Business Strategy Analysis of L'Oreal: PESTLE, SWOT, and More

This report provides a comprehensive analysis of L'Oreal's business strategy, examining its macro and internal environments. The report begins with an introduction to business strategy and its importance, followed by an analysis of the macro environment using PESTLE and stakeholder analysis frameworks. The report assesses the political, economic, social, technological, legal, and environmental factors influencing L'Oreal, identifying opportunities and threats. It then delves into the internal environment, utilizing SWOT and McKinsey's 7-S models to evaluate the company's strengths, weaknesses, and capabilities. The report further applies Porter's five forces model to analyze the competitive landscape of the cosmetic industry. The analysis covers the competitive rivalry, the threat of new entrants, the threat of substitute products or services, the bargaining power of suppliers and customers, and assesses their impact on L'Oreal. Finally, the report concludes with a summary of the key findings and recommendations for L'Oreal's strategic development, including the importance of adapting to economic changes and customer preferences.

Business Strategy

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Application of framework to analyse impact and influence of macro environment..............1
TASK 2............................................................................................................................................5
P2 Analysis of internal environment and capabilities of the company........................................5
TASK 3............................................................................................................................................9
P3 Evaluation and application of Porter's five force model.........................................................9
TASK 4..........................................................................................................................................11
P4 Application of models, theories and concepts......................................................................11
CONCLUSION..............................................................................................................................15
REREFRENCES............................................................................................................................17

INTRODUCTION
Business strategy can be defined as the plan which is formulated to achieve long as well
as short term objectives. Main aim behind it is to analyse ways in which organisations may
attain growth and development. All the companies form strategic decision in order to analyse
available opportunities of market and grab them for the betterment of the business (Adner, 2017).
The organisation which is selected for this report is L'Oreal which is personal care product's
company and founded in year 1909. Currently the organisation is operating its business all
around the world.
This report covers various topics such as impact and influence of macro environment on
business and assessment of internal environment and capabilities of the organisation. Apart from
this, evaluation and application of Porter's five force model and other theories is also covered
under this assignment.
TASK 1
P1 Application of framework to analyse impact and influence of macro environment
Different types of frameworks: There are various types of frameworks which may leave
impact upon macro environment of the organisation. All of them are as follows:
PESTLE analysis: It is a tool which is used for the purpose of analysing different market
conditions with the help of different factors such as political, economic, social, technological,
legal, environmental etc. With the help of it managers of L'Oreal will be able to analyse
influence and impact of it for the organisation.
Stakeholders analysis: It is a framework which is used to analyse organisation's system
and assess the changes that may take place due to modification in to interest of stakeholders of
organisation. With the help of it managers in L'Oreal can analyse needs of all the stakeholders.
Porter's five forces model: It is a model which is used by business entities such as
L'Oreal for the purpose of analysing competitive market so that effective strategy can be
formulated.
From both the frameworks stakeholder and PESTLE analysis are going to discussed in
detail as it can help the managers to analyse the factors which are impacting and influencing the
organisation.
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Macro environment: All the factors that are uncontrollable and affect decision making
of the managers. Such type of elements directly leave impact on the growth of the company. In
order to identify all these components PESTLE analysis is being conducted for L'Oreal.
Pestle analysis: It is a framework which is used by large business entities to analyse the
factors that are available in the industry may leave negative impact on growth of the company
(PESTLE analysis, 2019). An analysis of all of them for L'Oreal is as follows:
Political: All the rules, regulations and policies that are imposed by the political parties
of the country are considered as the part of such factors. For L'Oreal it is vital to take all of them
in to consideration so that their negative impact can be reduced.
 Opportunity: As L'Oreal always comply with all the governmental factors which is an
opportunity for the company to reduce interference of political parties from its
operations.
 Threat: If managers of L'Oreal does not implement the policy imposed by political
parties of UK the it will become more difficult for the company to sustain in the market.
(Source: PESTLE analysis, 2019)
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Illustration 1: PESTLE analysis, 2019

Economic: Exchange, inflation, deflation and interest rates are the economic factors that
may influence a company in both ways positive as well as negative. Currently it has become
essential for organisations like L'Oreal to focus of all such type of elements in order to conduct
operational activities (Grayson and Hodges, 2017).
 Opportunity: Economic factors such as recession does not affect cosmetic industry so it
is an opportunity for L'Oreal to operate its business appropriately whether economic
conditions are positive or negative.
 Threat: Whenever such factors fluctuates, it affect purchasing power of customers.
Increment in inflation rate results in decrement of buying capacity of clients that may
influence sales of L'Oreal.
Social: Customer's taste, preference, needs, culture, social trends etc. are the part of these
factors that may influence sales and profits of the business entities such as L'Oreal. In order to
survive in the market managers of L'Oreal are required to consider all of them at the time of
strategy formulation so that plan to reduce their negative impact can be formulated in advance
(Habib and Hasan, 2017).
 Opportunity: As modern society pays attention to fashion trends and it is a great
opportunity for L'Oreal to comply with them to attract large number of customers.
 Threat: There are various ethical issues related to L'Oreal products have identified and
all of them may result in decreased market share of the company.
Technological: Technological changes, innovations etc. are the part of such factors that
influence buyer to switch form their brand to another. For L'Oreal it is essential to focus on all of
them in order to meet technological requirement of clients (Hart, Sharma and Halme, 2016).
 Opportunity: L'Oreal can operate its business appropriately by establishing alignment
with digital innovation and focusing ion all its research and development strategies to
reach the competitive edge.
 Threat: Ignoring latest technology mat result in a huge reduction in the number of brand
loyal customers.
Legal: Taxation, laws, legislation and government regulations are the legal factors that
leaves impacts and influences organisations. For L'Oreal it is very important to fulfil all the legal
requirements in order to keep its graph of success high.
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 Opportunity: In UK legal authorities are trying to reduce trade related tax for cosmetic
industry because it helps to develop the economy. It is an opportunity for L'Oreal as it
can operate its business in UK with low taxation on its trading.
 Threat: Sometimes organisations that operates under cosmetic industry forget to follow
the acts such as the federal food, drug and cosmetic act and at that time government take
strict action against the sector. In this situation L'Oreal may also get influenced because
the whole sector get affected due to actions of the government.
Environmental: Environment protection acts, climate and weather are the part of these
factors. The government of UK is very much concerned about the environment of UK and
implemented various rules. For all the organisations such as L'Oreal it is very important to
follow all of them to operate business successfully in the nation (Kono, 2016).
 Opportunity: As L'Oreal is part of go green campaign and planning to use eco-friendly
packaging for its products which is an opportunity for the company to comply with all the
environment protection rules and establish a good market image.
 Threat: If L'Oreal is not able to follow the environment related rules then it may leave
negative impact on its number of customers and market share.
Stakeholder analysis:
Illustration 2: Stakeholder analysis, 2019
Source: Stakeholder analysis, 2019
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Low power low interest: All the stakeholders who have low interest and power within
the company are known as apathetic. Employees who are getting fixed salaries whether
organisations such as L'Oreal are in profit or loss are known such stakeholders who do not have
power and interest within the organisation.
Low power high interest: All the stakeholders who have low power and high interest in
company are known as defenders. Partner sales and consultants of the L'Oreal are such types of
stakeholders who take interest in the entity and have low power to take participate in decision
making procedure of company.
High power low interest: All the stakeholders such as directors, suppliers, creditors have
high power of decision making and low interest within the organisation. These are known as
latent as they have power to make changes in strategy of L'Oreal (Stakeholder analysis, 2019).
High power high interest: Stakeholders such as lead generators, investors, shareholders
etc. have high interest and power in L'Oreal and they are known as promoters. They get higher
returns is the organisation is generating higher returns.
The above analysis states that various stakeholders of L'Oreal are having high interest
and power some of them are having low interest and power. With the help of stakeholders
analysis framework it has been analysed that organisation is required to maintain interest of
external parties in order to execute business operations effectively.
TASK 2
P2 Analysis of internal environment and capabilities of the company
Internal environment: It is combination of such factors that are available within the
organisation and are required to be focused by the managers and top authority of the company in
order to reduce their negative impact. There are various types of tools that can be used to analyse
the internal environment. One of them is SWOT analysis which is as follows:
SWOT analysis: It is useful technique that can guide the managers to analyse strengths,
weaknesses, opportunities and threats for the company (SWOT analysis, 2019). All these four
elements of this tool, for L'Oreal are as follows:
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(Source: SWOT analysis, 2019)
Strengths Weaknesses
 L'Oreal is the largest cosmetic brand
which has captured a large area of the
market.
 The organisation conduct continuous
research and development activities
which helps it to collect data of
customers.
 Profit margins of the company is very
low as compare to other organisations
which are operating business under
cosmetic sector.
 Organisation spends huge amount on
research and development activities
which results in lack or monetayr
resources for operations.
Opportunities Threats
 As customers always look for new
products so L'Oreal may expand its
 The cash flow of the company is very
tricky that may put L'Oreal in to
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Illustration 3: SWOT analysis, 2019

product line in order to attract large
number of customers.
 Organic beauty and cosmetic items can
be launched by the company in the
market to meet the requirements of the
customers.
problems at the time of economic
changes.
 Quick changes in products of cosmetic
industry may leave negative impact on
the organisation because it results in
changes in the choice of customers.
Findings: From the above table it has been analysed that L'Oreal have various strengths
such as continuous market research, good brand image etc. Its weaknesses are lower profitability
and spending more on research and development. In order to overcome this situation managers
of organisation are required to form strategic decisions.
Mc Kinsey's 7s model: It is a model which is mainly used for the purpose of analysing
organisational effectiveness which helps to execute all the business operations. It can also be
used by L'Oreal to analyse its internal capabilities and resources. All the elements of this model
are as follows:
Strategy: In L'Oreal various plans are formulated for the purpose of maintaining
competitive advantage and to compete with competitors. Managers pay attention on
organisation's ability to compete with other companies in order to execute business effectively.
Structure: In order to organise L'Oreal appropriately matrix organisational structure ios
followed which helps to manage all the departments, teams and employees in a proper manner.
Systems: Daily procedures of L'Oreal are conducted in systematic way which is
beneficial for effective execution of business operations.
Shared values: These are commonly accepted standards and norms which influences
behaviour of employees and managers. In order to motivate them top work hard it is very
important to provide them good working environment.
Skills: In order to build talent and capabilities in employees, top level executives in
L'Oreal conduct training and development programs for them which helps to make them skilled
and experienced.
Style: In order to enhance productivity, performance and corporate culture managers in
L'Oreal pay attention towards democratic management style in which they take opinion of staff
members.
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Staff: For all the business entities it is very important to motivate staff members as they
are responsible to execute operational activities. For this purpose, managers in L'Oreal train them
accordingly and provide them growth opportunities.
Findings: The above analysis depicts that L'Oreal is having highly skilled and motivated
staff members because of its decentralised management style, matrix structure, systematic
manner to execute business etc.
VRIO model: It is a tool which is used analyse capabilities of a company. There are four
different aspects are assessed by the managers such as valuable, rare, inimitable and organised
(VRIO model, 2019). For L'Oreal analysis of all four elements is as follows:
(Source: VRIO model, 2016)
Capabilities Valuable Rare Inimitable Organised
Plant and
Machinery
✔ ✗ ✗ ✗
High man power ✔ ✔ ✗ ✗
Market share ✔ ✔ ✔ ✗
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Illustration 4: VRIO model, 2016

Brand image ✔ ✔ ✔ ✔
Valuable: There are for valuable items of L'Oreal plant and machinery, high man power,
market share and brand image. All of them are considered as valuable aspects because they help
to conduct operational activities in appropriate manner. For all the companies it is very important
to have these factors so that executional activities can be performed effectively (Lai, Melloni and
Stacchezzini, 2016).
Rare: Plant and machinery of L'Oreal are not rare because other companies from same
sector may use them for the purpose of manufacturing their beauty products. High manpower is
rare because for all the businesses is not possible to have and retain them. Market share of
L'Oreal is rare as the large number of customers are being retained by the company and captured
a larger area of the market. Brand image of the organisation is rare because it has been
established by offering good quality products to the customers.
Inimitable: High man power are not inimitable because by putting higher efforts any
organisation can hire large number of employees. Market share and brand image are inimitable
because it is tough to maintain these elements for a long period a single and small mistake
related to product quality can harm the market share and image of the products (Linder and
Williander, 2017).
Organised: Market share of L'Oreal is not organised because by offering same products
on low prices any company can capture large area of market. Brand image of the enterprise is
organised because it takes long period to establish a positive image in the mind of customers and
for other entities it is not possible to harm its image.
TASK 3
P3 Evaluation and application of Porter's five force model
Porter's five force model: It is a competitive analysis model which was developed by
Michael E. Porter in year 1979 in order to help the organisations to analyse the competitive
market place (Porter's five force model, 2019). There are five different elements of it that may
guide the managers to focus on essential elements such as competitors, substitutes etc. A five
force analysis for L'Oreal is as follows:
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(Source: Porter's five force model, 2019)
 Existing rivalry among competitors: Competitive rivalry for L'Oreal is very high
because there are end number of competitors that are available in the market and trying to
capture the market share of the company. Some of them are Mac, Dior, Maybelline,
Lancome, Estee Lauder etc. It is very important for the organisation to form attractive
strategies that may help it to compete with its competitors in appropriate manner.
 Bargaining power of suppliers: In Cosmetic industry bargaining power of suppliers is
very low because there are end umber of suppliers in this sector and if one is selling
material on high price then companies may shift to another. As L'Oreal is a part of this
industry so the bargaining power of suppliers will also be low for the company which is a
positive point for the organisation (Orna, 2017). It can help the enterprise to buy material
for beauty products from suppliers on cheap price.
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Illustration 5: Porter's five force model, 2019