1. Nottingham University Business School
MSc Programme
2015/16
Group Coursework Coversheet – Electronic
Submission
[Corporate Strategy N14105]
GROUP MEMBERS:
[Pierfrancesco Bresolini Eibenstein]; Student ID: [4257378]
[Sebastian Kummle]; Student ID: [4262679]
[Rohan Midha]; Student ID: [4246092]
[Sebastian Noll]; Student ID: [4252049]
2.
3. The humanistic approach of Brunello Cucinelli: story and analysis of
an Italian fashion company
Table of Contents
Introduction............................................................................................................................................................1
1 Brunello Cucinelli: the person, the company and his philosophy .............................................2
2 Resource-Based View (RBV) .....................................................................................................................6
2.1 The model ...................................................................................................................................................6
2.2 Application .................................................................................................................................................6
3 SWOT Analysis................................................................................................................................................8
3.1 The model ...................................................................................................................................................8
3.2 Application .................................................................................................................................................8
4 Porter’s Five Forces................................................................................................................................... 11
4.1 The model ................................................................................................................................................ 11
4.2 Application .............................................................................................................................................. 12
5 Porter’s Generic Strategies ..................................................................................................................... 14
5.1 The model ................................................................................................................................................ 14
5.2 Application .............................................................................................................................................. 15
6 Our opinion about the future of the Company ................................................................................ 16
Conclusion............................................................................................................................................................. 18
References
4. Table of Figures
Figure 1: Own illustration based on Penrose (1959) and Wernerfelt (1984) ..............................6
Figure 2: SWOT Analysis, own illustartion based on Humphrey (1960)........................................8
Figure 3: Porter's Five Forces (Porter, 1979)......................................................................................... 11
Figure 4: Porter's Generic Strategies (Porter, 2008: 39).................................................................... 14
5. 1
Introduction
Recent years were influenced by the consequences of the financial crisis which showed
the failure of an entire business model. There were many ethical issues during the
financial crisis of 2008 and the focus was mainly on personal interests instead of the
stakeholders and society's well being. In the famous movie “Wall Street” from 1987 the
main personage, Gordon Gekko said that “greed is good”. But since the financial crisis
this point of view has been highly questioned. However, the case of the italian luxury
fashion company, Brunello Cucinelli, shows that it is possible to run a successful business
while taking into account ethical and moral principles. In fact, especially during these
years, it has been vital to have a leadership approach focused on shared values (Porter
and Kramer, 2011) and positive contribution to the whole society, in order to gain a win-
win strategy for the business and the stakeholders.
The philosophy and humanistic approach of Brunello Cucinelli enabled him to create a
big family instead of ‘just a place to work’. The positive financial results combined with the
high happiness of the employees show that his leadership approach is still currently
working really well. However, these kind of companies founded and run by just one person
could have great problems and concerns about the future sustainability and business
continuity. For instance, if the founder dies, the organisation would not only lose their
leader, they would lose their whole culture (Beckhard and Dyer, 1983). This could be
imagined as a wonderful car without the engine. This issue in the long term strategy is
characterized by the dependency of the company on the founder. Especially in Brunello
Cucinelli’s case this risk is higher due to the total overlapping between the entrepreneur
and his company.
The purpose of this essay is to analyse the various positive and negative aspects of the
way in which Brunello Cucinelli manages his organisation with a specific focus on the
strategies and business sustainability. The essay proceeds as follows: section 1
describes important background information about Cucinelli’s life story and company’s
6. 2
story and philosophy. In Section 2 a Resource-Based View analysis is undertaken, and
then the SWOT in section 3. Section 4 shows the results of Porter’s Five Forces while
section 5 is considering Porter’s Generic Strategies. Finally, in section 6 our opinion about
the future sustainability is presented, followed by the conclusion.
1 Brunello Cucinelli: the person, the company and his philosophy
Brunello Cucinelli was born in 1953 in a small village with just a few hundred inhabitants,
in the province of Perugia (centre of Italy). He was a son of a farmer family, growing up
in really poor conditions and having neither electricity nor running water. However, he still
has a good memory of these genuines and happy times. They were poor but happy
(Nalley, 2013). After that, when he was just a teenager, the family moved from the
countryside to the city where his father got a job in a cement factory. After this point,
everything became worse for him. In fact, two aspects of this period of life really influenced
the young Cucinelli (Nalley, 2013). The first one was at school where the classmates
bullied and humiliated him for his rural accent and poor style in clothing. The second one
was the memory of his father’s sadness after work. Indeed, his dad was constantly
humiliated in the workplace by his boss. Based on these experiences Cucinelli started to
develop the most important dream of his life; “I don’t know what I will do with my life, but
whatever it is, I will do it for the dignity of humankind” he said (Nalley, 2013: 81). After
passing a diploma as a building surveyor, he started studying engineering at university
but then dropped out. The sentiment of doing something “for the dignity of humankind”
led him to the founding of his company in 1978.
Luciano Benetton in those years gained success with the production of multi-coloured
woollen sweaters that it was an innovative idea at the time. Cucinelli was inspired by this
idea and also decided to produce colored cashmere sweaters. He chose cashmere as
the material because he “wanted to manufactured something that never goes waste.
There is something precious about cashmere. Very rarely you throw it away. It has the
fascination of eternity. You either pass it along, or you find another use for it, but there is
7. 3
something eternal about it” (Koh, 2015: 86). He started his business alone, with neither
money nor employees. At this stage, the value of trust came into play. Cucinelli asked a
friend from his village for 20 kilograms of cashmere but did not have any money. This was
not a problem for his friend who gave him the cashmere and told Cucinelli that he could
make the payment when he has money (Nalley, 2013). In order to sell his first 53
cashmere sweaters, he went to the north of Italy where the people paid in advance. Since
that point, the business has grown into luxury fashion company with a current market
capitalisation of more than 1 billion euros. In 2015, Brunello Cucinelli made 415 million
euros in revenue (Cucinelli, 2016), employed 1,400 people and had 3,000 independent
contractors from the region (Proietti, 2015). The company went public at the Milan Stock
Exchange in 2012. Cucinelli’s humanistic approach was highly valued by the market,
leading to a 50% increase in the stock price at the first day of trading (Fagnani, 2012;
Roberts, 2012). From the 158 million euros he raised through the I.P.O., he used 5 million
euros of it to pay each of his employees a bonus of 6,385 euros (Bersani, 2012; Rose,
2012). This example provides an indication of the way he treats his employees which is
further emphasised by his following quote; “If I give you the right conditions to work, and
I put you in a beautiful place, where you feel a little bit better about yourself because you
know your work is being used for something greater than producing a profit, maybe you
will get more creative; maybe you will want to work more” (Mead, 2010). He pays his
workers 20% above the average of the industry (LaRocca, 2014). Moreover, he provides
his employees with outstanding working conditions and facilities, surrounded by friendly
environment and shared values. An emphasis is placed on the importance of family and
socialising. In fact, he does not allow his employees to work after 5.30 pm because they
should spend enough time with their families and need their rest. Furthermore, Brunello
Cucinelli usually eats with his employees, providing them an extensive, high quality,
handmade lunch for just a few euros (Davis, 2015). This underlines his sense of the
family. Cucinelli’s approach to leadership also played a key role in overcoming the
financial crisis of 2008. Whilst other companies where firing employees, cutting wages
and reducing investments, Brunello Cucinelli brought all his employees together and
declared: “tomorrow will be another day. Don’t be scared. We’ll all work harder and be
more creative” (Gwyther, 2014: 40). As a result, Brunello Cucinelli himself found that the
8. 4
2009 collection was the most beautiful collection ever, leading to the company’s record
revenues at the time. “This is because people felt esteemed” said Cucinelli (Gwyther,
2014: 40). Here, it is important to highlight that the trust between employer and employees
rocketed. They all joined together and triumphed against the huge financial crisis and
made the personal relationships between them flourish.
Another important aspect about this company is the ‘Brunello and Federica Cucinelli
Foundation’ where Brunello is donating 20% of his personal profits every year (Gelardini,
2014). The money flows into different kinds of social projects. For example, the foundation
is closely connected with Solomeo, the medieval hamlet where the company is based. In
fact, the hamlet was totally restored by the Foundation and they also built a theatre which
Cucinelli is really proud of. In this theatre, they organise many social and cultural events
for employees and their families in order to strengthen the relationships between the
people. In addition, to enhance the cultural awareness of each employee, the foundation
pays 500 to 1,000 euros per year to each of them. This money is to be spent on cultural
activities such as cinema, books and theatre (Veneziani, 2016). The Foundation also
sponsored with 2 million euros the restoration of an old monument in Perugia and the
construction of a hospital in Malawi (LaRocca, 2014). However, the most strategically
important project of the foundation is the School of Craftsmanship. It was founded in 2013
with the aim to transfer technical skills from the old experts to the new young workforce
(Berbenni, 2013). The School made a significant contribution to the company’s ability of
maintaining high quality products without risking lack in changing generations. It also
aimed to regive dignity to manual labour (Koh, 2015). All these project increased the
relations between Cucinelli and Solomeo, and between Cucinelli and the people.
It should be noted that in this company, the human being is at the center of the
organisations, and the richness generated by the company is split between the various
stakeholders. The leadership and the personality of Cucinelli is vital. In fact, he is a
traditional old man, humble, religious and fair. He is inspiring and motivating his people
by giving them a sense of family and a shared mission. Overall, there is a strong
relationship between employer, employees and the location in Brunello Cucinelli’s
9. 5
company, that has led to the feeling of togetherness and a really high level of motivation
and shared values. This approach is supported by the virtuous cycle of leadership which
supports the development of a sense of identity and the involvement of people (Starkey
and Hell, 2011).
10. 6
2 Resource-Based View (RBV)
2.1 The model
The model, Resource-Based View is often used in order to investigate how firms compete
(Peteraf, 1993). The Resource-Based View uses the VRIO characteristics which stand
for Valuable, Rare, Inimitable and Organised.
Figure 1: Own illustration based on Penrose (1959) and Wernerfelt (1984)
2.2 Application
Brunello Cucinelli is a highly valuable person because of his strong leadership. His brand
and style of leadership is rare and inimitable. He also puts his ability into practice whilst
exploiting his capabilities. Although there are companies that exist which are family
focused whilst letting employees get involved with the company, Brunello Cucinelli made
this happen in a way that is stronger than other companies. This adds value to the working
efficiency of the employees, especially their motivation. The location of the company also
possesses all of the characteristics of VRIO; The location is rare and unique in the village,
Solomeo. The buildings with the Italian hamlet are inimitable in the sense that another
company cannot gain this characteristic without locating to the area. The unique location
adds value to the company and above all his products.
There are more strengths in Brunello Cucinelli’s company, such as the selected and
well paid suppliers, the high salaries and the outstanding facilities. These are all
11. 7
valuable to the company and partially rare in today’s competitive industry, however,
these characteristics are imitable.
Overall, there are many factors and characteristics that make Cucinelli’s company
highly competitive in the current environment.
12. 8
3 SWOT Analysis
3.1 The model
In 1960, Humphrey develop the SWOT analysis. With the SWOT analysis, we can focus
on the internal factors of a company, putting particular emphasis on cases of strengths
and weaknesses, and on the external factors as in the cases of opportunities and threats
with the aim to better understand a business (Humphrey, 1960).
Figure 2: SWOT Analysis, own illustartion based on Humphrey (1960)
3.2 Application
In our specific case study, Brunello Cucinelli’s company has many strength factors.
Cucinelli, the founder, is the most important of those. In fact, he is the name and the face
of the company. However, this strong relation between the founder entrepreneur and his
13. 9
company, combined with a really weak corporate governance, is a relevant weakness of
the firm, especially in the inevitable event of his death or inability to continue working.
Another strength is brunello cucinelli’s approach to leadership that has created strong
shared values and a unique relationship with his employees and, more generally, the
stakeholders of the company. However, as is normal for an Italian business run by a
majority shareholder, there are many conflicts with trade unions. This could be a problem
for the future of the employees, because at the moment, Cucinelli is the ideal boss.
However, in the future, if this strong relation changes between the employees and the
boss, employees would not have the power to defend themselves. On the contrary, in a
Germany, the relationships between businesses and trade unions are not a weakness
but a strength due to the collaboration between unions and employers. Furthermore, due
to the use of leather and furs, Cucinelli is commonly criticised by animal associations.
The location is a strategical point of strength. In fact, Solomeo is a unique ancient hamlet
in Italy. Cucinelli himself said that his products do not have the same attractiveness and
beauty if produced in China instead of this magic place, Solomeo. Basically, he is not just
selling clothes, he is selling an idea! He is selling a story behind these specially
manufactured clothes. Furthermore, the location impressed all the investors that came to
Solomeo to meet Cucinelli during his pre-listed period. This medieval village adds value
to the brand. However, the location could hide a weakness. More specifically, it is not
easy for the company to attract young new talent to work in a small village such as
Solomeo. Of course, talented young people are more attracted by big cities such as Milan,
London or New York instead of the small Solomeo. Also thanks to Cucinelli’s leadership,
the firm has demonstrated that his framework and his organisational culture could lead
them to a constant growth. Meanwhile, almost all the other businesses in the world are
losing value and revenue. This was the case during the financial crisis of 2008. However,
Brunello Cucinelli’s company is not a diversified business such as Armani, that is also
investing in HORECA (hotels, restaurants and cafès) and wellness spas, or LVMH, that
is the holding owner of many important luxury brands from clothes, to watches, to wine.
14. 10
From the perspective of the external environment, there are many opportunities for the
firm to follow. Of course, in this century characterized by the economic growth of emerging
markets and the Internet, Cucinelli could increase his focus on online retailing and open
new monobrand shops in emerging countries where people desire high quality and luxury
goods. This could compensate for the threat from the uncertain economic future of
established economies such the US and EU. Also, like Armani and LVMH, Cucinelli could
use his strong and well positioned brand for other kind of businesses in order to diversify
the risk. In fact, the fashion industry is characterized by fast changing trends. Moreover,
due to the absence of switching cost in this industry customers can change to other
brands very quickly. As we are going to analyse later, the industry faces fierce
competition.
15. 11
4 Porter’s Five Forces
4.1 The model
Figure 3: Porter's Five Forces (Porter, 1979)
Porter’s five forces is a framework developed by Michael Porter that analyses the level of
competition within industries (Porter, 2008). The model investigates the threat of new
entrants, bargaining power of buyers, bargaining power of suppliers and threat of
substitute products or services in order to measure the rivalry among existing competitors
(Porter, 1979).
16. 12
4.2 Application
Brunello Cucinelli is a company that is operating in a ‘Red Ocean’ sector. This is because
there are many existing competitors in the fashion industry. However, the threat of new
entrants in Cucinelli’s particular segment can be considered to be rather low. Brunello
Cucinelli is a very strong brand and established in the market, hence the company has
got a big network of suppliers and customers as well as a good reputation. Due to this
fact, new entrants in the luxury fashion industry can be considered as a very low risk.
The bargaining power of buyers is, in general, heavily influenced by the amount of
customers. As Brunello Cucinelli is a luxury fashion brand that is not affordable for
everyone, the target customers are a much smaller group compared to other fashion
brands. Furthermore, customers in the fashion industry have no switching costs and
customers can therefore easily change their purchasing behaviour, buying their products
from a different company. According to Hill and Jones (2011) the bargaining power of
buyers is high when the products are produced by several small companies for a small
amount of customers and when the switching costs are low for the customer. In addition
to that, the customers are powerful if they are able to purchase their products from many
different companies which is of course the case in the fashion industry (Hill and Jones,
2011). In addition to this, Brunello Cucinelli is continuously obliged to follow the trends
and follow the customer’s need. Due to these facts, its customers are powerful and the
bargaining power of buyers is classified as high level for Brunello Cucinelli according to
our analysis.
As opposed to the bargaining power of buyers which is influenced by the amount of
customers, the bargaining power of suppliers is influenced by the amount of suppliers. In
the early stage of Cucinelli’s company history, the company was focused on cashmere
products only. Hill and Jones (2011) mention that the bargaining power of suppliers would
be very high in this case. However, Brunello Cucinelli’s product portfolio currently offers
a huge variety of different products and the company therefore needs a large range of
suppliers to produce their products. Contrary to previous years, in times of globalisation,
companies are nowadays able to purchase their products worldwide without strong
17. 13
commitments towards suppliers. Also machines to produce their products are available
in large quantities on the market. Hence, Cucinelli is, from our point of view, not reliant on
certain suppliers. This means that the bargaining power of suppliers is classified as low
for Brunello Cucinelli and in this particular industry.
For the threat of substitute products, we firstly need to define what can be considered as
a substitute product for luxury fashion clothes. Low quality products cannot be classified
as true substitutes in our opinion as they are located in a completely different segment.
Hence, exclusively tailored clothes and suits can be considered as a threat of substitutes
and the risk can be therefore seen as low for this industry.
To sum up, the competition within the luxury fashion segment is very high (‘Red Ocean’)
and the amount of customers in this segment is limited.
The importance of the sixth force also needs to be considered in this case study. The
sixth force represents ‘other stakeholders’ which is one important point when considering
the strengths of Brunello Cucinelli. In fact, the relationship between Brunello Cucinelli and
his employees is of great importance for the company. The good relationship between
the company and its employees creates shared value, motivation and loyalty. This can
be summarised as a sense of family inside the company. Another important stakeholder
is the local community of Solomeo who are benefitting from Cucinelli’s charity activities.
Furthermore, Cucinelli is taking care of his suppliers personally, by visiting his suppliers
in order to check the quality of work and to make the people feel appreciated. Brunello
Cucinelli owns 57% of the company while the remaining 43% is owned by investors. Thus,
it is important to highlight the relationship between him and the other shareholders. In
fact, Cucinelli strongly believes in a constant and naturally stable growth and he is
expecting that his investors remain with him over the long term. However, it is also
important to mention that his relationship with trade unions, as usual in Italy, has a bad
history. In fact, Cucinelli did not want trade union representation inside his company and
they occasionally try to inhibit him instead of cooperating
18. 14
5 Porter’s Generic Strategies
5.1 The model
In order to be successful, a business should avoid being “stuck in the middle” as Porter
(2008) showed. According to him, a company can apply different strategies in order to
send a clear message to the customers and to achieve a clear position in the market. One
strategy a company can follow is cost leadership which could be achieved by keeping
costs low in order to offer competitive prices to the customers. The counterpart of this
strategy is differentiation which means that the company offers a distinctive product to its
customers. Both strategies can be applied either industry-wide or focused on a particular
market segment (George, Jones and Sharbrough, 1996).
Figure 4: Porter's Generic Strategies (Porter, 2008: 39)
19. 15
5.2 Application
Brunello Cucinelli offers a unique kind of product to a specific customer segment. The
special story of the company, the extremely high quality of materials and the unique
location in which the goods are produced give them a specific character that allows
Cucinelli to charge a premium price. The niche that Cucinelli is focusing on is men and
women who have the desire to buy something special that is only known by an elite group
of people. It is important to notice that the major visible characteristic of the products is
the absence of the logo in the visible parts of the product. It gives the buyer the perception
of buying something special without flaunting it, which is particularly desired by elite
people. Overall, Cucinelli does not just sell clothes, he sells the idea behind them, he sells
a sense of identity. He is selling the ‘real thing’ made in Italy. During the financial crisis
he chose to narrow down his focus on the elite. In fact, he answered to the financial crisis
with increasing the quality, increasing the price and amplifying the local production in
Solomeo without relocating the production to somewhere cheaper, like many other firms
did.
20. 16
6 Our opinion about the future of the Company
As recent results show, the company is particularly successful. However, there are some
relevant issues that call the sustainability of the company into question. The most
significant risk is linked to the dependency of the company on Brunello Cucinelli who is
the founder, the current CEO, the Chairman and the whole face of the firm. Even though
he is already 62 years old, he has not determined a clear successor for himself so far. If
Brunello Cucinelli dies, there could be no one in charge of the company who is able to
run and maintain the business like he does, especially with maintaining the values that
he has created. Moreover, the company has a really weak corporate governance
structure, in which Cucinelli is making all of the key strategic decisions instead of
cooperating with the board of directors. The board members are also not highly skilled
people who could guarantee some positive contribution and commitment to the company.
Cucinelli does have two daughters, however, as he declared: “you cannot inherit a
company. You can acquire the ownership but not the ability to run it” (Gwyther, 2014: 40).
In this respect, it is possible that he thinks the stock market could be a possible custodian
of the company in the future. However, this will not guarantee that the business will be
run with the existing core values and philosophy which could lead the company to a
change in its identity. The firm is currently doing very well as can be seen in this report.
But by looking into the future and putting all of that into context; the fact that the fashion
industry is rapidly changing and therefore requires a strong leadership, the uncertainty is
in regard to the future concept of the company that could represent an existential threat.
This risk will be strengthened by the potential issue that Brunello Cucinelli could not be
able to attract highly qualified people, such as top managers and outstanding designers
since the company is based in the village of Solomeo and qualified people prefer to live
in metropolitan regions.
In order to be able to handle these future problems, there could be some possible
solutions. The improvement of the corporate governance structure would be the first step
to prevent potential risks to the company by enabling it to face negative events. Moreover,
Brunello Cucinelli needs to begin a process of detachment from his company.
21. 17
For example, this could be done by nominating a new CEO and other new managers. It
has to be noted that the detachment process would take a long time and a lot of work,
especially if Cucinelli wants to transfer his philosophy as an inheritance to the new
executives. Finally, the issue regarding the talent attraction could be solved by opening
other operative offices in big cities such as Milan, London or New York, where his main
markets are. With regards to the extension of his operations, Cucinelli should also
consider increasing the presence of his company in emerging markets which offer
significant growth opportunities, while maintaining the factory production only in Italy.
22. 18
Conclusion
A leadership approach that generates shared values and involvement of employees is a
vital aspect in order to create a unique workplace, in which people are highly committed
to their company. It creates a sense of identity that drives the success of a business, even
in times of crisis. This is exactly what is happening in the Italian fashion company Brunello
Cucinelli. However, the dependency of the company on the founder represents a
significant risk for the future sustainability of this business.
Our work applied several theories from the area of Corporate Strategy in order to analyse
the main characteristics of the business, its environment and its long-term perspective. It
was concluded that although a humanistic leadership approach is extremely important to
every stakeholder, this kind of organisational culture includes the risk that it is not able to
survive after their founder has moved on. In order to survive in the long-term,
organisations need consistency in regard to their leadership approach. In order to
perpetuate the business continuity, the leader has to start a long process of detachment
between himself and the company. This can be achieved by appointing new external
managers with the final aim of sharing the philosophy with them. It is vital to improve this
special philosophy in order to ingrain this inside of the company and the people.
This analysis was conducted trying to make a forecast about the future. However, the
assumptions made using these strategic models could present some limitations. In fact,
the Resource-Based View is based on the idea that firms have to create resources that
meet certain criteria in order to gain a long-term competitive advantage. However, Priem
and Butler (2001) criticised this model as it does not explain the importance of the
managerial role in creating and managing these resources. Moreover, a definite
sustainable competitive advantage is not achievable. In fact, the dynamic business world
implies continue changes and, maybe, a valuable resource today will not be valuable
tomorrow. SWOT analysis has also got the same problem in terms of staticity. In fact, the
current picture represent the characteristics of the company now, however it is our
23. 19
assumption that everything will remain unchanged in order to assume a future
forecasting.
In conclusion, the business is doing well and has been constantly growing since 1978. It
could be a clear demonstration that this organisational culture behind the company is
successful. It would be interesting, in future research, to see how the company manages
their risks and if this special philosophy inside and behind the company survives.
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