Description of Marzotto-Ratti Company Profile, Key financial figures, Business Model Design and key firm choices; Italian Entrepreneurship Course

1. Marzotto-­‐Ratti
Italian
Entrepreneurship
Matteo
Bano,
Nicola
Cenedese,
Clementine
Marchaisse,
Laura
Serra
,
Martin
Stepanek
6/12/2012
1

2. Table
of
contents
Brief
preface
............................................................................................................................................
3
The
company
profile
...............................................................................................................................
4
History
.................................................................................................................................................
4
The
Strategic
Business
Units
...............................................................................................................
5
The
competitive
context
.....................................................................................................................
8
External
environment
and
trends
....................................................................................................
8
Opportunities
and
threats
.............................................................................................................
10
Porter’s
five
forces
analysis
...........................................................................................................
11
KSF
inside
the
industry
...................................................................................................................
13
Positioning
.........................................................................................................................................
13
Service
width
.................................................................................................................................
14
Brand
awareness
...........................................................................................................................
15
Ratti’s
positioning
..........................................................................................................................
16
Financial
analysis
...............................................................................................................................
17
THE
BUSINESS
MODEL:
value
creation
through
customer
orientation
.................................................
19
Business
Model
AS-­‐IS
........................................................................................................................
19
The
analysis
through
BM
canvas
...................................................................................................
19
Business
model
configuration
........................................................................................................
23
Internal
and
external
consistency
of
BM
.......................................................................................
24
Winning
aspects:
robustness
and
self-­‐reinforcement
...................................................................
24
Business
Model
to
be
........................................................................................................................
25
Two
firm
choices:
Acquisition
and
HRM
................................................................................................
27
Marzotto's
acquisition:
the
impact
of
fast
fashion
on
value
creation
and
organization
...............
27
HR
strategic
decisions
and
initiatives
to
sustain
value
creation
........................................................
29
HR
practices
for
designers
.............................................................................................................
29
How
to
motivate
senior
and
product
managers
and
junior
PM
....................................................
31
References
.............................................................................................................................................
33
2

3. Brief
preface
The
present
work
analyzes
Marzotto-­‐Ratti’s
company
profile
(secton
1),
its
business
model
(section
2)
and
considers
two
main
choices
(section
3)
undertaken
by
the
management.
The
followed
method
includes
the
use
of
red
boxes
to
provide
deeper
analysis
and
apply
theory
to
the
present
case
study.
Indeed,
they
have
to
be
taken
into
account
as
a
fundamental
part
of
each
section.
We
would
like
to
thank
Marzotto
Ratti’s
management
for
the
kid
demonstrated
availability.
3

4. The
company
profile
History
Antonio
Ratti
founded
Ratti
in
1945
and
in
its
first
decade
he
started
to
industrialize
the
company,
reaching
the
integrated
cycle
of
silk
production
in
1958
when
Guanzate
plant
is
built.
In
1976,
Ratti
consolidates
its
industrial
structure
and
undertakes
its
internationalisation
strategy
whereas
in
the
eighties
it
followed
a
diversification
strategy
through
an
external
line
growth
process
by
entering
the
cotton
and
wool
market,
integrating
the
existing
textile
activities.
The
Fondazione
Antonio
Ratti
(FAR)
was
created
in
1985
and
today
it
is
still
a
key
partner
in
value
creation
and
its
ancient
archive
is
one
of
the
external
expressions
of
the
organizational
culture.
In
the
nineties,
in
order
to
empower
its
internal
competencies
in
sales
management,
the
company
acquired
the
specialized
cut
textiles’
distributor
Collezioni
Grandi
Firme
Spa
and
continued
its
external
line
growth,
thereby
reaching
an
enriched
value
proposition.
The
late
nineties
were
characterized
by
strong
price
competition
by
the
Chinese
producers
which
was
especially
affecting
US
markets
where
higher
price
sensitivity
is
present.
Due
to
lower
production
volumes,
Ratti
started
a
structural
rationalization
process
by
merging
all
subsidiaries
of
the
group
into
the
single
Ratti
Spa.
In
2003,
to
react
to
the
world
trends
of
lowering
marginal
costs
and
to
gain
in
operating
efficiency,
Ratti
started
to
delocalize
production
with
a
Greenfield
entering
strategy,
in
Romania.
The
process
stopped
during
2008
financial
crisis
when
the
company
decided
to
minimize
investments
and
tried
to
contain
structural
costs
through
a
deeper
integration
and
centralization
process.
This
strategic
choice
was
part
of
a
wider
project
of
corporate
turnaround,
boosted
by
Marzotto’s
acquisition
in
2009.
This
led
to
nowadays’
re-­‐birth
of
the
company
(see
financial
analysis)
and
to
the
re-­‐opening
of
Romanian
plants.
Further
detailed
information
is
provided
in
the
timeline
below
(figure
1.1).
4
Figure
1.1

5. The
Strategic
Business
Units
The
company
is
mainly
operating
in
the
design
and
production
of
printed,
solid
and
yarn
dyed
fabrics
for
clothing,
accessories
and
home
furnishings
in
which
it
sells
its
products
in
Italy,
Europe,
the
United
States
and
Japan.
Ratti
S.p.A.
presents
a
divisional
structure
organized
on
products,
with
horizontal
elements
(product
managers)
typical
of
the
matrix
organizational
form.
These
ones
are
mainly
grouped
in
four
operating
segments,
which
are
described
below:
the
strategic
business
units.
They
are
managed
separately
by
SBU
directors,
figures
re-­‐introduced
after
Marzotto’s
acquisition
to
provide
strong
leadership,
due
to
different
internal
structures.
Being
a
B2B
company
and
not
owning
any
kind
of
distribution
network,
key
activities
are
product
ideation
(in
co-­‐development
with
the
customer),
design
and
production.
However,
the
marginal
distribution
activity
concerns
silk
textiles
delivery
to
small
confectioners,
tailors
and
retailers
through
Carnet
C.G.F.
and
products
distributed
under
licensing
agreements
that
are
delivered
directly
to
retailers.
All
SBUs
contribute
to
the
integrated
value
proposition
the
group
can
offer
to
its
B2B
clients.
To
do
that,
creativity,
style,
customization
and
co-­‐development
of
the
upstream
design
phase
and
in
production
are
exploited
in
each
new
project.
Raa
Finished
Raa
Home
Raa
Women
Raa
Men
Product
Furnishings
-­‐
Raa
donna
fashion
-­‐
Raa
Setamarina
-­‐
Raa
Uomo
-­‐
Raa
Collezioni
-­‐
Raa
Tinto
in
Filo
-­‐
Raa
Uomo
Tinto
-­‐
Raa
D
Company/product
line
-­‐
R
Industries
Filo
-­‐
Raa
Studio
-­‐
Carnet
C.G.F.
Product
ideabon
Product
ideabon
Product
ideabon
Product
ideabon
Product
design
Product
design
Product
design
Product
design
Activities
covered
Producbon
Producbon
Producbon
Producbon
Distribubon*
Distribubon**
Printed
and
yarn
dyed
texbles
for
bes
and
Fabrics
for
fabrics
for
women’s
Printed
and
yarn
dyed
scarves;
licensing
upholstery,
apparel,
beachwear,
fabrics
for
neckwear
finished
products;
curtains,
pillows,
Products
footwear
and
bags,
fast
and
men’s
shirts.
finished
bes,
scarves,
home
accessories;
fashion
texbles
foulards
texbles
for
hotels
Figure
1.2
5

6. Despite
a
slightly
decreasing
level
of
revenues
in
Japan
between
2010
and
2011,
US
and
EU
revenues
grew
by
42%
and
47%
respectively,
over-­‐performing
the
already
surprising
domestic
market
revenue
growth
of
26%
(fig.1.3
and
Excel
file).
Revenues
(geogr.)
35
14%
Italy
30
25
3%
EU
38%
mln
€
20
12%
15
USA
10
5
Japan
0
Italy
EU
USA
Japan
Othe 32%
Other
r
2010
27,611
19,585
7,829
3,295
12,01
2011
34,769
28,807
11,15
3,066
12,957
Figure
1.3
Figure
1.4
In
this
geographical
scenario,
Ratti
gathers
80%
of
revenues
from
its
woman
and
finished
product
SBUs
(51%
and
29%
respectively
–
fig.1.4).
This
last
division
includes
creations
produced
upon
request
or
products
distributed
under
license
(fig.1.5).
Foulard
Valenbno
Cravahe
Current
Licensing
agreements
Foulards
Leonard
Lingerie
Soleil
Figure
1.5
Even
though
weighing
only
for
16%,
the
man
segment
presented
the
second
top
growth
rate
(after
the
finished
product
with
43%)
in
2011:
37%
(fig.
1.6
and
1.7).
6

7.
Revenues
(SBU)
50
40
mln
€
30
20
10
0
Woman
Finished
Man
Furnitur Other
prod.
e
revenues
2010
36,65
18,364
10,613
3,393
1,31
2011
45,998
26,26
14,558
2,912
1,021
Figure
1.6
3%
1%
16%
Woman
Finished
prod.
51%
Man
Furniture
29%
Other
revenues
Figure
1.7
To
support
its
global
strategy
and
its
performance,
Ratti’s
structure
involves
both
production
and
commercial
(to
sustain
relationships
with
B2B
clients)
operational
locations
worldwide:
Figure
1.8
7

8. The
competitive
context
Ratti
competes
in
the
national
and
international
textile-­‐fashion
industry,
thanks
to
its
well-­‐known
brand
and
its
relationships
with
worldwide
famous
griffes
and
clients.
Silk
market
accounts
for
only
about
0.2%
of
global
fiber
market,
yet
it
is
a
multibillional
trade
as
the
unit
of
raw
silk
is
twenty
times
more
expensive
than
a
unit
of
raw
cotton.
The
price
of
silk
has
decreased
significantly
over
the
last
year.
Despite
unsatisfactory
performance
during
the
recent
crisis
years,
2011
marked
an
initial
recovery
due
to
general
environmental
factors,
internal
higher
efficiency
and
external
renewed
effectiveness.
However,
some
important
competitive
challenges
are
present.
In
this
section,
we
underline
the
dynamics
of
the
textile
and
fashion
industry,
and
of
Ratti’s
specific
competitive
area.
External
environment
and
trends
2011
was
a
dual-­‐speed
recovery
year
for
the
industry.
After
the
sustained
pace
of
the
first
semester,
the
growth
was
slowed
in
the
second
one
down
to
an
aggregated
+4.8
%
of
revenues,
which
reached
€52,4
billion.
While
the
exports
increased
with
a
double-­‐digit
rate,
Italian
consumption
remained
stagnant:
general
demand
grew
by
4.1%.
As
far
as
Ratti
is
concerned,
this
brought
an
increase
in
B2B
portfolio
orders
by
the
end
of
2011
and
the
beginning
of
2012.
Hence,
internationalization
remains
the
main
driver
of
growth:
the
EU
destinations
experienced
+10.7%
growth
(with
France
and
Germany
remaining
the
top
commercial
partners)
and
extra-­‐EU
+14.6%
growth.
The
shares
of
both
markets
on
total
exports
are
57%
and
43%,
respectively.
In
this
scenario,
the
top-­‐growth
destinations
are:
Table
1.1
8

9. The
imports
rose
at
the
same
time,
but
less
than
proportionally,
thus
leading
to
a
positive
commercial
surplus
both
on
textile
(upper-­‐stages
of
the
chain)
and
fashion
(lower
stages)
sectors
of
the
industry.
Importantly,
raw
materials
for
whole
industry,
and
for
Ratti
itself,
come
primarily
from
China
(producing
up
to
90%
of
global
silk
production),
which
maintains
a
total
share
of
25.6%
of
total
imports
with
an
annual
growth
of
12.6%,
whereas
all
other
source-­‐countries
are
below
7%,
with
an
average
share
of
4.7%
(table
2).
Table
1.2
As
shown
by
the
Figure
1.9,
although
exports
are
in
recovery
phase,
they
remain
below
their
pre-­‐
crisis
level.
Figure
1.9
9

10. Opportunities
and
threats
Ratti,
through
its
high
brand-­‐awareness,
takes
advantage
of
the
international
development
of
markets
through
an
internationalized
business
model
(BM),
and
it
allows
diversification
of
the
portfolio
risk.
Yet
it
remains
important
to
carefully
monitor
the
strategic
choices
of
Chinese
competitors
(sometimes
strongly
integrated,
as
Dr.
Luca
Vignaga
notices)
on
the
U.S.
market,
where
price
competition
is
stronger
and
the
differentiation
policies
are
centered
on
the
intrinsic
value
of
the
product
and
its
quality,
and
integrated
service
to
the
customer
seem
less
effective.
On
the
other
hand,
the
Italian
market
appears
to
be
not
so
concentrated
(CR
4
index
is
at
13.5%).
This
triggers
two
important
aspects:
Compebbon
can
always
become
more
price-­‐ The
recent
crisis
could
boost
oriented,
even
in
the
light
of
aggregabon
dynamics
the
figures
presented
above,
between
different
players,
as
in
which
the
imports
from
was
the
case
of
Raa
itself
in
low
labor-­‐cost
countries
2009
with
Marzoho
group.
have
risen
Figure
1.10
Given
this
actual
or
possible
pressure
on
price
competition,
the
company
has
reacted
(and
wants
to
do
it
in
the
near
future
as
well)
with
an
active
approach
by:
Empower
• Empowering
the
up-­‐market
service,
where
Chinese
compebbon
is
less
present.
up-­‐market
•
Where
quality
levels,
design
capabilibes
and
service
levels
offered
by
Raa
represent
a
differenbabng
tool.
• Enhancing
internal
efficiency
with
a
turnaround
process
that
has
begun
in
2008-­‐2009,
when
the
revenues
went
down
by
almost
30%.
The
changes
involve:
Internal
• Workforce
reducbon
of
350
units.
efficiency
• Divestment
of
Textrom
s.r.l.
in
Romania).
• Investments
in
technology
to
empower
ink-­‐jet
prinbng
technique
and
reduce
wastes
in
producbon
processes
(planned
investment:
€6
million
between
2010
and
2013).
• Trying
to
reach
a
cribcal
mass
with
the
integrabon
of
all
design,
service
and
producbon
acbvibes
into
the
headquarters
in
Guanzate.
Cribcal
mass
• Higher
producbon
volumes
over
which
fixed
costs
are
spread.
•
As
a
consequence,
reducbon
of
overheads,
economies
of
scale
in
purchases
of
raw
materials,
lower
coordinabon
costs.
Figure
1.11
10

11. Porter’s
five
forces
analysis
SUPPLIERS
chinese
firms
(raw
silk);
brazilian
suppliers
POTENTIAL
ENTRANTS
RATTI;
Canepa;
industrial
players/ Mantero;
Isa;
SUBSTITUTES
converters
currently
Olmeho;
Lisa;
low-­‐cost
asian
handling
other
Taborelli
factories
fibres
CUSTOMERS
Griffes,
licensor
firms,
fast
fashion
firms,
tailors
Figure
1.12
The
scheme
above
presents
the
structure
of
the
competitive
context
through
the
usual
Porter’s
five
forces
approach.
Currently,
Ratti’s
direct
competitors
are
all
Italian
firms,
whereas
the
others
(Asian,
mainly
Chinese)
players
are
included
in
substitutes
since
they
currently
offer
different
products
of
lower
quality,
design
and
creativity,
and
also
less
customer
service
than
the
Italian
ones,
therefore
their
main
strategic
goal
is
to
reach
a
competitive
advantage
through
a
pure
cost-­‐strategy.
11

12. The
main
competitors
among
the
Italian
firms
are:
• A
family
run
company
producing
fabrics
and
accessories
for
men
and
womenswear,
both
luxury
and
fast
fashion
products.
Mantero
• Covers
Italia,
Europe,
North
America
and
Asia
(30%,
47%,
17%
and
6%
respecbvely).
• A
rather
new
(established
in
1970)
company,
mainly
focused
on
womenswear,
however
also
producing
in
other
areas.
Lisa
• Lisa
owns
another
company,
Stamperia
Marbnengo,
through
which
it
offers
service
in
all
possible
kinds
of
fabrics,
from
raw
materials
to
prinbng.
• Formerly
producing
umbrella
fabrics
and
lining,
with
a
recent
shir
towards
womenswear
and
bes.
Tessitura
Taborelli
• Taborelli
offers
all
different
kinds
of
materials
(acetate,
cohon,
silk,
etc.)
and
sells
mainly
to
a
network
of
texble
converters,
both
in
Italy
and
abroad.
• Established
in
1956,
produces
underwear,
swimwear,
bes
and
scarfs,
and
further
offers
fabrics
for
furnishing.
Isa
• Emphasizes
its
concern
regarding
ecology
for
the
last
35
years.
• Isa
bought
two
addibonal
companies:
Prochownik
(men’s
accessories)
and
ZeroRh+
(glasses
and
luxury
sportswear).
• Produces
both
men
and
womenswear
made
of
silk.
Olmeho
• Olmeho
group
consists
of
5
companies:
Olmeho,
Tessitura
Elmtex,
Lucky
Prinbng
Mill-­‐lpm,
Confezione
Ties,
and
Pal&Stra.
• Has
a
business
model
similar
to
Raa’s.
Canepa
• Offering
both
an
integrated
service
to
the
customer
and
managing
licensing
agreements.
It
also
offers
a
discrete
variety
of
finished
accessories
through
Intermoda
and
Fiorio.
Figure
1.13
The
power
of
suppliers
and
customers
is
quite
high
due
to
the
prevailing
role
of
Chinese
firms
in
the
first
case
and
to
the
increased
service
level
demanded
in
the
second
one.
Barriers
to
entry
are
sufficiently
high
for
players
currently
competing
in
other
fibers’
markets
to
enter
through
an
internal
growth
strategy
(different
technology,
need
for
highly-­‐skilled
staff,
considerable
equipment
investments,
knowledge,
and
design
capabilities).
12

13. KSF
inside
the
industry
Taking
into
account
environmental
developments,
competitive
forces
and
current
trends
in
the
industry,
Ratti’s
business
model
should
be
both
externally
coherent
with
the
competitive
context,
its
main
mechanics
and
developments
underlined
above
and
internally
with
the
other
company
choices
and
strategies.
KSF
need
to
be
covered
on
both
these
sides.
Design,
creabvity
and
innovabon
Key
succes
factors
Customizabon,
integrated
Effecbveness
service,
co-­‐development
of
texbles
Quality
Reduced
bme
to
market
and
rapid
deliveries
Efficiency
Internal
flexibility
to
manage
different
producbon
technologies
Figure
1.14
Positioning
Before
describing
Ratti’s
positioning
within
the
textile
industry
and
with
respect
to
its
main
competitors,
it
is
important
to
point
out
that
in
this
industry,
4
main
macro-­‐areas
of
the
supply
chain
exist
(Dr.
Luca
Vignaga,
chief
HR
officer):
1
• The
creabon
of
the
fiber
from
raw
materials
• The
creabon
of
the
texble
(printed,
yarn
dyed
or
solid)
2
through
various
techniques
3
• The
finished
product
and
its
packaging
4
• The
distribubon
and
sales
to
the
end
consumer
Figure
1.15
Ratti
and
its
competitors
are
all
located
in
step
2,
thus
being
typical
B2B
companies.
Despite
sharing
the
majority
of
the
activities
performed,
their
strategic
positioning
in
the
market
can
be
differentiated
according
to
the
following
two
chosen
variables
below,
further
included
in
the
positioning
map
(fig
1.19
–
end
of
paragraph).
13

14. Service
width
It
means
first
of
all
the
degree
of
control
of
the
different
phases
of
textile
creation
(product
ideation,
collection
development,
design,
production
and
if
necessary
distribution
to
retailers).
Three
basic
models
are
therefore
usually
identified,
with
obvious
overlaps
when
considering
specific
firms:
Full
service
model
• All
phases
are
available
to
offer
to
the
customer.
• Producbon
is
done
in-­‐house.
• The
customer
has
to
provide
operabons
with
drars,
Producer
model
drawings
and
more
generally
has
to
bear
the
creabve
part.
• Producbon
is
outsourced.
Creator
model
• Only
the
creabve
part
of
design
and
product
ideabon
is
offered
.
Figure
1.16
This
variable
has
to
be
naturally
coupled
also
with
target
markets
that
the
incumbent
can
serve,
as
the
coverage
of
multiple
target
markets
implies
greater
service
width:
Luxury
customers
(ex:
Hermès,
Louis
Vuihon)
Middle-­‐market
(ex:
MaxMara)
Fast
fashion
(ex:
Zara,
H&M,
Banana
Republic)
Mass
market
(ex:
Oviesse,
CNA)
Figure
1.17
The
competitors
we
have
considered
represent
quite
different
levels
reached
in
each
of
the
two
variables
and
are
currently
the
main
incumbents
in
the
industry
in
which
Ratti
operates.
14

15.
Brand
awareness
Ratti
remains
the
most
known
brand,
as
explained
below.
However,
Mantero
seta
is
also
famous
for
its
100
years
international
experience
and
constant
communication
efforts
such
as
the
talent
scouting
contest
recently
developed
with
Ratti.
Canepa’s
brand,
although
well-­‐known,
is
less
widespread
due
to
tighter
international
expansion.
These
three
top-­‐players
are
followed
by
ISA
seta,
which
has
decided
to
sell
directly
to
customers
but
with
a
multi-­‐branding
strategy
(Zero
Rh+
and
Prochownik)
that
makes
product/brand
association
less
clear.
However,
thanks
to
its
50-­‐year-­‐history,
it
exploits
medium
brand
awareness
in
the
B2B
market.
Olmetto
focuses
on
B2B
production
phase
which
makes
it
a
follower
of
ISA.
Lisa
Seta
is
a
recent
firm
(1970),
focused
only
on
fast
fashion.
Despite
its
productive
capacity,
it
has
a
far
lower
brand-­‐awareness.
The
same
is
valid
for
Taborelli,
which
also
has
limited
variety
as
seen
above
due
to
its
high
specialization
in
production.
To
define
the
map,
we
have
considered:
o Year
of
foundation
o National
and
international
acknowledgement
of
the
brand
considered
o Strategic
alliances
to
increase
brand
awareness
(example:
deal
in
B2B
with
prestigious
griffes)
o Degree
of
internationalization
o Valuable
collaborations
(ex:
2011
contest
to
select
new
talents
promoted
by
Ratti
together
with
Mantero
seta)
15

16. Ratti’s
positioning
Ratti
is
operates
through
the
full-­‐service
model.
Thus,
it
constantly
collaborates
with
customers
to
the
creative
and
design
phase
and
produces
textiles
through
5
different
techniques.
Figure
1.18
In
addition,
when
needed,
it
can
distribute
products
to
retailers
as
it
does
with
licensing
ones
(even
if
distribution
is
marginal
in
Ratti).It
targets
the
luxury
high
end
market
as
well
as
the
middle
and
recently
(with
R
industries)
also
fast
fashion
ones.
In
these
fields,
both
in
Italy
and
abroad,
thanks
to
its
history
of
excellence
and
to
its
growing
international
expansion
(in
2011
Ratti
did
more
than
60%
of
its
revenues
outside
Italy
and
50%
of
them
in
Europe,
with
an
annual
growth
on
2010
of
47%),
it
exploits
an
exceptional
brand
awareness.
Figure
1.19
16

17. Financial
analysis
Considering
the
consolidated
results
of
Ratti
group,
we
need
to
analyze
them
from
2006
to
2010
in
order
to
appreciate
the
complete
evolution
of
the
company’s
profitability,
composition
of
balance
sheet,
financial
stability
and
sources
of
capital.
It
is
anyway
recommended,
for
a
better
insight,
to
see
details
in
the
Excel
file.
Above
all,
it
is
straightforward
to
see
how
the
firm
suffered
the
crisis
and
how
it
recovered
thanks
to
the
acquisition
by
Marzotto.
At
a
first
glance,
one
first
notices
that
Ratti
closed
5
years
of
negative
year-­‐end-­‐result:
the
total
amount
of
these
losses
is
30,3Mil/€
(fig
1.20).
Figure
1.20
These
bad
results
have
been
driven
by
a
period
in
which
a
sharp
reduction
in
revenues
occurred
and
the
company
could
not
resolve
the
chronic
inability
to
be
profitable.
Indeed,
the
cumulative
revenue
decrease
between
2008
and
2009
is
-­‐42.33%
with
the
operating
costs
quite
stable
relative
to
revenues,
hence
highlighting
no
internal
efficiency
gain.
Table
1.3
The
bad
situation
in
2006
could
only
worsen
in
the
years
to
come.
The
global
financial
crisis
of
2008
deeply
hit
revenues
that
dropped
by
more
than
12%
in
2008
and
by
almost
40%
in
2009,
both
with
respect
to
the
top
level
of
112Mil/€
in
2007
and
ROE,
ROS
and
ROI
were
all
strongly
negative
in
2008.
Numbers
and
details
are
shown
in
tab.
1.4.
Table
1.4
17

18. These
alarming
profitability
results
led
the
Debt
to
Equity
ratio
to
skyrocket
in
2009
till
6,15%
from
a
safer
1,06%
of
2006
balance
sheet,
primarily
due
to
net
equity
fall
(that
overweighs
net
financial
position
decrease)
in
order
to
cover
huge
losses.
Indeed,
to
reach
this
aim,
net
equity
had
to
be
slashed
at
2,9Mil/€
in
2009
from
2006
starting
point
of
28,8Mil/€.
Together
with
that
composition
of
financial
sources,
we
need
to
consider
also
the
short-­‐term
financial
stability:
liquidity
margin
dropped
from
a
positive
36Mil/€
of
2006
till
a
worrying
negative
7Mil/€
in
2009.
These
profound
cash
imbalances
could
easily
lead
Ratti
to
a
probable
default.
Despite
the
sharp
reduction
in
the
operating
working
capital,
Ratti
at
the
end
of
2009
needed
9,8Mil/€
to
continue
to
survive.
Luckily
in
2009
the
Marzotto
acquisition
occurred.
The
agreement
brought
into
the
company
36Mil/€:
25Mil/€
directly
in
risk
capital,
11.4Mil/€
in
newly
negotiated
net
debt
thanks
to
the
implied
covenant
coverage,
considering
also
cash
that
exited
to
repay
a
loan
with
BNL
and
Unicredit
(16Mil/€
-­‐
4.6Mil/€
repayment).
That
operation
led
also
to
an
important
governance
change,
with
Faber
Five
and
Marzotto
owning
66%
of
Ratti
and
exerting
unified
control.
After
that
moment,
partial
recovery
occurred.
Debt
to
Equity
ratio
normalized
and
improved
till
0,84.
In
2010
the
revenue
increase
of
7,89%
drove
the
ROS
to
a
0,34%
positive
result
that
never
occurred
before
in
the
years
under
analysis.
In
2011,
although
Europe
sovereign
debt
crisis,
Ratti
improved
its
sales
of
almost
30%.
ROI
reached
a
+10%
record
and
ROS
finally
rose
at
+6%.
Debt
to
Equity
ratio
almost
halved
at
0,46
as
liquidity
margin
got
positive
to
a
30Mil/€.
Globally,
we
see
how
financial
debt/Ebitda
ratio
has
drastically
reduced
from
41
in
2006
to
2
in
2011
after
being
dangerously
negative
for
three
years
in
between.
This
underlines
a
safer
solvency
situation
and
stronger
financial
structure,
both
sustained
by
renewed
profitability
and
ameliorated
monetary
cycle.
Indeed,
the
commercial
cycle
of
Ratti,
underlined
in
the
five
years
analysis,
shows
a
gradual
improvement,
as
can
be
seen
in
tab.
1.5.
Table
1.5
These
positive
results
are
also
driven
by
an
increase
in
operating
efficiency:
the
revenue
per
worker
reached
the
positive
amount
of
163.000
€.
This
productivity
index
had
a
43%
increase
from
the
worst
2009
result
(114.000€/worker).
This
shows
how
the
managerial
capabilities,
the
new
industrial
plan
and
the
synergies
from
the
collaboration
with
Marzotto
have
produced
tangible
quantifiable
results.
Despite
this
sharp
and
rapid
improvement
of
2011
financial
data,
we
still
notice
some
difficulties
in
a
complete
recovery.
We
underline
how
55%
of
the
year
net
income
comes
from
the
non-­‐core
activities
due
to
a
7Mil/€
surplus
in
taxation.
The
overall
core
activities
could
only
produce
a
5Mil/€
surplus.
This
demonstrates
that
several
steps
forward
have
still
to
be
done
to
reach
a
fully
satisfying
performance.
18

19. THE
BUSINESS
MODEL:
value
creation
through
customer
orientation
The
following
paragraphs
deal
with
the
business
model
(BM)
as-­‐is,
testing
its
internal
and
external
consistency
and
also
considering
some
of
the
Marzotto
acquisition’s
impacts
on
it,
and
then
try
to
provide
some
hints
about
the
business
model
to
be.
Business
Model
AS-­‐IS
To
describe
the
current
BM,
it
has
been
chosen
to
use
the
business
model
canvas
as
defined
by
Alexander
Osterwalder
and
Yves
Pigneur
(2010).
The
analysis
through
BM
canvas
Value
proposition
(VP):
Ratti
delivers
an
integrated
VP
to
its
customers
by
offering
a
360°
customized
and
dependable
service
of
product
design
and
a
deep
understanding
of
their
needs
in
terms
of
the
mood
that
has
to
be
transferred
to
each
project
(order-­‐winning
factors).
It
produces
textile
patterns
of
exceptional
quality
and
creativity
in
the
right
lead
time
(much
faster
than
in
the
past,
although
being
a
qualifying
factor)
and
at
the
agreed
price.
Ratti
is
therefore
in
between
a
pure
product
and
a
pure
service
output
firm
(Slack
2007).
Customers
(CS):
Ratti
adopts
a
segmented
approach,
serving
different
customers
with
slightly
varying
needs
through
flexing
the
same
transforming
resources
(machines,
staff).
As
a
consequence,
it
extends
its
offering
to
up-­‐market
(famous
griffes),
fast-­‐fashion,
swimwear
and
underwear
specialized
customers,
finished
accessories
segment
(also
through
licensing
agreements)
and
furnishing.
Customer
relationship/care
(CR):
Ratti
is
able
to
develop
a
deep
relationship
with
its
customers
assuring
to
be
in
tune
with
their
sensations
and
brand
codes
and
finally
transferring
them
in
the
final
textile.
It’s
a
sort
of
reciprocal
idiosyncratic
investment
that
the
company
and
the
stylists
cultivate
in
order
to
develop
better
products
in
a
faster
time.
Product
managers
(PM)
are
constantly
in
contact
with
different
stylists
in
order
to
catch
the
mood
and
be
the
best
choice
for
them
among
19

20. competitors.
Ratti
gratifies
its
customers
by
letting
them
research
the
feeling
in
its
unique
archive,
with
dedicated
sections
both
to
up-­‐market
and
fast
fashion
customers.
Channels
(CH):
Thanks
to
its
history
of
excellence,
the
awareness
phase
has
been
already
experienced.
New
customers
are
reached
through
the
success
of
previous
collections,
thereby
with
a
sort
of
B2B
word-­‐of
mouth
contributing
to
the
evaluation
phase:
more
success
means
more
reputation
and
more
orders
thereby
triggering
a
virtuous
cycle.
“As
a
consequence
Ratti,
being
well-­‐
known
in
the
fashion
industry,
is
always
included
in
each
year’s
auctions
promoted
by
potential
customers
that
need
to
develop
new
collections
(Dr.
Parenzan,
women’s
wear
chief
director)”.
The
real
challenge
is
to
communicate
its
enormous
experience:
one
of
the
tools
it
uses
especially
in
the
purchase
phase
is
the
archive
that
customers
can
view
and
use.
In
addition,
Ratti’s
PM
actively
participate
in
catwalks
around
the
globe.
This
allows
them
to
stay
in
contact
with
their
customers
and
to
think
about
new
proposals
for
the
seasons
to
come.
Value
proposition
is
delivered
day-­‐to-­‐day
through
PM
and
designers
(delivery
phase).
Revenue
stream
(RS):
Value
appropriation
on
the
revenue
side
showed
a
growth
in
every
market
segment,
with
woman’s
wear
and
finished
product
(includes
licensing)
accounting
for
80%
of
the
revenues
and
showing
both
a
growing
trend
(26%
and
43%
respectively).
In
addition,
menswear
grew
by
37%,
accounting
for
16%
of
total
revenue
stream.
Value
capturing
occurred
also
on
a
uniformly
geographical
base
with
US
and
European
market
growing
both
over
40%
and
the
domestic
marketplace
experiencing
a
26%
revenue
increase.
Key
resources
(KR):
To
sustain
its
key
activities,
a
set
of
interdependent,
non-­‐transferable
and
rare
resources
are
deployed
by
Ratti:
human
and
immaterial
resources
include
designers
with
specialized
capabilities,
production
skills
of
workers
using
machines,
chemical
knowledge
to
innovate
color
mix
and
printing
techniques
(R&D),
and
customer
relationship
management
competencies
among
the
others.
The
wide
historical
design
archive,
the
most
impressive
manifestation
of
the
effective
combination
of
these
resources
and
the
first
tool
a
product
manager
utilizes
after
the
briefing
with
the
customer,
together
with
innovative
production
technologies
such
as
ink-­‐jet
digital
silk
printing
and
fashion
books
also
plays
an
important
role
in
material
resources.
As
far
as
financial
resources
are
concerned,
surely
Marzotto
brought
in
liquidity
both
to
recover
and
to
undertake
new
investments.
It
also
provided
new
valuable
managerial
competencies.
Finally,
Ratti’s
strong
brand
awareness
surely
is
a
key
value-­‐adding
resource.
Key
activities
(KA):
It
recruits
and
motivates
the
designers
and,
apart
from
printing
supports
photogravure,
it
undergoes
all
the
activities
and
processes
of
the
silk
cycle.
It
can
create
a
finished
product
starting
from
an
idea
and
a
natural
silk
fiber
till
a
product
ready
to
be
sold
in
a
shop
(SBU
finished
product).
It
works
with
separated
business
units,
with
focalized
human
resources,
to
follow
different
markets,
products
and
customers.
20

21.
• Briefing
with
customer,understanding
of
the
mood,
Product
ideabon
• First
drar,
prototypizabon,
collecbons
• Authorizabon
by
customer
and
final
deal
• Hand
designers,
Design
• Transformabon
of
the
drawing
in
CAD
file
• color
chemical
preparabon,
Producbon
• manomacchina,
stampa
rotabva,
stampa
ink-­‐jet,
stampa
a
quadro,
yarn
dyeing,
(make
to
order)
• maintenance
of
machineries,
quality
controls,
• finishing
and
packing
Figure
2.1
Key
partnerships
(KP):
Ratti
buys
its
important
raw
materials
from
Chinese’s
suppliers
that
own
a
basic
step
of
silk’s
value
chain.
Silk
in
the
world
is
best
produced
in
the
Far
East
leading
country
where
lower
cost
of
labor
and
a
millenarian
tradition
allows
producers
to
have
a
strong
and
enduring
competitive
advantage.
Furthermore,
Ratti
buys
spools
and
rolls
of
different
quality
and
features
and
stocks
them
in
advance
to
cope
with
uncertain
suppliers’
lead
times.
Marzotto
is
not
only
the
33%
owner
of
Ratti;
It
is
also
a
key
partner
providing
financial
and
managerial
support
to
the
company
together
with
plants
and
equipment
to
produce
(
ex:
Lituanian
ones
for
fast
fashion)
and
maximize
synergies.
Ratti
also
stipulated
agreements
both
with
famous
Design
schools
and
with
Mantero
seta
for
its
yearly
recruitment.
This
is
a
typical
form
of
coopetition
in
the
field
of
design.
Foundation
Antonio
Ratti
(FAR)
is
a
valuable
internal
partner
that
provides
information
about
ancient
collections,
technical
information
and
design
inspiration
for
future
projects.
Nevertheless,
as
can
be
deducted
from
the
explanation
above,
Ratti
views
big
griffes
not
just
as
customers
but
as
partners.
Giving
a
service,
Ratti
exploits
their
capacity
to
grasp
customer
needs
and
trends
to
update
its
archive
and
textile
patterns.
They
are
customers
but
also
collaborators.
21

22. Cost
structure
(CS):
Ratti’s
premium
value
proposition
and
its
extreme
customization
lead
to
a
value-­‐
driven
business
model
rather
than
a
cost-­‐driven
one.
However,
through
R
industries
and
serving
fast
fashion
market,
economies
of
scale
could
be
reached
as
volumes
increased
and
utilization
of
machineries
too.
In
addition,
the
fast
fashion
introduction
led
to
higher
utilization
of
the
finishing
phase
of
production
that
is
now
applied
to
all
market
segments
served,
thus
reaching
economies
of
scope.
Ratti’s
BM
is
characterized
by
a
fixed
and
rigid
cost
structure,
as
its
main
resources
are
people
and
machineries.
However,
in
2011,
it
was
able
to
increase
EBITDA
margin
from
2.9%
in
2010
to
9%
by
rationalizing
operative
costs
and
thereby
also
ameliorating
its
EBIT
margin
from
0.35%
to
7%,
even
though
the
incidence
of
depreciation
did
not
change
so
much.
These
aspects
contributed
to
higher
value
appropriation.
An
immediate
and
visual
representation
of
the
hand-­‐made
canvas
is
presented
below
(figure
2.2).
Figure
2.2
Figure
2.2
22

23. Business
model
configuration
The
business
model
described
above
entails
both
a
dimension
typical
of
the
layer-­‐player
model
and
of
the
integrated
model.
In
particular,
although
the
crucial
value
adding
stage
on
which
Ratti’s
BM
is
focused
is
the
creative
phase
(product
ideation
and
design).
We
can
say
more
properly
that
Ratti
has
configured
its
BM
as
an
effective
mixture
of
layer-­‐player
and
integrated
model,
thereby
leading
to
a
partially-­‐integrated
layer
player
model:
indeed
it
is
specialized
in
two
fundamental
steps
of
the
value
chain,
not
only
one,
which
are
design
and
production
(partial
integration
side)
that
it
expands
and
replicates
horizontally,
through
a
customized
approach,
on
different
projects/customers/markets
(layer
player
side),
thereby
exploiting
cognitive
economies
of
scale.
The
layer-­‐player
orientation
is
predominant,
as
an
integrated
configuration
would
entail
raw
materials
control
and
the
creation
of
a
widespread
distribution
network
together
with
after-­‐sales
activities.
However
it
is
interesting
to
notice
that,
within
different
SBUs,
the
BM
configuration
might
change
slightly
and
be
more
oriented
towards
one
or
the
other
side
underlined
above.
This
is
the
case
of
the
distribution
activity
that
assumes
a
marginal
(but
not
negligible)
role
in
Ratti’s
business
model
if
Carnet
–
C.G.F.
(in
women’s
wear
SBU)
and
licensing
products
(in
finished
products
SBU)
are
considered.
In
these
two
cases,
Ratti’s
BM
slightly
moves
towards
the
integrated
dimension
from
a
configuration
typically
more
oriented
to
the
layer-­‐player
one.
Again,
since
no
owned
distribution
network
is
available
to
Ratti,
key
activities
included
in
BM
overall
description
do
not
include
distribution
and
this
change
is
likely
to
be
more
similar
to
an
extension
of
the
service
width
(see
positioning)
rather
than
a
re-­‐configuration
of
Ratti’s
BM.
23

24. The
model
configuration
can
be
represented
as
follows.
Figure
2.3
Internal
and
external
consistency
of
BM
Ratti’s
business
model
is
externally
consistent
as
it
is
aligned
with
the
industry’s
key
success
factors
identified
in
the
competitive
context.
Indeed,
through
its
value
proposition
and
the
effective
management
of
customer
relationship,
Ratti
is
able
to
offer
an
integrated
and
customized
service
simultaneously
utilizing
its
core
resources
and
competencies
in
design,
reinforced
through
partnerships
with
major
design
schools
and
production
to
create
products
of
exceptional
quality.
From
the
efficiency
side,
only
recently
it
has
made
its
technology
and
equipment
more
flexible
in
order
to
cope
with
the
fast
fashion
growing
trend.
Furthermore
the
investment
in
new
ink-­‐jet
printing
machines,
due
to
their
inferior
production
lead
time
(CAD
file
is
immediately
printed
on
the
fiber
and
no
different
supports
need
to
be
changed
in
order
to
obtain
different
colors),
represents
a
higher
share
of
production
activities
devoted
to
time
to
market
reduction.
Internally
resources,
activities,
partnerships
and
the
care
applied
to
customer
relationship
are
aligned
with
company
objectives
expressed
with
its
value
proposition
and
with
target
customers
served
in
the
market.
This
internal
consistency
has
proved
to
be
effective
in
the
profit
and
loss
account
through
revenue
stream
and
cost
structure.
Winning
aspects:
robustness
and
self-­‐reinforcement
Ratti
created
a
strong
barrier
to
imitation
through
its
asset
synergies
with
Marzotto
in
fast
fashion.
To
assure
a
similar
availability
of
machineries
and
equipment,
a
competitor
would
require
large
capital
investments.
Nevertheless,
its
integration
with
Ratti’s
full
and
established
understanding
of
rotative
printing
technique,
builds
an
integrated
system
which
is
hard
to
replicate.
Another
barrier
is
due
to
causal
ambiguity
embedded
in
customer
care:
Ratti’s
exceptional
capacity
of
staying
in
tune
with
customer’s
mind
and
specific
needs
is
a
distinguishing
element
of
its
BM
that
is
hard
to
replicate
because
of
difficulty
in
understanding
its
roots.
In
other
words,
it
is
a
rigid
consequence
of
a
governance
choice
(product
manager
following
specific
brands’
product
lines),
an
asset
choice
(recruiting
only
motivated
talents)
and
a
policy
one
(building
customized
value
proposition
for
each
client).
24

25.
Business
Model
to
be
Ratti
needs
to
evaluate
all
consequences
of
current
industry
challenges
(ex:
fast
fashion
trend
and
Chinese
price
competition)
on
its
BM
and
develop
strategic
agility
(Doz
and
Kosonen
2010)
in
order
to
turn
them
into
positive
opportunities
for
possible
BM
innovation.
A
concrete
application
of
this
useful
concept
is
provided
in
the
box
below.
Re-­‐elaborating
some
information
provided
by
Dr.
Luca
Vignaga
(interview
12/06/2012),
we
have
tried
to
map
a
possible
future
evolution
of
Ratti’s
business
model.
The
final
goal
is
Ratti’s
configuration
as
a
360°
full-­‐service
provider
and
problem-­‐solver
for
the
customer,
independently
on
which
kind
of
fiber
it
has
to
work
on.
Indeed,
for
fibers
different
from
silk,
Marzotto’s
machineries
and
skills
can
be
used.
However,
the
dealer
with
the
customer
will
remain
Ratti,
due
to
its
key
capabilities
in
management
the
relationship
and
key
resources
described
above
(value
proposition
to
be).
To
accomplish
this
wide
range
of
needs,
Ratti
needs
to
empower
its
recruiting
practices
by
strengthening
alliances
with
designer
schools
and
further
promoting
initiatives
as
the
one
with
Mantero
seta
(key
partnerships
to
be).
“Marzotto-­‐Ratti
group
is
not
much
worried
about
competition,
it
is
worried
about
having
a
strong
silk-­‐district”
to
create
an
effective
network
of
firms
and
promote
coopetition.
25

26. The
internal
growth
project
also
involves
a
triplication
of
ink-­‐jet
printing
capacity
(key
activities
to
be)
and
buying
fashion
archives
from
other
companies
(operations
that
on
average
worth
300-­‐
400.000
€),
thereby
impacting
on
key
resources
to
be.
In
addition,
the
focus
on
the
empowerment
of
revenue
sources
represented
by
furniture
and
finished
products
will
make
more
solid
and
diversified
the
revenue
stream
to
be.
26

27. Two
firm
choices:
Acquisition
and
HRM
Marzotto's
acquisition:
the
impact
of
fast
fashion
on
value
creation
and
organization
Since
the
Due
Diligence
phase,
it
was
immediately
clear
that
there
wasn’t
a
defined
value
proposition
for
each
market
segment
in
Ratti.
Thus
leading
to
a
weak
positioning
with
respect
to
its
competitors.
The
Marzotto
strategy
immediately
focused
on
renovating
the
old
and
costly
yarn
dyeing
machineries
(due
to
crises
there
were
no
internal
funds
to
maintain
and
change
them
in
a
period
of
slacking
demand)
and
on
introducing
new
material
assets
to
have
a
better
prototypization
process
(new
Macs
for
graphic
design),
to
boost
the
strategic
and
innovating
ink-­‐jet
technology
and
to
produce
fast
fashion
(FF)
collections
(getting
the
Rotative
printing,
already
bought
but
not
utilized,
working
at
full
capacity).
The
new
industrial
plan
thereby
took
a
fundamental
decision:
to
divide
the
Ratti’s
offering
in
three
clear
cut
market
segments:
luxury,
medium
and
fast
fashion.
The
aim
of
this
strategic
decision
is
to
obviate
in
the
lack
of
order
from
the
top
price
market
by
producing
lower
added
value
but
bigger
volumes
products
that
can
saturate
and
level
the
production
of
the
“finissaggio”
phase
capacity
gaining
furthermore
economies
of
scale
and
new
customers
(see
virtuous
cycle
in
BM
analysis).
This
entailed
a
sharp
reduction
of
unit
fixed
costs.
From
a
marketing
point
of
view,
the
decision
was
justified
by
the
growing
trend
of
the
market.
There
are
no
better
words
than
those
of
Dott.
Massimo
Parenzan
to
explain
this:
“You
don’t
have
alternatives.
The
fashion
market
is
made
also
there!
Customer
nowadays
mixes
Brands,
qualities
and
styles.
There
is
no
more
the
typical
woman
that
only
dresses
haute
couture.
It’s
unexpectable.
A
Zara
product
is
a
completely
different
one:
the
quality
seems
to
be
the
same,
but
is
not!
It’s
an
industrial
product
that
has
to
be
delivered
on
time
with
no
production
problems
that
are
typical
of
a
high-­‐end
27