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Avon Products Company: Financial Woes Essay


Introduction

Avon Products, Inc. (Avon) was formed 131 years ago in the United States to empower women across the globe. As such, the company specializes in manufacturing and distributing feminine products, for instance, cosmetics, beauty products, and other household items. Since its formation up to 2005, Avon had expanded to become a successful multinational corporation with operations in 40 countries. To date, the company obtains most of its revenue (83%) from overseas operations. This essay discusses the financial woes that befell Avon, including its subsequent turnaround, as well as the prospects lie in the way of the company if the current trend continues.

The Status of the Company that led to its Determination that a Change was Necessary

After 2005, Avon began experiencing a series of difficulties that have since been attributed to bad decisions by the management (Aguinis & Gottfredson, 2011). Besides, the global business environment had been changing gradually in the disfavor of Avon. For instance, certain legal restrictions had come into existence, thereby limiting the company’s operations. Chelekis and Mudambi (2010) also report that various representatives of the company were disgruntled with how it operated. Cumulatively, these factors caused the company’s revenue and profit status to take a downward spiral. Thus, despite Avon’s gigantic size, it has been struggling financially in the last couple of years. Analysts believe that the company expanded faster relative to what its resources (both infrastructure and human resource) could accommodate, thus causing a huge strain (Aguinis & Gottfredson, 2011). Thus, in full understanding that the company was operating at a loss, the management decided that a review of its strategy was critical. As a result, Avon embarked on certain activities to cut back losses.

The Model for Change Theory Typified in the Case Study

The proposed changes within Avon involved a special focus on talent. The management realized that both the company’s aptitude and talent-building capacity were wanting. Talent matters greatly for Avon because as an organization, intangible resources (particularly, dedicated workers and personalized interaction with customers) form part of its most important strength. Accordingly, Avon’s management decided to adopt the 360-degree feedback system as the model for change. According to Aguinis and Gottfredson(2011), the 360-degree feedback tool helps to strengthen competency around leadership behaviors. Ordinarily, in line with Avon’s case, an organization expects the leadership to adopt various leadership styles that can propel it (organization) to success. Hence, efforts were made to initiate an appraisal of talent within the company after realizing the prevailing little knowledge of the company’s existing talent, a situation that made it difficult to determine areas of improvement.

Further assessment of Avon’s weak market performance had made it apparent that a culture of egalitarianism prevailed in the company. Talent in the company was not properly differentiated (Bartling, Fehr, Maréchal, & Schunk, 2009). Going forward, the management embarked on talent differentiation whereby performers would be identified and possibly rewarded. Similarly, non-performers would be identified and managed more effectively henceforth. Another area of weakness that required intervention was a complexity in capacity management that made talent growth nearly unachievable. Immediately, the talent process was simplified to create an environment where one’s ability could be grown and managed more effectively. Also, the human resource department was put to task to ensure accountability in areas such as talent reviews. These factors had the impact of strengthening relationships within the organization, thus creating an enabling environment for Avon to expand.

Rationale Behind the Selected Model

The choice for the 360-degree tool was influenced by the existing evidence regarding its ability to turn around failing businesses. As Aguinis and Gottfredson (2011) point out, this tool assists companies to examine and evaluate the work-related performance of individuals. Such information can then be used in designing strategies to improve the weak areas. A 360-degree survey provides an avenue for leaders in an organization to provide feedback in a constructive, yet confidential manner. In this model, leaders are encouraged to respond to specified questions regarding their performance. The questions are based on day-to-day work-related activities. The benefits of the 360-degree feedback system (if done correctly) are numerous. One of the benefits is that it boosts participants’ self-awareness. Besides, it promotes dialogue and working relationships in the organization, hence creating an enabling environment (Hegde & Hughson, 2008). These factors, among others, meant that the model was the most suitable for Avon’s scenario.

The Type of Evaluation Information Collected and the Corresponding Benefit to the Company

Avon’s biggest challenge was identified as dwindling revenues and profits. Therefore, the information collected related to the company’s revenue position then and during previous trading periods. Comparisons revealed that the company’s operations had been expanding faster relative to what its resources could sustain. Specifically, Avon had grown from a $5 billion revenue size to $10 billion returns within a short span. It was discovered that such a rapid growth had opened up the company to vulnerabilities in the market. Armed with this information, the management was able to determine that a 360-degree assessment was necessary for all major departments and heads of the organization.

At first, this assessment was aimed at collecting actionable information, as opposed to being used to dismiss employees and managers. The 360-degree tool is instrumental in measuring the performance of individuals at the workplace (Aguinis & Gottfredson, 2011). For Avon, information collected was used in reshaping talent-building approaches, including encouraging transparency in the company. Managers within an organization act based on the available information. At Avon, information on talent management enabled the management to decide areas that needed improvement.

The Success of the Changes Within the Next Five Years

Since adopting the turnaround, Avon has been experiencing a gradual recovery from its earlier situation. Evidence of recovery can be observed in certain aspects such as goal setting, employee management, and improved feedback channels. With improved talent management, employee development happens much faster compared to the past (Hegde & Hughson, 2008). Also, the behavior of leaders can be scrutinized with ease, a situation that has had the effect of making departmental heads more accountable. Another area that benefited from Avon’s turnaround is its expenditure were efforts to minimize while increasing revenue spending has already borne fruit. Given the current track record thus, Avon is expected to continue its upward growth.

The company’s revenue will likely expand again, thus enabling the company to support its operations in all its branches across 40 countries. The continued growth of Avon outside the US is of utmost importance, granted that over 83 percent of the company’s revenue is obtained from its overseas operations (Turner, 2016). For this reason, Avon’s management should consider reopening its branches in countries such as Vietnam where it had already abandoned operations.

Adjustments to be Made if the Results Become Less than Ideal

Avon made a grave miscalculation when it embarked on exploring other capabilities at the expense of its existing core competencies. This deviation may be corrected by shifting the focus back to offering resources that both the company’s representatives and customers are interested in. This adjustment will also address the challenge of being in a competitive industry by building customer loyalty. Besides, the company must engage in deliberate efforts to raise the switching cost to prevent customers from embracing cheaper alternative products. Another strategy would be to engage skilled representatives capable of providing customers with a personalized experience. By providing a personalized experience, the company will succeed in achieving customer loyalty even in the face of cheaper alternative cosmetics.

Avon must invest in strengthening its intangible resources to make up for deficiencies in its tangible resources. Reverting to its traditional cost-leadership strategy will help the company to compete effectively with more established rivals. Established businesses have the benefit of numerous funds, which provide them with a competitive advantage. Therefore, Avon must embark on building its intangible resources to gain an edge against these established rivals. Overall, Avon needs to appreciate that the company’s representatives offer an important link between it and its customers. Hence, its representatives should be empowered through training and availability of resources to reach customers with personalized services and products. Importantly, Avon should not engage in extending beyond its capabilities since such a move will unnecessarily strain its financial resources.

Conclusion

Avon cut a niche in the cosmetic industry as a business solely dedicated to empowering women through the provision of affordable products. By offering personalized services to customers, the company sets itself apart from its competitors. However, recent managerial changes such as job cuts have resulted in the undermining of the company’s key competencies. To restore Avon’s position in the industry, the management should actively pursue the newly adopted change model that facilitates talent growth, accountability, as well as expenditure reduction.

References

Aguinis, H., & Gottfredson, R. K. (2011). Why we hate performance management: And why we should love it. Business Horizons, 54(6), 503-507.

Bartling, B., Fehr, E., Maréchal, M. A., & Schunk, D. (2009). Egalitarianism and competitiveness. The American Economic Review, 99(2), 93-98.

Chelekis, J., & Mudambi, S. M. (2010). MNCs and micro-entrepreneurship in emerging economies: The case of Avon in the Amazon. Journal of International Management, 16(4), 412-424.

Hegde, R., & Hughson, A. M. (2008). Consultant appraisal of consultant appraisal. The Psychiatrist, 32(6), 214-217.

Turner, N. (2016). Bloomberg News. Web.

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