L’Oreal: Change and Continuity in Contemporary Business Report

Introduction

L’Oreal Company was founded in 1907 by a visionary chemist who set the foundation that has enabled the company to explore successfully the international market. The company has been led by very few visionary leaders who were determined to achieve nothing less than to make the company a global leader. L’Oreal has been under the leadership of only four CEOs namely Eugene Schueller, Lindsay Owen-Jones, Charles Zviak and Francois Dalle for almost a century.

The company has consistently upheld the culture of innovation, visionary leadership, organization, research and development over the years. There are both internal and external influences to L’Oreal. The internal influences include research and development, organization, strategy as well as culture. L’Oreal’s external influences include marketing and competition. In addition, globalization of L’Oreal business influences to a great extent decision-making and policies of the company.

History of L’Oreal Company

L’Oreal Company was founded in 1907 by a chemist known as Eugene Schueller. He named the company after its very first product known as L’Aureole, which is the first artificial hair-color product in the whole world (Jones, Kiron, Dessain & Sjoman, 2006). Jones, Kiron, Dessain and Sjoman (2006) assert that the hallmark of L’Oreal Company then was a firm combination of production, marketing and sales. According to Fayole, Basso and Legrain (2008), by 2005 L’Oreal had spread to 58 countries with a workforce of 52 000. In the same year, the company had a turnover of about 14.5 billion Euros. However, by 1912, the products of the company could be found in several countries such as Italy, Australia and Netherlands.

The company has exhibited a culture of innovation in the past years aimed at constantly refining and modernizing different ranges of its cosmetic products especially its world-famous brands (Haig, 2007). L’Oreal’s world – famous brands include Maybelline, L’Oreal Paris, Vichy, Helena Rubinstein, Garner, Ralph Lauren, among others. Eugene Schueller invented Dop (soapless Shampoo) in 1934. When L’Oreal entered the market of the United States after the Second World War, it was faced with several challenges. It acquired Cosmair in 1953 to distribute its products to beauty salons in the United States. The challenges L’Oreal faced in the United States included the fact that hair salons and their clientele were not familiar with the company’s brands as well as their quality. The other challenge was use of intermediaries as opposed to national distributors to supply the product. In addition, French prestige that had been quite helpful in selling L’Oreal’s perfumes was not effective in selling hair-coloring items in the market of the United States (Reynolds, 2007).

In close to a century it has been established by Fayole, Basso and Legrain (2008) that only four CEOs have served at the head of the company. The four CEOs that have served in the last century include Eugene Schueller who is the founder, Lindsay Owen-Jones, Charles Zviak and Francois Dalle. It is argued that Francois Dalle who in 1942 joined the ranks of Monsavon at the age of 24 after being recruited by Eugene Schueller is the central character in the story of L’Oreal. According to Fayole, Basso and Legrain (2008) the following are the key dates of L’Oreal existence in the century:

• 1907- Eugene Schueller starts Aureale hair dye
• 1928 – Monsavon company takeover
• 1934 – Launching of the brand Dop
• 1939 – L’Oreal derived from Societe francaise des teintures inoffensives pour cheveux
• 1942 – Francois Dalle recruited in Monsavon
• 1948- Francois Dalle becomes L’Oreal Joint General Manager
• 1957- Eugene Schueller dies and Francois Dalle becomes CEO
• 1963 – Listing of L’Oreal in the stock exchange
• 1964 – Lancome takeover
• 1984- Charles Zviak becomes L’Oreal’s CEO after resignation of Francois Dalle
• 1988 – Lindays Owen-Jones becomes L’Oreal’s CEO
• 1989 – Helena Rubinstein is acquired
• 1996 – Maybelline takeover
• 2006 – Jean-Paul Agon becomes L’Oreal’s CEO

After the death of Eugene Schueller in 1957, the company reorganized to conform to the purchasing pattern of that period. The current corporate culture of L’Oreal originates from its history and several examples of successes, which have contributed to the company’s shaped mentality and construction. L’Oreal cultivates entrepreneurial spirit inspired directly by the actions and initiatives of its visionary managers. The corporate culture of individual responsibility and spirit of initiative has greatly influenced the company. Fayole, Basso and Legrain (2008) argue that L’Oreal Company is typified by low level of formality of procedures and processes.

Internal influences of L’Oreal

According to L’Oreal (2008), the current success of the L’Oreal Company is attributed to their vision as a team. The chairperson of the company Lindsay Owen-Jones upholds passion and regards it as the key to the well-renowned accomplishment of L’Oreal. The company has a number of strengths with the primary one being the constant research and innovation. Innovation and research in the interest of beauty assure the company cosmetics offers nothing but the best to their esteemed consumers (Feet, 2008).

Research and Development

The dedication of continuous research and innovation makes L’Oreal the leader in the cosmetics industry in spite of the competition in the market (Birmingham post, 2007). L’Oreal has been able to develop products, which have been able to adapt perfectly to the existing and latent need of its customers (Smith, 2004). According to Fayole, Basso and Legrain (2008), they have been able to accomplish this through thorough knowledge of the many types of its customers and close collaboration between Research & development and Marketing departments. Intimate understanding of L’Oreal customers has been at the heart of its managers’ preoccupations. Such preoccupations include identifying new customers’ needs, discovering unsatisfied needs, opening of markets to new customers and constantly inquiring about customers’ opinion on their products.

L’Oreal has launched several products after radical innovations. Such products include plenitude skin care, preference hair colors and Elnett hair spray, which have become leaders in the market because of their superiority over existing products (Lopes, & Casson, 2007). In addition, every employee of L’Oreal tends to be industrious and there is always agitation to improve the standards of existing innovations in the company with an aim of satisfying its consumers (Fayole, Basso & Legrain, 2008). L’Oreal is quite aware of the level of competition in innovation; hence, the management of the company resorted to invest upto 496M Euros in R&D in 2005, which is about 3.4% of L’Oreal’s consolidated revenue ((Tyson, 1997). In 2006 according to Fayole, Basso and Legrain (2008), L’Oreal emerged the world leader in Research and Development in the beauty industry.

Developed activities in cosmetics, pharmaceutical and dermatological fields with an aim of putting more concentration in the activities is another important strength and internal influence in L’Oreal. The activities are divided in three main groups, which include Customer production division, Luxury product division and Professional product division (L’Oreal, 2006).

Customer production division ensures that quality products are produced and distributed to consumers in time. Luxury product division is to ensure that prestigious international brands are distributed appropriately. Professional products division present hair care products to be used by professional hairdressers and they are distributed and sold through hair salons. The overall goal of all the divisions is to ensure that quality products are produced and distributed to customers accordingly. Advertising strategy of L’Oreal Company also contributes greatly to its strengths (L’Oreal, 2006).

Organization

Organization of L’Oreal Company is very instrumental in attaining success. The company has an organization structure known as matrix. The main headquarters of L’Oreal is situated in Clichy in France. The company has three regional leaders and three division chiefs who report to the Chief executive Officer. The responsibility of the three chiefs according to Jones, Kiron, Dessain and Sjoman (2006) is to guide global brand profitability and sales, overall brand strategy and marketing. The zone managers on the other hand are responsible for sales in their regions and at the same time to execute sales strategies of the company, which are built up by the international brand teams.

The international brand teams are always expected to work closely with division heads as well as with top regional leaders in order to develop new product ideas and market strategies (Jones, Kiron, Dessain & Sjoman, 2006). Country managers have constant contact with general managers who are in charge of each brand. The country managers feed general managers with proper information on the needs of their countries. Besides, they provide feedback on strategies of promotion in their respective counties, which is crucial for the development of new products. All these require coordination with the department of research and development of the company (Jones, Kiron, Dessain & Sjoman, 2006).

Strategy

The strategy of L’Oreal focus on disciplined global marketing, internal growth, product innovation as well as creating a strong presence in each distribution channel globally. Owen- Jones according to Jones, Kiron, Dessain and Sjoman (2006, p.13) states, “Acquisitions have never been the priority. Our priority is internal growth, but we will make acquisition if we think they will add internal growth over a number of years”.

Acquisitions according to the company fall into one of two categories namely tactical and strategic. Both the strategies are required to satisfy requirements of profitability and growth. Some tactical acquisitions were integrated into large core brands of L’Oreal Company. For instance, in 2001 the company acquired a nail-polish maker known as colorama. The company later merged colorama with Maybelline, which is much larger than the colorama.

The strategy of integrating small local brands to come up with larger global brands extends to sub-brands already existing within the company’s broader product portfolio. For example, in Germany products of L’Oreal that was offered as “by Jade” have been rebranded and are now offered as “by Maybelline Jade”.

Culture

According to Fayole, Basso and Legrain (2008) L’Oreal exhibits a unique characteristic that distinguishes it from the culture of France. Failure is accepted in L’Oreal and is regarded as a stepping-stone to possible progress or evolution. Hence, the responsibility of managers includes assisting those who make errors in correcting them. Such corporate culture is what has driven the company’s international development.

Fayole et al. (2008, p.215) state, “This corporate culture has driven L’Oreal’s international development. In 1985, thanks to its sole internal growth, the group made 60% of its turnover abroad, up from 10% in 1975 and a mere 3% in 1960. This is illustrative of Francois Dalle’s stamp, his passion for creation (which translates into internal growth) and his prompt aptitude to seize development opportunities, wherever they may be”.

Jones, Kiron, Dessain and Sjoman (2006) argue that the managers of L’Oreal have the aptitude to scrutinize the world day to day and they are able to translate what they feel and see into their products. They have that ability to observe trends long before they become trends, hence they are capable of capitalizing on the correct products. Jones et al. (2006) assert that the more entrepreneurial, flexible, curious and global minded a person is the more openings there are for such individual. It is the combination of flexible, fast communication and willingness to take risk, which have enabled L’Oreal Company to move fast in the market. Such combinations have also enabled the company’s quality to be recognized and to be distinguished from its competitors like P&G.

External Influences

External influences of L’Oreal include:

• Marketing
• Competition

Marketing

L’Oreal established a very strong relationship between its research and development team and marketers, which has contributed significantly in spanning the company’s geographies. To match the global marketing standard, L’Oreal does the following

• upholds value addition
• enhances research based marketing
• applies modification wherever it is necessary
• integrates research and innovation to develop new products
• matches its market across the globe
• always tries to ensure that their brands positioning by making sure their plans are skewed towards the home country of the brand

The performance of products of the company is constantly in check with possibility whether value addition to the products could enable them perform better is not left to doubt. Before L’Oreal introduces a product into a given market, research is normally carried out to ascertain whether its products can outdo all others in the same market and if not what necessary modification is required.

For example, in 2000, the company’s Japanese team decided to expand its position in the wet lipstick market of Japan. The managers of L’Oreal in Japan believed that if only they could combine lipstick and a moisturizer, which shines more translucently, they would conquer the market. The truth is that it did work so well to the extent that they were able to sell over one million units of the lipstick in the first month of its introduction (Jones, Kiron, Dessain & Sjoman, 2006).

International brand teams of L’Oreal are responsible for developing new products and ensuring integrity of every brand’s positioning. Since the international brand teams are based in the home country of the brand, the global product plans of the team are skewed towards that specific country. Therefore, the global plans of L’Oreal must always be well matched with markets across the world (Jones, Kiron, Dessain & Sjoman, 2006). Marketing is therefore an external influence that always tends to influence the plan of L’Oreal.

Competition

Competition is another external influence that tends to influence the L’Oreal’s

• Strategies and
• Plans

The beauty market in 2004 was believed to be situated at crossroads of different demographic trends. The trends included

• Hopeful customers in emerging markets
• Increase of interest in beauty products amongst males globally and aging population in the west.

L’Oreal was the only company of the entire cosmetics group that was present in all the distribution channels, which included

• Hair salon
• Mail order
• Mass market
• Department stores
• Pharmacy (Jones, Kiron, Dessain & Sjoman, 2006)

L’Oreal group obtained and developed brands that served professional segment in all the key markets. The main competitors of L’Oreal consumer division in 2004 were

• Unilever
• P&G
• Revlon

The most competitive business was the luxury divisions, whose category was mainly fragrance. The main competitors in this division were L’Oreal, Estee Lauder and LVMH (Jones, Kiron, Dessain & Sjoman, 2006).

Influence of Globalization in policies and decision making in L’Oreal

Globalization of L’Oreal business influences to a great extent decision-making and policies of the company (Bailey & Ruyter, 2010). For instance, some drastic changes came with effort to globalize Kiehl’s: the American beauty. Influence of globalization is evident when a luxury brand, Kiehl’s brought to test globalization strategy of L’Oreal. Kiehl’s brands have identical advertising and positioning imagery wherever they are sold. For example, Louis Vuitton is known as Louis Vuitton in any country where it is sold, whether in the United States, France or China.

Nevertheless, Kiehl’s is American brand and more specifically the New York’s brand because it is based on grass-roots culture. This has greatly influenced the policies and decision-making of the L’Oreal in that they have to replicate the same grass-root neighborhood culture anywhere they intend to sell the product, which the management fraternity admits is not an easy task.

Jones et al. (2006, p.16) states, “In fact, any store opening , no matter where in the world it took place, was supposed to reproduce the essence of the original New York store, while at the same time creating a neighborhood feel that connect with the store’s location”. It was considered a critical feature to create a neighborhood feel to duplicate the Kiehl’s store brand. The Kiehl’s managers tried to locate every store in the neighborhood where they could easily be accessed by the consumers, who were actually younger than the traditional brand buyers were.

The brand became successful and the success is attributed to its authenticity and sincerity. Kiehl’s brand success is also attributed to the effort of decision-making and proper strategy formulation. According to Jones et al. (2006), the success of the Kiehl’s brand is attributed to the ability to create and enhance strong connection with the local communities. This could not happen without decision-making and policies formulation. Attempt to globalize the brand led to making and executing some decision that enabled the brand to spread in many places since the product can now be found in United States, Paris, Hong Kong, and London among others.

Efforts to make L’Oreal a global corporation were successful after facing several hurdles. L’Oreal under the leadership of Owen-Jones in 1980 was still very young in the industry. The company had great competitors that imagining the company becoming one of the global payers in the sector was unthinkable. However, it took the visionary leadership to make the then very small business a global one. After the conceptualization of the idea to globalize the company, a lot of revenue was drawn from Europe and France to acquire new assets that could necessitate the development. Decisions were made in 1980s to acquire opportunities, one of which was to purchase Helena Rubinstein and Ralph Lauren fragrances brands with international distribution.

Luckily, L’Oreal managed to purchase and was in full possession of the two brands. In 1994, L’Oreal also managed to purchase Cosmair, which gave the company the ability to execute strategies of acquiring US brands. After two years, L’Oreal was also able to purchase Maybelline for 508 million USD (Johnson, 1998). This boosted the company’s dream of ever becoming a significant player in the cosmetics industry. The purchase of the American cosmetics icon enabled L’Oreal to obtain a 17% share of the United States mass cosmetics industry.

After the company of L’Oreal acquired Maybelline, which many industry analysts and observers argued had lost focus, the L’Oreal team started aggressive advertising campaign and research that could rejuvenate it. Decisions were made to move the headquarters of Maybelline to New York to join L’Oreal’s corporate headquarters. This was to bring together a large pool of cosmetics experts, which effectively led to modernization of operations of the company. Advertising was modernized, speed became an important issue and technological innovation was enhanced. The globalization led to formulation of several policies that changed the operations of L’Oreal business activities.

Informed decisions made after thorough research on the brands enabled Maybelline to roll out new makeup collection such as Miami Chill. These efforts were instrumental in driving L’Oreal into becoming a market leader in the market of the United States. In 2002, Maybelline had become so successful to the extent that its sales outside the United States had grown to 93%. The international presence of the brand expanded considerably in such a way that it was rebranded “Maybelline New York” in 2004 (Snyder, 1996). The success of the brand in the international market influenced the decision to have it rebranded all together.

Globalization also influenced decision-making and policies that brought change in L’Oreal’s organization, research and Development, Marketing, strategy and culture. The organization structure of L’Oreal had to be structured in a way that it could present the international face of the company and to coordinate its global activities. The dimension research had to be changed in a way that it could deal with L’Oreal’s international competitors as well as to produce products that could meet international standards.

The focus of marketing of the brands ceased to focus on local and regional geographies but instead focused on the global market. This led to developing new brands for different people all over the world. Globalization led to change of strategies of L’Oreal. The strategies of the company were focused on disciple global market, internal growth, innovation and distribution of products all over the world. The culture of L’Oreal had to change in order to embrace such culture that could accommodate its consumers globally.

Effectiveness of L’Oreal Response

The response of L’Oreal to decision-making and policies due to globalization was quite constructive. The company responded quite fast when it saw the need to acquire opportunities in the global market. For instance, L’Oreal was able to purchase and rejuvenate Maybelline, which played a very important role in making the company a leader in the United States market of mass cosmetics industry. L’Oreal was also able to purchase other brands such as Helena Rubinstein and Ralph Lauren among others.

L’Oreal managed to purchase hair-care manufactures namely Carson and Soft Sheen in its efforts to globalize its businesses. In response, L’Oreal built a multimillion-dollar R&D (research and development) facility in Chicago. The facility focused mainly on skin and hair needs of African-American people. The research institute became the first and the only kind of the facility in the entire world. Matrix and Kiehl’s were also bought by L’Oreal in its efforts to globalize its business.

In addition, L’Oreal responded to globalization by reorganizing its organization structure. The decision to reorganize the company’s structure was to accommodate its wide and global acquisitions. Because the company had spread to numerous countries, there was need to have country managers, regional leaders, division chiefs and CEO to coordinate all the operation of the global corporation.

With regards to research and development, L’Oreal responded by having a wider scope so as to produce quality world class products as well as to contain its competitors. The company responded by allocating large financial commitment to Research and development more than its competitors did. For instance, L’Oreal invested 600million USD on research alone, which funded over 2800 scientists in US, Japan and France.

About marketing, L’Oreal responded by creating a very strong relationship between the department of research and development and marketers (Oppapers.com, 2010). The response enabled the company to span its geographies, which resulted to expansion of the position of the company in the global market. International brand teams were also instituted and were given the responsibility of developing new products as well as ensuring integrity of brands’ position in the market, which they did quite successfully.

Strategy of L’Oreal focused on innovation, global distribution of its products, global marketing as well as internal growth. To expand the company’s product portfolio as well as to generate revenue growth, L’Oreal resorted to strategy of acquisition, which included tactical and strategic acquisition. Strategic acquisition helped the company to achieve its global potential while tactical acquisition helped in filling gaps in brand product portfolios. L’Oreal responded by modifying its culture so that it could accommodate its consumers globally.

The company has respect for the taste of its consumers and always tends to provide what its consumers in different countries needs. The company also increased its investment in research and expanded its manufacturing capabilities as well. L’Oreal immense investment in research was to produce brands that could compete effectively in the market. Because it decided to invest in research and development more than its competitors did, L’Oreal was able to outsmart its competitors and that is why it became the leader in the cosmetics industry.

Areas for Improvement in the response of L’Oreal

Even though the response of company has been good and productive, there are a few areas for improvement. Firstly, there is need for L’Oreal to improve its investment in information technology. Information and communication technology will enable the company to reach cosmetics consumers everywhere in the world. This will boost the marketing effort of the company since it will reach many consumers at considerably low cost and in a short time. IT should also enable the company to allow its consumers to order and pay for their brands electronically.

There is also need for the company to give a variety of products to be able to accommodate all sorts of consumers. The company need to manufacture cosmetics brands that are affordable to all classes of people; the rich, the middle class and the poor. Then they need to spread to other countries and continents to reach more people. This will boost the turnover of the company greatly. For example, there are several millions of people in the continent of Africa. Therefore, a strategy that aims at reaching such a population could be quite rewarding to the company, hence there is need for the company to reconsider its marketing and acquisition strategies.

Conclusion

L’Oreal like any other firm in the cosmetics industry has its share of challenges. The management team of the company has proved the fact that it is possible to overcome challenges and make an unknown company to be a world-class one. L’Oreal responded positively to the internal and external influences of globalization to become a leader in the cosmetics industry. The organization, innovation, visionary leadership, culture, research and development are some of the attributes that have made L’Oreal to be a world leader in cosmetics industry.

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