Business Strategy of L’Oréal: A Comprehensive Analysis

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UNIT 32: Business strategy
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Contents
Introduction......................................................................................................................................4
Task1 (LO1&2)...............................................................................................................................5
P1 Applying appropriate frameworks analyse the impact and influence of the macro
environment on a given organisation and its strategies...............................................................5
M1 Critically analyse the macro environment to determine and inform strategic management
decisions......................................................................................................................................8
P2 Analyse the internal situation and capabilities of a given organisation using appropriate
frameworks..................................................................................................................................9
M2 Critically evaluates the internal environment to assess strengths and weaknesses of an
organisation’s internal capabilities, structure and skill set........................................................11
Tast2 (LO3&4)..............................................................................................................................12
P3. Applying Porter's Five Forces model evaluate the competitive forces of a given market
sector for an organisation...........................................................................................................12
M3 Devise appropriate strategies to improve competitive edge and market position based on
the outcomes..............................................................................................................................14
P4 Applying a range of theories, concepts and models, interpret and devise strategic planning
for a given organisation.............................................................................................................15
M4 Produce a strategic management plan that has tangible and tactical strategic priorities and
objectives.......................................................................................................................................17
D1. Critique and interpret information and data applying environmental and competitive
analysis to produce a set of valid strategic directions, intentions and tactical actions..............18
Conclusion.....................................................................................................................................19
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References......................................................................................................................................20
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Introduction
L’Oréal is a French personal care company having it’s headquartered in Clichy with a registered
office in Paris. This comes under the largest company in the world in cosmetics and has
developed different activities in the field of skin care, make-up, sun-protection, and hair colour.
This project is about the business strategy of L’Oréal in which internal and external analysis has
been prepared for providing a basis of strategic planning, SWOT and PESTEL analysis has also
been done of the organisation describing its strength, weakness, opportunities, and threats.
Porter's five forces model has been prepared to mention the competitive environment of L’Oréal.
The strategic plan has been developed from the environmental analysis. Different directions
available to the organisation have been provided. A strategic management plan has been
produced with objectives, tactics, and strategies which will be adopted by L’Oréal which will
help the organisation in making it more competitive and increase its market share.
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Task1 (LO1&2)
P1 Applying appropriate frameworks analyse the impact and influence of the macro
environment on a given organisation and its strategies.
It is essential for the company to consider the environment, culture, and society its works in. It
helps the company to survive the competition within the market. It helps the company to work
upon its possible threat and weakness to achieve a competitive advantage in the market (Burns,
2016). Within the environment, there are various structures which need to be taken into
consideration for the practical business framework which helps the company to design the
effective strategies for the company which can help the company to analyse the macro
environmental factors. Following are the structure which can help the company to explain its
macro-environmental factors:
Organisational Audit:
Organisational Audit helps the company to assess the capacity of the company to focus on the
issues which can help the company to become stronger in terms of its key areas. The SWOT
analysis would help the company to analyse the strength and weakness of the organisation which
can help the company to conduct an audit of the company.
Strength
 The innovative style within the
company
 The famous name of the brand of the
company
 The company’s market share has
enhanced over a certain period
Weakness:
 Not so flexible working conditions
 Communication error within the
company
 The products of the company are
expensive
Opportunities:
 The company has general business
nationally and internationally both.
Threats
 The products of the company are high
in quality, but the promotional
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 The business of the company is
expanding day by day
 The company has successfully been
able to maintain the quality standard
of its products
strategy of the company is
notwithstanding.
 The high-level competition for the
company in the international market
The stakeholder analysis of the L’Oreal Company:
To analyse the possible stakeholder within the company would help the organisational goals
which would help the company to attract the more stakeholders within the company, It would
help the company to improvise the interest of its stakeholders within the company. The
stakeholder analysis would help the company to analyse the need and the expectation of the
company (Henisz, 2017). It would help the company to enhance the interest of stakeholders
within the productivity and the development of the company. It would facilitate the company to
provide useful information to all the members within the company and would help the company
to develop the strategy of the company effectively.
Environmental analysis of the company:
The ecological study would help the company to analyse the internal as well as the external
environment of the company. This would help the company influence the performance of
employees as well as the organisation. It helps the company to analyse the threats along with the
opportunities of the company (Schaltegger, 2017). It helps to monitor those factors which affect
the environment of the company. The environment analyses of the company can take place with
the help of PESTEL analysis which allows the company to analyse the various factors such as
Political, Economic, Environment, social and technological factors of the company.
Political Factors:
 Corruption
 Intellectual property
 The intervention of the government
 Tariff and trading regulations
Economic Factors:
 The economic growth of the company
 The currency exchange rate
 The skills of the labour
Social Factors Technological factors
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 Education and health facilities
 The skills of the Population
 Awareness regarding the environment
 Impact over the value chain of the
company
 The structure of the cost
 the constant changes and the
development of technology
Environment:
 The change within the climate
 The change in the weather conditions
 Waste management
Legal factors:
Laws related to health and safety
Consumer Protection Law
Security and protection of the data
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M1 Critically analyse the macro environment to determine and inform strategic
management decisions.
Macro environment plays a significant role in the L’Oréal business about the global market. The
macro setting is also referring to as the external environment of the company which is
uncontrollable (Feimi, et. al., 2016).L’Oréal organisation has the responsibilities to analysis the
macro environment by identifying the critical decision-making process within the business
environment of the company. This environment is mainly subdivided into six categories are as
follows:
 Political factor: This factor focuses mostly on the changes made in the political policies about
effectively running the business. It also helps in showing the huge impacts on global skincare
companies like L’Oréal.
 Economic factor: This factor mainly focuses on determine the economic environment which
plays a significant role in enhancing business in the competitive market. E.g. employment rate,
inflation rate, interest rate, monetary rate etc.
 Social factor: This factor mainly identifies the aspects of specific society culture, belief as well
as norms about the business.
 Technological factor: This factor mainly focuses on the latest techniques and technology which
are currently used by the organisations for enhancing their business performance.
 Legal factor: It is a very factor which includes all laws, policies and regulation of the
government which is made to influence the working of the L’Oréal business.
Environmental factor: It helps in determining the aspects which are hugely affecting the
business environment as well as the culture of the company.
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P2 Analyse the internal environment and capabilities of a given organisation using
appropriate frameworks
The internal environment of the company affects the various day to day functioning of the
company which affects the internal environment of the company. It changes the management of
the company which helps in the allocation of the resources within the company. The internal
environment within the company supports the company to gain a competitive advantage in the
market (Ghodsi and Webster, 2018). The internal environment of the L’Oreal Company affects
the company’s competency in the national as well as international market. The resources within
the company impact the productivity and profitability of the company.
The internal environment within the company effect can analyse in the following manner:
VRIO Framework:
The VRIO Framework would help to explain the following competency of the company:
Value:
To add the value of the with the company, the company used its resources to gain a competitive
advantage in the market.
Rarity:
The high quality of the products and services of the company are exceptional and rare which
makes the company unique and unusual in the market.
Imitability:
The imitable resources of the company are the talent and skills of the efficient employees of the
company.
Organisation: The Company utilise its capacities and resources of the company which helps the
company to enhance the standard of the company in the market.
Porter five forces theory:
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The above model would help the company to utilise the available resources within the company
at its best. It helps the company to influence the internal as well as the external environment of
the company. The porter five forces include the following elements which help the company to
boost the innovation and creativity within the company which helps to attract the customers.
 The threat from the new entrants
 Bargaining capacity and skills of suppliers
 Bargaining capacity and abilities of buyers
 Risks from the substitute products
 Rivalry
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M2 Critically evaluates the internal environment to assess strengths and weaknesses of an
organisation’s internal capabilities, structure and skill set.
The internal environment plays a significant role in enhancing the L’Oréal business and making
it successful in an effective manner (Mitchell, et. al., 2015). The company should make use of
the McKinsey 7-S framework for effectively identifying the strengths and weaknesses of the
company. The primary objective of the technique is effectively managed and measures the
overall changes by comparing the employee's performances. The 7-Ss are as follows:
 Shared values: This plan helps in enhancing the knowledge of the employees about the L’Oréal
business norms and values. It can be treated as the business foundation of the organisation.
 Staff: It helps in effectively hiring the expertise employees about enhancing the business in the
global market.
 Style: This aspect mainly focuses on the leadership and management style which is used by the
managers and leaders of the L’Oréal Company for doing effective business in the global market.
 Systems: It helps in identifying the tasks and decision-making process about doing the business
effectively.
 Structure: It helps in effectively structuring the tasks and activities of the business for attaining
the success in the set deadlines.
 Skills: It helps in identifying the strengths and capabilities of the employees about enhancing
business performance.
 Strategy: It mainly includes the plan which will help the company to achieve the competitive
advantages within the business environment of the L’OréalCompany.
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Tast2 (LO3&4)
P3. Applying Porter's Five Forces model evaluate the competitive forces of a given market
sector for an organisation.
Porter’s five forces model of L’Oréal-
Porter’s five forces model are based on the theory of the five forces which determine the
intensity of competitiveness and market attractiveness. It helps in identifying where the power
lies in a business situation. It exists with the following concentration including the threat of
substitutes, the bargaining power of suppliers, bargaining power of customers, and the threat of
new competitors. It is significant for the industry to understand the different types of risks and
rewards the company has (E. Dobbs, 2014).
Potential Entrants- Profitability is eroded due to the entrance of new industries and profitable
markets mostly attract many new entrants. By the new entrants the position of the existing
companies are affected, and sometimes new entrants convert into a significant competitor to the
company that it results in removing the existence of the current companies. Threats of the new
entrants are low in this type of industry. There is already the existence of large companies in the
market like Proctor and Gamble, Avon an L’Oréal as well. There will be no threat which is , or
maybe there will be less threat form any business beginner. It does not appear that L’Oréal will
have any tremendous risk for the same.
The threat of substitute- where there is the existence of close substitute products in the market
then it increases customer’s likelihood of switching to the alternatives with the response to the
increase in the price. This threat exists when the demand of the product is affected by the change
in the amount of the substitute products. There are numerous chemicals in shampoo and body
and bath products which is frightening. The main reason for using skin care products by people
is ageing. It seems that being a leader in the beauty and cosmetic sector, L’Oréal will not be
disturbed by any potential substitutes which come in the market. Along with this, less threat exist
in the market as there are very low substitutions in the products of anti-ageing (Dulčić.et.al,
2012).
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