Impact of External and Internal Factors on Organisation and Organisational Capabilities

This report discusses the impact of external and internal factors on the organisation and its capabilities. It also includes a SWOT analysis and Porter's five forces model for L'Oréal, a leading cosmetics company.

Business Strategy

TABLE OF CONTENTS
INTRODUCTION 1
TASK 1 1
1.impact of external and internal factors on organisation and organisational capabilities
1
2. Porter's five forces model 5
TASK 4 6
3. Evaluation of different types of strategic directions available to the organisation. 6
4.Justification and recommendation for the most appropriate growth strategy for the
organisation 8
5.Strategic management plan with strategies, objectives and tactics 9
CONCLUSION 11
REFERENCES 12

INTRODUCTION
Business strategy is the organisations plan to achieve their objective. The strategy
formulated by the organisation so that they can direct their activities towards the objectives and
goals of the organisation. Through a particular strategy organisation is able to achieve strong
competitive position, improves coordination in the organisation and leads to integration of all the
activities towards one path.
L'Oréal is the personal care company headquartered in Paris. It is the world's largest
company of cosmetics and has developed the products in the field of hair colour, skin care, sun
protection, perfumes, make-up, hair care etc.
In this report, the study is based on the internal and external factors which affect the organisation
and their capabilities. The other factors are also explained through porter's 5 model which
influence the organisation. Also in addition to this different types of strategic directions are also
explained through which company can develop the greater share in the market and can grow
their business. Strategic management plan is specified for the organisation which help them to
achieve their objectives and goals in and efficient manner.
TASK 1
1.impact of external and internal factors on organisation and organisational capabilities
L’Oréal is the leading organisation in range of cosmetics products across the world. It
produces a wide range of beauty products to meet the needs of global trends. There are several
macro factors that affects and influence the strategies of the business so it is very essential to
analyse these factors carefully.
External factors (PESTLE analysis)
Political factors- these factors state the government rules and regulations under which
the company is working. As it is operating worldwide so it need to take care of all the country's
government policies that leads to complex procedure and the production company of L'oreal is
established in Paris so the policies of the government of France influence the functioning of
company (L'Oréal PESTLE Analysis, 2019). On the other hand, different import policies of
different regions play an important role in the growing success of the industry. With the
inclusion of globalisation, these factors have showed a positive impact on the organisation.
Economic factors- Exchange rates and the different prices of the product in different
countries reflects an economic factor that the industry faces across the globe. Exchange rates
1

makes the trading more difficult as convertibility of the currency is involved and influence the
profit of the company, low exchange rates reduce the profit and the strong currency rate
increases the profit.
The price of L'oreal product varies with country to country like a few places, the market
price of skincare range is very high and can make a good business from those regions that
enables the economic development of the country as the gross domestic product of that state will
get contributed indirectly. Favourable economy and the high income of the people will let to
increase the demand of the branded beauty products which will be a positive sign to the sales,
profitability and growth of the company.
Social factors- under these factors the values, technical trends and the beliefs of the
society are considered and address. The evolving lifestyle and the high standard of living of the
people leads to a high interest in the beauty and fashionable products that will positively
influence the market share and the marketing strategies of L'oreal industry. On the other side it
faces some ethical issues relating to the ingredients used in the products as people are becoming
more sensitive to luxury and quality products so some people may consider it as a chemical use
while some may not so it negatively affects the business of the industry.
Technological factors- It reflects the technological advancements and innovations that
plays a great role in enhancing and development of the business. It brings some innovation in its
product range by addressing the coming problems of the people in the society like it has
innovated the professional range shampoos and cosmetics that helps in the nourishment and
smoothing which resulted positive outcomes for L'oreal in creating a brand image (L'Oréal
PESTLE Analysis, 2019). Setting different equipment’s for operations builds complexities for the
workers and the company has to bear the training and development cost of the employees at the
workplace that incurs the high cost and reduce the profits of the company.
Legal factors- legal factors include the laws and legislations that L'oreal industry needs
to follow to maintain the success graph. Some legislations like the federal food, drug and
cosmetic act and the fair packaging labelling act so that not any controversial issues and criticism
are to be faced and due to that it can work in a favourable work environment. Different countries
have different laws and legalities so it reflects a negative sign for the industry as becomes
complex and difficult for the company to follow all the laws.
2

Environmental factors- several global environmental laws incumbent on the industry
globally. In today's changing or inevitable environment, the people are looking forward to the
pollution free and healthy surroundings so this industry has contributed to many environmental
projects for gaining sustainability in the competitive world. Such strategies positively influence
the goodwill and stability of the company in the changing conditions. Any uncertain event leads
to a negative impact on the industry like allegations of chemical products or any litigation etc.
Pestle analysis poses a great impact on the strategy selected by an organisation as it
relates with an external influences which directly impact the working of the firm and leads to
failure or success of the strategy executed by the firm.
By doing assessment, it has identified that external factors have significant impact on
business strategy formulation and implementation. Moreover, without considering these firm
would not become able to meet customer’s needs and comply with market trends as well. Thus,
with regards to sustainability aspects manager of Loreal is required to develop appropriate
framework which in turn ensures eco-friendly operations. By this, firm would become able to
attract more customers and enhance brand image as well. In addition to this, for increasing
customer reach at global level Loreal needs to lay emphasis on the adoption of social media
marketing along with traditional tools. Further, now customers give more priority to the quality
aspect in the category of beauty products. Manager of Loreal is also required to comply with all
the laws and legislation associated with quality management etc. Hence, manager of Loreal has
accountability to set suitable policies and strategies by taking into account above depicted
aspects.
Stakeholder analysis
Sustainability strategy- It is the policy that is adopted by the company towards the
commitment made to its stakeholders at a centre of its business strategy through an entire value
that is been well-received by the stakeholders. As per this strategy company seeks for offering
better quality products that are safer, effective and socially responsible.
Supporting customers- The group also enable the consumers to understand in a better
way that constituted a sustainable life through their cosmetics and the consumption use.
Thus, the stakeholder’s analysis has a positive impact on the company as it shows the
contribution of the company towards its stakeholders.
3

Internal factors(SWOT)
STRENGTH-
 Global presence- L'oreal has gained the Well-known worldwide presence by its wide
distribution network and the effective marketing strategies and that makes the company a
leading organisation.
 Innovative technology- it uses innovative techniques to develop its products so that it
could produce a quality product and can achieve a large customer base in the market
globally.
 Brand image- L'oreal has a unique brand image across the world about its efficient and
promised products and it is considered as a leading industry in cosmetics and beauty
products.
 Great R&D department- the research department of this industry is so good that it
brings out to be the best outcome for the company to research about the customer
specifications and preference and the problems that the people are facing regarding the
use of cosmetic products and enables the corporate in addressing those problems (SWOT
analysis of L’oreal, 2019). It also helps the company in knowing the target audience so
that effective global marketing strategies are framed to achieve the target market.
WEAKNESSES-
 Lack of differentiation- L'oreal does not focus on the cleanser and moisturiser segment
which can bring a large profits and a wide market for its brand. It has not brought any
new and differences in these products which leads to opportunity loss.
 Unattractive product cover- the packaging of its product is not eye-catching as
compared to other products so it becomes a major weakness for the enterprise in relation
to its sales.
 Lack of awareness in Foreign markets- the awareness of the L'oreal brand in the US
market is missing which create a weakness for making the business across the world and
it will lead to lower market capture.
OPPORTUNITIES-
 Tapping the young consumer segment- the best opportunity for the L'oreal is to capture
the young consumer segment and develop the product as per the preferences and needs of
the youth regarding the beauty care products.
4

 Creating awareness in the US market- As it has low market share in the foreign market
so it has the opportunity of increasing its market range through creating more awareness
and positioning in the minds of the people (SWOT analysis of L’oreal, 2019).
THREATS-
 Competition- L'oreal faces a huge competition in the market as many industries are
operating in the business of cosmetic and beauty products like Dove, Olay etc
 Substitute- As many alternatives are available for customers and with very low
switching cost they can substitute from this brand to another so it acts as a huge threat for
the industry as it can lose its customers and this leads to resistance in the growth of the
industry.
Thus, from application of the SWOT analysis, it has been assessed that Loreal remains
strong towards facing its market threats and could takes an advantage of a market opportunities
with the use of its strengths. The opportunities and the threats helps the company in attaining
competitive advantage over its rivalry and this in turn helps in making strategic decisions.
Organisational capabilities (VRIO Framework)-
This framework includes four phases that are value, rarity, imitability and organised which
indicates the core competencies of the industry.
 Value- The resources of L'oreal are built as per the strategies set for achieving the
objectives and goals efficiently and effectively. It has created a valuable product that
satisfy the needs and wants of the customers. It makes use of its resources optimally so
that wastage of resources and the money does not happen (Case Study about Global
Strategic Management of L’Oréal, 2019). By creating the value and the positioning it lets
the company to sustain in this competitive environment and gains a long-term success.
 Rarity- It creates differentiated products that are difficult to find in other brands and has
a unique quality that creates a unique brand image of L'oreal (Case Study about Global
Strategic Management of L’Oréal, 2019). For example- it has introduced the clay
shampoo which act as a rare product for the brand. This shampoo falls under the category
of rare because other than professionals no normal brand is offering shampoo that oil and
pollution free.
 Imitability- Imitation exist in every organisation and so as in L'oreal as well. It is done
for attracting the large customers against it competitors by imitating the product of the
5

rivalry and entering with that product at slightly lower price to create a healthy
competition in the market and to achieve a competitive edge.
 Organised- L'oreal has an effective structure that facilitates the exploitation of the
products in such a way that delivers value, imitability and rarity which leads to achieve
the core competencies in the market worldwide.
It can be summarized from environmental; analysis that focus must be placed on the adoption
of technological advancement and sustainability strategies. Such strategy provides assistance to
loreal in gaining competitive edge over others. Further, company possess several strengths which
it can use for grabbing opportunities and reduce the level of threat as well as weakness.
2. Porter's five forces model
It includes the five steps that are as follows-
Supplier power- supplier can largely induce the prices of the L'oreal as it has several
alternative or substitutes are available in the market and the industry has low bargaining power
towards its suppliers. This has a great impact on the functioning of the company as it could
switch to other suppliers who are facilitating low cost material to the company.
Buyer power- the company faces the high customer power as large no. of substitutes and
competitors are available and very low switching cost is involved so L'oreal cannot bargain with
the power of its customers, if it does so then it could lose the market share and its loyal
customers (Porter five force analysis, 2019). Thus, in order to attain success in the competitive
environment, L'oreal is required to lay high level of emphasis on product innovation and
development.
New entrant threat- A high threat of new entrant is involved in this changing and the
competitive world for the organisation as in relation to the economies of scale, lack of resources
and government legislations.
Substitute threat- As there are large no. of substitutes are present in the industry so it
faces a huge threat relating to the switching cost, dependability of customers on the brand and
the upcoming trends etc. Hence, company needs to make focus on undertaking research &
development activity which in turn helps in identifying gap.
Rivalry- L'oreal exercise its business in highly competitive world so it does not have
control over the price of product. Moreover, there are several competitors are available in the
market such as MAC, Maybelline etc which are offering similar kind of as well as high quality
6

products to the customers (Porter five force analysis, 2019). High competition hinders the
market growth of the corporation that reduces the profits and the revenue of the business.
Hence, from overall evaluation it can be presented that L’oreal should focus on
undertaking sound strategic framework for coping up with the situation of external market.
Moreover, high buyer’s bargaining power, threat from new entrants and competitive rivalry takes
place in the market.
TASK 4
3. Evaluation of different types of strategic directions available to the organisation.
There are different strategic directions which are available to the L'Oréal and through
which they can form the different strategies and by implementing on them so that they can grow
and capture a larger share in the market. There are some models which are essential for strategic
marketing planning which can be applied to grab the opportunities to earn good amount of profit
and revenue by developing the new products and services and satisfying the needs and wants of
the customers (Balon and et.al., 2019). There is series of growth strategies which can be
followed by the organisation as they set the directions for the business strategies. Some of them
are explained below: -
Market penetration – in this growth strategy L'Oréal focusing on the selling the existing
products and services in existing markets. They try to grow by using their exiting offerings in
their existing markets. Their aim is to capturing the larger market share in the industry and
creating a strong brand value. This can be achieved by selling more and more goods to large
number of customers in different regions (Vargas-Hernández and Garcia, 2019). The L'Oréal
seeking the great increment in their sales volume so that the can capture a larger area and retain
their customers for long run by satisfying their needs and wants. The selling of more products to
large number of customers and this can be done by the organization by using aggressive
promotion techniques and distribution. The promotional techniques which company can use is
holding heavy advertisements through Televisions and Internet as these techniques contains a
wide reach and have a capability of attraction more and more customers from different segments.
This motive can be achieved by decreasing their price as low prices generally attracts the
customers to buy the goods as they are affordable ton them (Dalgic and Unal, 2018). The
acquisition of the rival firm is another option available to the organisation as it helps them to
distribute their goods at large.
7

Market development in this strategy firm can grow by expanding their products into
new markets so to capture the customer area and leaving a long lasting impact on them.
Company Is seeking to sell their existing product into different markets. There are many ways to
approaching this strategy which includes exporting the company's product to the different
countries which leads the company to enter into new geographical markets. L’Oréal can offer
new product dimensions or packaging and can goes with new distribution channels as if they are
selling products via retail than they can move towards the channel of e- commerce and mail
orders (Ali and et.al., 2018). L'Oréal Can adopt different pricing policies which can attract the
customers and hence company will able to sell their product in different markets. Penetration
pricing strategy can be adopted by the company in which prices are kept low initially to capture
larger share of the market this strategy is used by L’Oréal to garb the larger market share as for
example people of particular area were not been able to afford the goods but from penetration
pricing strategies, it found attractive to the customer and they are able to purchase the goods and
can raise their standard of living.
Product development -it is that growth strategy of the organisation in which the L'Oréal needs
to introduce the new products into the existing market for capturing larger share in the market
and retain the customers for long run. The company needs to develop the product which is
required by the customers that is according to they need and wants of the customers the product
is to be designed. This strategy is suitable for the business for remaining competitive in the
market (Medarac, Vignali and Vignali, 2016). L'Oréal needs to develop the product which is
highly demanded by the public as they want the products with less chemical ingredients and
more of natural products. As L’Oréal can launch the hydra fresh moisturiser which is completely
water base and also approved by the dermatologists and it is attracting many consumers towards
it as it contains the natural ingredient. A proper and efficient research should have made for
implementing this strategy and to make more customers.
Diversification – it is the riskiest strategy among all the strategies adopted by the
organisation as in this strategy, company markets and enter into new products in new market
which is complex task done by any activity. Entering into new marker with new product might
be riskier for the organisation as success of business is directly depend on its product share in the
market (Grünig and Kühn, 2018). Company have no experiences in the market that's why it is
considered to be riskier than other growth strategies. The new product which is to be introduce
8

by the company should be according to the requirements of the customers, so that they can
satisfy them and can capture large share. L’Oréal can enter into the production of soaps and
detergents also apart from the cosmetic products as people nowadays are more conscious
towards their health and living.
4.Justification and recommendation for the most appropriate growth strategy for the organisation
There are various growth strategies which can be helpful for L'Oréal to grow and earn
good amount of profit. Each strategy has their own pros and cons. Some strategies are riskier but
are also able to achieve higher returns and strong brand value. L'Oréal is leading cosmetic and
health care products company which is highly successful in some of their products. But the
company is not able to expand their products in many areas of the market that is which they need
to adopt the market development strategy which says that company should expand their product
in different market areas so that the people who are unknown to the L’Oréal products will start
buying the product and experience it which ultimately increase the market share of the
organisation and help L'Oréal to win over their competitors and retain large number of
customers.
This strategy will help L'Oréal to expand its brand image as well. In some regions
L'Oréal products are unfamiliar to the people which can be taken as opportunity by the company
by promoting the products into that particular area which helps company to increase their sales
volume, profit margin, increasing brand image, capturing larger share of the market, retaining
customers, winning over the competitors. This strategy will help L'Oréal to achieve all these
benefits. The distribution of their product in unfamiliar areas can be done by high and aggressive
promotional and distribution activities, by entering into new distribution channels as liken
L’Oréal is selling their product through retail channels to provide the customers' variety and
options than for entering into new markets (Grünig and Morschett, 2017). L'Oréal can divert
their market channel via e- commerce or mail orders, which ultimately help organisation to
increase the sales volume as people are buying the products and they are more active on the
internet which will result in the expansion of the product in those areas also which is far away
from the distributional authorities.
Offering the L'Oréal products into new markets can be done by different customer segments and
in the new region of the country.
9

This strategy will help organisation and it is more likely to be successful when that
L'Oréal has unique feature in its product and have a great leverage in the new market. The
market ion which L’Oréal is entering should be clearly identified and understood by the
organisation about the people of the market or area they live in. as the tastes and preference of
the customers directly affect the organisational growth. Company should evaluate the tastes and
preference of the customers or the people of the new market and accordingly they should sell
product of their preferences to increase the sales and further expansion of the business. The
expansion of the product in different areas will help organisation to increase its scale of
production which ultimately contributes towards the economies of scale.
Hence, L'Oréal can adopt the market development strategy which help in the growth of the
organisation and will lead to a leading company in complete industry all over the globe.
5.Strategic management plan with strategies, objectives and tactics
Strategic manage plan is the plan made by the organisation tom set a strategy and to
achieve organisational as well as individual objective. This plan is break down into different
components of goals, strategies, objectives and tactics. The firm will focus on product
development strategic direction.
Vision Become a first choice in the beauty products by offering higher
quality products with exploring new opportunities and producing
organic products.
Mission To help men and the women in realizing their respective
aspirations and in expressing individual personalities to full.
Goal
Goal is basically a broad primary outcome which is set by the
organisation to direct all their activities in the given direction. It is s
brief, clear, statement of what the L’Oréal wants or where they want to
reach on specific time period. It is general, broad, tangible and
descriptive statement. The goals are measurable in terms of quantity
and quality. L’Oréal goal is to create a strong brand value all over the
world especially at the places where the L’Oréal products have less
reach.
Objetcive An objective is specific, actionable, measurable realistic and time
10

bounded. So that the activities and functions of the organization can be
directed towards the objectives and which will lead to achievement of
the gaols. A smart objective helps L’Oréal to achieve their target within
a specified period and it also helps in development of the organisation
globally. L'Oréal has the goal of achieving the target of increasing the
sales with 40% by capturing and attracting more customers.
Strategy Strategy is basically an approach which is at taken by the overall
organisation to achieve a goal. It is the plan in which is set in order to
lead the organisation towards one direction in disciplinary manner
which enhance the employees also to work efficiently and effectively
according towards the strategies and goals. There are various strategies
available for the organisation which can be implemented and planned
according to the requirements of the company. The strategies can be
growth strategy, development strategy, and other. The strategy which
company is adopting depends on the needs and requirements of the
company. L’Oréal is adapting the growth strategy to increase its share
in the globalisation as it globalisation creates new market new
opportunities which help them in their ultimate growth all across the
world.
Market Analysis Analysis of market is important aspect before launching any product
into the market. L’Oréal is analysing the customers demand and
requirement for the natural ingredients products which ultimately help
them to produce the products accordingly. market segment is also
important factor where they need tom assess in which market or in
which segment there is high need for the particular product so that
strategies can be made accordingly.
Operational direction It indicates that the product which will newly launched by L’Oréal s
approved from the dermatologist and it’s safe to use and having no side
effects. these all factors will help company to attract many costumers.
Tactics Tactics are the tools which are used in pursuing the objective aligned
11

with the strategy. the tactics are used to enact the strategies of the
company. Tactics must consider the specific details which guide the
daily activities. Every step must be considered carefully a next step is
completely depended on first. These are basically the shorter,
implementation or action plans which is to deliverer the long-term
strategy. A root level plan or action plan are defined to ensure that daily
activities performed effectively and efficiently without any delay and
disturbance. The activities are performed in the guideline of tactics
which also includes the optimum utilisation of all the recourse. L’Oréal
can made tactics of sales target of 60% then accordingly all other
operational activities will work accordingly and help company to
achieve their overall goals.
Once all the objectives, goals, strategies and tactics are decided than the foundation of the
business is ready to work efficiently. It is important to know and understand all these statements
in strategic management plan as it is crucial part of the organisation which, must be performed
by the company to achieve and implement their goals. As these statements provide a clear and
focus direction to the organisation and they also serve an internal strength for the organisation.
CONCLUSION
From the above report it is concluded that L’Oréal is directly affected by the internal and
external factors which represent the strength, weakness, threats and opportunities for it so that
the company can take decision and actions accordingly. The growth strategy which are available
to the company towards which they have to direct their activities to achieve the objective various
growth strategies are explained above including market development, market penetration,
diversification etc. the organisation needs to identify their requirements and accordingly should
take the decision of which growth strategy they have to select.
The political factor. Legal factor, economical factor, environmental factors also affect the
decision making power of the organisation as they have to consider all the factors before taking
any decision and adopting any strategies
The above report also stated that before choosing or implementing any strategy company
must need to prepare the strategic management plan which includes goals, objectives, strategies
12

and tactics as all these elements help organisation to direct their activities towards achievement
of the organizational goals.
13

REFERENCES
Books and Journals
Ali, A. A. E. B. R. and et.al., 2018. Branding Strategy on Economic Sustainability among
Personal Care and Cosmetics Customers. International Journal of Asian Social
Science. 8(11). pp.995-1004.
Balon, V. and et.al., 2019. BUSINESS STRATEGY & DEVELOPMENT. Navigation. 2(3).
Dalgic, T. and Unal, S. eds., 2018. Utilizing Consumer Psychology in Business Strategy. IGI
Global.
Grünig, R. and Kühn, R., 2018. Development of Strategic Planning and Its Integration Into
Strategic Management. In The Strategy Planning Process (pp. 17-25). Springer, Berlin,
Heidelberg.
Grünig, R. and Morschett, D., 2017. General Strategic Planning as the Starting Point for Going
International for New Markets. In Developing International Strategies (pp. 57-65). Springer,
Berlin, Heidelberg.
Medarac, H., Vignali, G. and Vignali, C., 2016. Improving relations between business strategy
and marketing tactics. International Journal of Business and Globalisation. 16(1). pp.50-65.
Vargas-Hernández, J. G. and Garcia, F. C., 2019. The Link between a Firm´ s Internal
Characteristics and Performance: GPTW & VRIO Dimension Analysis. REBRAE. 12(1).
pp.19-30.
Online
L'Oréal PESTLE Analysis. 2019. Online. Available through: <
https://www.mbaskool.com/pestle-analysis/companies/17957-2019-10-12-04-01-59.html>.
SWOT analysis of L’oreal. 2019. Online. Available through: <
https://www.marketing91.com/swot-analysis-loreal-2/>.
Porter five force analysis. 2019. Online. Available through: <
https://www.porteranalysis.com/porters-five-forces-analysis-cosmetic-and-skin-care-industry/>.
Case Study about Global Strategic Management of L’Oréal. 2019. Online. Available through: <
http://dspace.lib.fcu.edu.tw/bitstream/2377/31633/3/M0458689105101.pdf >.
14

15