InformationSystems
Emanuel MONOD
Executive MBA 8419– Module 3
Promo 9 – Groupe 1
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Lionel AUSTRUY
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Ivan BAILLY
 Arnaud BOMPAS
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Anne CABOTIN

Luiza STANIEC
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2
CONTENTS
1 OVERVIEW
5
2 L’ORÉAL GROUP
5
2.1 3 MANAGEMENT STYLES AND STRUCTURES
5
2.1.1 Eugène Schueller (1909-1957)
6
2.1.2 François Dalle (1957- 1987)
7
2.1.3 Lindsay Owen Jones (1988-2006)
9
2.2 L’Oréal’s success story
11
2.3 Processes
22
2.3.1 Functional Value Chain
23
2.3.2 Processes Value Chain
25
2.3.3 IS environment
27
2.4 Policy
29
2.4.1 A strong and motivating historical vision
29
2.4.2 The corporate core values & mission statement
29
2.4.3 Organizational Learning
30
3 COSMETICS MARKET ENVIRONMENT
32
3.1 Industry attractivity
32
3.2 Maturity in Europe – Growth for the rest of the world zone
32
3.3 Fierce competition and fragmentation
33
4 L’ORÉAL’S COMPETITIVE CONTEXT
33
4.1 L’Oréal PLC
33
4.2 BCG matrix - Europe
34
4.3 Porter’s network model
36
4.4 Products/markets
37
4.5 Differentiation
37
4.6 SWOT L’Oréal
39
5 NEED FOR CHANGE
40
5.1 An exemplary company
40
5.1.1 For the shareholders
40
5.1.2 For the people
41
5.2 But a model running out of steam?
41
5.2.1 Decrease of L’Oréal’s financial performance from 2002 to 2005
41
5.2.2 Current growth is no longer organic
42
5.2.3 Old portfolio
43
5.2.4 Profitability below competition
44
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5.2.5 Strategic move from competitors in the prestige area
44
5.2.6 The human factor
45
6 FUTURE CHALLENGES TO ADRESS IN HYPERCOMPETITION
47
6.1 Management quality
47
6.2 Mastering Distribution channels
49
6.3 More differentiation
49
6.4 R&D focus
49
7 Conclusion
49
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« Quand on affronte les problèmes de demain avec
organisations d'hier, on récolte les drames d'aujourd'hui ».
Michel Crozier
les
« La grandeur d'un métier est peut-être, avant tout, d'unir des
hommes: il n'est qu'un luxe véritable, et c'est celui des relations
humaines ».
Antoine de Saint Exupéry
« Une affaire ce n’est pas des murs, des machines, c’est des
hommes ».
Eugène Schueller
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1 OVERVIEW
The aim of this report is to provide an insight into L’Oréal’s success story, how it moved
from a small company to a famous multinational, since its foundation in 1909 to
date. Through the binoculars of four key figures, this report will review different
management styles and show how they have affected and shaped the organization.




1909/1957: Eugène Schueller
1957/1985: François Dalle
1988/2006: Lindsay Owen Jones
From 2006 till today: Jean-Paul Agon
Equipped with the companies snapshot, as well as review of its current
market, through the example of the Luxury Products division, this report will
provide evidence to support the fact that L’Oréal is in need to adjust its
historical success model and structure to uphold its first rank position in the
era of hypercompetition.
As this call to action is demonstrated, we will provide advice on key challenges
to focus on.
2 L’ORÉAL GROUP
2.1 3 MANAGEMENT STYLES AND STRUCTURES
Figure 1 L'ORÉAL, a success story
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L’Oreal’s beginnings are rooted in Eugène Schueller’s entrepreneurial ambitions,
followed by important transitions through functional and divisional structure
management systems to find itself in an “innovative” realm until recent years
where it is taking a different turn – especially in the Luxury Products business
unit.
Organic
ENTREPRENEURIAL
INNOVATIVE
Mechanistic
Structures / Management Systems
FUNCTIONAL
DIVISIONAL
Centralized
Decentralized
2.1.1
Eugène Schueller (1909-1957)
Entrepreneurial structure
At the beginning of the 20th century, l’Oréal started with the chemist
Eugène Schueller, who was formulating night and day in his laboratory at
home and gave birth to the first hair coloration. Close to advertising
designers as well as creatives, these acquaintances nourished his
creativity. Apparently the name stems from “ora”, which means beauty in
Greek as well as a hairstyle which was trendy in 1910 called “Auréole”.
However one can immediately feel the unconscious powerful words it
embraces, such as OR and RÉAL1, both linked to money and domination.
E.Schueller’s motto was: “Do, undo and redo”, and it has survived till
today in the way people behave internally.
Originally, L’Oréal was manufacturing professional products intended for
hairdressers. In a craftsman way, the focus was on the product’s quality
without any organizational structure.
1 Réal was the name of a currency issued by the emperor of Germany, Frédéric II. It also means
« royal » in portugues.
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2.1.2
François Dalle (1957- 1987)
1957-1960: Centralization - TAYLORISM
Dalle was not a marketing man from his education, he was a lawyer, but
he was a real visionary; always searching for new trends and trying to
detect in an abnormal environment the emergence of a new normality. He
has had a key role in the emergence and the persistence of an
entrepreneurial culture at L’Oréal.2
At the time, he was an adept of taylorism and economies of scale. He
reorganized the Aulnay plant, an existing yet outdated plant to give birth
to the first modern plant of L’Oréal.
1960’s: Internationalization
Already in 1912, L’Oréal started to export its hair coloring products to
Holland, Austria, Italy, but the real internationalization phase appeared in
the 60’s. As a consequence, the turnover achieved through
internationalization has increased from 3% in 1960 to 80% in 2007.3
Latin America:
1960: creation of many subsidiaries (Uruguay, Venezuela, Mexico, Brazil).
North America:
 In 1953, Cosmair became the exclusive agent for L’Oréal, importing
and exporting hair coloring products in the US.
Asia:
 End of the 60’s: creation of first subsidiaries in Hong Kong and Japan
 1966: creation of Nihon Japan (controlled at 60% by L’Oréal).
Opening of the first plant in China.
1970’s: Diversification - Decentralization - computer revolution
At the end of the 60’s, the company diversified towards 2 other businesses
other than hair coloration, those being: fragrances, with the acquisition of
Lancôme and Guy Laroche, and toiletries with the acquisition of La Scad
and Laboratoires Garnier.
Between 1970 and 1983, there were further acquisitions made with
Gemey, Laboratoires Vichy, Biotherm and Synthélabo. Production and
selling activities gained importance and the company needed some
methods. Sales forecasting, supply chain planning methods were therefore
introduced by François Dalle‘s adviser, Jean Bounine, with the help of Mac
Kinsey group.
2 Hofstede (1985)
3 Genèse et source de l’orientation entrepreneuriale de L’Oréal – Sherbrooke - 2007
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Very rapidly, it became apparent to Dalle when the company started to
diversify, moving towards the manufacturing of consumer products that
the Taylor model was obsolete.
As a result, the company was reorganized to move into a divisional
structure, following Alfred Chandler’s4 work. The impact of this
realignment was particularly felt by top management and business unit
managers.
At the time, 4 divisions were created:
 Active cosmetics,
 Consumer products,
 Professional Products,
 Luxury Products,
 Growing to 5 today with the addition of The Body Shop.
The IT structure changed also because of the diversification which
occurred in the consumer products division: brands were competing on
prices between themselves when distributed in the same outlet; Products
were not exactly identical and the integrated architecture proposed by IBM
could not meet in an efficient way the sales units needs. As a result, the
company switched, in 1973, to Hewlett Packard and DEC.
Below are a few of number of quotes stemming either from Francois Dalle
himself or his successors aiming to paint an accurate portrait of the
individual:
Sir Lindsay Owen Jones describes his late boss Francois Dalle as an
autocratic yet brilliant boss as well as not the clearest internal
communicators either.
"He spoke in riddles so he was a very difficult man to interpret. I think one
of the reasons I got responsibility so young was that I could interpret the
things he said, which often were the opposite of what he actually said
literally"
In 1973, Dalle persuaded Liliane Bettencourt, Schueller's daughter and
L'Oréal's main shareholder, to accept a poison pill that diluted her majority
stake. Under a complex deal, Swiss food-products giant Nestle took a 49%
stake in a holding company--with Bettencourt owning the remaining 51%-that in turn acquired just over half of L'Oréal's stock. Bettencourt has
become the richest person in Europe. Her roughly $20 billion fortune is
based almost entirely on the rise of the company's shares since OwenJones took charge.
4 Alfred DuPont Chandler, Jr. (September 15, 1918 – May 9, 2007), 1962 Strategy and Structure:
Chapters in the History of Industrial Enterprise. Cambridge, Mass.: MIT Press
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2.1.3
Lindsay Owen Jones (1988-2006)
The success of the multinational: the innovative structure has
morphed to the complexity of the matrix.
Owen Jones has imposed a real marketing and communication
culture within L’Oréal, with the constant strive for profitability.
OJ, as he is nicknamed, has devoted his entire career to L’Oréal, having
joined in 1969 as a product manager following an education at Oxford
University and INSEAD. He rose through the ranks at the company,
serving in executive positions.
In 1988 he was appointed Chairman and Chief Executive Officer of L’Oréal,
and became Chairman of the Board in April 2006 when he handed the
reigns to Jean-Paul Agon
During his 20 years at the helm of L’Oréal, the company saw a major
transition from being a French export business to become a multinational
global group spread across 150 countries around the world. He has
streamlined the company by focusing on the beauty sector and
strategically acquired brands with global potential to provide a rich,
diverse and complementary portfolio for consumers all over the world.
Innovative Structure
Actor:
Experts & Professionals
Coordination:
Mutual Adjustment
Decentralization:
Management
System:
Yes
Organic
"[…] the business of selling cosmetics is all about intuition. […] climbing the
management ladder at the French company was also an intuitive task."
"It is a characteristic of our company that we try to do some long-term
things without knowing how big they will be," Owen-Jones explains. "It
means you have to be constantly investing in not yet profitable ventures."
Sir Lindsay’s most notable contribution to the L’Oréal structure has been his
sixteen year effort to decentralize the management system in place.
Decentralization under Owen Jones is best understood when considering
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that important, crucial to existence brand decisions were delegated not
merely down one level, but two. Under a team of vice presidents, OwenJones had a layer of international brand managers. These people had
enough power to launch products without any reference to Owen-Jones.
This reality is miles away from the one-man band show structure upheld
during Dalle’s reign.
He has also been ruthless in rationalizing and repositioning the company's
brands. Upon his arrival, L'Oréal started up products and brands left, right
and centre, and bought lots of others. It was extremely dynamic but a little
bit disorderly. OJ has spent large amount of his time culling a lot of that and
separating brands, so that a smaller number of brands represent the
majority of sales.
Unstable
Stable
Stability
Economic Environment
F.Dalle
Decentralization
L.O Jones
“The matrix”
70's Shocks Crisis
Hyper Competition
E.Schueller
Functional
Aulnay plant
Divisional
50's Taylorism / Fordism
60's Internationalization
Simple
Complex
Complexity
Figure 2 Economic environment
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2.2 L’Oréal’s success story
L’Oréal awarded the Grand Prix for economic performance, by the magazine
L’Expansion: September 2007.
Recognising the Group’s exceptional capacity for sustained growth, profit
and value creation, L’Expansion, celebrating its 40th anniversary, searched
for the company that has demonstrated the most remarkable economic
performance over the past 40 years. The prestigious jury, made up of
members of the editorial team and independent experts, was unanimous in
its decision to award - L’Oréal.
Success for the L'Oréal Group, in sum, comes down to it being the world's
largest and number one cosmetics & beauty company worldwide. To get to
the top, L’Oréal excelled in innovation, internationalization, key strategies
and sound corporate governance.
Innovative at heart
Founder Eugène Schueller set the tone right from the start by developing an
innovative offer in the hair coloration field. The focus on research &
development was imbedded in 1907 and has remained at the heart of the
Group to this day.
Every year:
 Over 4,000 new product formulas are created
 Over 30,000 new patents are utilized
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Evolution of the number of researchers employed at L’Oréal’s R&D facilities over the years
In terms of allocated budget, L’Oréal contributes a remarkable 3.3% of its
Turn Over into R&D which has seen a constant evolution of more than 10%
per year since 1994.
Figure 3 Variations of l'ORÉAL's patents and of the R&D function of sales
OODO SECURITIES
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Owen-Jones argued that this is a fundamental difference between L'Oréal
and its rivals who sell ‘hope in a jar’. R&D above Marketing: was core in his
eyes. He argued that excessive market research (marketing) can kill
product innovation. In the three months it takes to check out whether a
market exists for a new product, the ideal moment to launch may have
gone
Equipped with a differentiated offer to a
performance has soared to impressive heights:
Group performance over 4
years
2007
hungry
public,
L’Oréal’s
Dividend per share : X2
since 2002
+62% since 1997
Tableau 1 L'ORÉAL's performances
L’ORÉAL AG MARCH, 2008
The L'Oréal share was introduced to the Paris Stock Market on October 8th,
1963. In 2007, one can note that the share increased by 29,09 %.
37,4%
30,0%
Bettencourt family
Nestlé
Treasury shares
Public traded
3,7% 28,9%
Figure 4 L'ORÉAL' shareholders
Voting rights distribution: 31.2% to the Bettencourt Family, 30.0% to
Nestlé, and 38.9% to the public.
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Strategy
L’Oréal is present in every distribution channel: mass market, hair salons,
department stores, pharmacies and mail orders. The Group distributes over
500 brands and 2,000 + products. Not only is it active on a B2B level,
L’Oréal, with the acquisition of The Body Shop is also active on the B2C
channel. End result, it caters to: the general public, professionals and
Health Care Professionals. To achieve a ‘cross the board’ reach, L’Oréal has
adopted a ‘segmentation’ strategy, which it calls its - divisions.
Figure 5 The l'ORÉAL's segmentation strategy
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As such, L’Oréal is able to capitalize via the numerous divisions (segments)
it boasts:
Figure 6 L'ORÉAL's organization by divisions
Internally each division has numerous brands under its belt and each is
considered separate and different in terms of attributes, history and
expertise. Hence, as much as L’Oréal is diversified, it groups brands by
complimentarily and maximizes on its strengths and unique attributes. For
example, the Luxury Division which offers products sold in an upmarket
retail environment (department stores, perfumeries and the brand's own
boutiques): each of the brand provides customers with products offering
very high levels of performance and are backed up by expert service.
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Figure 7 L'ORÉAL's brands
L’Oréal remains focused
L’Oréal’s core belief is that everyone aspires to beauty. Hence, as a
business, the company has focused its developmental activities in the field
of cosmetics, more specifically, hair, skin care, sun protection, make-up,
perfumes and hair care.
Figure 8 Vertical integration & structures
Another key factor of L’Oréal’s success is that it is fully vertically integrated:
94% of its production is internal. In addition, L’Oréal has been
acquisitioning raw material production plants to be able to have direct
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control over quality, immediate accessibility and reap outmost benefits from
the process.
In terms of structure, Jean Paul Agon operates within a Matrix
Organisation’, where all elements must be balanced out throughout the
structure:
 Decisions are taken on three levels: divisions, zones and corporate
 As little as possible intervention by the president is privileged in order
to generate mutual adaptation
 Internal structure not formalised in order to promote organisational
agility
 Organic growth is in full force
Figure 9 Department's organization example
Human Resources play a pivotal role with L’Oréal, never has an
organisation seen the light of day with such a strong emphasis on its
personnel.
 Decentralized HR structure
 One single HR strategy communicated to the L’Oréal Group globally
 Involved and promoting frequent exchanges in order to spot early
talents and potentials
 One of the most extensive training programs known to the corporate
world is offered within L’Oréal −» setting the tone for constant
learning
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Marketing, no one makes it to the top without having gone through
marketing. L’Oréal has a strict policy of having every recruit with palpable
potential go ‘on the road’ for them to understand the public(s), the market
and the distribution process. Perhaps this formula is what has earned
L’Oréal a myriad of marketing awards over the years and six digit turn over
numbers since its foundation.
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International Vision
Headquartered in the Paris suburb of Clichy, L'Oréal is present in over 130
countries and employs over 63,000 people worldwide.
Early exports date back as far as 1912, where Schueller’s hair dyes where
exported to France’s neighboring countries. Today, L’Oréal is present
internationally and makes over 80% of its Turn Over outside its bedrock.
Figure 10 L'ORÉAL's turn over
L’Oréal Annual Report 2007
Outstanding growth prospects are opening up worldwide. Emerging markets
of the likes of Asia & Latin America, L’Oréal is strengthening its position
where the group’s brands have considerable room to grow. One key aspect
of L’Oréal’s internationalization success is to foresee which brand, with its
own cultural cache will work in a given territory. Surely the Group’s
embracement of cultural diversity in its portfolio meets the multi-faceted
beauty aspirations of the whole world. All different and perfectly
complementary in terms of cultural original, positioning and price, the
brands roll out with each division developing a specific vision of beauty.
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Figure 11 L'ORÉAL real organization, a 3D matrix ?
Focus on luxury brands in emerging markets:
The sales of the Luxury Products Division have grown by +4.9% likefor- like.
 In skincare, the Division's good performances reflect the success of
Lancôme anti-ageing skincare.
 In make-up, the strong performance of the new Photogenic
Lumessence foundation from Lancôme deserves a special mention.
 In fragrances, the success of Diesel Fuel for Life is continuing, and the
same is true of Emporio Armani Diamonds. The Division is preparing
major worldwide launches for Magnifique by Lancôme and Notorious
by Ralph Lauren in the second half.
New Markets, with sales growth of +15.7%, very clearly higher than the
market growth rate, the group is continuing to make major conquests.
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The growth rate in the Asia Zone remains very high at +19.4% like-forlike, with growth of +4.3% in Japan, and +23.5% outside Japan.
 - In Japan, where the market is flat, the group is growing through the
luxury brands, the success of Maybelline in consumer products, and
the success of Kérastase and L’Oréal Professionnel in hair salons.
 - South Korea recorded a growth rate of around +20% in a market
boosted by very strong growth in the luxury segment.
 - China again recorded growth of over 30%, bolstered in particular by
L’Oréal Paris which is continuing its breakthroughs in both skincare
and foundations. The Luxury Products Division is confirming its
leadership. The Professional Products Division has accelerated
significantly.
On more mature markets such as North America and Europe, L’Oréal has
focused on a new mix offer for the market:
 New segments :
 Seniors
 Men’s cosmetics
 Biocosmetics
 Ethnic products
Corporate Governance:
Hard work, loyalty and perseverance are fundamental concepts within the
L’Oréal Group which is underpinned by the presence of only a handful of
CEOs since its foundation.
The steps are clearly set forth in each individual’s career path from the start
hence moving up the corporate ladder is an accessible dream.
Importance is given to building your own social / corporate network
internally to be used as a fitting in mechanism and exchanges of know-how
as very little of L’Oréal’s rules of conduct are written.
Success is resumed in the perfect "FIT"
On a human relations level, L’Oréal’s ‘success story’ can be summarized by
diversity, balance of male and female employees and by the existing mix of
talent which makes way to greater creativity and a better understanding of
every type of consumer. The Group therefore intends to continue hiring a
diverse range of people and completely rejects any form of discrimination.
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On a business level, L’Oréal’s ‘success story’ can be defined by the FIT
between; differentiation, innovation, diversity, communication and
coordination. The above are not just words; they are the fundamental
values which have come to guide L’Oréal since its beginning and continue to
do so today. These values have shaped the culture and they underpin the
company’s reputation and mission.
L’Oréal achieves differentiation through Innovation; it creates value through
long term investments in research and development rather than prioritising
immediate profitability.
Key factors of success are;
 Strong HR vision and culture
 Innovation
 Exemplary marketing and communication competencies
 Structural flexibility
 Unbeatable drive and passion
 Perfect fit between corporate and business strategies
 Vertical integration working in L’Oréal’s advantage
 Processes coordinattion
2.3 Processes
It might appear as a mere paradox to study the processes of an
organization which claims high and wide not to have any!
We will see, however, how this global enterprise known as L’Oréal, is
slowly changing its structure and putting into practice more and more
processes. The latter fact, will be specifically highlighted when describing
the implementation of SAP across the Group.
This recent decision of implementing SAP spotlights the shift towards a
BPM5 approach, leaning towards a « bottom-up » structure which
pressures to standardize professions on an application level as well as on a
human one.
5 Business Process Management
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Functional Value Chain
Communication & public relations
Accounting
Human ressources
Strategic development / Head Office
Distribution
Selling
Logistic
Customer
Production
R&D
Information Systems
Marketing
Activities of support
2.3.1
Main activities
Figure 12 Value Chain for L'ORÉAL
Within the value chain, one can find tow types of activities:
Roles & responsibilities of Supporting departments:
 Corporate caucus with two adjacent poles :

The executive committee (operational management) grouping 5
operational divisions which differ from one another by their
distribution channels;

The functional management committee is composed of 6
transverse branches providing support to the operational divisions.
Operationnal divisions
General Management
( Functional divisions)
Professional products
Administration &Finance
North America
Consumer products
Production & technologie
(R&D, industry)
Latin America
Luxury products
Human relations (Human
ressources)
Asia
Active cosmetic
Communication &external
relations
The Body Shop
Strategic development
Tableau 2 The 3 dimensions of l'Oréal’s organization
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Geographic
divisions
24
The goal of these multi-divisions is to better coordinate activities within
the given geographical zone in order to steer off competition. This is
clearly a brand (business) exploitation approach.
It is important to note that the European, South Pacific, African and
Middle-Eastern zones do not adopt a multi-divisional structure but are
directly integrated within the operational management division.
 The Human Resources management which, groups:

International strategy,

Corporate training

Social relations,

HR support (Mobility, personal fulfillment, …)

Operational divisions’ HRM supervision.
The HR policy amounts as follow: « Develop our activity. Recruit,
integrate, form and develop the talented women & men’s career,
imaginative and enthusiastic, who contribute to the growth of
L’Oréal».
 Purchase management, which are in narrow collaboration with the
suppliers.
 The management of Information Systems is aligned on the
structure of operational divisions (“computing for the business
services), the whole being connected with the DSI Corporate.
Main activities
 R&D: with 3,095 researchers and scientists, L’Oréal creates its own
molecules to develop new products. Therefore L’Oréal registers every
year numerous patents to protect its research results.
 Marketing: teamworks with the R&D department in order to finalize
products in perfect harmony with the brand image as well as the
client’s expectations.
 Production: organized all over the world with 34 cosmetics factories
technologically specialized. 94% of l’Oréal production is internally
realized.
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Figure 13 Production sites location
 Logistics: in charge of optimizing the management of the physical
streams, the streams of information since the source up to the
consumer. Its main mission are the knowledge of details, reactivity,
productivity and service but also to reduce the “time to market”, the
costs and the stocks.
 Distribution: presence over all networks, targeting different and
complimentary customers
2.3.2
Processes Value Chain
Purchases/
Supply
Suppliers
 Raw Materials
 Containes/Packaging
 Equipment
 Indirect Purchases
 POS/Promo
Production of
Finished Products
L'Oréal Factories
Distribution
L'Oréal Warehouse
Outsourcing Partnerships
Sales
Shopes
 Supermarkets
 Perfume Shops
 Department Stores
 Etc.
L'oréal External
Figure 14 Processes value chain
Purchases/ Suppliers
Upstream to the production, L’Oréal is dealing with a wide range of
suppliers:
 Raw materials: L’Oréal products require the use of a large pallet of
raw materials entering the composition of their formulas. (Polymers,
fat, natural products, perfumes, solar filters, vitamins, …)
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 Packaging Development: in association with the marketing teams in
order to respond, in an optimal and innovative way, to their
objectives in this domain.
 Industrial equipments: weighing, washing, packaging …
 Indirect purchases in the structuring of the general costs: intellectual
services, lodging and travel expenses, meetings/ events, buildings
cost, temporary work, IS telecommunication....
 Set-up of merchandising, collaboration in partnership with specialists
of the domain. The purpose is to value the selling points and to
capture consumers.
Production of finished products
To realize its production, L’Oréal mainly leans on its 34 factories, which
assure the production of finished products, according to the specifications,
and in the respect of customers deadline.
The production function is in charge of the continual improvement of
processes and performances for means of production, to maintain the
competitiveness and improve the working conditions.
For some products, l’Oréal outsources by calling upon the services of
subcontractors for packaging or definition of end products or
manufacturing of specific finished products (soaps, pencils, wipes, etc.) or
for certain logistic services.
Distribution
For its products distribution, L’Oréal leans on its own warehouses.
Sales
L’Oréal products are present on all the sales channels: supermarkets,
perfume shops, department stores, e-business, etc…
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2.3.3
IS environment
In the field of information technologies, L’Oréal does not lead. L’Oréal uses
the market standards and looks for the best balance between cost &
efficiency. Freeware is not a strategic priority.
The technological choices are standards:
 At the infrastructure level,
 for messaging,
 for the office automation
 or for the application software spread all over the world.
The ERP6 covers the needs of the finance production.
For the commercial and the logistics: nowadays, the computer specialists
approach the standardization of the front office with the market tools
(sales force, CRM, selling points management).
As Is
L’Oréal, precursor for SAP integration in the 90s, has spread for several
years over his subsidiaries of distribution the ‘Core Model’. The purpose is
to harmonize the systems and the management of processes for its
worldwide distribution platforms.
All the covered domains include the financial streams, purchases and
sales, and the distribution warehouse management.
Every subsidiary is connected with a regional DSI and can therefore ask
for a solution development according the local context.
To be
In this context of decentralized SI, the DSI Corporate (probably inspired
by the current market trend) will implement in 2008 a project of
centralization.
The main objectives are to harmonize the processes globally and to
rationalize costs computing.
To lead this ambitious project towards successful fruition and to ensure
that all divisions join in, the DSI Corporate has to guarantee the
suppleness of IS with a constraint on big volumes of data to be stored and
enormous information streams (bandwidth).
To face these constraints the DSI Corporate is studying the possibility to
utilize the SOA SAP platform. SWOT could be so represented:
6 Enterprise Resource planning
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






Strenghts
Decrease the
numbers of
different CRM
Interface
Data’s quality
Weaknesses
 Profession
biorhythm
 Project
organization
 SLA7responsibility
Opportunities
Centralization of
the information
Processes
harmonization
Costs control
System focused on
the core business
Threats
 Data’s ‘
exploitability
 Data’s volume
 Planning
Tableau 3 SWOT for L'ORÉAL value chain
Centralized
Decentralised
Business Model
 Integrated core
business vision
 Strategic control
 Mixted models
 Holding
 Segmented by business
 Unique consumer
 Operational directives
 Different consumers'
database
 Different markets
 Common products
 Few shared processes
 Different products
 Common processes
 Specific processes
SAP Deployment Model
 Single design
 Single implementation
 Necessity to join a
standard
To be
 Unique model based
design
 Numerous
implementation
 Common rules and
guides
 Local flexibility
As Is
Figure 15 To Be&As Is for L'ORÉAL
7 Service Level Agreement
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 Multiple design
Numerous implementations
 Local entities are totaly
autonomous
29
2.4 Policy
2.4.1
A strong and motivating historical vision
Today’s prevalent values embedded within the L’Oréal culture are deeply
anchored in the history of the group: remaining faithful to the founder’s
values. The Group’s permanence is explained primarily by the stability of
the governorship which has known only four presidents in almost a century
of existence. The emblematic characters of its leaders knew how to create
a common reference frame founded on great values. If the company owes
its existence to scientist, Eugene Schueller, its extraordinary development
and expertise is the work of central figure, François Dalle, who
transformed L’Oréal from a large regional SME into a worldwide cosmetics
leader.
VISION (François Dalle)
« Je voulais être l’homme du grand l’Oréal, je voulais faire d’une petite
affaire une grande affaire, bouter hors de nos frontières tous nos
concurrents étrangers et parvenir un jour, à les battre dans leurs propres
pays »
Such was the vision of François Dalle who knew how to offer L’Oréal a
temporal dimension, to impose a strong and clear ambition, and to make it
realizable while remaining at the head of the company for over forty years.
2.4.2 The corporate core values & mission statement
In parallel, this emblematic leader endeavoured to diffuse to collaborators
his strong entrepreneurial values which encouraged a spirit of initiative
and individual responsibility. This leader’s strong individual values are
deeply rooted within the collective value system and will continue to be as
aided by the very short list of successors to date. Up to the current
President at helm in 2008, each leader has always personally nominated
his successor and each one has always been selected internally, a process
further enforcing the perseverance of an established corporate culture. In
2008, the L’Oréal culture remains strong and homogeneous and these
strong individualistic values are continuously transmitted forward (website
L'Oreal).
VALUES (Corporate Core Values)
A values system centred on the individual
Wealth through diversity
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Passion for adventure
Innovation
Individual talent & strive for excellence
Those core values that are central to the firm have remained very steady
and are expressed in the company mission statement.
The mission statement is clearly aiming at improving the individual wellbeing since body and beauty matters are in first place personal and
individual matters.
The individual development as a starting point of a collective and social
progress has proven to drive l’Oréal success story and particularly since
the early 80’s.
MISSION STATEMENT
« Be at the service of all beauties »
« Promote a healthy, happy and accessible beauty which is also real and
generous »
2.4.3 Organizational Learning
L’Oréal integrated in its culture a very low degree of formalization in
regards to processes and procedures.
Francois Dalle: “I always kept shaking the current organization in order to
maintain a certain level of disorder as I strongly believe that
disorganization is a condition for creativity”, “we have to accept to give up
the comfortable feeling of achievement conveyed by a stable organization
chart”.
This philosophy is the foundation for a strong ‘innovative’ culture, which
from an early stage has set the conditions for streaming the inputs from
below up towards management («Botton up»).
It has translated into an internal risk-taking culture.
Francois Dalle: “without allowing the opportunity of making mistakes,
there is no opportunity for changes, thus no potential for evolution and
improvement”.
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This learning organization is being supported by:
 Verbal transmission (i.e. Story-telling is commonly used as one of the
most prominent vehicles for the inter-generational transmission of
collective emotions and experience, and, is preferred to the
standardization of processes).
 close cooperation between Marketing and R&D departments
 Internal networking and management through projects and missions.
The reality of organizational learning at L’Oréal can however be in
contradiction with the 20% turn-over rate among the young managers and
one can argue that the learning organization is more about running an
unsaid selection process than to promote a trial and mistake process.
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3 COSMETICS MARKET ENVIRONMENT
3.1 Industry attractivity
The cosmetic industry is a very appealing one, with a long term growth and
high profitability for its key actors.
 4,9% growth in 2006, highest growth since 5 years
 Above annual growth : +4,5%
Figure 16 Evolution of the cosmetics market worldwide 1991 - 2006 (MD$)
3.2 Maturity in Europe – Growth for the rest of the world zone
Figure 17 Cosmetics markets Geographical distribution 2006
 The ‘rest of the world’ zone has registered a growth twice higher than
the market for the last 15 years
 Europe: lowest growth in 2005 (+1, 1%)
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3.3 Fierce competition and fragmentation
In 2007, there has been more than one fragrance launch per day in the
world.
This industry is highly fragmented: the Top 10 key players represented
84% of the total beauty market.
Figure 18 US / EU FF market : an overcrowded market
4 L’ORÉAL’S COMPETITIVE CONTEXT
Product Life Cycle- Europe
4.1 L’Oréal PLC
Consumer products
Professional products
Active Cosmetics
Body shop
Launching
Growth
Luxury products
Maturity
Decline
Figure 19 Product life cycle - Europe
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Using the Product Life Cycle matrix for L’Oréal, we observe that most of
L’Oréal’s current business has reached maturity in Europe, as Consumer,
Professional and Luxury product divisions represent 91% of its turnover in
2006.
However, in the globalization context, there is plenty of room for growth in
the BRIMC countries, especially for those 3 divisions. BRIMC countries
represented 10% of the turnover but 33% of L’Oréal’s growth in 20068
4.2 BCG matrix - Europe
RELATIVE L'ORÉAL'S POSITION IN EUROPE WITH A SEGMENTATION BY DISTRIBUTION NETWORKS
Professional products
L'Oréal 27.7%
P&G 21.7%
Henkel 7.8%
Consumer products
Luxery products
L'Oréal 31.3%
Estée Lauder 20%
P&G 13.1%
L'Oréal 16.4%
Beiersdorf 11.1%
LVMH 11%
Tableau 4 L'Oréal position in Europe according to its distribution channels
Figure 20 Worldwide estimated growth by segment 2006E-2010E
8 Source : ODO Securities
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Active cosmetic
L'Oréal 20.1%
Pierre Fabre 8.3%
J&J 5.7%
35
Figure 21 BCG Europe
With high market share and market growth, the Active Cosmetics division
is a Star double dipping from the Health Care Professionals and Consumers
platforms.
Both Professional and Luxury products divisions are cash cows with lower
growth rates and high market shares.
However, the luxury products division could become a DOG for
L’Oréal if its market share decreases as a consequence of the
erosion of its old fragrance portfolio.
L’Oréal is condemned to buy market share on this segment or to launch
new blockbusters like Trésor and Aqua Di Gio.
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4.3 Porter’s network model
The Network Model
L'Oréal luxury products
division
Price increase : raw
material, transport,
energy
Concentration
GOVERNMENT
SUPPLIERS
INTERNAL
RESOURCES:
REACH
IFRA
Brevets
CAPITAL
Ms Bettencourt
Nestlé
SCIENCE
AND
THECHNOLOGY
3% R&D
Power of distribution
CUSTOMERS
Experts, looking for
customization
Blogs Sniffapalooza
CAPABILITIES
POSITIONS
ORGANIZATION
LABOR
63000 employees
- ESTEE
LAUDER - COTY Prestige
COMPETITORS
Substitution : Spas Luxury accessories
Figure 22 Porter network model
Together with the increasing weight of launching investments (30% in
marketing) to appeal to customers who are more and more experts, and
looking for differentiation, in a highly saturated market, L’ORÉAL is
struggling with:
 The bargaining power of distribution
 New products substitutes emerging from high technology areas
(IPOD)
 New environmental regulations (REACH)
 Continuous pressure from its shareholders, accustomed to success
 Coalition of its suppliers
Competitive intensity
Distribution
4
New
2
Suppliers
entrants
0
Sustitutes
Competition
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4.4 Products/markets
Products / Markets
Asia, Russia,
India
Current
Markets
New
Market
Development
Diversification
30% of turnover in
promotion&Communication
Incremental innovation
Market
Penetration
Product
Development
Current
New
Products / Services
Figure 23Products / markets matrix
HIGH
Generic Positioning
'Stuck in The
Middle'
N
Generic Brands
LOW
Differentiation
4.5 Differentiation
Chanel / BPI /
Clarins /
LVMH
COST
Low
Porter, 1979
Differenciation
Luxury
Products
Division
Price
High
Figure 24 Generic positionning
Unlike Chanel/BPI (Jean-Paul Gaultier), Clarins (Thierry Mugler) or LVMH
(Guerlain, Dior…), L’Oréal suffers from a lack of creativity or differentiation
in regards to the prestige fragrances. In this area, there is no real
technology at stake like in hair colorations or cosmetics. Fragrance is
mainly about dream, seduction, and emotions.
During OJ’s reign, not only advertising has been standardized through the
use of a unique beauty ideal with models who all look beautifully the same
yet, furthermore, L’Oréal as a whole is recognized via one unique slogan,
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“Because I’m worth it” in the 70’s (1974 in the US, France in 19979).
Finally standardization has also been felt through the creation of one
olfactory creative process.
In effect, in order to keep fastness and be able to launch many projects
per year, L’Oréal has created an internal fragrance cell 8 years ago. This
cell has the responsibility to deal with fragrance suppliers, asking them for
creative ideas that are put in a box and later on, customized for brands.
This means that the marketing department briefs directly the fragrance
cell and has no contact with the perfumers, source of creativity.
One other crucial issue is that like some other big players, L’Oréal is using
more and more market research in order to elaborate a consensual scent
that will appeal to as many people as possible.
As a consequence, there is a great loss of creativity and differentiation,
during the fragrance development process, and the company finds itself
stuck in the middle.
Luxury Products Division organization
Despite the current credit crunch, AC Nielsen reveals that the luxury
brands sector continues to climb to new starry heights. The latest Nielsen
survey on luxury brands reveals that consumers remain enraptured by the
allure of luxury. Hence, there are generous payoffs for key actors who
dare to diversify. The spotlight is on the ‘emerging markets’. Shopaholic
Hong Kongers who have a recorded 38 percent of its overflowing
population claims to buy designer brands. Luxury brands are hot in Honk
Kong and are accessible to young Hong Kongers as they enjoy a high
disposable income because it’s traditionally accepted to live at home until
your late twenties and thirties or until you get married. It is no surprise
that Jean Paul Agon turns to Luxury and takes on Asia.
The fragrance market therefore has seen the emergence of new actors,
niche brands, which sell unique products, at a very high price, using luxury
raw material: Frédéric Malle, Editor of fragrances), The Labo in NY,
Hermès, Comme des Garçons, L’Artisan Parfumeur, Annick Goutal.
9 Source : INPI
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4.6 SWOT L’Oréal
Strenghths












Weaknesses
Leader on the cosmetic market
(15,6 % market share), high brand
equity and full distribution networks
coverage.
Innovation R&D: 3, 3% of turnover


Top management’s stability (4 CEOs
in 100 years)
Low indebtedness (23% gearing)
International presence and strategic
position in BRIMC countries (12,6%
market share)
Marketing and financial
Communication: 30% of turnover
Agility & Business Intelligence:
strategic acquisitions in all rising
market trends (Body Shop, YSL …)
Cultural diversity (112 nationalities )
Opportunities

Luxury trend: consumers are looking
for more and more value added
products.
Emerging countries : 60% of
worldwide cosmetics market growth,
(purchasing power)
New segments (men skincare,
seniors, bio cosmetics and ethnical
cosmetics).
Acquisitions






Old portfolio
Not leader in the Luxury products
division
Lack of differentiation
Fragmentation, complexity of the
matrix
Persistence of 80’s management
methods
Challenger position in some
European countries: Germany and
UK
Eroding of the company’s image
existence of false claims in
advertising.10
Slow revenue growth11
Threats



Intense competition
1. Market’s concentration (P&G,
Coty)
2. Cosmetic market crisis in
Europe
3. Sharp distribution’s
concentration
Current individualistic12 model does
not meet new social values
Dollar exposure
Lobbying pressure against the
cosmetic industry13
Tableau 5 L'ORÉAL' SWOT
10 In May of 2007, L’OréalOréal was ordered by the Therapeutic Goods Administration of
Australia to retract their claims on the wrinkle removing capabilities of their products (Anti Aging
Wrinkle Creams are a Rip Off)
11 L’OréalOréal has a slow growth on revenue 1.4% compared with their competitive rivals like
Estee Lauder 8.1% growth during 2001-2005 and industry average revenue 7.6%
12 « Because you are Worth it »
13 after finding the famous cosmetics product SKII contained poison chemical material, most of
the Asian countries have started to test all the cosmetic products more seriously-
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5 NEED FOR CHANGE
Behind a constant growth, over the last 20 years, of the sales turnover and
dividend price, is there ONE success model?
J.P.Agon: “the model has been successful in the past, it still works and will
work very well in the years to come”.
5.1 An exemplary company
L’Oréal is a very agile company which has been for years focused on
internal growth, always trying to catch new trends, conquering new
segments, or new geographical markets.
This was especially true during François Dalle’s period, as he was much
more in favour of an entrepreneurial state of mind, privileging the
creative effort to the acquisition of other companies.
Figure 25 Évolution de la croissance du groupe de 1995 à 2006 (M€)
5.1.1
For the shareholders
Initial capital multiplied by 35 in 20 years
Total shareholder return : 20%
 Best financial and shareholder website awarded by Boursorama in
2002. Gold award for interactivity and silver awards for content and
presentation.
The business journal manager magazine has awarded L’Oréal the Best
Annual Report for 2003.
L'Oréal chairman Sir Lindsay Owen-Jones has received a lifetime
achievement award at the European Business Leaders of the Year
Awards in recognition of his role in the meteoric rise of the company
during his 20 year tenure as CEO (March 2008).
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 A slogan flavoured with money: “Because I’m worth it” –This slogan
created at the end of the 70’s seems to put the customer at the first
place but there is an underlying relationship with the financial interest
at stake for L’Oréal. Subconsciously, the customer here is the
shareholder.
5.1.2



For the people
OJ named Manager of the year by Le Nouvel Economiste in 2002
Awarded the Challenges prize for Best Manager of the last 20 years
Best company for young business schools graduates students in 2004
and 2005.14
Owen-Jones: « This is a personal award, but through me, the distinguished
panel is rewarding L’Oréal and its employees. It is their passion for
excellence, their constant innovation, their commitment to developing our
brands and satisfying all types of beauty throughout the world that have
made the long-term success of L’Oréal ».15
5.2 But a model running out of steam?
5.2.1
Decrease of L’Oréal’s financial performance from 2002 to 2005
Figure 26 Croissance comparable du marché mondial et du CA cosmétique de l'Oréal de 1991 à 2006
14 Stratégies Magazine 2007
15 The Moodie Report, 2008
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Figure 27 L'Oréal profit and share price over 20 years
L’ORÉAL AG march, 2008
5.2.2
Current growth is no longer organic
 The rhythm of acquisitions has accelerated as well as the scope of the
investments, and its targets16. In the past, L’Oréal was mostly
focusing on acquiring in the consumer products area, and operated a
strategic move since 2001.
Brand
Shu Uemura
The Body Shop
YSL Beauté
Year
Activity
Estimated price
2001 Skin&make-up
2006 Bio-Cosmetics
652
2008 Luxury products
1150
Tableau 6 History of L’Oréal’s acquisitions made since 1995
16 Source ODO Securities
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CA (M€)
145
435
626
43
5.2.3
Old portfolio
On the feminine market which is the most important (60%), L’Oréal
has only 4 fragrances in the top 15 in 200617 with one global brand:
Lancôme.
Product
Brand
Trésor
Hypnose
Romance
Lancôme
Lancôme
Ralph
Lauren
Armani
Code
Launch
date
1998
2005
1998
Ranking
Europe
7
8
-
Ranking
US
12
15
7
2006
9
-
On the masculine market, L’Oréal owns 6 fragrances in the top 15,
with one global brand Armani, and Ralph Lauren brand doing very
well in the US:
Product
Brand
Aqua diGio
Code
Polo Black
Armani
Armani
Ralph
Lauren
Ralph
Lauren
Ralph
Lauren
Ralph
Lauren
Polo Blue
Polo Double
Black
Polo
Launch
date
1996
2004
2005
Ranking
Europe
2
3
-
Ranking
US
1
2
4
2006
-
5
2006
-
12
1978
-
13
Obviously, the group is doing better on the masculine segment than
on the feminine one. Many other fragrances have been launched but
were not successful in the long run since 1988.18
The latest introductions like Hypnose and Armani Code are too recent
to conclude if they will become new classics which means the only
durable successful fragrance are very old ones: Trésor, launched
18 years ago, and Aqua diGio, launched 12 years ago.
On this very competitive market, which faces 400 new launches per
year, L’Oréal needs desesperately to buy market share to diversify the
risk relying on its old pillars, especially to reinforce its position on the
feminine segment. That is the reason why they bought YSL Beauty
(mid 2008), in order to buy market shares on the feminine segment,
with iconic brands like Paris, Opium, Rive Gauche.
17 source Beauty and Business
18 Amor Amor by Cacharel (2003), Miracle by Lancôme (2000), Romance and Ralph by Ralph
Lauren (1999/2000), Armani Mania (2002).
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5.2.4
Profitability below competition
EBITA/sales in 2006
L’Oréal: 16.4%
P&G: 20.2%
Furthermore, there is the same profitability for Luxury products than in
Professional products division (21.1%) whereas it should be higher for
the prestige segment.
5.2.5
Strategic move from competitors in the prestige area
Acquisitions/Licenses
 P&G created a new Global Prestige division in 2005 by acquiring the
Wella/Cosmopolitan Group and renowned brands like Hugo Boss,
Gucci, Lacoste, Escada.
 Estee Lauder Group signed a contract license for Missoni, Tom Ford
and Sean John in 2005.
 Coty inc. acquired for its prestige division Lancaster Group, the
brands Calvin Klein, Cerruti, Chloé, Vera Wang and Karl Lagerfeld
from Unilever in 2005. CEO Bernd Beetz: « This acquisition represents
an important further step in the transformation of Coty that began in
2001... We are now entering a new phase in which we will greatly
expand our presence in the market for prestige and ultra-prestige
brands on a global basis."
Recruiting internal perfumers –Back to creativity and luxury
 LVMH: recently hired 2 perfumers: F.Demachy (Chanel) and
T.Vasseur (Firmenich) in order to control its costs, but also to
promote its creative and prestige image.
 CARTIER/RICHEMOND: has hired an in-house perfumer Mathilde
Laurent in 2005
 HERMÈS: Jean-Claude Ellena joined the company in 2004 with the
objective to elaborate the fragrances under Hermès branding.
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5.2.6
The human factor
« It takes a lot of work and time to build a strong employer brand and it is
something that can easily belost if not monitored and properly maintained.’
Pär-Anders Pehrsson, Vice-President-Leadership, Ericsson)
 Men and not machines: The company is described as a machine, with
a car engine speech from Top management: “Full speed ahead accelerated, in 2007, our growth engine was firing on all cylinders,
giving maximum power, fuel growth, a genuine turbo effect” 19.
 Diversity or standardization of people: There are indeed 112 different
nationalities nowadays at L’Oréal, but behind this apparent diversity,
there is only one culture, the L’Oréality: either people accept it and
get used to it or they leave. That’s the reason why for years, the H&R
department at L’Oréal recruited young people to teach them, to
format them under the company culture and they did not recruit older
profiles or MBA’s, who could have brought a new blood, with a
different point of view. This is being referred to internally as
“consanguinity”.” L’Oréality might be the glue that helps everyone FIT
together yet realistically, there have been reported cases of
individuals getting the boot for not being ‘one of us’. Individuals were
not fired because they did not understand the company objectives or
work towards a common goal, they got fired because they did not
dress like the rest and did not stay till 2 a.m. pushing projects
forward. They were fired for being unique and working in the
conditions prescribed by law.
 Diversity or opportunism: In short, while actress Catherine Deneuve
is the official face of the company's main French brands, L'Oréal is
French only when it wants to be. The rest of the time it's happy being
African, Asian, or anything else that sells. Perhaps L’Oréal has simply
done its homework. Research shows that African Americans buy many
folds more hair care products than Caucasians or Asians do. Soft
Sheen/Carson a brand purchased by the L’Oréal group in 2000 which
provides premier hair care products for people of African descent is
worth an estimated $1 billion a year. Cultural diversity or simply good
math?
19 Jean-Paul Agon –Annual Report 2007
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 High staff turnover: Turnover of people recruited between 28/32
years reached 20% in 2006. The current model does not meet any
longer
young
people’s
requirements of
respect
and
selfaccomplishment. The remaining people are the older ones, formatted
with OJ’s methods: centralization of decision making, intensive stress,
and profitability being the only criteria. There is a definite glorification
of youth and the ‘dynamism’ youth brings is praised. However, as the
elder generation is stepping down and high turnover of middle-aged
managers is high, one might find it unnerving to walk through the
corridors of L’Oréal these days – everyone is frightfully young: where
is the experience?
Since Dalle, the internal meeting room has been surnamed the
“confrontation” room, as a place to brainstorm and express different
points of view. With OJ at the helm of L’Oréal, confrontation has come
to its peak as the room has seen many humiliations of manager who
had to defend his/her project in front of him. He has even been
surnamed by the employees the lion king, or the pope with its court.
Unlike what was published, there was no room for failure. At the end
of his era, the internal pressure was very high. Sales people had 10%
annual growth objectives that they could not meet via either volume
or price increase. OJ management was perceived, as very close to
Louis XIV, rigid, with fiefdoms owned by managers who never dared
to question him. He has even been surnamed by the employees the
lion king, or the pope with its court. The climate was very tensed, the
enemy was inside and people spent their time trying to protect
themselves instead of thinking of the customer. He instituted a
climate he called “the healthy worrying” where everyone would feel
challenged at every time, ready to go on war to defend its position.
Anotable quote picked up by the media on numerous occasions and
even cited within an Annual Report while profiling OJ demonstrates
the constant state of anomie implement within the organization:
"I'm never satisfied and never convinced we are winning. I try and
convince my people we might not be."
As a consequence, talented people left to go to the competition,
mainly at Estée Lauder and Procter and Gamble.
Today, an ex-L'Oréalien main come back to work for the Group. This
is only true in recent history as it was always viewed as an ultimate
betrayal to leave L’Oréal – again case in point to the number of CEOs
to date. Past employed individuals recall feeling like there is ‘no life’
after L’Oréal, some hung on to their jobs, working 20 hours a day out
of fear of never working somewhere as prestigious as L’Oréal.
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Exhausted staff, high middle-manager turn-overs, and competent
corporate layer nearing the exit door; is this a wakeup call for HR
strategy?
 L’Oréal on strike: French workers (more than 600 individuals) took
part in a strike further to the announcement of L’Oréal’s positive
financial results in 2007 to protest against the company's failure to
perform across the board wage increases since 2004.
 Creativity or reactivity?
The initial motto of Schueller is still alive at L’Oréal: « do, undo and
redo » but what was a part of the creative process in the past, has
become an enormous loss of energy, resources, motivation and
creativity.
As a consequence, in 2006 and 2007, LVMH has overcome L’Oréal in
the “Best companies to work for” rankings by business schools
students graduates20. Also employees opinion surveys show that
L’Oréal is not among the top 100 on several key criteria of employer
image, which is eroding the company’s reputation.21
6 FUTURE CHALLENGES TO ADRESS IN HYPERCOMPETITION
A new CEO Jean-Paul Agon has been selected in 2006 to take over to OJ. In
order to keep up with the success L’Oréal has encountered in the past, he will
need to address or has already started to address the following key issues:
6.1 Management quality
People who had left the company were seen as betrayers and were not
allowed to come back, whereas the rumor says this should change with Agon:
“One of my first objectives is to make L’Oréal a company of its time, modern
in its internal behavior. Our homogeneity is strength but it should not get
transformed into consanguinity, we have to keep attracting talented people” 22.
Top management has expressed in 2006 the need to progress in following
areas:
 Respect
 Individual and team development
 Capacity to anticipate and innovate
 Satisfaction at work
20 Stratégies Magazine 2007
21 Internal source
22 L’Expansion July 2008
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Early September 2006, the H&R president Geoff Skingsley, with strong
support of Jean-Paul Agon, has announced to all COMEX members and
Country Managers his intention to introduce a new performance criterion for
managers:
“LEADS WITH HUMAN SENSITIVITY”
End of 2007 was introduced another criteria has been added:
“ACHIEVES RESULTS WITH INTEGRITY”. This change has been
accompanied by the creation of an intranet site dedicated to ethics which is
available to all group employees.23
This means to change:
 In the collective mindset of the company what “leading” means: It is not
either I lead, OR I have human sensitivity with “poor” results in both
cases
 The way managers are appraised, as they will be encouraged, with N+1
support to self reflect, to receive feedback on his/her managerial
behavior, to build his/her individual Management Development Plan.
L'Oréal Management Competences
LEADS WITH HUMAN SENSITIVITY
Acts with respect
Develops people (team managers)
Develops teams (team managers)
INTERACTS EFFECTIVELY
DISPLAYS SENSITIVITY TO OUR "METIER"
Communicates effectively
Mobilizes networks
Builds sensitivity to quality and beauty
Going further… understands beauty
MANAGES COMPLEXITY
ACHIEVES RESULTS WITH INTEGRITY
Reasons from multiple perspectives
Makes descisions
Intranet site dedicated to ethics
ACHIEVES RESULTS
DEMONSTRATES ENTREPRENEURSHIP
Conveys energy
Concentrates on results
Develops a vision
Takes initiative
Focuses on customers
Improves business performance
INNOVATES
Shows curiosity
Imagines creative solutions
Stimulates team creativity (team managers)
Figure 28 L'Oréal management competences
L’ORÉAL internal document
23 Annual report 2007
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6.2 Mastering Distribution channels
LVMH has already moved in this direction with Séphora, and L’Oréal intends
in the near future to open its own distribution stores. The Body Shop
acquisition (1 billion euros) perfectly reflects this strategy of having its own
outlets. When Agon was in NY, he already experimented the opening of
Kiehl’s own stores. The Japanese brand ShuUemura also owns its
distribution network. This is one step further after the outcome of the
recent e-commerce success encountered by the Lancôme, Cacherel and
Helena Rubinstein brands.
6.3 More differentiation
Luxury is about exclusivity, differentiation, experience, high quality
products, and added value. Consumers are more and more exposed to find
the same technology under a mass market brand like “Age Re-Perfect” from
L’Oréal Paris and the Platinéum skincare cream from Lancôme at a price six
times cheaper for the first one. This is called the “cascading effect” at
L’Oréal. The issue is that premium brands have less and less the exclusivity
of a new molecule, as the mass-market brands are condemned to innovate
permanently to fight versus P&G. The group needs to avoid the internal
cannibalization of their premium brands (cascading effect), which allows to
mass-market brands to use 6 months later – instead of 2 years in the pastthe innovative formula of a luxury brand.
6.4 R&D focus
Between R&D and Communication, there is currently no dilemma: 30% of
turnover is invested in communication whereas 3% in R&D. What has
changed is that the consumer today is much more informed and less
influenced by a product with no real added value. In order to renew with
creativity in cosmetics and fragrances, L’Oréal needs to make real quality
gaps between product offerings in mass-market and selective distribution.
In the world of fragrances, this means working at higher prices, with high
quality raw materials; It means changing the relationship towards fragrance
suppliers, working more as partners like P&G is doing, in a mutual sense of
respect which can generate more input from fragrance suppliers.
7 Conclusion
If ones looks at the wider picture, that is to say from a societal point of
view, one can question whether L’Oréal vision and corporate core values are
still so in line with the main evolutions in people expectation, internally
(staff) and externally (customers).
With no doubt, if one compares l’Oréal in 2008 to the company it used to be
in 1948, Francois Dalle vision was more than successfully achieved, since,
today, l’Oréal is the world leader in the cosmetic market. But can the same
vision still drive the future of the firm? Has any new vision been expressed
so far, either during OJ days or since Jean-jacques Agon took the position
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as Managing Director? Those questions have not been clearly addressed yet
and, to our knowledge, it is still an open issue.
It has become unclear as to which extent the individual values can be
defined as a factor to a collective contribution at a time when the
drawbacks of globalisation are seriously questioning individualism as a
positive value. The corporate social responsibility is now raising much
higher expectations and the contribution to society through the l’Oréal
mission statement may be questioned: the idea of the individual well-being
as a condition for a collective well-being comes now as a weak statement at
a time when social responsibility and expectations are global and mainly
orientated towards social and environmental challenges. For instance, the
firm has had, in the last few years, to undergo serious criticism in relation
to animal testing. L’Oréal will then have to face new challenges in relation
to its core values: how to reformulate them in order to bridge the cosmetics
market into global and collective environmental values without contradicting
its individual values embedded in the so well-known catch phrase “parce
que vous le valez bien”, referring to self-absorption and material wealth,
depending on how cynical one reads into it!
Those values will also have to make sense in a context of strategic change:
can the legacy culture and values very much in-house orientated and ringfenced, face the shift from organic to external growth?
This was addressed through the Bodyshop acquisition in 2006 and questions
have been raised about the cultural compatibility of L’Oréal and the UK
retailer. It is certainly too early to say how those external acquisitions will
impact on L’Oréal culture, values and policy fading away, but it will, with no
doubt, put the cosmetic giant under pressure for evolution.
However, the worst enemy for L’Oréal will be the resistance to change
because of the very strong group’s culture and especially if the top
management is not fully dedicated to change. As Emmanuel Monod said,
« there is never just ONE model in hypercompetition ».
J.P.Agon : « Je ne me suis pas du tout inscrit dans une volonté de
changement. Je suis convaincu que le business model de L’Oréal est très
performant et très adapté au monde d’aujourd’hui. Mais je pense qu’on
peut le faire tourner mieux et plus vite. Il s’articule sur six cylindres : la
recherche et l’innovation, les grands produits, leur valorisation, la puissance
de nos marques, la mondialisation et les acquisitions. »24
24 Le Figaro, Octobre 2007
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Figures
Figure 1 L'ORÉAL, a success story ___________________________________________________________________ 5
Figure 2 Economic environment _____________________________________________________________________ 10
Figure 3 Variations of l'ORÉAL's patents and of the R&D function of sales ________________________________ 12
Figure 4 L'ORÉAL' shareholders _____________________________________________________________________ 13
Figure 5 The l'ORÉAL's segmentation strategy ________________________________________________________ 14
Figure 6 L'ORÉAL's organization by divisions _________________________________________________________ 15
Figure 7 L'ORÉAL's brands _________________________________________________________________________ 16
Figure 8 Vertical integration & structures ______________________________________________________________ 16
Figure 9 Department's organization example __________________________________________________________ 17
Figure 10 L'ORÉAL's turn over ______________________________________________________________________ 19
Figure 11 L'ORÉAL real organization, a 3D matrix ? ____________________________________________________ 20
Figure 12 Value Chain for L'ORÉAL __________________________________________________________________ 23
Figure 13 Production sites location ___________________________________________________________________ 25
Figure 14 Processes value chain_____________________________________________________________________ 25
Figure 15 To Be&As Is for L'ORÉAL __________________________________________________________________ 28
Figure 16 Evolution of the cosmetics market worldwide 1991 - 2006 (MD$) _______________________________ 32
Figure 17 Cosmetics markets Geographical distribution 2006 ___________________________________________ 32
Figure 18 US / EU FF market : an overcrowded market _________________________________________________ 33
Figure 19 Product life cycle - Europe _________________________________________________________________ 33
Figure 20 Worldwide estimated growth by segment 2006E-2010E _______________________________________ 34
Figure 21 BCG Europe _____________________________________________________________________________ 35
Figure 22 Porter network model______________________________________________________________________ 36
Figure 23Products / markets matrix __________________________________________________________________ 37
Figure 24 Generic positionning ______________________________________________________________________ 37
Figure 25 Évolution de la croissance du groupe de 1995 à 2006 (M€)____________________________________ 40
Figure 26 Croissance comparable du marché mondial et du CA cosmétique de l'Oréal de 1991 à 2006 ______ 41
Figure 27 L'Oréal profit and share price over 20 years __________________________________________________ 42
Figure 28 L'Oréal management competences _________________________________________________________ 48
Tableaux
Tableau 1 L'ORÉAL's performances __________________________________________________________________
Tableau 2 The 3 dimensions of l'Oréal’s organization ___________________________________________________
Tableau 3 SWOT for L'ORÉAL value chain ____________________________________________________________
Tableau 4 L'Oréal position in Europe according to its distribution channels ________________________________
Tableau 5 L'ORÉAL' SWOT _________________________________________________________________________
Tableau 6 History of L’Oréal’s acquisitions made since 1995 ____________________________________________
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