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Organisation charts, while not a perfect picture of how companies operate, nevertheless provide some insights into how companies are shifting over time, how they are dealing with complexity, and also how companies differ in their perspectives and priorities. A sample of IADS members have shared organisation charts prompting some thoughts about department store structures.

Organisation charts: a reflection of complexity

Organisation charts are not an exact reflection of how companies work. Many business writers, sociologists and anthropologists have commented on what is missed by these charts such as the nature of the flow between the function boxes, pain points, and, perhaps most importantly, the reality of the roles and responsibilities as they are exercised in day-to-day business.

However, they still provide some insight into a company’s perception of itself, of formal internal power structures and rewards, and they allow comparisons to be made between companies at one moment in time as well as to visualise changes in companies over time.

The IADS has collected some members’ current org charts and has been able to draw some conclusions. We have also found charts dating back 5 years which highlight some major, sometimes surprising, changes over that period. What is clear above all is that organisation charts of department stores reflect the complexity of the business. Buying departments manage many different types of contracts with merchandise suppliers. The suppliers are constantly changing. The types of contracts are continuously being renegotiated. The Retail department is dealing in store with own staff, brands staff, demonstrators, part-time, seasonal, as well as with space rental, payments and security. The fact that many department store companies have been in existence for over 150 years means that almost all have accumulated layers of history piled upon each other, often not well adapted to current circumstances.

The C-team

A number of functions headed by a C-level leader answering directly to the CEO can be found in most of our sample of department stores and form the skeleton:

• Finance and Administration including accounting, controlling, planning, and often legal and procurement, which has recently had to deal with cash flow problems among other pandemic-related issues
• Buying and Merchandising covering the assortment from fashion to food with widely fluctuating sales patterns over the last 18 months
• Retail Sales or Operations in charge of the stores, facing questions of traffic, selling space and customer service and experience
• Marketing which is shifting at present and involves communication and media as well as customer data and experience
• Supply Chain and Logistics under the spotlight at the moment since it has had to deal with disruption at the same time as a reorientation of inventory and fulfilment issues
• IT covering company-wide tech architecture as well as payments, security and other systems serving the company, and which has been at the centre of considerable investment decisions and controversies
• HR playing several roles: an administrative one as well as a strategic one, a centralised one as well as a dispersed one around regions or stores, and which has also had to deal with staffing, costs and remote work in the pandemic
• Digital has now moved into a full functional role in its own right and more often than not has a seat on the management board, and covers at least ecommerce, omnichannel, marketplace and often more. Its leader is sometimes described as Chief Customer Officer
• Strategy, Transformation or Innovation has emerged in several companies as the seat of future orientation. In the 1930s, the IADS promoted the creation of “Research” departments in its members which would most closely approximate this function.
• Real Estate covers store planning, construction, maintenance, architecture and works, and development. It is more important if the company owns property, and is currently dealing in some cases with closing stores, and in other cases with designing and opening new ones.

Most but not all of these functional leaders will have a seat on the management board.

It should be noted that in some cases, strategy alone may not be the sole reason for the content or the importance of a function. Strong personalities may convincingly argue that different functions should be included under their remit. History also plays a significant role in how a company is structured at any one time.

Adaptive changes 5 years on

Probably the most striking shift over the last 5 years has been the emergence of ecommerce which has now resulted in a separate “digital” function in most companies. While 5 years ago, ecommerce would have been subsumed under another function, it has now almost universally acquired its own responsibilities and status. It may have moved out of Marketing (Manor), Finance (Palacio), Merchandising (Breuninger and Globus), or Distance Retailing if the company had an already existing mail order business (Stockmann).

As the newest department store function, it often brings together people with rare technical skills, and with considerable experience in different parts of business management, especially if they come from start-ups. Furthermore, the current “digital” departments often started as small projects which were only later integrated into the company.

Similarly, IT has emerged as a much more important and independent function servicing most areas of the business after being hidden within the Finance function in most cases (Galeries Lafayette, Palacio, Breuninger).

Several years ago, the Merchandising department in some companies decided to separate the buyers’ role from planning, resulting in the so-called “buyer-planner” organisation model (BPO). While this was adopted in several companies, some (such as Globus) decided later to reverse the decision and to return the planning function to buying.

Another company which grouped Purchasing, Operations (stores and logistics) and Marketing under one single Commercial department leader reporting to the CEO, has now pulled out the main merchandise categories as separate functions reporting directly to the CEO. One company appears to have done the exact opposite, moving from individual merchandise categories reporting directly to the CEO, towards a model with a merchandising leader covering all the merchandise categories (as well as marketing).

A company which had Supply Chain and Logistics reporting to Finance and Organisation, has now created a separate Supply Chain entity reporting to the CEO, although not part of the Executive Committee.

If a trend were to be identified over the last five years, it would probably be towards a somewhat less hierarchical structure as companies have had to deal with an increasing level of specialised skills. While there are exceptions to this, in general CEOs have had less of a buffer between themselves and specialist units in their structure, with whom there will have been in more direct communication. However, multiple divisions or functions within any organisation puts a premium on communication between them. Whether that is taking place is something an org chart will not reveal.

Various morphologies

While the skeleton remains more or less recognisable over time, the morphologies of department stores shift. The current shape of the department store can be described along several dimensions which characterise their functions.

The most centralised: In spite of recent changes brought about by ecommerce, some functions still benefit importantly from economies of scale. These are Finance & Administration, IT and Supply Chain/Logistics. These are functions which serve the whole organisation and which lose efficiency when fragmented. It is also these functions which are most likely to be outsourced. IT and Supply Chain also require large investments which need to be amortised across the company. While important to the future of retail, IT does not always get its own seat on the board as it is seen as a service to other departments and can be subsumed under Digital or Innovation for example (Palacio). However, IT is often the flattest organisation as it is the one where the most “agile” structure is operated.

The most dispersed: While Human Resources still has an important central function, many of the activities of HR are now performed locally in order to adapt to the specific needs of stores, regions, countries, or sometimes skills. Recently, perhaps because of its dispersed nature, HR has taken on the role of sustainability guardian (Galeries Lafayette, Manor).

The most confident: Merchandising and Retail Operations are still at the core of traditional retail activity (buying and selling). Members of each of these functions see themselves as key to the whole business, they produce the revenue and are part of what Geoffrey Moore has called the “productivity zone”. This aura of unassailability partly explains why there can be big variations among retailers in how they are organised: a buyer is a buyer no matter where they are placed in the chart. We also often hear about “natural selling skills”. However, this certainty applies less to the food category which is why it is almost always separated from the mainstream buying department.

In some companies, it has been deemed appropriate to include buying (as well as some other functions) under a flagship store division when it is felt that the flagship is unique (Food under Galeries Lafayette Haussmann, or Home under BHV/Marais). Companies might also choose to treat Outlets differently.

The merchandising department is of course only necessary in a wholy or partly wholesale model. Businesses that lease space will operate instead through a Leasing department operating alongside a Sales department (Sogo).

Visual merchandising can be seen as belonging in Retail Operations (Manor) or in Merchandising (Beco). The Merchandising department of Manor is unusual in that it includes also Marketing.

The most connected: The relatively recent Digital department is the one with the most direct impact on other areas of the company since it involves not only ecommerce and web design but also omnichannel relations with the traditional physical company, the marketplace (increasingly popular), customer experience and data, and even CRM and loyalty card (Breuninger). This department is often headed by a designated “Chief Customer Officer” which puts them in charge of some of the traditional marketing functions. In one, a “Chief Innovation Officer” will head IT, ecommerce, and logistics (Palacio).

The most contested: The Marketing department has been undergoing a revolution for some time. Indeed, an increasing part of its budget is getting redirected to online and social media. A part of its activity concerned with customer knowledge and data has now become so technical that it is better handled by a new breed of marketeers, data scientists and techies. In fact, the responsibilities of the traditional marketing department have sometimes been transferred to a Chief Customer Officer heading a digital department (described above). In one case, Marketing is the responsibility of the Chief Merchandising Officer (Manor); in another, the two are also combined but only at corporate level (Falabella).

The most autonomous: A small number of companies have instituted Strategy or Transformation departments devoted to strategic planning and projects. This area is probably the closest to one of the original goals of the IADS looking to the future on behalf of member companies. Such departments have the ear of the CEO and impact the company as a whole only when projects become reality or when they enter the “transformation zone” draining investment from other areas.

The IADS includes several members with international operations. These are often structured separately, especially if they are a mixture of owned, partly owned or franchised businesses. One member with a fully owned and operated international network is Falabella with department stores in three countries. This implies a “matrix” structure with a country head in charge of national operations as well as a divisional function head in charge of a function across all countries.

Unsurprisingly, structures become more complex with time. The youngest IADS member company founded in 2003 has adopted a structure with two joint Executive Directors overseeing 15 or so separate functions including Advertising separate from Marketing, Ecommerce separate from IT, Administration separate from Finance (Sogo HK).

Does structure follow strategy?

It is clear that, although the department store sample shows many common points in terms of basic organisation structures, there are also significant differences between companies which sometimes may point to different directions for the future. Organisation charts are not stable, and respond to strategic objectives, environmental and market conditions, technological changes and customer expectations, as well as to individual talents within the organisation.

Three key questions:

• How to achieve digital transformation?

There appears to be a trend towards a separate Digital department headed by a Chief Customer Officer. As well as the expected responsibilities related to ecommerce and the website, this role also includes omnichannel and therefore needs to play a strong cross-functional role. Is a separate department the best way to achieve this? While it underlines the importance of digital by putting the CCO on the Executive Committee, it does not guarantee that digital initiatives will be distributed across the organisation.

• Are we serious about sustainability?

In companies where sustainability is mentioned in the organisation charts, it is tucked away in the HR department. This might be the right move given that sustainability and CSR need to run across responsibilities such as merchandise, selling, relations with suppliers, maintenance and construction etc. and HR as we have seen is the most dispersed department. However, this is an area that has become highly specialised, which might well be coordinated through HR, but which requires very specific technical skills to achieve credibility with increasingly critical customers and pressure groups.

• What is special about flagships, outlets and food?

The answer is that these are three areas which do not fit comfortably within the standard skeleton structure outlined above.

Flagships sometimes have a distinct customer base such as tourists, which means they have to adapt their assortment, marketing, and indeed elements of the business model. At the same time, they carry a large proportion of the brand value of the company.

Outlets used to serve only as temporary channels to evacuate surplus merchandise. They have become a format in their own right, sometimes with their own website, and growing fast. They no longer sell only discounted stock but also include specially purchased goods. They operate on a slightly different business model.

Food has traditionally been recognised as a separate business from fashion or home and therefore featured in a special place in the organisation charts. Today, food is increasingly linked to wellness, to gifting, to luxury, and to consumption in many parts of the store. Should it be reassessed?

Conclusion: dealing with complexity

It would probably be a mistake to attach too much importance to companies’ organisation charts. Nevertheless, many uncertainties, hesitations and vacillations are revealed through an examination of these charts, and these may reveal present and future pain points. As BCG has pointed out, companies (and department stores in particular) need today more than ever to respond to the complexity of contradictory demands:

• Speed and reliability
• Innovation and efficiency
• Standardisation and customisation
• Global consistency and local reactivity

The answer has tended to be a proliferation of structures, responding to complexity by complicatedness. The confusion apparent in department store organisation charts comes from the complicated response to the complexity of the operation. In this sense an examination of organisation charts acts as an indicator (in the chemistry sense) of deeper problems or shifts which are probably as yet still unresolved.

Cross-functional activity, or the lack of it, is one such revelation. The different solutions to problems adopted by different companies is another which signal that companies are probably in transition mode. This is clearly the case with Digital and Marketing. We foresee that a high degree of uncertainty will be touching the Selling/Retail Operations area in the near future.

Credits: IADS (Dr Christopher Knee)