Strategic Management and Business Policy

This assignment requires a comprehensive analysis of strategic management techniques, including SWOT and PESTEL analyses to understand market position and internal capabilities. It also involves understanding competitive environments using Porter's Five Forces Model and developing management plans to achieve targets. The assignment draws from various resources, including books, journals, and online articles, to provide a detailed overview of the topic.

BUSINESS STRATEGY

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
PESTLE and SWOT analysis for organization's capabilities.....................................................1
Porter's Five Forces Model for analysis of competitive environment........................................4
TASK 2............................................................................................................................................6
Evaluation of different types of strategic directions available to an organization......................6
Justification and recommendation of growth strategies and platforms.......................................9
Strategic management plan for L'oreal by including strategies, objectives and tactics............10
CONCLUSION..............................................................................................................................11
REFERENCES................................................................................................................................1

INTRODUCTION
Business strategy provides ways and directions by applying which an organization
achieve its goals. It involves long-term planning in which course of actions are executed to
attract customer, create competitive advantage, strengthen performance and attain company's
objectives. Vision and mission are the base on which the whole business plan and strategy is
formed and these must be aligned with current and future plans of an entity. It is a road map for
sustained profitability, competitiveness and growth (Brewster, 2017). It is a continuous process
and conducted in each segment in order to accomplish purposes.
This report exhibits impact of various macro environment, analysis of internal capabilities
and environment, evaluation of different types of strategic directions, recommendation of a
suitable strategy for growth and a strategic management plan. To form an effective
understanding of all the above-mentioned, L'oreal has been chosen. It is a French personal care
company having its headquarters in Clichy, France. It is considered the world's largest cosmetics
company which provides products for skin care, hair colour and care, make-up, perfume and
men's skincare. By the end of this report, reader will have knowledge about the market standing
of L'oreal through various analysis such as PESTLE, SWOT and Porter's Five Force Analysis.
TASK 1
PESTLE and SWOT analysis for organization's capabilities
Strategic planning is a systematic approach or process for determining future plans by
identifying goals and objectives. It also includes steps and sequence for attaining the stated
prospective vision and goals. It is a long-term planning for at least 3-5 years done in strategic
way. The aim is to guide organization's leaders for making decisions regarding resources,
operations, employees and stakeholders to have desired outcomes. Also, this enable organization
to make adjustments in direction in respect to changing environment (Cavusgil and et. al., 2014).
Further, a company can also know about the viability and success of plans so formulated and
implemented by it. L'oreal is the leading company in cosmetics and it does strategic planning on
a continuous basis to remain competitiveness. However, competition is rising because customers
are very conscious when it comes to choosing products for their skin and hair. Also, many new
companies are taking entry into this market not only in UK but in other countries as well. Hence,
it becomes imperative for Loreal to make strategies in order to sustain its position in the market.
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Thereby, before any major decision-making, it should analyse the factors, both external and
internal that could affect it. This may be achieved by conducting PESTLE and SWOT which is
then followed by Porter's Five Forces to assess the competitive environment.
PESTLE Analysis -
Political factors: These factors include foreign trade policies, government policies,
labour rate etc (Chang, 2016). L'oreal is being affected by various norms of UK government and
to comply with these, it is producing products that are safe to use and does not contain any
harmful or hazardous substance. However, UK government has banned animal testing of
products, which is going create a short-term hurdle for L'oreal. It should avoid any kind of
violation of these policies.
Economic factors: A business is affected by inflation rate, currency exchange rates,
growth, interest etc. in the economy. Currently, its business has been impacted by fluctuations in
pound due to BREXIT. Along with this, the inflation rate in UK has also increased, along with
this, an increase in manufacturing and distributing costs. However, GDP of cosmetic in UK
market has seen a growth which is plus point for L'oreal. This will incur high costs which will
impact its efficiency. Proper strategies should be made to avoid any negative long-term effect on
the business of company.
Social factors: The beliefs, values and perceptions of people living in a society influence
the activities of an entity. The reason behind success of L'oreal is that it launches products
according to preferences and fashion trends. Also, it has a responsibility to use technology which
will not harm its surroundings as well as lives of people living there. Further, L'oreal has been
under pressure due to societal norms to stop using ingredients which, if used will be considered
as holy sin. Hence, this will impact it sales as buyers will boycott L'oreal's products. Also, it has
maintained quality and effectiveness in skincare products by maintaining an adequate quantity of
chemicals which are suitable to all skin types.
Technological factors: Loreal uses innovation by using contemporary trends. It is the
key to its success and have proved to have created positive outcomes which increased its revenue
and sales. Also, it invests extensively in R&D to for new technological development (Chen and
Jermias, 2014). This helps in maintaining the quality of its cosmetics products and to ensure
effective customer relationship. Further, it has undertaken digital change and due to which its
products are also available on e-commerce sites. These are one of the main factors that is
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responsible for the success of company. Hence, right technology should be used to reduce the
emission and fast production of products.
Environmental factors: These are the factors that takes into consideration the safety of
environment. L'oreal is a leading international brand and tom hold this position for a long term it
has to comply with what is best for a pollution free environment. Also, it has stopped using
cancer causing substance and disclosed its secret fragrance chemicals.
Legal factors: These are laws and regulations that companies are need to complied with.
L'oreal targets the customer who belongs to upper middle class, and this category is concerned
and vigilant about how the company is (Goffee and Scase, 2015). UK government has restricted
the use of certain chemicals, which L'oreal has abide by. The number of legislation applicable on
L'oreal are Companies Act 2006, Employment Act 2002, Environment Act 1995, Corporate
Governance Code etc.
SWOT Analysis -
Figure 1: Swot Analysis
(Source: Jeston, 2014)
Strengths
 It is the leading company in cosmetics
in the world.
 Over 80, 000 employees are hired by it
Weaknesses
 It follows decentralized organizational
structure due to which company face
problems in controlling all its divisions.
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throughout the world.
 Innovative and high-end advertising
attracts diverse culture.
 It has its presence in 130 countries and
over 40 manufacturing units.
 It invests huge amount in R&D, to
know the best and innovative elements
to add in its products.
 Company is also active in
dermatologist and pharmaceutical
segments.
 Cut-throat competition from other big
and famous cosmetics brands.
Opportunities
 It can expand its business in emerging
market.
 Add new products in already developed
countries.
 Greater market share because of
various patents registered by it.
Threats
 Rising competition in cosmetic brands.
 Economic recession and other factors
may affect its business.
 People may skip buying its products
due to the fact that products are not of
their basic needs.
Porter's Five Forces Model for analysis of competitive environment
Company has used Porter’s Five Forces Model to analyse the competitive environment of
UK so as to gain a strategic edge in market, as follows: -
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Figure 2: Porter Five Force
(Source: Veit and et. al., 2014)
Threat of new entrants: Threat of new competitors within marketplace is low, as
cosmetic industry involve huge cost of entry. Also, a lot of funds are required for developing
cosmetic products which can meet the demand of consumers. Besides this, product quality,
pricing, and marketing have to be considered by new entrants. Sometimes entry is easy for other
companies because of their high-quality products and lower price strategy. There are lot of
competitors of organization such as Mac, Maybelline, Dior, Lancome and so on which creates
threat of new entrants but cosmetic industry has a relatively low threat of new entry.
Competitive Rivalry: Degree of competition is very high and competitors present within
cosmetic industry are Espa, Elemis, and local companies. The number of spas is limited but
many spas have their own product so the supply is greater than demand. There are many
competitors in cosmetic industry who reduce the overall profitability of the organisation. So,
Loreal should focus on their product quality and price to grab the focus of customers.
Threats of Substitutes: Threat of substitutes is high as companies are coming up with
similar product developed by the competitors which satisfy market needs. Where close substitute
products exist in a market, it increases the likelihood of customers switching to alternatives in
response to price increases. This reduces both the power of suppliers and the attractiveness of the
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market. L'oreal introduces products quite often before any other brand launch similar items so in
order to sell its products to a large number of customers.
Bargaining Power of Buyers: It is the force by customers that can make a business
provide good quality goods at lower cost and increase customer satisfaction. When consumers
have high demand of power than manufactures and suppliers may not predict future demand by
market. Organization has a high bargaining power of customers, it increases the competition and
availability of market product from various manufactures. L'oreal is one of the leading cosmetic
companies and its products are preferred by number of customers at the prices offered by it and
therefor buyers have moderate power.
Bargaining Power of Suppliers: Suppliers are important for every company as they
provide raw material. If they have high bargaining power, then company is likely to lose its
customer. The reason being, suppliers will raise the cost of input which will ultimately make the
price of final product high. Suppliers who have a high bargaining power are able to influence the
prices that have been quoted by company. L'oreal offers variety of products, and to meet the
demand of customers, it has to deliver those products on store within time. It has huge number of
suppliers; hence, the bargaining position of suppliers is low as it can easily switch to that
supplier, who will provide same material at lowest price.
TASK 2
Evaluation of different types of strategic directions available to an organization
Strategic direction is the course of actions that are performed to get intended results. It is
based on vision, mission, strategies, tactics and core values. Companies use this to collaborate
for creating a positive environment in an organization. The importance is that it provides a
framework and structure on which internal responsibilities of individual area depends. The clear
vision helps an entity to achieve its targets without any hurdle (Klettner, Clarke and Boersma,
2014). Also, employees understand their importance in attaining the objectives. This enable
organization to co-ordinate internal activities and utilization of resources in an optimal way.
L'oreal is a huge company operating in different countries, therefore, it is open to various
challenges of different external and internal factors. Also, there is cut-throat competition in
cosmetics brands, hence, strategies should be formulated at specific intervals in order to modify
existing procedures and policies. L'oreal should set its objectives to achieve and assess various
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strategies available to it. Also, it should understand and evaluate the impact of environmental
forces affecting the business in before selecting the appropriate strategies that will contribute to
its growth.
Growth platforms are specific capabilities that a business chooses to apply for increasing
its revenue and earnings growth. It operates in two stages viz. Strategic and tactical. Former is
usually for longer period for 3-6 years which includes long-term. Tactical initiatives are used to
achieve targets of current year.
On the other hand, growth strategy is used by enterprises to make management plans for
achieving goals for the growth of in fields of manufacturing, marketing, finance, etc.
These are required in ever-changing economy to minimize risks and contingencies and maximize
growths. It is beneficial for long term growth (Peng, 2017). In accordance with growth factors of
business the firm incorporates use of Ansoff growth matrix which helps the business in deriving
specific areas of growth with appropriate strategic directions.
Figure 3: Ansoff Matrix
(Source: Chang, 2016)
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Market penetration: - It is business strategies used by the Loreal company to promote
their existing products in the existing marketplace, which can increase the market share of the
company. Decrease the value of products can helpful for the company to increase it's sale.
L'oreal targets upper middle class of audience for its products. The prices are usually higher than
other cosmetics brands. It always focuses on profitability by maintaining the quality of products.
Along with this, it aims at maximising satisfaction to its customers. It can increase its sales and
profits by capturing huge market share where it does not have its reach. To attract more
customers, it can reduce the prices and focus on targeting middle class people as well. Low price
strategy can be adopted for this as Loreal produces cosmetics products in huge volume. This will
help it to gain advantage from its rivals. For example: - if L'oreal reduce their product price then
the sale will automatically increase and then there could be a chance in increasing the market
share of the company.
Market expansion: - This growth strategy is also called market development because in
this method company sell their existing products in the new market. Which is very risky for the
L'oreal company because every product need time to adjust in the new market. It required lots of
investment and promotion. It is not possible for it to minimize the prices of all products instantly
and altogether. In such a case, it may combine the elements of low price with some product
differentiation. This is a good strategy to attract customer by making them know about the added
value. L'oreal will be in a position to make its market standing strong provided such added value
should be offered consistently (Laudon and Traver, 2016).
Product expansion: - In this strategy, company introduce new product range in the
existing market. In this case L’oreal come with the new product which is different from the
existing products. So, there is chances of low demand of product because company already have
their products in the market. L'oreal need to attract more customer and for this they need to
spend on promotion. Further, can use the strategy by introducing products which are innovative
and cannot be available other than in L'oreal. This strategy can be used for short term period as it
is quite an uncompetitive strategy and use of it for a long term may prove to be failure. In this it
is important for the firm to maintain a balance between added value and the premium pricing of
product. Product expansion is strategic direction for growth for long-term purpose. It will make
its position stronger in the market, also the profits will be high by charging premium prices.
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However, this can be achieved with effective promotion and distribution. This will increase
profit margins of L'oreal.
Diversification: - In this strategy, company introduce new products in the new market for
the first time (Strategies of L'oreal, 2018). It is a highest risky strategy of growth because it
required lot of money for the promotion for building customers. A customer is greatly influenced
by the brand name of a product. It is a basic perception of majority of people that branded
products are often good, especially in case of skin and hair care. Brand like L'oreal is conscious
about its brand image and adopt various effective marketing strategies. It can use differentiation
strategy to offer its customer the highest level of perceived added value. It should improve the
quality and work on making efforts for brand awareness. It can provide a new product which has
added features as to retain the customers.
Justification and recommendation of growth strategies and platforms
In order to make a product more successful in the market, the management of L’Oréal
company need to set an effective platform that are specifically initiatives selected with the
motive to sustain for long term in the market. These are also categories into two parts such as
strategic or tactical. In case of, strategic platform which is usually takes from 3 to 6 years to
implement as well as gives desire outcomes in the form of long-term initiatives. On the other
hand, Tactical platform usually take minimum time to implement as they are shorter term
initiatives because of this outcome are basically based on the present budget year of L’Oréal
company. In case of a new business which is expecting a high growth industry it is able to
maintain a high growth rates for a longer period of time (Scholes, 2015).
There is a huge possibility for forming a new growth platform which is arises when forces of
changes like converging technologies as well as social pressure in order to create certain job
opportunity and profitability chances in attaining proper market base at international level. For
growing business for L’Oréal, market penetration can be the best approach that they can adopt.
As this approach will help them in increasing their profitability and market share. According to
this approach, they have to promote their existing products using good advertisements, and
promotional activities in existing market, which can help them in increasing their sales. This can
be more effective for them, L’Oréal is one of the biggest personal care company, and they are
providing their services and products in around all the countries of world.
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For example: L’Oreal should come up with small and tinny packages by offering wide of
prices for packages which will help the firm in selling wide range of products altogether and
increasing sales of business. Focusing on emerging economics, adapting as per consumer need
and preferences in order to attain customer's attention towards it. These methods will create a
balance between low price with differentiation in products to provide added value. It will be for
long term as the vision is to gain sustainable growth and become a global leader in cosmetics
products. Therefore, promoting existing products in existing market can be beneficial for them
(Veit and et. al., 2014). The strategy is to drive revenues through smaller size packages in favour
to act as a catalyst to meets its revenue targets and growth at international marketplace.
Strategic management plan for L'oreal by including strategies, objectives and tactics.
Strategic management plan is crucial to the success of a company. It is combined set of
values, vision, direction and goals for future growth. It starts with managing developments, there
implements and monitor the strategy (Wheelen and et. al., 2017). L'oreal has to make plans that
that will gain it a competitive advantage along with customer satisfaction. These are formulated
according to objectives that the company wish to achieve in future. Further, vision and mission
statement should be considered the basis for whole strategic management plan. A management
plan of L'oreal will help it achieve its desired goals which is as follows:
Aim: To manage sustainability in consumption, innovation and production
Organizational structure: L'oreal is a decentralized company that exercise its control
over its divisional units. It does not have in house manufacturing units and employs personnel
from diverse background.
Vision: To build sustainable growth both responsible and united.
Mission statement: To share beauty with all.
Values: L'oreal believes to have integrity, respect, courage and transparency by being
ethical and recognized by all employees.
Problems: High price and barriers to delivery.
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Figure 4: Market penetration
(Source: Goffee and Scase, 2015)
Goals: Long-term goals of L'oreal is to enter growing market by collaborating with local
manufacturers and short-term goals will be to focus reducing the prices in order to attract more
customers. These will be achieved within the time allotted. Further, changes in business
environment will be taken into account and adjustments will be made accordingly.
Strategies and tactics: L'oreal will use market penetration for achieving its objectives
and growth with the motive of increasing sales of existing products. Further, penetration strategy
will offer a growth platform to firm by increasing sales and managing changes in product in new
markets. The strategy supports growth in every aspect and suggest suitable and reliable strategic
direction for managing successful business operations. will create a competitive advantage for
company which will help it in long-term survival. Since, Loreal is a leading cosmetic company,
it has to make sure that customers' demands are fulfilled. The objectives will be fulfilled by
following this strategy whereby it will use environmental friendly technologies. Further, the
production will be easy as advance technologies will be used along with improvement in supply
chain management.
CONCLUSION
From the above report, it has been concluded that, a company needs direction to achieve
its goals. Such direction can be for both long and short term. It is important to align such
strategic plans with core activities of business. Further, an entity is required to conduct SWOT
and PESTEL to know about the market position and internal capabilities and Porter's Five Forces
Model to understand competitive environment. Further, strategic direction provides set of actions
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that needs to be incorporate to achieve goals in a systematic manner. Also, it helps in managing
the costs and influence sales and revenues. Company should understand strategies used by its
competitors and evaluate these with its own strategies. This will enable to know the reason for
ineffectiveness. Also, a management plan is required to achieve its targets in a specific way.
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REFERENCES
Books and Journals
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performance. Accounting & Finance. 54(1). pp.113-134.
Goffee, R. and Scase, R., 2015. The Real World of the Small Business Owner (Routledge
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Jeston, J., 2014. Business process management. Routledge.
Jocovic, M. and et. al., 2014. Modern business strategy Customer Relationship Management in
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Klettner, A., Clarke, T. and Boersma, M., 2014. The governance of corporate sustainability:
Empirical insights into the development, leadership and implementation of responsible
business strategy. Journal of Business Ethics. 122(1). pp.145-165.
Laudon, K. C. and Traver, C. G., 2016. E-commerce: business, technology, society.
Lawton, T. C., 2017. Cleared for take-off: structure and strategy in the low fare airline business.
Routledge.
Peng, M. W., 2017. Cultures, institutions, and strategic choices: Toward an institutional
perspective on business strategy. The Blackwell handbook of cross‐cultural
management, pp.52-66.
Scholes, M. S., 2015. Taxes and business strategy. Prentice Hall.
Spender, J. C., 2014. Business strategy: Managing uncertainty, opportunity, and enterprise.
Oxford University Press.
Veit, D. and et. al., 2014. Business models. Business & Information Systems Engineering. 6(1).
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Wheelen, T. L. and et. al., 2017. Strategic management and business policy. Pearson.
Online:
Strategies of L'oreal. 2018. [Online]. Available through:
<https://www.forbes.com/sites/jannamandell/2018/03/16/loreal-says-in-your-face-to-
competition-with-strategic-ai-and-ar-acquisition-modiface/#185ac80c1f38>.

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