BABS Foundation Context of Business: L'Oreal/Body Shop Case Study

This report provides a comprehensive analysis of the L'Oreal and Body Shop case study, focusing on the context of business. It begins with an introduction to both companies, L'Oreal and Body Shop, highlighting their founding, headquarters, and financial performance. The main body delves into the impact of the macro-environment on L'Oreal, utilizing PESTLE analysis to assess political, economic, social, technological, legal, and environmental factors. The report then examines the organizational cultures of both Body Shop and L'Oreal, comparing them using Handy's model and discussing their compatibility, along with potential benefits and challenges. Furthermore, the report explores the factors L'Oreal considered before acquiring Body Shop, including market valuation, strategic fit, and synergy. The report concludes by discussing the factors that led to the failure of the L'Oreal acquisition of Body Shop, such as the impact on brand image and operational profit margins. The report provides a detailed overview of the case study, offering insights into the complexities of business acquisitions and their outcomes.

Context of Business
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Contents
INTRODUCTION................................................................................................................................3
MAIN BODY......................................................................................................................................3
TASK 1..........................................................................................................................................3
TASK 2..........................................................................................................................................4
TASK 3..........................................................................................................................................5
TASK 4..........................................................................................................................................6
TASK 5..........................................................................................................................................7
CONCLUSION....................................................................................................................................7
REFERENCES.....................................................................................................................................8
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INTRODUCTION
L’Oreal is a cosmetic company which was founded in the year 1909 by Eugene
Schueller, the company has its headquarter in France and they offer their product all over the
world. The company has reported an operating income of 4.92 billion euros in the year
2018.Body shop is also a cosmetic company which was founded in the year 1976 by Anita
Roddick, the company has its headquarter in United Kingdom with its product being offered in
around 33 countries, the company reported a revenue of $1.4 billion. The company was being
sold by L’Oreal to Natura Cosmetics in the year 2017. In this report, the different challenges are
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being discussed which are faced by the company. This report comprehensively results in
different learning outcomes.
MAIN BODY
1.Discuss the impact macro environment had on the current situation faced by L’Oreal
particularly the Social, and Ethical factors
For analysing the social factors a PESTLE analysis have been performed below.
Political factors
These are the factors which can affect the company’s profit in the long run as these involve the
factors like political stability, employment laws and regulation related to the cosmetic industry,
tax policies of the government etc., if these changes L’Oreal would also have to change their way
of working so the company need to analyze these before diversifying their business in any
region. The political stability is a must as the company will find a lot of problem if there is an
unstable government operating in the country.
Economic factors
These are the factors which can impact the company’s way of performing their operation. These
include both micro as well as macro economic factors which can affect the L’Oreal. The factors
affecting L’Oreal are interest rates, inflation rates, exchange rates etc., the company need to be
updated with these factors in order for the smooth working of the company as these factors
changes the purchasing power of the buyer in the company. These economic factors affect the
way in which the company prices their product and services.
Social factors
These are the factors which are majorly affecting the operations of L’Oreal currently. These
factors include demographic characteristics, norms, customs and values of the people of L’Oreal.
These social factors also include any unethical behavior of the company. The company is already
facing some issues like they are being accused of using child labor, which has likely affected the
brand image if the company. The company must maintain these factors as they may affect the
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company to a great extent. These factors include the people thinking about the company and this
may have long term impact on the company’s operations.
Technological factors
These factors have emerged in the last decade when the companies have started to use
technology to expand their business so L’Oreal should also use technologies in order to reach the
wider customer target and diversify their business. The company is seen to implement this factor
into their organization, as they have their own websites, they are using social medias to promote
their product etc. if the company fails to implement these factors into their organization than they
might have to face problems and they will start losing their market share which can affect the
long term operation of the company.( Suder, 2015)
Legal factors
These are the factors which can increase the cost of the organization. This include the paper
work to sell the product of the company in any country, the laws and regulation of the country
etc. if these are not followed then the government can impose penalties upon the company which
will increase the company’s cost and also all these things are quite time consuming so a lot of
efforts might be wasted. Therefore, the company should always perform their operation legally
and they should do all the paper work required to avoid these kinds of problem as this may
disrupts the companies operations.
Environmental factors
These are another issue which the company is currently facing, as the company have received
bad publicity as they are accused of selling using animal testing for their products, unethical
promotions and misleading advertisement. The company need to make sure that they deal with
these and that there brand image is improved. these factors have led to L’Oreal getting more and
more involved in the corporate social responsibilities.( Lankoski, 2016.)
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2 What is the organizational culture at Body Shop and L’Oreal. In your view are they compatible
and what are the likely benefits or challenges arising out of the compatibility of culture.
Organizational culture means the values and shared belief of the company which governs the
company’s operations; these have strong influence on the company’s employees. The culture of
the organization is explained with the help of Handy’s model given below.
Power culture
Handy has defined this culture as there are some people who holds the majority of the power in
the organisation and there influence is very powerful throughout the organisation. In power
culture the people holding the power decide what happens and everyone have to follow them.
L’Oreal is following the power culture as those who are in power is in charge of the whole
organization and the people have to follow them without any complain. Sometime this culture
can cause problem as the employees at L’Oreal may feel that they can never make their own
decision and have to follow as their superior says so this may be toxic. (Saidani, Rolland and
Nurcan, 2015)
Role culture
This culture is based on some rules in the organisation. They must be followed by each and every
person in the organisation so that they know what are there roles and responsibilities. The power
in the role culture is defined by the person's position in the organisation. If L’Oreal or body shop
follow this culture then they will have to define the roles and responsibilities of each and every
person and these people will be judged upon the roles they are performing. The company may
face problem following this culture as the people won’t take any risk as they do only what their
job requires them to do and nothing else.
Person culture
In this model, each individual working themselves have a unique and superior talent which
connects them from other. This culture will be extremely beneficial for any company, as people
in this culture tends to have a team spirit in achievement of the organisational goal. Body shop
follow this type of culture in order to increase their employee motivation and keep them to
follow the organizational goals. The company has been successful in dealing their employee with
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this culture. The downside of this culture is that the employees may sometime have different
opinions on something and everyone thinks that they are right which may at times can cause
conflict of interest.
Task culture
In this culture, the team is formed on the basis of the work, projects or problems. The task is an
important factor in determining the what power each individual will hold in the completion of
the task. Any company should clearly define the task to be performed to the team in order for the
smooth working of the organisation. L’Oreal or Body shop follow such a culture when they need
particular task to be completed and for the task to be completed they might require a proper
team. The task culture proves effective will largely be determined by the team dynamic.( Souto,
2015)
3 Discuss any factors that L’Oreal would have considered before deciding to acquire Body Shop.
Market valuation
Before the acquisition L’Oreal should see that the value tat they are paying for the company is
suitable and that they don’t overpay which will increase their cost in the future. L’Oreal acquired
Body shop for £652 million, and by looking at the brand image of the company in the market
and the company’s presence in over 33 countries with 2600 store it is seemed quite right. Also,
this will help L’Oreal to improve their brand image which was spoiled by the accusations that
were imposed regarding animal testing and using of child labor.( Nascimento, 2019)
Strategic fit
The company must ask themselves why are they acquiring a particular company and what good
the acquisition will bring them. In the case of L’Oreal the company has the strategy of improving
their brand image and the sales of their product all over the world by using the global presence g
Body shop. This is important as L’Oreal was investing 652 million dollars in the acquisition and
if this fails then this may result in the liquidation of the company. Therefore, the company should
use expert who can guide them and thus they know the market value of the company and is the
target is feasible to be acquired.
Synergy
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This is another important factor which must be consider before the acquisition of Body shop, as
when one company takes over the other company some of the operational cost may be reduced
because after the acquisition the company gain larger economies of scale which is exactly
happening in the case of L’Oreal and Body shop, so there operational cost must be reduced. The
synergy will help L’Oreal get competitive advantage and can increase in the long term
profitability of the company.( Burgstaller, 2017)
State of economy
This is an external factor and is not in the hand of L’Oreal but if the company can predict a
change in the economy and if the company thinks that in the future the acquisition will cost less
than they might considering waiting for the company acquisition cost to get low. Again this is
based on the forecast of the company and may result in company getting a bad deal in the future
which may increase the cost of the company or the company may get acquired before L’Oreal
makes their move. There are a lot of factor to be considered before making such a decision.
4 What are the factors that had effect the L’Oreal acquisition of Body Shop resulting it the
failure.
After the acquisition of body shop the company started to lose its appeal in the market. There
were a variety of factors which had resulted in L’Oreal selling Body shop to Natura Cosmetics,
some of these are discussed below:
The brand image was badly affected after the acquisition of the company by L’Oreal as the
company was known for their ethical practices and people did not like that the company was
taken over by a corporate giant. This has caused a great deal in the diminishing image of the
company as the sales were affected and people has switched to the substitute of the company.
Also, we have come to know in the case study that the reason for the acquisition of Body shop
was mainly to improve the bad brand image of L’Oreal. L’Oreal was being criticized by many
because of this decision because before the acquisition the company has published there goals of
becoming 100% natural in the year 2020 which was faded away after the acquisition. Body shop
has started using chemicals which were used in L’Oreal products.( Child, 2017) All these have
lead to diminishing sales of the company.
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The company operating profit margins have fallen by 4% after their acquisition by L’Oreal as the
people have switched from the Body shop to their substitute which has impacted L’Oreal the
most as if this continue than they might not be able to cover their investment they have made in
Body shop.
After the death of Anita Roddick the company operation went completely outside of the control
and the ethical way of operation was not a priority after this. All this have resulted in L’Oreal
selling there subsidiary Body Shop to Natura Cosmetics in 2007 for around 1 billion pound.
This help us to know the different things that the company did went which has led to a failure of
their acquisition. Though the company was sold at a profit but if L’Oreal has not changed the
way of operation and kept it same as before the acquisition they may not only have improved
their brand image but have also earned a large amount of profits in the long run. (Shi, Li and
Bigdeli, 2016)
5 The second part of the project will involve writing a reflection report on your experience in
writing this report.
From this report I have come to learn about the macro factors which can affect the company’s
operation in the short, medium and long term. I have seen that these macro factors are very
important and the company can use them to see the feasibility of the market. I have also learned
about the organizational culture and in particular about the Handy’s model of organizational
culture in which I have seen the culture followed in L’Oreal and Body shop.( Burgstaller, Steiner
and Schrefl, 2016)
I have also learned about the acquisition of any company with the help of this report and the
variety of factors that can affect the acquisition of a company. I also gained some knowledge
about the unethical practices of L’Oreal and the company attempt to clear their brand image, they
have been a complete failure with their acquisition of Body shop. In particular, after reading the
case study I came to know that the company should operate ethically if they want to survive in
the market for the long term and this will help in improving the brand image. The critics were
correct as the company only tried to hide behind Body shop. Also I have learned a variety of
facts of both the companies L’Oreal and Body shop. Comprehensively it was a good experience
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as I have researched about many things and now has a wider prospective about the companies
operating in cosmetic companies.( Song, 2019)
CONCLUSION
From this report we have come to a conclusion that the L’Oreal has been facing a lot of
challenges from the external environment. This report has been divided into 5 parts which
included firstly the PESTLE analysis to evaluate the macro environmental factors, then there was
the implication of Handy’s culture to analyze the organizational culture of L’Oreal as well as
Body shop, then there was the discussion about the factors which can affect L’Oreal in acquiring
Body shop, then there was a brief about what had went wrong in the acquisition of Body shop by
L’Oreal and lastly there was a reflection about the learning outcome of the report. Overall the
report shows that L’Oreal need to devise some strategy in order to tackle their challenges and
operate in the long term.
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REFERENCES
Books and journals
Shi, X., Li, F. and Bigdeli, A.Z., 2016. An examination of NPD models in the context of
business models. Journal of Business Research. 69(7). pp.2541-2550.
Song, R., and et.al., 2019. What Roles do Decisions Play in Context-Aware Business Process
Management. In Proceedings of the 21st International Conference on Enterprise
Information Systems (ICEIS 2019). Springer.
Souto, J.E., 2015. Business model innovation and business concept innovation as the context of
incremental innovation and radical innovation. Tourism Management, 51, pp.142-
155.
Burgstaller, F., Steiner, D. and Schrefl, M., 2016, August. Modeling context for business rule
management. In 2016 IEEE 18th Conference on Business Informatics (CBI) (Vol.
1, pp. 262-271). IEEE.
Child, J., and et.al., 2017. SME international business models: The role of context and
experience. Journal of World Business. 52(5). pp.664-679.
Nascimento, and et.al., 2019. Exploring Industry 4.0 technologies to enable circular economy
practices in a manufacturing context: A business model proposal. Journal of
Manufacturing Technology Management. 30(3). pp.607-627.
Burgstaller, F., and et.al., 2017, October. Modification operations for context-aware business
rule management. In 2017 IEEE 21st International Enterprise Distributed Object
Computing Conference (EDOC) (pp. 194-203). IEEE.
Lankoski, L., 2016. Alternative conceptions of sustainability in a business context. Journal of
cleaner production. 139. pp.847-857.
Saidani, O., Rolland, C. and Nurcan, S., 2015, January. Towards a generic context model for
BPM. In 2015 48th Hawaii International Conference on System Sciences (pp.
4120-4129). IEEE.
Suder, G., 2015. Regional trade agreements: Non-market strategy in the context of busisnes
regionalization.
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