L'Oreal (0NZM) SWOT Analysis / TOWS Matrix / MBA Resources
Personal & Household Prods.
Strategy / MBA Resources
Introduction to SWOT Analysis
SWOT Analysis / TOWS Matrix for L'Oreal (United Kingdom)
Based on various researches at Oak Spring University , L'Oreal is operating in a macro-environment that has been destablized by – cloud computing is disrupting traditional business models, increasing inequality as vast percentage of new income is going to the top 1%, banking and financial system is disrupted by Bitcoin and other crypto currencies, there is increasing trade war between United States & China, increasing household debt because of falling income levels, increasing transportation and logistics costs, digital marketing is dominated by two big players Facebook and Google,
wage bills are increasing, technology disruption, 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 United Kingdom
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 -
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.
Sustainable margins compare to other players in Personal & Household Prods. industry
– L'Oreal has clearly differentiated products in the market place. This has enabled L'Oreal to fetch slight price premium compare to the competitors in the Personal & Household Prods. industry. The sustainable margins have also helped L'Oreal to invest into research and development (R&D) and innovation.
Learning organization
- L'Oreal is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at L'Oreal is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at L'Oreal emphasize – knowledge, initiative, and innovation.
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.
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.
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.
Analytics focus
– L'Oreal is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the Personal & Household Prods. industry. The technology infrastructure of United Kingdom is also helping it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Innovation driven organization
– L'Oreal is one of the most innovative firm in Personal & Household Prods. sector.
Training and development
– L'Oreal has one of the best training and development program in Consumer/Non-Cyclical industry. The effectiveness of the training programs can be measured in – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Successful track record of launching new products
– L'Oreal has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. L'Oreal has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
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.
Ability to recruit top talent
– L'Oreal is one of the leading players in the Personal & Household Prods. industry in United Kingdom. It is in a position to attract the best talent available in United Kingdom. The firm has a robust talent identification program that helps in identifying the brightest.
Weaknesses of L'Oreal | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of L'Oreal are -
Increasing silos among functional specialists
– The organizational structure of L'Oreal is dominated by functional specialists. It is not different from other players in the Personal & Household Prods. industry, but L'Oreal needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help L'Oreal to focus more on services in the Personal & Household Prods. industry rather than just following the product oriented approach.
Compensation and incentives
– The revenue per employee of L'Oreal is just above the Personal & Household Prods. industry average. It needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
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 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.
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.
No frontier risks strategy
– From the 10K / annual statement of L'Oreal, it seems that company is thinking out the frontier risks that can impact Personal & Household Prods. industry. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
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.
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.
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.
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 -
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.
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.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, L'Oreal can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help L'Oreal to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Better consumer reach
– The expansion of the 5G network will help L'Oreal to increase its market reach. L'Oreal will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Manufacturing automation
– L'Oreal can use the latest technology developments to improve its manufacturing and designing process in Personal & Household Prods. sector. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Creating value in data economy
– The success of analytics program of L'Oreal has opened avenues for new revenue streams for the organization in Personal & Household Prods. industry. This can help L'Oreal to build a more holistic ecosystem for L'Oreal products in the Personal & Household Prods. industry by providing – data insight services, data privacy related products, data based consulting services, etc.
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.
Use of Bitcoin and other crypto currencies for transactions in Personal & Household Prods. industry
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for L'Oreal in the Personal & Household Prods. industry. Now L'Oreal can target international markets with far fewer capital restrictions requirements than the existing system.
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.
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.
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.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. L'Oreal can explore opportunities that can attract volunteers and are consistent with its mission and vision.
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.
Threats L'Oreal External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of L'Oreal are -
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.
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.
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.
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.
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.
Consumer confidence and its impact on L'Oreal demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in Personal & Household Prods. industry and other sectors.
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.
Increasing wage structure of L'Oreal
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of L'Oreal.
Shortening product life cycle
– it is one of the major threat that L'Oreal is facing in Personal & Household Prods. sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
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.
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.
Easy access to finance
– Easy access to finance in Personal & Household Prods. industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. L'Oreal can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
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.
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.
