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The Zegna Group

The beginnings of the Ermenegildo Zegna Group as a family business can be traced back to the birth of Angelo Zegna in 1859 in the northwestern part of Italy known as Piedmont. Born the fourth child of a farmer, Angelo first worked as a watchmaker. He later became a weaver, which is not surprising, since wool-making and weaving was the most common industry in this isolated and impoverished mountainous area. Indeed, records indicate that wool-making, initiated by shepherds around the town of Biella, had been flourishing in Piedmont since the 13th century. The industry changed, however, some 600 years later when water-powered mechanical looms and spinning machines came to Piedmont. Thus started the industrial revolution for Northern Italy.

In 1899, when he was 40, Angelo Zegna was already operating a textile manufacturing plant with around 15 looms. But the plant was destroyed by a fire and, in 1907, Angelo rebuilt it in Trivero, a small town nearby. Among his 10 children, it was his last born son, Ermenegildo, who would eventually have the largest impact on what would later became one of the largest, most dynamic Italian family businesses. Angelo confided the six-year-old Ermenegildo's education to the local parish priest. Accompanying the priest on his rounds exposed the young child to both sad and joyous rites: witnessing births and deaths in the remote mountain village and opening his eyes to the hardship of its inhabitants. It was a time of poverty; many inhabitants emigrated, seeking better lives elsewhere. Hard work for children as shepherds or in the small textile factories was common. Ermenegildo, described as bright, curious and intelligent, joined his brothers in his father's factory.

After serving in the first world war, Ermenegildo returned to nearby Biella and completed technical studies at the professional textile institute. In 1923, when his father Angelo passed away, Ermenegildo emerged as the next leader of the family business. Having worked closely with his father, he understood textiles. But Ermenegildo's concept of entrepreneurship differed from his father's. He took a more humane approach to leadership and was convinced that technological advances were the means to a more modern, more social vision. He travelled and studied what he considered to be the vastly superior English manufacturing processes and subsequently became driven to better his English competitors. In 1930, using the latest imported English spinning machines, the family firm started producing high-quality textiles. The name Ermenegildo Zegna became a trade mark for exquisite fabrics supplied to both designers and private customers.

By the end of the 1930s, the company employed 1, 000 workers. In 1942, the company split and Ermenegildo Zegna and Sons continued wool production, with a new firm established under Mario, one of Ermenegildo's brothers. Ermenegildo had already created an exceptional legacy. His factories were light, airy and pleasant environments and were examples of his vision of a humane workplace for workers. But Ermenegildo's social concerns extended beyond the company – he had become a philanthropist. From 1932 he built hospitals, hotels, sports facilities and a professional training school. He also built a beautiful scenic road (the Panoramica Zegna) from one village to the next. The 65km of road was intended to bring new life to the mountains above Trivero. Part of the project involved reforesting the mountain slopes with 500, 000 conifers, rhododendrons and hydrangeas.

The business continued to flourish. Workers were highly motivated and Ermenegildo continued to excel as an outstanding leader and entrepreneur. He conducted his own market research and invited tailors to visit the factory. At that time, English fabric manufacturers imposed a minimum length of 50m per fabric order, which many tailors disliked as it led to systematic overstocking. Ermenegildo offered more flexible order and delivery conditions based on the actual fabric requirement per suit.

During the second world war, a time of scarcity, the already legendary high-quality market perception of Zegna fabrics was reinforced by tailors using previously worn fabrics simply by reversing and re-using them. Zegna fabrics were now being exported to over 40 countries, providing the foreign currencies necessary for financing the purchase of the finest Australian wools as raw material.

In half a century, Zegna had made enormous strides. Ermenegildo Zegna's achievements as an early social entrepreneur were described by his younger son, Angelo Zegna, "I see four important forces which influenced my father's life:

- First, he was born into the right environment, one that fostered his entrepreneurial behaviour: a cluster of many competitors in a physically constrained, small area.
- Second, he was intensely driven by the vision of beating English competitors by offering fabrics with Italian design-creativity at unsurpassed quality.
- Third, an extraordinarily open mind, especially for social welfare and giving back to the workers.
- Last, his closeness to nature, his understanding that resources are limited and must be protected. He was an ecologist well before the word existed!"

Ermenegildo Zegna's sons Aldo and Angelo joined their father's business early on in their lives. As children, they spent each day after school and at least half of each school holiday working in the factory. Learning English and French and travelling were educational priorities. But Ermenegildo wanted his sons, first and foremost, to share his love for wool and fabrics. Aldo, the elder son, studied engineering; Angelo studied economics and commerce. The brothers later observed this functional separation throughout their working careers.

After the difficulties of the second world war, Ermenegildo focused on modernising the manufacturing plants. Attention gradually shifted to creating new designs and styles. Until Ermenegildo's death in 1966 the firm had remained a manufacturer of fabrics for men's clothing. Aldo and Angelo, however, observed that their traditional clients, the tailors of men's suits, had gradually disappeared. This market shift opened up new opportunities.

In a move that was both opportunistic and strategic, they expanded their business by making ready-made suits on an industrial basis. They believed that high quality suits made industrially would be more accessible to the broader population. Suits had traditionally been worn on Sundays, but after the war suits became more common in offices and workplaces. Angelo, with his commercial background, took on this exciting new challenge and 'Zegna Confection' was launched in 1968 with a new plant in Novara, northern Italy. Being able to capitalise on the well-known Zegna brand for fabrics and now for ready-made suits gave this new business enormous credibility and instant success.

Convinced of their successful business model in Italy, the two brothers started looking for markets outside Italy as an expansion and risk diversification strategy. They looked to Spain, a country culturally and structurally similar to Italy, and launched their first foreign plant for readymade suits in 1973. The new operation broke even the first year, and turned a profit in the second. Here was an obvious expansion pattern. Two years later, in 1975, the brothers opened the second foreign plant in Greece. But, as Angelo explains, this proved a mistake. "We believed that Greece, with its very low labour costs, would provide similar structures and advantages as Spain. But we hit several problems, the main one being that during harvest times, the women working in the factory just walked out and we literally had no workers for weeks! We realised that this would not work and that we had to be realistic and cut our losses. After two years we closed the operations. "

Meanwhile the growing demand on production in Italy had created bottlenecks, often exacerbated by strikes, which created an increasingly unreliable working environment. So the Zegnas looked at the Italian part of Switzerland as a locale for production. The Canton of Ticino, less than an hour's drive from Milan, promised a stable working environment with considerably lower taxes and, surprisingly, lower manufacturing costs thanks to flexible cross-border workers' resources. In 1977, the Zegnas opened a plant for men's suits in the southern part of the Canton of Ticino. They now had a stable, reliable, and top quality manufacturing facility for men's suits.

The strategic expansion continued. Building on their expertise in ready-towear men's suits, the Zegnas now offered made-to-measure men's suits. Aldo and Angelo had observed the gradual disappearance of individual tailors during and after the war, when made-to-measure suits had become an expensive luxury. But the brothers understood the value of clothes that were perfectly adapted to differing human forms – they knew that even the best manufactured ready-towear suit could never reach the perfection of made-to-measure. Using ingenious measuring devices and systems, their plant in Switzerland could offer the perfection of a made-to-measure suit through selected distributors around the world at a price not much higher than a good ready-to-wear suit. Over the years, new computer aided design and manufacturing techniques were introduced. Today, the Zegna family business employs over 800 workers in the Italian area of Switzerland alone, evidence of the success of this new market offering.

The 1960s and 1970s were decades of growth for many European countries, but the successful, dynamic, entrepreneurial expansion of the Zegna business was rooted in the family's leadership. For almost four decades, Aldo and Angelo had worked closely with their father – a modern social entrepreneur, striving for perfection, uncompromising quality, and closeness to the customer. After Ermenegildo's death, Aldo and Angelo assumed the mantel of his legacy and adapted it to the modern world. They became entrepreneurs in their own right and raised the family business to new strategic levels, but always building on the Zegna tradition.

Aldo and Angelo shared ownership equally, drawing enormous energy from the close team they had formed. Aldo, the engineer, was the more cautious thinker; Angelo, the younger brother with a commercial background, was more intuitive, driven by the urge to innovate. Marco Vitale, a professor and consultant who is today a member of the board of the Zegna Group, was initially brought in as a business process consultant in the 1970s. Having watched the two brothers interact over the decades, he comments: "To an outsider, it seemed like there was always conflict between Aldo and Angelo. There were loud discussions and disagreements. But they were always on a professional basis – they had the deepest personal respect for each other and they were, of course, very close. But these frequent discussions really allowed them to analyse a given problem from all angles – be creative, intuitive, rational and ultimately come up with a well thought-out, down-to-earth solution. That close, familiar yet professional relationship was the backbone of their successful, third generation leadership. "

Meanwhile, the fourth generation of the Zegnas was growing up. Aldo and Angelo both had four children. As their father Ermenegildo had done with them, so, too, did Aldo and Angelo raise their children with their eyes open to the modern world – travelling, learning languages and studying abroad – but always honouring their grandfather's achievements. Gildo Zegna, son of Angelo, explains: "For my cousin Paolo and myself, it was always natural to join the family business. The business carries the name of the family, so somehow it was all part of us. But we also understood that there were rules of behaviour if, indeed, we did enter the business: education, languages, university degrees and outside work experience. "

Aldo's son, Paolo, and Angelo's son, Gildo, emerged as the natural next generation leaders. Paolo graduated in business studies from the University of Geneva and worked in Spain and Australia for several years. Gildo graduated from the University of London and earned an MBA at the Harvard Business School before working for Bloomingdale's as a buyer. He then joined Zegna in the USA. Like their fathers, Paolo and Gildo worked their way up in different functions and, in 1998, they became joint CEOs (Angelo and Aldo gave up their executive responsibilities and moved to the Board). Working together was not always easy for the two generations. Gildo and Paolo aspired to more managerial control and freedom earlier on. Marco Vitale, who played a crucial role in facilitating succession, says: "I was the facilitator between the two generations. When discussions became difficult, I urged the younger ones to take courage and speak up. Indeed, it was sometimes intimidating to follow and to add something to the intensive and heated discussions between Angelo and Aldo. But I defended Gildo and Paolo when I felt they were right and, over time, the situation became more balanced. As an outsider, I could take some of the emotions out of the discussion and bring them to a rational base. "

The business grew from strength to strength. In 1999, the Zegna Group had eight manufacturing plants in Italy, two in Spain, three in Switzerland, one in Mexico and one in Turkey. The range of manufactured products included fabrics, suits, ties, knitwear, shirts, accessories, and sportswear. But the family showed yet another sign of entrepreneurial growth by a move into retailing. Over decades, the business had been built on the strength of the brand, manufacturing, and supplying the highest quality products to European, Asian and American markets through Zegna-owned import companies. All along, Zegna had carefully selected the best distributors and invested in brandbuilding. But the family felt that Ermenegildo Zegna's heritage was to be as close to the consumer as possible. Gildo explains the cornerstones of the Zegna vision: "We call it the Zegna Box with its four corners: quality, modernity, masculinity and naturalness. Whatever we do under the Zegna brand, it has to fit into the box. "

In 1980, Zegna opened the first fully owned retail store in Paris. Five years later, it opened the next store in Milan. Other fourth generation family members have been involved in launching Zegna into retailing: Paolo's younger brother, Andrea, works as an architect and Gildo's younger sisters, Anna and Benedetta, work in communication and training.

Dozens of new retail stores have been opened around the world. If break-even is not achieved within three years, the stores are closed – unconditionally. Anna Zegna says: "We are realistic and not worried about losing face – if a new store does not work, we close it!"In the year 2000, there were over 300 Zegna stores around the world, one third fully owned and the rest under franchise.

The year 2000 was a successful milestone. From 1996 to 1999 assets had more than doubled and the group was debt free. Zegna is now widely considered the world leader in fine men's clothing, with a market share of 30%. The group employs 4, 500 workers worldwide, of which 1, 500 are in Italy.

Sadly, the year 2000 also brought the passing away of Aldo Zegna. His brother Angelo, as President, continues to keep an alert eye on the fortunes of the business, now firmly in the fourth generation's hand. Ownership is still equally divided between the two branches. The fourth generation has introduced an astonishing degree of financial transparency – but as Marco Vitale notes, only after very long discussions with their fathers. Today, this transparency enables the two co-CEOs not only to motivate their employees around the world, but it also provides responsible and transparent reporting back to the Board and the owners. The Board is now made up of Angelo, three members of the fourth generation, and their trusted outsider Marco Vitale.

The co-CEOs state that they are running the business as if it were a public corporation. Asked if they would consider selling, the reply was: "At least not in this generation. " They are aggressively pursuing a dynamic expansion strategy on several fronts.

The Zegna Group is a totally integrated business – it controls the entire value chain from raw materials right through to the final sale of a finished product to the customer. It is a successful business built on traditions and values espoused by earlier generations, with each new generation successfully redefining and adapting to the changing world. Anna Zegna describes the role of a family business, "For the Zegnas, it all started with a social commitment to the small community and the people of Trivero. We pass these values on to our children from generation to generation, and it is the duty of the family to bring these values to the company. Thus, the family business is a point of reference of values. Governments are faceless today – they can no longer provide guidance on values. "

The Zegna family's respect for the environment is still very much alive in the fourth generation. Building on Ermenegildo's Panoramica road in Trivero, in 1993 the Oasi Zegna, a 100km2reserve of meadows and forest, was inaugurated. Fourth generation, Laura Zegna, oversees this first Italian example of environmental patronage. Its mission is to promote environmental education and encourage direct contact with nature through sport and tourism.

Aldo Zegna perhaps best captured the guiding principles of the family in a June 1999 address to key employees. "The virtues of our father Ermenegildo did not only include intelligence and great vision but also perseverance, dedication and coherence, and this is the legacy that Angelo and I received which has fueled and guided our activity. Being able to predict the future, having intuition, working courageously with persistence as well as having sensitivity for social causes are the messages which I give you now when our working life is about to close. This message has been received by our children and it is in their capable and confident hands to work with as intended. The future is in God's hands, but the premises for success are there: continue working as you have been doing with enthusiasm, clear ideas, dedication and you cannot fail to be successful. "

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