Strategic Planning and Management: An Analysis of the Internal Resources of LVMH - Case Study Example

Strategic Planning and Management: An Analysis of the Internal Resources of LVMH Introduction This essay is about the internal resources and capabilities of LVMH, a French luxury goods corporation. The essay looks at three things about the internal resources and capabilities of the organisation. The first one is the type and nature of the resources and capabilities of the company. The second one is the manner in which the resources and capabilities of the company are valuable, rare, inimitable and related to all the other aspects of the organisation. This approach is based on the VRIO framework. The importance of using this approach in the essay is that the manner in which LVMH uses its different resources and capabilities to create and maintain a competitive advantage in the personal luxury goods industry is explained. LVMH is a conglomerate that comprises over 60 different brands of personal luxury goods. The origin of the company can be traced back to the 18th century following the launch of Louis Vuitton, a company that specialised in the manufacture of designer travelling bags in France (Mahbubani, 2013, p. 2). LVMH was born back in 1987 following the merger of LV and Moet Hennessy, a larger competitor at the time (Mahbubani, 2013, p. 3). A series of acquisitions and aggressive expansion projects have enabled the company to grow in terms of operations and market share to become one of the largest four companies in the global personal luxury goods industry (Frynas & Mellahi, 2015, p. 31). The performance of LVMH in the recent past has been good. For example, it has been noted that the company rode on the wave of growth of the global personal luxury goods industry to perform well between 2010 and 2012 (Goldberg & Sehl, 2012, p. 22). Furthermore, the financial results of the company indicate that revenue and profits from recurring operations have been growing over the past three years consecutively (LVMH, 2015, p. 2). This, therefore, reflects the positive performance of all the five business segments of the company (fashion and leather goods, wines and spirits, perfumes and cosmetics, watches and jewellery and selected retailing) over the last few years. Organisational resources and capabilities of LVMH The concept of the resources and capabilities of an organisation is part of the resource based theory of the firm. According to this theory, an organisation is able to perform better than its rivals in its industry because of the manner in which it utilises specific attributes and resources that are at its disposal (Pringle & Kroll, 1997, p. 74). Resources are defined as the assets that a company is in possession of (Hubbard, Rice & Galvin, 2014, p. 107). On the other hand, organisational capabilities are the activities and processes that a company uses to create value for its customers by exploiting its resources (Hubbard et al., 2014, p. 107). The resources and capabilities of a company can be categorised into the following three classes: physical, human and organisational (Pringle & Kroll, 1997, p. 73). Physical resources are related to the tangible assets that are owned by an organisation. Human resource capabilities are related to the value that the employees of an organisation offer for the benefit of the organisation. Lastly, organisational resources and capabilities are related to the manner in which an organisation approaches its operations. LVMH has a number of resources and capabilities. What is important to note is that all the resources and capabilities of the company can be categorised into the three classes of physical, human and organisational resources and capabilities. The following is a description of four of the most important resources and capabilities of the company. The first one is competence in management. In general, the success of LVMH in the recent years can be attributed to many factors. However, one of the most important things that have contributed to the success of the company is the good decisions that have been made by its management team. These decisions have touched on the different aspects of the business such as how to market the brand of the company to the different market segments in the industry and how to streamline manufacturing and other operational activities so that the company operates profitably. For example, Grant (2016, p. 368) observes that the management team of LVMH has managed to successfully transfer the capabilities of the company in terms of brand and distribution management to the different brands that form the entire company. Therefore, the knowledge, skills and experience of the management team of the company is an important type of human resource capabilities and resources of the company. The second resource and capability of LVMH lies in its design capabilities. Success in the personal luxury consumer goods largely depends on the exclusivity of the specific goods that are sold by companies (Jeantel, 2012, p. 7). This implies that companies in the industry have to design products that consumers will regard as highly classy and completely exclusive. For LVMH, the ability to design truly classy and exclusive products has been one of the company’s defining attributes since its early days (LVMH, 2016). Similarly, Mahbubani (2013, p. 13) notes that LVMH has been known for having highly talented individuals in design. This has benefited the company in several ways. For example, it has enabled the company to develop highly innovative and exquisite products. In addition to this, it has helped the company to develop products that meet the different needs of clients in the different market segments of the industry. As well, having highly talented individuals in design has helped LVMH to develop products that are of very high quality in the entire industry. Therefore, it can be seen that the design capability of the company is an important example of an organisational resource and capability. The third example of the organisational resource and capability for LVMH arises from its approach to the manufacturing process. Over the years, the company has managed to streamline its manufacturing process in such a manner that it is able to access the highest quality of raw materials easily and uses its technological advances to optimise the process. Whereas other companies in the industry have maintained the approach in which they outsource the manufacturing process, LVMH has retained the manufacturing process as one of its in-house operations (Goldberg & Sehl, 2012, p. 23; Mahbubani, 2013, p. 13). This approach has given the company the ability to control its supply chain as well as the quality of the products that it offers to the market. Therefore, this is an example of an important organisational resource and capability that the company has. Analysis of the organisational resources and capabilities of LVMH The extent to which the resources and capabilities of an organisation can be used to develop strategic advantages for the organisation is determined by looking at whether the resources and capabilities satisfy the criteria of the VRIO framework (Hubbard et al., 2014, p. 108; Pringle & Kroll, 1997, p. 74). Hence, it is only when a resource is valuable, rare, inimitable and integrated in the operations of the organisation that it can be used by the organisation to create sustainable strategic advantages. The following is an analysis of how the resources of LVMH that have been identified measure against the criteria of the VRIO framework. In the first place, it should be noted that the access that the LVMH has to a very competent and skilled management team is a very rare resource. The current management team of the organisation comprises individuals who have worked in the industry for a considerable length of time. Furthermore, some of them have spent a considerable period working for LVMH, meaning that they have insider knowledge about the operations of the company. Therefore, the difficulties associated with attracting, training, retaining and then promoting highly talented individuals into managerial positions makes this resource very difficult to be imitated. On the other hand, the resource is valuable to LVMH in several ways. For example, the highly competent management team is able to make highly effective strategic decisions that help the company to avoid the potential pitfalls arising from industry threats on one hand and take advantage of opportunities that exist in the industry on the other. Therefore, having a competent management team is a resource which is highly valuable to LVMH, cannot be easily copied by the company’s rivals, and is central to the operations and strategic decisions of the company. The design capability of LVMH is also an equally valuable resource. It is because of the ability of the company to design highly classy products that the company is able to serve the different segments of the personal luxury consumer goods market. The ability to design highly classy products is the basis of the value proposition of the company. Hence, this capability is highly valuable to the company since it forms the basis for the entire business model of the organisation. This capability is also rare and difficult to imitate. These attributes increase the importance of design capability to the operations and success of LVMH. The approach that LVMH uses to manage its manufacturing operations, which entails moving the entire process in-house and optimising it using technology, is also valuable to the company. Although it is possible for other competitors to follow a similar approach, the risks that are associated with the process make it difficult for other companies to easily adopt the approach. Conclusion The success of LVMH over the recent years in the personal luxury goods industry is based on the manner in which the company has managed to use its different resources and capabilities to create a competitive advantage over its rivals. The three most important resources and capabilities of the company are its highly competent management team, the novel approach that the company uses to manage its manufacturing process and the company’s capacity to design highly classy products. These resources meet the criteria of the VRIO framework in that they are valuable to the company, they cannot be easily copied by rivals, are rare and that they are part and parcel of the operations of the company. References Frynas, J. G., & Mellahi, K. (2015). Global strategic management. Oxford: Oxford University Press. Goldberg, J., & Sehl, J. (2012). LVMH: Saddling up for a bumpy ride-how LVMH can achieve growth after a failed bid for Hermes. Ivey Business Review, vol. 1, pp. 22-24. Grant, R. M. (2016). Contemporary strategy analysis. Mason: John Wiley & Sons. Hubbard, G., Rice, J., & Galvin, P. (2014). Strategic Management (5th ed.). Pearson, London. Jeantel, K. M. (2012). Louis Vuitton Moet Hennessy: Company analysis and investment recommendation. Retrieved from http://s3images.coroflot.com/user_files/individual_files/500267_H_jxIO2eTaViTyLAB_HuQdS8I.pdf LVMH. (2016). The LVMH spirit. Retrieved from https://www.lvmh.com/group/about-lvmh/the-lvmh-spirit/ LVMH. (2015). Financial report for the fiscal year ended December 31, 2015. Retrieved from https://r.lvmh-static.com/uploads/2016/02/documents-financiers-2015-lvmh_va.pdf Mahbubani, M. (2013). Louis Vuitton. Richard Ivey School of Business, University of Ontario, Ontario. Pringle, C. D., & Kroll, M. J. (1997). Why Trafalgar was won before it was fought: Lessons from resource-based theory. Academy of Management Executive, 11(4), 73-89. Read More