated and dynamic approach, since numerous are the internal and external factors affecting processes and products obsolescence causing severe market losses (Paniccia, 2002). 13 The realized value chain vertical integration was based also upon an highly reactive ICT infrastructure and upon a flexible and innovative suppliers chain, definable as a rapid fire or a vertically integrated dash (Ferdows et al., 2004). 14 Just to fully realize the power of this number be aware that typical product lead time of firms as Benetton is about 9 months. 15 At the beginning of the season Zara distributes collections characterized by high variety of models, colours, etc. Then in the following week the input for production is not based upon fashion requests, rather upon quantitative data collected worldwide in real time by Zara stores with its clients preferences and needs. 16

17 similar), usually produced in east Asia for the low labour costs). The fashion production is parted in: 40% of articles renewed every two weeks, internally produced with highly automated productions techniques such as just in time (designed and implemented thanks to a joint venture with Toyota); 40% of high fashion products, little lots with high risks, produced via subcontracting with small European specialized retailers in order to keep high quality due to the higher product price. Zara logistics is part of Inditex group logistics which distributes in less than 48 hours items in 73 countries of the world. Inditex manages orders received twice a week, and in les than 24 hours the goods are delivered in European market, in less than 48 hours goods are delivered in the rest of the world. This great performance is based upon a big and integrated structure with 8 logistic centers in Spain (4.450 employees) connected with 12 thousands trucks yearly which deliver more tan tons of clothes, shoes and similar in connection with airplane distribution 16. Logistic platforms receiving goods distribute them rapidly according to every single store s requests. In this way distribution is demand pull, oriented by the specific market s need, and efficiently customized to the client s needs, which may be different depending of its nationality and local trend/season. 5. Conclusions As seen above, the term value can be defined in different ways, there is customer value, firm value, stakeholder value and network value. Customer Value has at least two meanings (Woodruff, 1997). When used by a seller, it is defined as a specific customer or customer group s profit contribution; it is the customer s value for the seller. Firm value is not only determined by customer lifetime value or economic value, but, from a resource-based view, it is also associated with all the resources a firm generates and owns. It is specifically linked to the capability to keep its selfdevelopment and means potentiality of existence, evolution (Vicari, 1991; Stampacchia, 2001). Such potentiality results are linked to the set of resources a firm owns, especially to the capability to constantly generate new resources from stored ones. It deals with value, which is regarded as the enrichment of cognitive assets, through the production of knowledge, resources, and capabilities. 16 In this way the chain is highly flexible, with frequent and rapid deliveries worldwide for the competitiveness of the whole business (Ferdows et al., 2004; Reinach, 2005, 49; Dunford, 2006). 17

18 The offering/solution that end consumers receive, which requires their resources in order to activate value potential, is the result of a series of value propositions, value co-productions and fulfilment by a network of actors firms and other subjects interrelating purposely or not. Interaction becomes a driver of co-creation as it is a generator of experience and value (Ballantyne, Varey, 2006), hence we may say that competitiveness is co-creation of value through value propositions and value actualization within a system of actors comprising businesses, customers, stakeholders (Gummesson, Polese, 2009; Polese, 2009). Indeed this concepts is strictly linked and comprising service value, intended as a combination of usefulness, quality, performance, positive experiences, economic and confidence (trust, relationships, etc.) benefits on one side and economic and non-monetary sacrifices and negative experiences on the other side; this combination represents a richer, more inclusive measure of stakeholders overall evaluation of a service (seen as a process). The term value is complex and intrinsically difficult to define, since competition is becoming more and more predictable and difficult to manage. Global players add to this complexity even more complex elements, depending on the dimension of the business, the diversity of their localization, and the involved figure. Hence value chain s global players is of course complex, and its performance involves many actors, representing system whose governance is difficult and challenging. Zara, with its strategic behaviour and its M&A operations has managed to valorise both the competitive advantages of a global chain (at an international level) and the ones related to a service value network (on a local basis). In a way Zara represent a successful case of totally integrated retailer, for its property control over the global chain, hence performing as a whole business avoiding to concentrate upon every single chain element and in this way optimizing many relational benefits (see Tab. 1). Despite the fact that it is worldwide identified as a successful business, its competitiveness is sustainable and difficulty imitable since it is based upon long lasting acquisition processes, therefore competitors difficultly will erase its market shares. The impressive result performed by Zara is that its Service Value Network, represented in fig.5, involves for strategic service activities prevalently business partners and/or the same business operative units. The expansion and vertical integration strategy, performed in the key phases of the chain, has build a performing network of all integrated units controlled by Zara headquarters. It seems like Zara, with its strategy, has accomplished to valorise both the efficiency of its global value chain and the performance of its service value 18

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