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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.
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1. The concept of network organization was pioneered by studies on industrial districts as alternatives to mass production. See, for instance, M. Piore and C. Sabel, “The Second Industrial Divide: Possibilities for Prosperity” (New York: Basic Books, 1984). As networks emerged, they became a fashionable topic in management literature, generating a wave of multidisciplinary studies and vigorous theoretical debate. For a detailed discussion of the network organization, see: N. Nohria and
R. Eccles, eds., “Networks and Organizations” (Boston: Harvard Business School Press, 1992); W.W. Powell and L. Smith-Doerr, “Network and Economic Life,” in “The Handbook of Economic Sociology,” eds. N.J. Smelser and R. Swedberg (Princeton, New Jersey: Princeton University Press, 1994), 368–402; and A. Grandori and G. Soda, “Inter-firms Networks: Antecedents, Mechanisms and Forms,” Organisation Studies 16 (March–April 1995): 183–214.
For different versions of the Benetton story, see S. Signorelli and J. Heskett, “Benetton,” Harvard Business School case no. 9-685-014 (Boston: Harvard Business School Publishing Corp., 1989); P. Dubini, “United Colors of Benetton,” in “Corporate Transformation,” ed. A. Sinatra (Norwell, Massachusetts: Kluwer Academic Publishers, 1991), 415–446; and B. Harrison, “Lean and Mean: The New Landscape of Corporate Power in the Age of Flexibility” (New York: Basic Books, 1994).
2. Our study is based on original fieldwork. We conducted research at Benetton headquarters from March 2000 to September 2000, adopting a quasi-ethnographic approach. We had two research assistants working full-time at Benetton for three months. The research was carried out in three stages. Phase 1 (March 2000 to May 2000): database construction and off-site research and data gathering. Phase 2 (May 2000 to September 2000): direct observation and interviews with managers (approximately 200 hours). Phase 3 (September–December 2000): data analysis and elaboration, case-study writing and discussion with Benetton managers.
3. Other industries that are trying a similar strategy include branded food products and eyewear. Luxottica is a particularly interesting case. Based in northeastern Italy, it is the world leader in eyewear (it recently bought Ray-Ban, LensCrafters, managed-vision-care company First American Health Concepts and Sunglass Hut). It is fully vertically integrated, it produces in-house and in Italy almost all of its product, and its U.S. distribution and sales flow through its own large retail network.
4. V. Ranadivé and S. McNealy, “The Power of Now: How Winning Companies Sense and Respond to Change Using Real-Time Technology” (New York: McGraw Hill, 1999).
5. Flash collections are introduced several times during each retailing season to update the articles offered to customers and to help the company respond better to fast-changing market trends. Benetton expects flash collections eventually to comprise 35% to 40% of its total products.
6. At the moment, the foreign contribution to Benetton’s production is limited to 30%, but it is expected to increase.
7. Playlife is Benetton’s general-purpose brand for sportswear collections; the Killer Loop brand targets a young, extrovert market.
8. Benetton has come close to the make-to-order ideal with its Blade Express Formula, which makes it unnecessary to produce on the basis of forecasts anymore and avoids the need for warehousing.
9. Two works that discuss that assumption are W.W. Powell, “Neither Market Nor Hierarchy: Network Forms of Organization,” in “Research in Organizational Behavior” (New York: JAI Press, 1990), 295–336; and M. Van Alstyne, “The State of Network Organization: A Survey in Three Frameworks,” Journal of Organizational Computing and Electronic Commerce 7 (spring and summer 1997): 83–151.
10. For more thoughts on the subject, see V. Perrone, “The Co-Evolution of Contexts and Forms: The N-Form,” in “Advances in Organizational Behaviour: A Festschrift To Honor Derek Pugh,” ed. P. Clark (Aldershot, United Kingdom: Ashgate, 1998).