Strategic Analysis of L'Oréal: Macro Environment and Business Strategy

This report provides a comprehensive analysis of L'Oréal's business strategy, focusing on the impact of the macro environment on the organization and its strategic decisions. It begins with an introduction to business strategy and the company's mission and vision. The report then delves into the external environment, utilizing PESTLE analysis and Ansoff matrix to assess opportunities and threats in the UK market. The analysis covers political, economic, social, technological, legal, and environmental factors. The report also examines the company's internal environment and capabilities, with a focus on the application of Porter's Five Forces model to evaluate competitive forces within the cosmetic market. Finally, it assesses strategic directions available to the organization, offering a strategic management plan with tangible objectives. The report concludes with a summary of key findings and recommendations, supported by relevant references.

L’Oréal

Table of Contents
INTRODUCTION...........................................................................................................................1
LO1.Analyse the impact and influence which the macro environment has on an organisation and
its business strategies………………………………………………………………………. 1
P1) Impact and influence of the macro environment on a given organisation and its strategies 1
M1) Macro environment to determine and inform strategic management decisions..................6
LO2.Assess an organisation’s internal environment and capabilities……………………....7
P2) Internal environment and capabilities of a given organisation using appropriate frame
works...........................................................................................................................................7
M2) Internal environment to assess strengths and weaknesses of an organisation’s internal
capabilities, structure and skill set..............................................................................................6
LO3.Evaluate and apply the outcomes of an analysis using Porter’s Five Forces model to a given
market sector………………………………………………………………………………..10
P3) Porter’s Five Forces model evaluate the competitive forces of a given market sector for an
organisation...............................................................................................................................10
M3) Strategies to improve competitive edge and market position base on the outcomes........11
LO4.Apply models, theories and concepts to assist with the understanding and interpretation of
strategic directions avaible to an organisation……………………………………………12
P4) Range of theories, concepts and models, interpret and devise strategic planning for a
given organisation.....................................................................................................................12
M4) Strategic management plan that has tangible and tactical strategic priorities and
objectives...................................................................................................................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Business strategy refers to course of action that helps an entrepreneur in attaining the
particular business objectives. It is related with seeking the competitive benefit at market place at
business than the corporate level. It is set of competitive actions and moves that the business
mainly uses to attract the consumers and also focus on attaining the set organisational objectives
(Bharadwaj and et. al., 2013). This present report is based on L'Oréal that is largest cosmetics
firm in worlds and developed the activities in field concentrating on skin care, hair care,
perfume, hair colour etc. Under this report will be discuss about the macro environment to
identify as well as inform the strategic management decisions. There will be discussion about the
Porter’s Five Forces model to evaluate competitive forces of cosmetic market sector.
LO1.Analyse the impact and influence which the macro environment has on an
organisation and its business strategies.
L'Oréal has picked an exceptional strategy: Universalisation. It implies globalization that
catches, comprehends and regards contrasts. Contrasts in wants, needs and customs. To offer
customized excellence and meet the desires of shoppers in all aspects of the world, L'Oréal is
driven by this vision of the world.
Mission of L'Oréal is putting forth "Beauty for All" by give the best in makeup development to
ladies and men around the globe with deference for their assorted variety. (L'Oréal, 2012) The
organization expansion mission esteems are "beauty is a language", "beauty is universal",
"beauty is a science" and "beauty is a commitment", these mission esteems are defined to
accomplish the objective by meeting all the excellence needs and wants.
The vision proclamation of L’Oréal speaks to the trademark as " Because I 'm deserving it “. The
organization is advancing to accomplish present points and closures.
Through its vision explanation it makes the estimation of its merchandises to its customer.
Although it targets only the rich shoppers and shows recklessness to the next market areas, the
visions of L’Oréal are somewhat clear.
In order to achieve its aim and to make L’Oreal into a model company, the following objectives
are sustained: innovating sustainably, producing sustainably, living sustainably and developing
sustainably.
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As we all know, strategy can be defined in different ways. According to Kay (1993) the strategy
of an organisation is the match between its internal capabilities and its external relationships.
A more general definition can be as: the frame work which determines the scope and direction of
a company over a long period of time.
From my point of view, the role of strategy is to help organisations to achieve its goal thru their
well-planned objectives. Strategy can have its advantages and disadvantages:
Advantages Disadvantages
Better use of resources Can be limited
Forces organisations to look ahead Can be time consuming
Provides a direction Some unplanned opportunities may be
missed
In view of their diverse field of activation, companies are applying various strategic planning
techniques in order to achieve the businesses goal/goals.
Some of the strategic planning techniques are as listed below:
 Forecasting – it can be defined as the predictions of market demand.
 Goal planning - Strategy is primarily determinate by goals with regards to the chances
and threats that exist in the market.
 Mission and vision - are central explanations of why you exist and where you are going.
 Structured Decision Making - The utilization of a procedure for strategic decision
making, for example, steps that enable your whole association to give technique
recommendations an arrangement of prioritization and endorsements.
 Capability analysis - Depicting your organisation as a lot of capacities and recognizing
holes that speak to a focused shortcoming or new abilities that speak to a potential
preferred standpoint.
 SWOT - An evaluation of current strengths, weaknesses, threats and opportunities.
 ETC
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P1.Impact and influence of the macro environment on a given organisation and its
strategies
External environment refers to composed of outside factors which impact on business operations.
The factors can be related to market conditions, political issues, demographic factors etc. which
affect success of business. Hence, there are impacts of macro-environment on the strategic
decision-making of a business organisation. For this reason, a macro-environmental analysis is
important. There are several macro-environment analytical tools such as PESTEL analysis,
Stakeholder analysist and SWOT analysis together with Ansoff matrix.
PESTEL analysis is a framework used by companies to track the environment they are operating
in or are planning to launch a new product/service etc.
According to Schmeer (2000.p21) Stakeholder analysis is a process of systematically gathering
and analysing qualitative information to determine whose interests should be taken into account
when developing and/or implementing a policy or program.
SWOT analysis is a framework for identifying and analysing the internal and external factors
that can have an impact on the growth of project, product, place or person.
Ansoff matrix is a marketing planning model that helps a business determine its product and
market strategy.
Contextually, for the organisation, I have attempted to analyse the tools could fit with the
L’Oreal and I find PESTEL analysis and Ansoff matrix the most appropriate tools for this.
PESTLE Analysis
The macro environmental factors develop the more influence on strategies which are
developed through firm as these components affect way under which it operate business. So, it is
important for L'Oréal to analyse macro environmental factors ion a proper manner (Blackburn,
Hart and Wainwright, 2013). For this purpose, company use PESTLE analysis and it is helpful in
determining the different opportunities as well as threats present at marketplace in UK for
L'Oréal. PESTLE Analysis mention below:
Political factor- This factor includes rules and regulations of country, policies of
government etc. In United Kingdom, government is stable and also consider as successful
country in context to execution,. Regulatory quality, government effectiveness etc. It is necessary
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for L'Oréal to follow all rules and regulations in addition to attain sustainability at marketplace of
United Kingdom. Under this, UK government developed European Cosmetics Regulations
1223/2009 that is necessary and contains all regulations that L'Oréal should be followed.
Economic factor- This factor mainly impact on buying power of consumers. It consists
foreign exchange rates, taxation, inflation etc. After the global crisis, UK experienced more
downturn with its economy that impact on the financial heath of people as well as business.
More demand of customers result more profit to company. On the other hand, if in case there is
no demand of customers then it develop negative impact on business of L'Oréal (Cepiku and
Bonomi Savignon, 2012).
Social factor- The beauty and cosmetic sector receive more inescapable attention. Social
factors encompasses technical trends in society. In this, modern societies are interested in the
fashion trends and they are more conscious towards the fashion. In this modern era, people give
more importance to herbal products for take care the skin. So, it is necessary for L'Oréal to focus
on develop the herbal beauty products which can help in enhance sales and increase economy of
UK.
Technological factor- UK is more technological advancement country that has its branch
in each sphere of life. This facilitate L'Oréal to use advanced technology for the development of
its product that leads to more skin benefit and free from any sort of side-effects. The government
of United Kingdom suggest to adopt the new machineries and technologies to L'Oréal so that it
can make innovation in its existing cosmetic products by adding the better features.
Legal factor- It is related to certain standard and legislation that can organisation should
be follow in context to perform the business operations in an effective manner in UK. Under this,
there are some legislations which are formed through UK government such as product regulation
act, competitive regulations, Cosmetic Act, Fair Packaging and Labeling Act (FPLA) etc. It is
necessary for L'Oréal to follow these laws at the time of conducting its business.
Environmental factor- This factor encompasses different global environment safety
legislations which should be abide through global standards. Under this factors include such as
natural disaster, climate condition etc. which impact on operations of business. Under this, all
international brands playing a necessary role in support world. In United Kingdom, UK
government developed some environment regulations which are necessary to be followed by
L'Oréal while making its skin care or beauty products (Hill and Seabrook, 2013).
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Ansoff's growth vector matrix
Ansoff matrix refers to strategic planning tool that help in provide framework to help
senior managers, marketers and executives to develop strategies for the future development of
business. It is marketing planning model that assess business to identify its product as well as
market growth strategy. This matrix includes four main strategies which help business to attain
more success. With the help of applying this model, L'Oréal will develop its strategies to attain
competitive benefits. Ansoff matrix of L'Oréal given below:
Market penetration- In this, the main focus of firm is to make improvement in its
current offerings in existing markets. It will be helpful in enhancing the market share. In addition
to this, L'Oréal can make increase its market share through improving quality of its beauty
products and also provide them at minimum cost as comparison to its competitors (Iacob,
Quartel and Jonkers, 2012).
Market Development- Under this, company tries to expand its business in new markets
with existing products. With the help of entering in to new market, L'Oréal can attract the large
number of customers and also enhance its profit level.
Product Development- In this kind of strategy, company seeks developed through
introducing new product in established market. Company will stay in existing market but
enhance range of goods for further expansion as well as growth. In addition to this, it is
necessary for L'Oréal to provide the new products with better featured on the basis of changing
preferences and needs of target market.
Diversification- It is business strategy under which firm enter in new market with the
new product. It is helpful for business to offering the many growth related opportunities. Under
this, L'Oréal can develop the new products in the new market and through this it can enhance its
customers.
These are the different kind of strategies which L'Oréal can be adopt for gaining the
competitive advantage. For L'Oréal, product development is one of the better strategy as it will
help in providing the better growth related opportunities. With the help of this, L'Oréal can
maintain its strong customers base and also attract the more people to use its products (Hoque,
2013).
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M1. Macro environment to determine and inform strategic management decisions
Macro environmental analysis is very essential part of a company's strategical planning as it
helps in taking more effective decision that help in accomplishing organisational goals and
objectives. By performing macro analysis L'Oréal will be able to determine the threats as well as
opportunities present in external environment that may influence its operations. Information
collected from this analysis help it in taking informed strategic decisions by forming up set of
tactics to deal with threats present in market. In addition to this it also helps in forming up action
plan for exploiting the opportunities present in market.
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LO2. Assess an organisation’s internal environment and capabilities.
P2) Internal environment and capabilities of a given organisation using appropriate frame
works
Internal environment refers to composed of elements within firm consisting management,
current employees, corporate culture etc. It deals with resource management such as physical
resources, financial, human resource, technology and many others which constitute firm to
execute strategy (Pasquinelli, 2014).
Strategic capability
It refers to ability of business to successfully employ the competitive strategies which
allow to survive as well as enhance value over the time. It is set of resources, skills and
capacities to develop the long term competitive benefit for company. In this, strategic capability
of firm is based on the strategic capabilities of managers. It is helpful for help L'Oréal in
examining resources which are necessary in implementing specific strategies. It will help in
reducing risk and provide the positive outcomes in success of firm.
VRIO/VRIN model
VRIO Analysis refers to analytical techniques that is used for evaluation of firm's
resources and get competitive advantage. It is a kind of framework that form part of large
strategic scheme of company. VRIO stands for Valuable, Rareness, Imitability and organisation.
The strategy of L'Oréal is to target new market, enhance strong customer base through providing
the better quality of beauty products. This can be attained through make improvement in internal
capabilities of L'Oréal. The VRIO model of L'Oréal given below:
Valuable- Under this, resource add some value through enable company to exploit the
opportunities and remove threats. If the resource is valuable then it will help in providing the
benefit to business (Peng, 2017). It can be attained through make differentiation as well as
reducing cost of products.
Rare: Resources which are not possesses and uncommon through firm are rare. When the
resources are rare and valuable then it provide the competitive benefits. In the cosmetic industry,
competition is high and resources are same. So, it is necessary for L'Oréal to give training to staff
members so that they can improve their competencies to enhance working capabilities.
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Imitable- The resources are complex to imitate if they are expensive for other firm to
acquire them. In order to this, if resources are valuable, rare and imitate then it will help in
provide the competitive benefit. For attaining the sustained competitive benefit, L'Oréal should
be capable to exploit valuable, rare and also imitable resources.
Organisation- Resource itself does not develop any kind of benefit for firm if it is not
organised ion proper manner to exploit resources and also capture value. It is necessary that the
resources should be organised in a proper manner so that they can be utilised in conducting
business operations (Scholes, 2015).
Resource and capabilities of L'Oréal
Capital Access- The L'Oréal company has an internal source for fulfil capital demand by
taking the money from its investors. In order to conduct the promotional activities or give
advertisement, there will be requirement to L'Oréal to arrange fund.
Brand equity- L'Oréal provided the better quality of beauty products in market with no
more chemicals. It take care the skin of people and make continuously improvement in its
products. This company provide its products in different countries and it have high brand equity.
Due to its better brand name, people like to buy and use its products.
Resources and
capabilities
Valuab
le
Rare Costly to
Imitate
Organized to
Exploit
Impact on Competitive
Advantage
Access to capital Yes No No No Not enough for competitive
advantage.
Brand Equity Yes Yes Yes Yes Sustained competitive
advantage
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M2. Internal environment to assess strengths and weaknesses of an organisation’s internal
capabilities, structure and skill set
Internal environmental analysis help Loreal in determining its strength as well as
weaknesses which it have. This information help it in utilising the strength that can be used to
achieving success in critical task and on other side it will be able to decide several actions that
can be taken to improve weaknesses.
Strength:-
 Loreal have higher brand recognition and known as the largest beauty & cosmetic
company throughout the world.
 The quality of product is relatively higher which worth the price customer pay to
purchase it.
 Loreal operates its business in approx 130 countries with strongest brand positioning
strategy.
Weaknesses:-
 Loreal has too many sub division in brand as a result of which any defect in particular
brand affect the image of whole family.
 Ganier provide toughest competition to Loreal hair care product which affects its sales
and profitability.
 The price of its product is relatively higher (Schrader, Freimann and Seuring, 2012).
McKinzie's 7s model refers to tool that is mainly used for analyse the organisational design
through looking at 7 main internal components and these are mention below:
Strategy- It is plan that is developed through firm in order to attain the sustained
competitive benefit at market place. By using vision and mission, the objectives of L'Oreal
become more clear.
Structure- It represent way business units and division are organised and consist
information and data who is accountable and to whom. It is kind of a organisational chart and
helpful in change components to framework.
Systems- It is a process and procedure of firm that reveal daily activities of L'Oreal
company and also determine the decision made.
Skills- These are abilities that employees of an organisation to perform in a better
manner. It consist the competencies as well as capabilities.
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