Leadership, Culture, and Transition at Lululemon Presentation Notes Academic Year 2018-2019 Leading Organizations - Pr. Frédéric Godart This study source was downloaded by 100000895633152 from CourseHero.com on 01-21-2025 14:56:44 GMT -06:00 https://www.coursehero.com/file/78519260/Lululemon-Reportdocx/ Introduction & Background The case examines leadership and organizational change within a strong culture context through a multimedia study of lululemon, a specialty retailer of high-end athletic apparel. Video segments trace the company's history from its founding in 1998 as a single retail store in Vancouver, Canada, through its IPO and expansion across Canada and the United States. The case is set at a crossroads for the company, as incoming CEO Christine Day prepares to take the helm in mid 2008. At that time, lululemon was publicly traded $350 million company with close to 100 stores, including 56 in the United States, and nearly 3,000 employees. the mission from the board was to continue the company's growth trajectory by opening more stores and, ultimately, increasing sales to $1 billion. Among the challenges that Day would inherit were outperforming stores. According to Day, mismanagement of the real estate strategy had resulted in high-cost locations in many new U.S. markets with little to no demand. Lululemon was struggling to implement new inventory systems to keep pace with the demands of its expanding marketplace. Day also observed that cross-functional barriers had eroded the sense of teamwork within what was originally a strong values-led organization, resulting in an inability to achieve compromise. "The whole organization slowed down." said Day, "because people weren't aligned. "Leadership, Culture, and Transition at Lululemon" highlights the fundamental tensions that entrepreneurial companies and their leaders face when going to scale: balancing rapid growth and the need to leverage their organization architecture (and associated cultures) as the firm evolves. This study source was downloaded by 100000895633152 from CourseHero.com on 01-21-2025 14:56:44 GMT -06:00 https://www.coursehero.com/file/78519260/Lululemon-Reportdocx/ 1 Lululemon’s Leardership: 1. How well does Lululemon’s organizational structure support its business strategy? What mechanisms of horizontal linkage and alignment are in place at Lululemon? Lululemon organization structure: In terms of organizational structure, Lululemon is highly vertically integrated. In the case, a vertical integration process means that, from the development of fabrics, the production of the garments, the distribution, the display of the shops, to the education of guests on the technical feathers, Lululemon integrates all the processes into its own organization. Such structure offers the following unique advantages. First of all, Lululemon has strong control over the entire process from development to retail. Secondly, it cultivates deep knowledge into the products and strong expertise into training the sales people on how to educate guests about their products. Furthermore, company culture and values are more united under a vertical structure. Lululemon Business Strategy: Lululemon has a premium and unique brand positioning. Compared to hardcore sportswear brands such as Nike or Underarmour, Lululemon has more local adaptability and emotional connections with clients. Compared to soft brands such Victoria’s secret or J-crew, Lululemon has deeper product knowledge and more technical strength. Lululemon has a unique sales approach. The staff training is skilled-based. The salespeople only educate the guests on the technical features of the products. After that, the salespeople leave the guests without further pushing clients to make purchases. Lululemon has strong emphasis on the feedback loop. They cooperate with professional yoga coaches to be their brand ambassadors and enhance This study source was downloaded by 100000895633152 from CourseHero.com on 01-21-2025 14:56:44 GMT -06:00 https://www.coursehero.com/file/78519260/Lululemon-Reportdocx/ 2 reputation by word of mouth. Lululemon has strong focus on the quality and function of products. In addition to that, they also care about femininity and fashion of the design. Lululemon has great expansion during 2007 and 2008. They opened 31 new shops in 2007 and 37 new shops in 2008. They hire local people to adapt the business into the local preferences. Each manager has autonomy to manage the shop in the local way. Lululemon manifesto communicates its cultures and values to the team and external parties. Lululemon’s organization structure well supports the business strategy. But there was a drastic shift when Bob Meers took into power as he recruited 6-7 people into upper management. Bob’s team was very efficient in improving supply chain infrastructure but they were not able to fit in the Lululemon culture. Horizontal linkage: In terms of the information linking, it is horizontal among different functions of Lululemon. Every team member works on the floor at one time per week. They arrange weekly meeting and operations meetings where they say what they learn this week. The designers travel to different shops and directly got feedback from sales/educators. They organize monthly cross-function calls to talk about what is working and what is not working. Alignment: Lululemon has strong emphasis in staff training. In 2008, lululemon invested $3.76 million in training employees. New hires at lululemon participate in training programs ranging from 40 hours to a full month. While skills-based training is an essential part of the program, the emphasis falls on teaching personal accountability, helping employees set goals, and inculcating them in the company culture. When employees reach one year of service, lululemon sponsors their attendance at a three-day session offered by Landmark Education, a personal training and development company connected to Werner Erhard, who founded the est phenomenon in the 1970’s. After three years of service, This study source was downloaded by 100000895633152 from CourseHero.com on 01-21-2025 14:56:44 GMT -06:00 https://www.coursehero.com/file/78519260/Lululemon-Reportdocx/ 3 employees are given the opportunity to attend an advanced Landmark program. Store managers’ compensation includes 20% payment at risk to encourage store managers to manage their sales, expenses and labor. There is no cap on the bonus above the target sales volume. Managers have high autonomy to manage their shops to adapt the business to the local market. 2. How do you describe Lululemon’s culture in terms of its artifacts, espoused values, and underlying assumptions? How well is Lululemon able to maintain its unique culture while growing rapidly? 3. How centralized is the leadership at Lululemon? What power struggles among the top leadership team do you anticipate? Lululemon’s leadership witnessed many changes over the years. When Chip, the founder was CEO, he promoted the culture of the company emphasizing the personal lifestyle over the growth and finance. highly decentralized communicated and managers through and an The organization was lower informal level employees network. However, as pressure was put on Lululemon to scale up, it has been considered that a CEO with more experience would help the company to follow that direction. That is why, in 2005, Bob Meers, former CEO of Reebok, has been appointed recommendation. Bob by had the board therefore of directors strong power following Chip’s throughout the organization thanks to his charisma convincing the board he was a good fit for Lululemon (even though his incentives were clearly questionable: “never reached high level of revenues”, “power as a driver”), his status and reputation as a great initiator with plans in mind and promises for which he will do everything to keep and his former position at Reebok. Additionally, he created around him a network where he could become the unique information broker of the company through the recrutement of 6-7 experienced people directly to the upper management and implementing new layers of infrastructure and control. As a result, the organization became highly centralized around Bob (seen as “one person with all answers”) and all upper management reported directly (and only) to him making difficult cross- This study source was downloaded by 100000895633152 from CourseHero.com on 01-21-2025 14:56:44 GMT -06:00 https://www.coursehero.com/file/78519260/Lululemon-Reportdocx/ 4 functional work and finally, increasing tensions. From the point of view of lower level managers, the decision power was taken away from them by “outsiders” and a feeling of disempowerment and uselessness was growing. Such sentiments as well as the questioning of the suitability of such a hierarchy led to the designation of a new CEO: Christine Day. Christine promoted a come back to the culture of Lululemon thus appointing former managers in the upper management of the company. The organization became much flatter with a few levels of hierarchy. The decision-making authority was given to the store managers who are the interface with the customers. Such a strategic position gave them the knowledge of their own market and thus they were considered as “knowing better what is best”. They role became then more entrepreneurial (“entrepreneurial store manager”) managing their own marketing, budget and local ambassadors. However, such autonomy was given with the underlying responsibilities and accountability reflected in the compensation structure and leading to an escalation of commitment. Such a management system was highly appreciated by the employees and Christine gained their trust quickly. As a woman, mother and athlete, she was even seen as a role model for some. Further, her reputation and knowledge as a former manager at Starbucks provided her great status and legitimacy in Lululemon’s organization. Even though everything seem to be rosy at this time, some power struggles could arise due to many factors. First, Chip, as the founder of Lululemon, could see his position as a cultural leader (and the power that comes with it) taken away by Christine. Indeed, Christine seem to be appreciated by everyone (employees and board of directors) and integrates perfectly the authentic culture of Lululemon. As a new beloved leader entered the place, Chip’s position could be perceived as obsolete and jealousy might arise. Further, Chip’s recommendation on appointing Bob Meers as a CEO could be badly perceived: Bob indeed failed as a Reebok’s CEO (which was strangely valued by Chip) and had the wrong incentives. As a result, Chip’s credibility and usefulness could be questioned by the board of directors. Second, even though Christine seem to be appreciated, managers still see her as outsiders? Wallstreet stuff by Eric This study source was downloaded by 100000895633152 from CourseHero.com on 01-21-2025 14:56:44 GMT -06:00 https://www.coursehero.com/file/78519260/Lululemon-Reportdocx/ 5 2) At the beginning of 2014, the company’s stock price plummeted dramatically. Several events contributed to this outcome, including an earlier product recall, a misguided campaign to contain the fallout from the crisis, and turnover in the company top management team. Do a brief online inquiry to find out exactly what happened. This started with the company making a massive recall of its black yoga pants, which became see-through during certain workouts. The recall affected almost one in five pairs of its pants, and the debacle triggered a shareholder lawsuit. After multiple missteps in handling the problem led to the resignation of former CEO Christine Day and landed founder Chip Wilson in hot water for blaming the problem on the body shapes of some of its customers, Lululemon sought to restore its name, with new CEO working to refocus the company on creating innovative products again. a. Based on what you know about Lululemon's structure, culture, and power dynamics from the multimedia case, how well would you say the company was prepared to deal with that crisis? What were its main strengths and weaknesses when confronted with such events? Structure: Unfortunately, the yoga pant which was recalled (made up of fabric Luon) was one of the major differentiating factors of Lululemon’s products and was supplied by a single manufacturer in Taiwan. Lululemon was aware of this risk of just one source for the raw material. It was also mentioned in the 2012 annual statement of Lululemon. The supply chain dynamics led to an unprepared event and safety stock. After the recall in 2013, the company had to face the problem of a large lead time for inventory replenishment, thus incurring loss in sales. Despite this major crisis, the CEO Christine Day focused positively on improving the organizational hierarchy to improve the already existing feedback mechanism from multiple stores to come up with a new product which would solve the existing problems. Culture: This study source was downloaded by 100000895633152 from CourseHero.com on 01-21-2025 14:56:44 GMT -06:00 https://www.coursehero.com/file/78519260/Lululemon-Reportdocx/ 6 Lululemon was a very strong brand and it had loyal retentive customers. The value which they had created for their ‘guest’ was the primary reason that the company could make a smooth transition from the crisis situation. Their past habits of ‘educating the customers’, ‘mandatory shop floor experience for all employees’, and ‘huge focus on training employees’ enabled them to cope up with future challenges and thus they could use their strong culture to come out of the crisis. This kind of culture was inculcated in everyone by Christine Day. The company used to consider her a role model, a leader, and a game (culture) changer. Hence, after her departure and the appointment of Laurent Potdevin, there is little uncertainty about the compatibility between the company and management. Power: The power of the founder played an important role here. Even after the senior management decided to remove Chip Wilson, the founder, from the Board in 2013, he still held more than one-fourth of the company’s shares. This gave him the power to interfere in few decisions, making the strategy execution part of the board difficult. This was evident when the CEO Christine Day finally took the decision to resign in June 2013. She still had the back-up support of the board and a chance to remain the CEO. Chip Wilson doesn’t consider Lululemon as a billion-dollar brand and continues to operate/take decisions considering the company a start-up. His presence risks a continued tarnishing of Lululemon’s corporate identity. Key Strengths: · Unique patented fabrics · Salespeople with strong technical understanding of the cloth material · Support from yoga/athletics community – Yoga teachers as brand ambassadors · Insist on quality rather than low price · Strong brand identity and value Weaknesses: · Raw material supply chain department · Less control over marketing strategies · Public relations of the founder · Cultural dilution This study source was downloaded by 100000895633152 from CourseHero.com on 01-21-2025 14:56:44 GMT -06:00 https://www.coursehero.com/file/78519260/Lululemon-Reportdocx/ 7 Project Description Recommendations This study source was downloaded by 100000895633152 from CourseHero.com on 01-21-2025 14:56:44 GMT -06:00 https://www.coursehero.com/file/78519260/Lululemon-Reportdocx/ Powered by TCPDF (www.tcpdf.org) 8