H&M Business Processes

2014

Matriculation number: 40180991

Word Count :

15/10/2014

Evaluation of the externalenvironmental influences

affecting H&M

Contents

Introduction.......................................................2Company Profile..................................................2Company Aims and Commitments.....................................2

Justification of the Organisation..................................2Structure and size of the Organisation.............................3Success or Failure?................................................4PESTEL Analysis....................................................41. Political.....................................................42. Economic......................................................43. Social........................................................54. Technology....................................................55. Legal.........................................................66. Environment...................................................6

Conclusion.........................................................6Bibliography.......................................................7References.........................................................7Appendices.........................................................8Appendix 1 – Macro-environment PESTEL analysis of H&M............8Appendix 2 – HIP Incentive Program..............................10

Matric no: 40180991 Course Code: SOE09607

EVALUATION OF THE EXTERNAL ENVIRONMENTAL INFLUENCES AFFECTING H&M

Introduction

Company ProfileH&M AB (Hennes & Mauritz) is a Swedish multinational retail-clothingcompany that can be found across 54 countries. Initially started in 1947 in Vasteras by Erling Persson as a women’s only clothing store,it was aptly named “Hennes”, Swedish for “hers”. In 1968 it was renamed Hennes & Mauritz after acquiring a men’s retail company. Thecompany has continued to grow and diversify over the years, expanding its product portfolio to include woman’s wear, menswear, children’s wear, footwear, accessories, cosmetics and home furnishings.

Company Aims and CommitmentsH&M has a concise company statement comprised of 7 commitments:

The cornerstone of H&M’s continued success is staying true to its core values: a fundamental respect for each individual member and their abilities to show initiative and creativity.



Justification of the Organisation

As a small business owner in the fashion world, it is extremely difficult to be economically, socially and environmentally sustainable – and still make a profit, while not compromising quality. By evaluating the environment that a larger fashion organisation operates within, certain assumptions and conclusions can be drawn and perhaps applied to the smaller enterprises that will set down ground rules that will encourage and sustain continuedgrowth.



Structure and size of the Organisation

H&M has a matrix organisation1 where the Managing Director appoints members of the executive Management team as well as country managers. All companies within the H&M group follow this matrix organisation so as to streamline routine and control systems therebyallowing internal and external co-operation and movement between thecompanies.

H&M employs over 116 000 people in 3300 stores globally. Their corporateview towards their staff is aBehavioural or Humanistic approachas advocated by Follett, MP andMayo, E. Each employee is viewed asan individual, is treated withrespect and integrity, therebyforming an Inclusive workplace.Diversity and equality is promotedwhile there is a zero tolerancepolicy towards discrimination andharassment. Equal opportunities areoffered to all, regardless of age,gender or ethnicity. Over 50% of theBoard members are women.

H&M backs up its behaviouristapproach with the HIP2 scheme, encouraging all to work as a team forthe greater good.

An “open door principle” is followed by all managers where each employee has direct access to management to discuss work related issues. All employees have the right to trade unions and collective bargaining. This policy is extendedto employees of suppliers as well.H&M uses its extensive buying powerto influence the lives of theseemployees in a positive and ethical way.

1 A matrix organisation in that the executive management team are responsible for the efficient work within their country of their individual departments. The country managers are responsible for sales and profitability in their country and have overallresponsibility and accountability for all of the functions within their country2 HIP H&M Incentive Program for all employees



It is clear from this diagramthat there is accountability at all levels of the

By adopting a “Psychological contractual”3 approach to the relationship between employer and employees, H&M has ensured that ethical human relations remains foremost in its company policies.

3 Psychological contact refers to the fairness or balance between how the employee is treated by the employer and what the employee puts into the job. As this is seen more as a philosophy than as a behavioural model, it remains dynamic and fluid.



Success or Failure?

It appears inconceivable to hold true to H&M’s company commitments and at the same time produce fast-fashion clothing at a reasonable cost to the public. While H&M is not the only fashion retailer to produce cost effective clothing, it has emerged as the fore runner of a collective consciousness of ethical and green trading while notcompromising quality or share- holder profits.

By evaluating theenvironment thatH&M operates withinby means of aPESTEL analysis andcomparing this totheir ConsciousActions,SustainabilityReport 2013 one isable to determineif H&M lives up toits commitments of“ affordable and attractive sustainable fashion to as many people aspossible” (H&M Conscious Actions Sustainability Report 2013)

PESTEL Analysis

Please see Appendix 2 for the full PESTEL analysis.

The PESTEL analysis highlighted a number of key areas that affect H&M and the environment in which it operates.

1. PoliticalH&M do not own any factories but work with suppliers, primarily in Asia and Europe. Accordingly, H&M uses its immense buying power to influence its suppliers in the ethical and fair treatment of its employees. They have adopted the UN Guiding Principles on Business and Human Rights as well as working



together with Civil Rights Defenders to support Human rights and equality. Since 2008, 894 975 Indian and Bangladesh workers have been educated about their rights. Mandatory training has begun onCode of Ethics for all employees. By the end of 2013, 60% had attended training.

H&M signed the Accord on Fire and Building Safety in Bangladesh even though as a company they have not allowed multi party buildings in their production chain. In doing so they hope to influence the entire industry.

2. EconomicConsumer spending patterns have been greatly affected by thedownward turn in the worldwide economy, placing an increasingnegative pressure on prices. However, the rise of disposable“Fast-Fashion” has continued in its popularity. As production isoutsourced, cheaper labour is utilised in order to meet profitmargins. This creates a direct tension for H&M’s ConsciousActions commitments. As such, 3 121 audits were conducted inorder to ensure that ethical and sustainable standards are beingmet at all levels.

The cost of raw cotton is a continued concern as prices rise withdemand. While H&M are committed to sourcing organic sustainablesuppliers, they have also built into their production cyclerecycled cotton as well as Cotton from the Better CottonInitiative.

3. SocialAs all manufacturing is outsourced, often to the poorest countries in the world, working conditions and pay are always going to be a social factor. H&M has launched the FAIR LIVING WAGE Map, working with suppliers to promote living wages for all employees as well as regular wage revisions and increases. Workplace safety as well as basic living conditions are key areasof concern. With education and basic human rights being highlighted by H&M, the company strengthens local communities. Tothis end, H&M “chooses and rewards responsible partners”

H&M recognises the importance of its staff, which is reflected inits core values:

We believe in people We are one team



Straightforward and open minded Keep it simple Entrepreneurial spirit Constant improvement Cost-consciousness

In 2011 HIP – the H&M Incentive Programme was created whereby H&Mrecognises the daily commitment and ongoing commitment of employees who have been with the company for 5 years or longer. They are then eligible to share in profit increase. The longer the employment contract, the more they receive – See Appendix 2.

77% of H&M’s employees are women and as such their management andleadership structure reflects this.

H&M has a wide and varied target market spanning 53 markets with differing cultural and ethical values. Their advertising needs totake this into account as well as portray a healthy outlook in their high-fashion images. Customer surveys are often utilised togarner public opinion and feedback is acted upon. Recently there was customer concern with regards to the size of the models used in the online marketing campaign. These images were removed immediately.

4. TechnologyH&M has embraced and harnessed new technology with regards to itsadvertising and branding. They are now using a multiplatform arena to approach and promote their fast-fashion, thereby appealing to the younger generation. In order to create a more efficient customer experience, pilot stores in New York have installed payment centres in changing rooms to avoid long queues.While adding to the customer experience this allows H&M valuable feedback on customer retail behaviour. H&M are hoping to launch 8-10 new online markets in 2015 thereby cementing how important the World Wide Web has become from an economic and technological viewpoint.

In an effort to reduce their impact on the environment H&M hasintroduced new technologies in its production lines e.g.: 21% ofshoes now use water soluble glues. Further technological advancesare needed in order to replace solvent based polyurethane withwater-based alternatives. The R&D departments are currentlyworking towards this goal.



5. LegalH&M is a Swedish public limited company, listed on NASDAQ OMX Stockholm. The company’s corporate governance is based on external laws, regulations and recommendations – The Swedish Codeof Corporate Governance4 as well as internal rules – COSO framework issued by the Committee of Sponsoring Organisations of the Tread way Commission. However, as all of their manufacturing is outsourced company policies need to comply with these government’s decrees.

6. EnvironmentClimate change is a global concern and has been addressed consistently by H&M. They are working towards creating a “closed loop” in textiles whereby new clothing will be recycled from old unwanted garments. The first garments were launched made with 20%recycled material from collected garments. This will minimise textile wastage (to date 3 555 687 garments had been recycled anddonated to charity, equating to 3047 tonnes) but also have a significant impact on the usage and allocation of natural resources. H&M have increased their in-store electricity efficiency by 14% since 2007, while 18% of the electrical usage comes from renewable sources i.e.: wind power. In 2013, 145 European households received energy supplied from H&M’s solar panels.

Sustainable sources are being used by H&M. To date 15.8% of the cotton being utilised is from sustainable resources. The goal is 100% by 2020. Organic leather, vegetable tanned and used from organic meat suppliers in Sweden has been introduced and will phase out the existing leather products. In 2013 the use of angora wool was permanently banned.

The company is continually revising its corporate strategy in order to minimise its environmental impact.

4 Swedish Code of Corporate Governance - The Swedish Code of Corporate Governance is based on the principle of “comply orexplain”, which means that companies applying the Code may deviate from individual rules provided they give an explanation of the deviation. Among other things, the Code means that the company’s Annual Report must be supplemented with a separate report on corporate governance matters in which the company must state whether and how the Code was applied during the past financial year



Conclusion

By evaluating H&M against its Sustainability Report 2013 it appears that, while there is always room for continuous improvement, H&M is operating in an economically, socially and environmentally responsible manner that will keep them as a forerunner in the fashion world.

The second report will highlight the impacts, challenges and opportunities of the Supply chain and how H&M undertakes to address these issues, while remaining committed to their Sustainability Policies.



Bibliography

Business Balls. (2014).The Psychological Contract. Available: http://www.businessballs.com/psychological-contracts-theory.htm. Last accessed 10 Oct 2014.

Godelnik, R. (2014). Can Fast Fashion really be sustainable?.Available: http://www.triplepundit.com/2014/04/can-fast-fashion-really-sustainable/. Last accessed 4 Oct 2014.

Guy Colclough. (2013). New flagship H&M store relies on technology to provide a state-of-the-art customer experience. Available: http://www.thisisnumero.com/2013/11/15/new-flagship-hm-store-relies-on-technology-to-provide-a-state-of-the-art-customer-experience/. Last accessed 10 Oct 2014.

H&M. (2013). H&M Conscious Actions Sustainability Report 2013. Available: http://sustainability.hm.com/content/dam/hm/about/documents/en/CSR/reports/Conscious%20Actions%20Sustainability%20Report%202013_en.pdf.Last accessed 23 September 2014.

H&M. (2014). Corporate Governance. Available: http://about.hm.com/en/About/Corporate-Governance/General-information/About-Corporate-Governance.html. Last accessed 23 September 2014.

Siegle, L. (2012). Is H&M the new home of Ethical fashion?. Available: http://www.theguardian.com/business/2012/apr/07/hennes-mauritz-h-and-m. Last accessed 4 Oct 2014.

Guardian, The. (2012). Is H&M the new home of ethical Fashion?.Available: https://uk.lifestyle.yahoo.com/hm-new-home-ethical-fashion-153506565.html. Last accessed 10 Oct 2014.

ReferencesBoddy, D with Paton, S (2011). Management an Introduction. Harlow: Pearson Education Ltd.



Appendices

Appendix 1 – Macro-environment PESTEL analysis of H&M



As it is a Swedish company, it must comply with Swedish legislations.

Company subsidiaries in other countries therefore subject to that countries laws, regulatory bodies and politics

Relocation of manufacturing and outsourcing Restrictions on imports and exports Work with supplier factories to support freedom

of association / collective bargaining Manmade and natural disasters will influence the

supply chain and the sale of fashion items. Regulatory Bodies (e.g.: Health and safety) will

influence business decisions.

POLITICS

H & M holds substantial market share Increased sales by 18% (1/12/13-31/8/14) Strong expansion in 2014 with 375 new stores 8-10 new online markets (new countries) by end

2015 Increasing price of cotton will dictate and

influence garment prices Accounting and banking practises to comply with

and will be affected by the country’s rules, regulations and financial organisations

Currency fluctuations will affect supply and

ECONOMY

Manufacturing occurs in some of the world’s poorest countries. H&M works with suppliers to ensure living wage is paid as well as influencing education and rights of workers

Strengthens communities – 12 000 additional jobs created some in the poorest countries. 3 500 000 garments donated to charitable causes, 193 000 people assisted with safe drinking water (gift card scheme)

Improving and strengthening plight of women worldwide.

SOCIAL



Working with suppliers to reduce CO2 emissions Commitment to better, more efficient lighting in

stores Concerned about climate change therefore committed

to reduce, reuse and recycle CONSCIOUS ACTION POLICY -Responsible water usage,

sustainable cotton usage, updated chemical Clevercare symbol – advice on reducing energy

resources by more efficient care of garments i.e.:washing at 30 degrees

Ongoing training of staff to reduce water usage – 2013 saw 340 million fewer litres of water used in

ENVIROMENT

Utilising new media technology i.e.: www for increased sales

Increased usage of Print technology to produce fast fashion garments

H&M funds NGO FRANT water since 2011 enduring clean, safe drinking water as well as installation of “Any TimeWater”

Mobile technology – dedicated website for smart phone & tablet users

TECHNOLOGY

Adopted the UN Guiding Principles on Business and HumanRights

Supports human rights and equality by teaming up with Civil Rights Defenders

Mandatory training on Code of Ethics for all employees

H&M applies the Swedish Code of Corporate Governance

Licencing, International Property Rights, patents

Compliance with ICC (International Chamber of Commerce)

LEGAL

Appendix 2 – HIP Incentive Program



H&M Business Processes

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