Liz Claiborne, like other well-known apparel makers, embarked on a major product expansion strategy in the 1990s when it acquired many smaller branded clothing and accessory companies and started many new brands of its own. The company’s goal was to achieve greater operating efficiencies so that rising sales would also result in rising profits. By 2006, it had grown to 36 different brands, but although revenues had soared from $2 billion to over $5 billion, its profits had not kept pace. In fact, profits were falling because costs were rising as operational efficiency fell due to the enormous complexity and expense involved in managing so many brands.

So Liz Claiborne recruited a new CEO, William McComb, to find a way to turn around the troubled company. Within months he decided to reverse course, shrink the company, and move to a new form of organizational structure that would once again allow it to grow—but this time with increasing profitability. CEO McComb’s problem was to find a new organizational structure that would reduce the problems associated with managing its 36 different brands. He believed the company had developed a “culture of complexity” due to its rapid growth and overly complex organizational structure. 

The company had created five different apparel divisions to manage its 36 brands; brands were grouped into different divisions according to the nature of the clothing or accessories they made. For example, luxury designer lines like Ellen Tracy were grouped into one division; clothes for working women such as its signature Liz Claiborne and Dana Buchman brands were in a second; trendy, hip clothing directed at young customers such as its Juicy Couture line were in a third division, and so on. A separate management team controlled each division, and each division performed all the functional activities like marketing and design needed to support its brands. The problem was that over time it had become increasingly difficult both to differentiate between apparel brands in each division as well as between the brands of different divisions because fashion styles change quickly in response to the demands of changing customer tastes. Also, costs were rising because of the duplication of activities between divisions, and increasing industry competition was resulting in new pressure to lower prices to retail stores to protect sales. 

McComb decided it was necessary to streamline and change Liz Claiborne’s organizational structure to meet the changing needs of customers and the increasing competition in retailing because of the growth of private-label brands. First, he decided that the company would either try to sell, license, or if necessary close down 16 of its 36 brands and focus on the remaining 20 that had the best chance of generating good profits in the future. To better manage these 20 brands, he decided to change its organizational structure and to shrink from five different divisions to just two. This eliminated an entire level of top management, but it also allowed him to eliminate the duplication in marketing, distribution, and retail functions across the old five divisions and so would result in major cost savings.........

Discussion Questions

1. What were the problems with Liz Claiborne’s old organizational structure?

2. How did McComb change Liz Claiborne’s structure to improve its effectiveness? Go to the Web and find out how his design changes have worked.