Strategic Management Process - Essay Example

? Strategic management Contents Contents 2 Introduction 3 2.Company background 4 3.Competitive advantage 5 4.Porter’s five forces 6 5.Pestle analysis summary 9 6.Porter’s generic strategies 10 7.SWOT analysis summary 11 8.Conclusion 12 9.Recommendation 12 Reference 14 Appendix 16 Appendix A 16 Appendix B 17 1. Introduction Strategic management is an essential tool for all the marketers and is used extensively by all to create competitive advantage over the competitors in the same field. Strategic management is a method through which organisation tends to learn and analyse from both internal as well as external environments and establish strategic direction, create new strategies to achieve the set goals of the organisation. The strategic management model represents practical series to frame central topic of strategic management (Harrison & St. John, 2009, p.4). The strategic management process includes four phases shown in Figure 1, Figure 1: Strategic management Process (Source: Kazmi, 2008, p. 20) This paper also aims to discuss the strategic management process of L’Oreal and the strategies adopted by company to achieve competitive advantage and implementation of the strategies. The paper also talks about the internal and external factors affecting the organisation in the long run and tools such as SWOT analysis, Porters five force along with generic strategy are discussed in detail. Finally set of recommendation are offered to the organisation. For more than centuries, L’Oreal has invented beauty and has met with the aspirations of millions of women and men. L’Oreal aims in offering the best quality of cosmetic along with safety and efficacy to everyone who wants to access to beauty (L’Oreal, 2011). L’Oreal is the largest cosmetic company, it had transformed from being a French company into a global renowned business in sectors like skin, cosmetics and hair care. The company was founded in the year 1953 as Cosmair, Inc. In spite of its origin from France, the company is French only when the need arises else it’s satisfied being Asian, African or anything that accounts to sales (Noel, 2008, p.48). The company is committed in carrying out the mission who is to make beauty universal in a way that would be sustainable and responsible. It is ranked among the top 100 ethical and sustainable companies globally (L’Oreal, 2011). The company has about 23 global brands in around 130 companies with 66, 600 employees. The brands annual sales turn up to be more than 50 million Euros. Some of the consumer products of L’Oreal are L’Oreal Paris, Garnier, Maybelline New York, soft sheen Carson to name a few. The brand has its presence felt globally and has been well accepted by the people. 2. Company background L’Oreal is the largest cosmetic company across the world and was established in 1909 by Eugene Schueller, who was a French chemist. By the year 2003, the company had entered 130 countries through 290 subsidiaries and agents. The main heart of L’Oreal strategy is the dermatologist and cosmetic department. The L’Oreal group had thus marketed about 500 brands and provides services for all sectors of business such as body care, skin care, fragrances, hair colour and other products. L’Oreal owns various brands such as Garnier, Armani, Maybelline, and others. According o L’Oreal innovation and diversification were the critical success factors for the brand and invested highly on research and development but recovered the investment made by launching the products globally. L’Oreal markets its product under its name and also other family brand names. L’Oreal strategy was to drop down technology over the time from high end outlets and markets to the mass population. The brand Plenitude was the market leader in France but in US it was not that promising but with its innovation and diversification strategy the company was able to overcome it (Hitt, Ireland & Hoskisson, 2007, p. 158-159). 3. Competitive advantage Focusing on fundamentals of strategy does not always lead to formulation of strategies. In most of the industries, they tend to experience increase in pressure from the competitors and new entrant which requires the key players to access new sources towards profitability. There are few competitive advantages which tend to be sustainable in the competitive business environment. Thus the only sustainable competitive advantage is ability of the organisation to create new sources of competitive advantage. The main threat for the companies which have let organisation to remain stable with their market share and profitability is the capacity to build on differ layers of competitive advantage. Companies such as L’Oreal, Toyota, Wal-Mart, Swatch and 3M are those which have meshed varied performance goals of differentiation, cost efficiency, innovation, global learning and responsiveness (Grant, 2010, p. 464). L’Oreal in order to maintain its market share and position in competitive market environment has created various core competencies which have in turn created value for L’Oreal and has provided it with competitive advantage over its competitors. L’Oreal core competencies can be seen in product innovation as it invest in its R&D to create innovative and new products and also introduces one to two new products each year in the global market. However the huge investment made by L’Oreal in its R&D is regained through sales of its global launch of the product. Therefore L’Oreal innovative strategy is hard to imitate and ensures growth for the company ruling out the competitors and achieve competitive advantage. Another core competency of the company is the level of diversification of its products. The company offers various product lines such as perfume, makeup, and skin and hair product. The global brand image create by L’Oreal has also helped it to achieve core competency. Some of the related diversification of L’Oreal in cosmetic sector is Maybelline, Helena Rubenstein, Lancome, Kiehl’s Garner and Shu Uemura. In the hair care products category is L’Oreal and Carson hair care; Matrix, Redken, L’Oreal Professional and other skin care and hair products; in fragrances, Armani and Ralph Lauren are related diversification along with others (Thompson, 2010, p.284). Another core competency of L’Oreal is the supply chain of the company. L’Oreal has transformed its supply chain as competitive advantage which focuses on cost control, agile responsiveness, and service. The company combines the various tools, people, process in the process of developing the supply chain as a valuable partner for the business unit and customers. Thus key factor for the success of L’Oreal is their ability to convert the energy burst into new sales which were manageable as well as deliverable (The Logistic Business, 2011). According to L’Oreal, primary source of competitive advantage is idea and energy of the people at L’Oreal. The strength lies on quality, customer, integrity, environment and performance (L’Oreal, n.d). 4. Porter’s five forces The strategic management tool, the Porters five force is a conceptual framework which was developed in order to identify the threats from the five forces in a particular market. The five forces of Michael E. Porter that tends to shape the competition within the industry are bargaining power of supplier and buyer, threat of substitute, risk of new entrant and rivalry among the firms. Figure 1: Porters Five Force (Source: Hill & Jones, 2009, p.43) Porter agues to the fact that stronger the force, limited ability is possessed by the companies to raise the price and thus earn profits. As per Porters framework, strong competitive force can be regarded as threat as it reduces the profit earning of the key players. However a weak force is regarded as an opportunity as it allows companies to earn greater profits (Hill & Jones, 2009, p.43). The Porters five force helps organisation to determine the attractiveness of the industry and implements strategies and changes accordingly. Analysing the Porters force of L’Oreal (Appendix A), it has been founded that the bargaining power of buyer for L’Oreal can be said to high and this is because the there are few buyers but with a significant market share in the cosmetic industry making the power of the buyers high. Also in addition, the buyers have variety of choice to choose from as there are numerous brands made available in the market and thus threaten to purchase products from other brands such as Avon, Revlon or other known brands indicating a high level of power in case of buyer. The buying behaviour of consumers also tends to get influenced with discounts from other brands and high services provided by other cosmetic brands. Thus the power of organisation in such case is low as compared to the buyers, indicating bargaining power of buyer tend to exert substantial influence making the power of buyer high. The bargaining power of supplier on the other hand ranges from low to medium. The power of suppliers is low as L’Oreal has many suppliers while processing the product such as it has one set of suppliers while supplying the raw materials, in case of packaging, equipment and point of sales making the industry highly attractive. Since the supplier’s power is low it can be said that the cosmetic industry is highly attractive. According to Porters five force model, substitute products means products which are available from other industries. The threat of substitute tends to exist when the demand of the product gets affected by change in price. The price elasticity of the product is affected by the substitute product (McGuigan, Moyer & deB Harris, 2010, p.342). In case of L’Oreal the threat of substitute is high as cosmetic products are manufactured and sold by big players also such as Revlon, Avon and others providing the consumers various options to choose from suggesting a low brand loyalty towards a particular brand. New firms entering the industry tend to affect the profitability of the industry. The more attractive the industry is the more threat of new entrant the industry tends to suffers. The barrier to entry in the cosmetic industry can be decided upon capital investment, economics of scale and also government regulations. As high capital is involved in the cosmetic industry the threat of new entrant is low. Rivalry among firms is the fifth force shaping the industry and it can be said that the internal rivalry among the firms in the cosmetic industry is high. there exist high level of competition from various brands with low switching cost for the consumers and are able to switch from one brad to another and also the degree of differentiation among the brands are negligible making the competition tough and rivalry high. 5. Pestle analysis summary PESTEL analysis refers to political, economical, social, technological, legal and environmental factors which have an impact on the industry and the organisation as a whole. The political factors tend to govern the rules and policies in the cosmetic industry and it is necessary for the brands to comply with all the rules and regulations imposed by the government. The economic factors also tend to affect the cosmetic industry and the companies under it. The industry follows monopolistic competition as large number of firms exists with differentiated products along with a certain degree of control in the pricing strategy. The cosmetic sector contributes towards GDP of the country. The worldwide cosmetic market is set to increase in the future and currently it represents 153million Euros and also estimated to grow by 4.4%. Therefore as the economy gets positively affected by growth in the cosmetic industry, the social status of the population gets highly influenced. With high disposable income, the consumers are willing to spend on cosmetic and in grooming sector. According to reports it has been seen that it not just females but also male segment who prefers sending money in grooming themselves. L’Oreal is the market leader with 25.89% of market share globally (L’Oreal-a, 2011, p.16) and has also introduced products for the male segment. With regards to technology, L’Oreal has been using all the latest ones to develop new as well as improve the existing products to satisfy the needs and wants of the target customers. L’Oreal complies with all the legal rules and regulations before the company expands internationally and also in the domestic market. The company do not make use of any illegal products while developing product and adheres to rules and regulations. L’Oreal is regarded as the most ethical company. 6. Porter’s generic strategies Porter’s generic strategies revolve around three strategic choice, cost leadership, differentiation and focus. Different organisation pursues different strategic choice as per the requirements of the organisation and consumers. Organisation which seeks differentiation distinguishes itself from the competitors and usually charges a higher price and the customers are willing to pay the set price for the product. In case of cost leadership strategy, the organisation aims to gain a competitive advantage by reducing its price below the competitor’s price. As the cost is kept low, the organisation will be able to sell its products at the lowest possible price and still make profit. In focus strategy, organisation tends to concentrates on a specific market, or product line or buyers. This strategy may be either cost leadership focus or differentiation focus (Griffin, 2010, p.244). In case of L’Oreal, with its innovation and new product, it can be said that the organisation has adopted the differentiation strategy. The cosmetic giant, L’Oreal through its SBU tends to compete in different markets with different products and pursues premium pricing differentiation strategy in each of its segment. But at the same time due to its effective and efficient delivery services the activities are centrally managed and thus can also be said to adopt the cost advantage (Bowman, 2008, p. 3) 7. SWOT analysis summary SWOT analysis conducted in order to analysis the internal and external factors of an organisation. SWOT is referred to as strength, weakness, opportunity and threat and is conducted to help organisation overcome the weakness through its strength and reduce threats by availing the opportunities (Henry, 2008, p.61). L’Oreal strength lies with its innovation and research in the beauty segment offering the best product to its customers. L’Oreal is a global brand and has been operating all over the globe with 27 global brands in 130 countries and generated sales of 20.3billio in 2011 also adds on to its list of strength. The company has been able to overcome some of its weakness by applying the strength such as it effective channel of distribution the product reaches the store in time. Another weakness of the firm encountered is decentralised structure of organisation but due to it many products are made available in the market place. In the recent years the company has been experiencing little decline in the profit margins and this can be due to many subdivision as a result the top management are not being able to control effectively. The brand L’Oreal concentrates mainly on cosmetic products which tend to enhance women in all the ages. The Company has off lately introduced products for men category as it has seen opportunity to expand and explore the male segment and bring out new products. It has been seen that grooming has become an important part both for men and women and thus there exists huge opportunity for L’Oreal to introduce new and innovative product for both the genders and focus in the field of specialisation such as hair styling, skincare, colour, perfumeries and cosmetics. L’Oreal being the top global brand has an edge over other competitors and is known all over the globe. Opportunity also exists in the growing market from the masses, the affluent and also the aging section of the society. However threat for L’Oreal is its competitors in the cosmetic industry. As most of its competitors have reached a certain level where it is quite possible to surpass the profit of L’Oreal and take over the top position. In addition the economic downturn can pose a serious threat as consumers would try not to spend on expansive items and keep themselves limited from sending. Also change in lifestyle along with economic conditions can make L’Oreal out of the picture. 8. Conclusion Base on the analysis from various tools it can be concluded that L’Oreal in order to remain competitive in the market place has adopted various strategy and with needs and demands have also altered the strategies from time to time. L’Oreal has primarily adopted the premium price differentiation strategy in order to stay ahead but as stated above the company also make use of the cost leadership strategy. L’Oreal is the most popular and well known cosmetic brad and in order to maintain its position the company invest heavily in its R&D to innovate and create new products to suit the demands and need of its target market. With the female segment the many has also targeted the male segment and as per reports huge opportunity tends to exists as the male have started to take care about grooming themselves. 9. Recommendation L’Oreal being a global brand, its presence has been felt around the globe. The company has tasted success and is ranked among the top cosmetic brands all over the world. The company has been able to tackle the needs of the consumers by way of motivating them to buy the products. This has been portrayed by the spokesperson in the advertisements. The consumer tends to believe the advertisement and go on buying the product. But some of its advertisements are also misleading. The advertisement of L’Oreal Elvive Full Restore 5’ shampoo and conditioner has been banned as it was found out that the model was wearing an artificial hair extension. This advertisement was banned as it misleads its customers. Therefore the company should not portray any of its products which might mislead its potential customers. The consumers buy the product because they have generated a trust and feeling for the brand. If L’Oreal has to maintain the loyalty of its consumers it needs to act accordingly. There are many upcoming models that are blessed with real good hair, L’Oreal can therefore make them endorse the brands and stay away from the critics. When it comes to the decision process of the consumers, L’Oreal needs to position itself differently from its competitors. There is a huge rivalry among competitors such as Olay, Neiva etc. Also the company should try to minimize the chance of cannibalization between its core products Garnier and L’Oreal. While making the choice the consumer can easily switch over its competitors product. Thus L’Oreal can keep on inventing new products which would suit the consumer’s preferences and demand. L’Oreal can introduce new product range which would take care of the hands, would make the figures and nails shinny and soft. With every addition in the portfolio the demand for the brand increases (Stark, 2011, p.111). Apart from the misleading advertisements and competition from other brands, L’Oreal has fairly succeeded in convincing the consumers for choosing its product; it has been ranked number 1 in the beauty top 100 ranking by WWD Beauty Inc (L’Oreal-b, 2011). Reference Bowman, C., 2008. Generic strategies: a substitute for thinking? [Pdf] Available at: < http://www.ashridge.com/website/IC.nsf/wFARATT/Generic%20strategies:%20a%20substitute%20for%20thinking/$file/GenericStrategies.pdf> [Accessed 11 Jan. 13] Grant, R. M., 2010. Contemporary Strategy Analysis and Cases: Text and Cases. John Wiley & Sons. Griffin, R. W., 2010. Management. Cengage Learning. Harrison, J. S. & St. John, C. H., 2009. Foundations in Strategic Management. Cengage Learning. Henry, A., 2008. Understanding Strategic Management. Oxford University Press. Hill, C. & Jones, G. R., 2009. Strategic Management Theory: An Integrated Approach. USA: Cengage Learning. Hitt, M. A. Ireland, R. D. & Hoskisson, R. E., 2007. 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Appendix Appendix A Porter five forces Of L’Oreal Appendix B SWOT Analysis of L’Oreal STRENGTH Global presence Strong R&D High Market share Effective channel of distribution WEAKNESS Decentralised organisational structure Low profits in last few years OPPORTUNITY Men segment Ageing market and mass marketing Global brand THREATS High competition Economic downturn Change in taste and preference Read More