L'Oreal (OR) SWOT Analysis / TOWS Matrix / MBA Resources
Personal & Household Prods.
Strategy / MBA Resources
Introduction to SWOT Analysis
SWOT Analysis / TOWS Matrix for L'Oreal (Italy)
Based on various researches at Oak Spring University , L'Oreal is operating in a macro-environment that has been destablized by – there is backlash against globalization, technology disruption, increasing energy prices, digital marketing is dominated by two big players Facebook and Google, central banks are concerned over increasing inflation, geopolitical disruptions, there is increasing trade war between United States & China,
banking and financial system is disrupted by Bitcoin and other crypto currencies, increasing government debt because of Covid-19 spendings, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that L'Oreal can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the L'Oreal, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which L'Oreal operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of L'Oreal can be done for the following purposes –
1. Strategic planning of L'Oreal
2. Improving business portfolio management of L'Oreal
3. Assessing feasibility of the new initiative in Italy
4. Making a Personal & Household Prods. sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of L'Oreal
Strengths of L'Oreal | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of L'Oreal are -
High switching costs
– The high switching costs that L'Oreal has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Ability to recruit top talent
– L'Oreal is one of the leading players in the Personal & Household Prods. industry in Italy. It is in a position to attract the best talent available in Italy. The firm has a robust talent identification program that helps in identifying the brightest.
Organizational Resilience of L'Oreal
– The covid-19 pandemic has put organizational resilience at the centre of everthing L'Oreal does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Superior customer experience
– The customer experience strategy of L'Oreal in Personal & Household Prods. industry is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Highly skilled collaborators
– L'Oreal has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Personal & Household Prods. industry. Secondly the value chain collaborators of L'Oreal have helped the firm to develop new products and bring them quickly to the marketplace.
Innovation driven organization
– L'Oreal is one of the most innovative firm in Personal & Household Prods. sector.
Diverse revenue streams
– L'Oreal is present in almost all the verticals within the Personal & Household Prods. industry. This has provided L'Oreal a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Ability to lead change in Personal & Household Prods.
– L'Oreal is one of the leading players in the Personal & Household Prods. industry in Italy. Over the years it has not only transformed the business landscape in the Personal & Household Prods. industry in Italy but also across the existing markets. The ability to lead change has enabled L'Oreal in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
High brand equity
– L'Oreal has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled L'Oreal to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Digital Transformation in Personal & Household Prods. industry
- digital transformation varies from industry to industry. For L'Oreal digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. L'Oreal has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Operational resilience
– The operational resilience strategy of L'Oreal comprises – understanding the underlying the factors in the Personal & Household Prods. industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Strong track record of project management in the Personal & Household Prods. industry
– L'Oreal is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Weaknesses of L'Oreal | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of L'Oreal are -
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of L'Oreal supply chain. Even after few cautionary changes, L'Oreal is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left L'Oreal vulnerable to further global disruptions in South East Asia.
Slow to strategic competitive environment developments
– As L'Oreal is one of the leading players in the Personal & Household Prods. industry, it takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the Personal & Household Prods. industry in last five years.
Skills based hiring in Personal & Household Prods. industry
– The stress on hiring functional specialists at L'Oreal has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Ability to respond to the competition
– As the decision making is very deliberative at L'Oreal, in the dynamic environment of Personal & Household Prods. industry it has struggled to respond to the nimble upstart competition. L'Oreal has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Slow decision making process
– As mentioned earlier in the report, L'Oreal has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the Personal & Household Prods. industry over the last five years. L'Oreal even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
Need for greater diversity
– L'Oreal has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Capital Spending Reduction
– Even during the low interest decade, L'Oreal has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the Personal & Household Prods. industry using digital technology.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, L'Oreal is slow explore the new channels of communication. These new channels of communication can help L'Oreal to provide better information regarding Personal & Household Prods. products and services. It can also build an online community to further reach out to potential customers.
High dependence on L'Oreal ‘s star products
– The top 2 products and services of L'Oreal still accounts for major business revenue. This dependence on star products in Personal & Household Prods. industry has resulted into insufficient focus on developing new products, even though L'Oreal has relatively successful track record of launching new products.
Workers concerns about automation
– As automation is fast increasing in the Personal & Household Prods. industry, L'Oreal needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
Products dominated business model
– Even though L'Oreal has some of the most successful models in the Personal & Household Prods. industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. L'Oreal should strive to include more intangible value offerings along with its core products and services.
L'Oreal Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of L'Oreal are -
Leveraging digital technologies
– L'Oreal can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, L'Oreal can use these opportunities to build new business models that can help the communities that L'Oreal operates in. Secondly it can use opportunities from government spending in Personal & Household Prods. sector.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Personal & Household Prods. industry, but it has also influenced the consumer preferences. L'Oreal can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Lowering marketing communication costs
– 5G expansion will open new opportunities for L'Oreal in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Personal & Household Prods. industry, and it will provide faster access to the consumers.
Loyalty marketing
– L'Oreal has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Buying journey improvements
– L'Oreal can improve the customer journey of consumers in the Personal & Household Prods. industry by using analytics and artificial intelligence. It can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Low interest rates
– Even though inflation is raising its head in most developed economies, L'Oreal can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Using analytics as competitive advantage
– L'Oreal has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Personal & Household Prods. sector. This continuous investment in analytics has enabled L'Oreal to build a competitive advantage using analytics. The analytics driven competitive advantage can help L'Oreal to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for L'Oreal to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for L'Oreal to hire the very best people irrespective of their geographical location.
Building a culture of innovation
– managers at L'Oreal can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Personal & Household Prods. industry.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects L'Oreal can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Learning at scale
– Online learning technologies has now opened space for L'Oreal to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help L'Oreal to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Threats L'Oreal External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of L'Oreal are -
Barriers of entry lowering
– As technology is more democratized, the barriers to entry to Personal & Household Prods. industry are lowering. It can presents L'Oreal with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the Personal & Household Prods. sector.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. L'Oreal needs to understand the core reasons impacting the Personal & Household Prods. industry. This will help it in building a better workplace.
Regulatory challenges
– L'Oreal needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Personal & Household Prods. industry regulations.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, L'Oreal can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate L'Oreal prominent markets.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for L'Oreal in Personal & Household Prods. industry. The Personal & Household Prods. industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of L'Oreal business can come under increasing regulations regarding data privacy, data security, etc.
High dependence on third party suppliers
– L'Oreal high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Technology acceleration in Forth Industrial Revolution
– L'Oreal has witnessed rapid integration of technology during Covid-19 in the Personal & Household Prods. industry. As one of the leading players in the industry, L'Oreal needs to keep up with the evolution of technology in the Personal & Household Prods. sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Environmental challenges
– L'Oreal needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. L'Oreal can take advantage of this fund but it will also bring new competitors in the Personal & Household Prods. industry.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, L'Oreal may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Personal & Household Prods. sector.
Stagnating economy with rate increase
– L'Oreal can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the Personal & Household Prods. industry.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for L'Oreal in the Personal & Household Prods. sector and impact the bottomline of the organization.
Weighted SWOT Analysis of L'Oreal Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at L'Oreal needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of L'Oreal is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of L'Oreal is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of L'Oreal to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that L'Oreal needs to make to build a sustainable competitive advantage.