In the 1980s, while the provocative magazine and billboard advertisements of Italian clothing company Benetton caught the consumer’s eye, the company’s tremendous growth, outstanding financial performance and innovative strategies were captivating the press, scholars and practitioners around the world. (See “The Benetton Group.”) For many years, it was the archetypal example of the network organization — that is, an organization based on outsourcing, subcontracting and, more generally, on relationships developed between a large company and several small producers and distributors, or both.1
The Benetton Group
The Benetton Group, a garment producer and retailer based in Italy, has approximately 5,500 shops in 120 countries, 7,000 employees, manufacturing facilities worldwide and annual revenue of more than $1.8 billion. It is controlled by Edizione Holding, the Benetton family’s holding company, which owns businesses not only in garment making but also in catering (Autogrill), telecommunications (Telecom Italia and Blu), services (Host Marriott Services) and highways (Autostrade). Benetton Group’s interests can be clustered into three distinct areas:
- casual wear (garments, accessories and footwear), distributed under the United Colors of Benetton and Sisley brands and accounting for 74% of total revenue in 2000;
- sportswear (the Playlife and Killer Loop brands of clothing, accessories and footwear) and sports equipment (ski boots, skis, in-line skates, skateboards, snowboards, scooters and tennis rackets, marketed under such brands as Nordica, Prince, Killer Loop and Rollerblade), accounting for 20% of total revenue in 2000; and
- complementary activities (royalties, sales of raw materials, industrial and advertising services), accounting for 6% of total revenue in 2000.
Several factors contributed — and, to some extent, continue to contribute — to Benetton’s success. First is its innovative operations-management techniques, such as delayed dyeing. Benetton postpones garment dyeing for as long as possible so that decisions about colors can reflect market trends better (the tinto-in-capo strategy). Second is its network organization for manufacturing. A network of subcontractors (mainly small and midsize enterprises, many of which are owned, completely or partly, by former or current Benetton employees) supply Benetton’s factories. That structure has lowered Benetton’s manufacturing and labor costs, has reduced its risk (which shifts to its suppliers) and has given it unbeatable flexibility. Third is the network organization for distribution: Benetton sells and distributes its products through agents, each responsible for developing a given market area.