STRATEGIC PROCESS

1. Describe a strategic plan and a tactical plan that have recently been implemented by the company. 

A strategic plan for L’Oréal is to gain ground worldwide. For implementing a growth strategy their brands will take its inspiration from local trends in order to create new products.

L'Oréal identifies its three main levers of growth for 2012:

• United States. They grew 4,6% in 2012, becoming the most solid mature market for the brand. L’Oréal believes this is a positive market because there is a rise in population and a high impact on digital media.

• Luxury and travel retail. There was a rapid growth on travel retail (14%) leaded by Chinese customers and also the luxury channel grew 6,3%

• Skincare. L’Oréal brands weight more than the third of the market worldwide and are growing too. In 2012 it had a growth of 5,1%, the best performers were new markets and mature markets (U.S. and Japan).

L’Oréal is not going to impose a global vision, instead they are going to create products for the different customer needs, wants and lifestyles of the different regions of the world. For example, they have created a skincare product that is designed for men in Indonesia and India that can be used in hot and humid conditions and also lightens the skin.

A tactical plan of L’Oréal is to improve and open new factories and hubs for making the distribution of products easier and closer to the markets.

In 2010 they opened one factory in Russia (for local market), in 2012 in Indonesia (for the South-East Asian market) and in Mexico (for Latin and North America).

Since 2010 they are implementing a “wall to wall” approach. This tactical plan (short term) is based on including a packaging production unit on-site in order to reduce the time between production and preparation of orders. It also increases the productivity and the flexibility of the factories. 

 
2. Do you think this company’s objectives form a hierarchical network of means and ends in which personal goals are incorporated into the pyramid?

Yes, the objectives of L’Oréal form a hierarchical network of means and ends because the goals of the higher levels are linked to lower level goals. If they manage to reach their goals at the low level (means), the higher levels will be able to reach their goals too (ends). The level on the top will reach the goal if the level underneath does it too.

3. Look for the mission, vision and values prevailing in the company. 

The mission is here!

The values are here!

4. Identify the political, economic, cultural, ecological and technological factors affecting the 
company.

Political. In general employment regulations and consumer laws affects every company but there are political factors that are specific for each sector. For the cosmetics industry there is a big variety of laws and regulation that the company must follow in order to be legal and stay active in the market, and they are different depending on the country, the region and alliances. The European Union regarding cosmetics demands companies to control on animal testing, restricts some substances, provide a list of ingredients, show the name and address of the manufacturer, and have warning and precautionary statements. This affects the company because they might have to vary the ingredients of a product depending on the country is it produced for, it wont have the same regulations a product that will be sold in China that in Germany.

Economic. They affect the purchasing power of customers. 

• Unemployment rate, growth rate, inflation, disposable income and business cycles are the main factors that can affect our customers. Unemployment varies from one country to another and L’Oréal must do a market research of each one of the countries.

• Growth is a factor that also varies, but the countries with the highest growth rates are the BRIC (Brazil, Russia, India and China) where L’Óreal is implementing its products. In 2012 they opened a factory at Russia and China is their best market for luxury products.

• Even though the world is going through an economical crisis the amount of money used to buy cosmetics is increasing. Beauty brand worldwide are expecting their sales to grow by nearly 13% in the next years. 

Cultural. The factors that affect a society’s basic values, perceptions, preferences and behaviours. L’Oréal is a brand that wants to give each country/region a product designed for them and that is why this factor is very important for their company. For example, in India they provide a khol eyeliner that respects tradition for the women of that country. It used the tradition of kajal and made it modern, it soothes the skin and reduces puffiness. In the American market they provide a makeup foundation that takes into account the variety of cultures of the population, offering a wide palette of colors they designed after conducting studies.  

Ecological. These are the factors that involve natural resources needed or affected by the market. The four main trends are:

• Shortage of raw materials. L’Oréal provides products made with natural materials with environmental benefits and it also allows customers to make a good choice by providing a social profile of their products.

• Increased cost and energy.

• Increased pollution and climate change. The company is working on reducing 60% their C02 and water pollution by 2020.

• Increased government in natural resource management. It will affect all companies worldwide because governments are becoming more aware of the problem.

Technological. They are the forces that create new technologies, creating new market opportunities. The new technologies can help to improve production of cosmetics, such as innovation on genetic science, stem cells and pigmentations among others.

5. Perform an analysis of the most significant structural elements of the sector.

The competitors of the sector are:

• P&G (Olay, Herbal Essence, Max Factor, Pantene, Gillete, H&S, Wella)

• Beiersdorf (Nivea, Eucerin, La Prairie)

• Henkel (Schwarzkopf, Diadermine)

• Unilever (Dove, Axe, Rexona, Ponds, Timotei, Tresemmé)

• Shiseido (Shiseido, NARS cosmetics)

• Esteé Lauder (Bobbie Brown, Clinique, Aveda, Donna Karan, MAC)

It is interesting to notice that the top companies of the sector have been on the market for a long time. 30% of the top global brands are over 100 years old and the 82% are over 60 years olds.

The cosmetic business is a market that is both supply-led (innovation), and demand-led (growth in the middle class worldwide). They invest millions on innovation in order to provide their customers with the latest and most technological-advanced products, and at the same time consumers are demanding more and more since their purchasing power is increasing.

The beauty sector is growing due to the increase of the middle class worldwide that is demanding cosmetics and beauty products. By 2030, the middle class will be more than double in size, from 2 billion today to 4.9 billion. The European and American middle classes will shrink from 50 percent of the total to just 22 percent, so companies will focus on emerging markets. L’Oréal and other competitors will invest more in Asia because: the rapid growth in China, India, Indonesia, Vietnam, Thailand, and Malaysia will cause Asia’s share of the new middle to be more than double from its current 30%. By 2030, Asia will host 64% of the global middle class.

 
6. Identify key resources and capabilities of the company

• They own 624 patents (2013).  
• Their Research and Innovation budget is of 857 millions of euros (2013)  
• They have 77.451 employees worldwide by December 2013  
• They own 27 international brands
• They own 42 factories worldwide  
• They are able to provide products to 498,000 distribution points worldwide  
• They made 22.5 million of euros (2012) In 5 years they have created 9 new subsidiaries: Europe (Bulgaria), Africa (Kenya, Nigeria and Egypt), the middle east (Saudi Arabia), Asia (Kazakhstan, Pakistan and Vietnam) and Latin America (Panama)

 For more information click here!
 

7. Perform a SWOT matrix.

8. Formulate a strategy at the corporate level, business level and functional level for the company. 

In this case their strategy at a corporate level meets the strategy plan that we saw at the begining of this post.

9. Apply evaluation criteria to the previously formulated strategies.   

Taken from the L'Oréal Annual Report from 2012 we can see that they are achieving their goals. 
 
The New Markets became the group’s number one geographic zone in sales terms. The group’s top 10 countries now include China (3rd), Brazil (7th) and Russia (8th).

In 2012, l’Oréal became the market leader in Mexico and expanded its positions in Chile, Argentina and Uruguay. l’Oréal also began selling at countries of Central America and in Colombia, with the acquisition of the Vogue brand, the mass market make-up leader there. In Brazil their initiatives of Elvive, Elseve there, (shampoo, hair oils, and hair colouration products) led to an improvement in their position. 

10. Consider the control system of the company. 

In the introduction we saw the members of the Board of Directors and the Board’s Committee.

In L’Oréal they use a streamlined governance structure that simplifies decision-making and assigns in a clear way all responsibilities to ensure responsive management of the group. This is important in the beauty profession where requirements in terms of innovation and adaptation are extremely exact.

Jean Paul Agon is the Chairman and Chief Executive Officer of L’Oréal. The Board of Directors believes this reunification of the two roles is appropriate for L’Oréal’s specific characteristics: a stable and loyal shareholding structure, expertise that is focused on the beauty profession, loyalty of its senior managers, steady international growth and solid economic and financial performances.

The administration, controlling and finance teams work together to manage the company’s business and financial interests, and to strengthen the relationship with the group’s stakeholders: customers, suppliers, bankers, market authorities, rating agencies and shareholders. They also support the work of the board of Directors and its committees. In 2012, advances were made in the fields of internal control, internal audit and resource allocation management, improving the productivity of L’Oréal.

The control of operations on the universalization strategy is based on a single industrial policy, organized by regions in order to stay close to markets, and seize all opportunities faster. Operations at L’Oréal covers seven different fields: purchasing, production, quality, environment-health & safety, supply chain, packaging & development, and real estate.