L'Or�al SWOT Analysis / Matrix

Essays, Term Papers & Research Papers

SWOT analysis is a vital strategic planning tool that can be used by L'Or�al managers to do a situational analysis of the company . It is an important technique to understand the present Strengths (S), Weakness (W), Opportunities (O) & Threats (T) L'Or�al is facing in its current business environment.

The L'Or�al is one of the leading companies in its industry. L'Or�al maintains its dominant position in market by critically analyzing and reviewing the SWOT analysis. SWOT analysis an immensenly interactive process and requires effective coordination among various departments within the firm such as – marketing, finance, operations, management information systems and strategic planning.

The SWOT Analysis framework facilitates an organization to identify the internal strategic factors such as -strengths and weaknesses, & external strategic factors such as - opportunities and threats. It leads to a 2X2 matrix – also known as SWOT Matrix.

The Strengths-Weaknesses-Opportunities-Threats (SWOT) Analysis / Matrix helps the managers of the L'Or�al to develop four types of strategies:

SO (strengths-opportunities) Strategies
WO (weaknesses-opportunities) Strategies
ST (strengths-threats) Strategies
WT (weaknesses-threats) Strategies

SWOT Matrix Strategies Objective

The main purpose of SWOT matrix is to identify the strategies that a company can utilize to exploit external opportunities, counter threats, and build on & protect L'Or�al strengths, and eradicate its weaknesses.

Step by Step Guide to L'Or�al SWOT Analysis

Strengths of L'Or�al – Internal Strategic Factors

As one of the leading companies in its industry, L'Or�al has numerous strengths that help it to thrive in the market place. These strengths not only help it to protect the market share in existing markets but also help in penetrating new markets. Based on Fern Fort University extensive research – some of the strengths of L'Or�al are –

Automation of activities brought consistency of quality to L'Or�al products and has enabled the company to scale up and scale down based on the demand conditions in the market.
Highly skilled workforce through successful training and learning programs. L'Or�al is investing huge resources in training and development of its employees resulting in a workforce that is not only highly skilled but also motivated to achieve more.
Strong distribution network – Over the years L'Or�al has built a reliable distribution network that can reach majority of its potential market.
Successful track record of integrating complimentary firms through mergers & acquisition. It has successfully integrated number of technology companies in the past few years to streamline its operations and to build a reliable supply chain.
Superb Performance in New Markets – L'Or�al has built expertise at entering new markets and making success of them. The expansion has helped the organization to build new revenue stream and diversify the economic cycle risk in the markets it operates in.
Strong Free Cash Flow – L'Or�al has strong free cash flows that provide resources in the hand of the company to expand into new projects.
Reliable suppliers – It has a strong base of reliable supplier of raw material thus enabling the company to overcome any supply chain bottlenecks.
High level of customer satisfaction – the company with its dedicated customer relationship management department has able to achieve a high level of customer satisfaction among present customers and good brand equity among the potential customers.

Weakness of L'Or�al – Internal Strategic Factors

Weakness are the areas where L'Or�al can improve upon. Strategy is about making choices and weakness are the areas where a firm can improve using SWOT analysis and build on its competitive advantage and strategic positioning.

Investment in Research and Development is below the fastest growing players in the industry. Even though L'Or�al is spending above the industry average on Research and Development, it has not been able to compete with the leading players in the industry in terms of innovation. It has come across as a mature firm looking forward to bring out products based on tested features in the market.
The profitability ratio and Net Contribution % of L'Or�al are below the industry average.
Organization structure is only compatible with present business model thus limiting expansion in adjacent product segments.
High attrition rate in work force – compare to other organizations in the industry L'Or�al has a higher attrition rate and have to spend a lot more compare to its competitors on training and development of its employees.
The company has not being able to tackle the challenges present by the new entrants in the segment and has lost small market share in the niche categories. L'Or�al has to build internal feedback mechanism directly from sales team on ground to counter these challenges.
The marketing of the products left a lot to be desired. Even though the product is a success in terms of sale but its positioning and unique selling proposition is not clearly defined which can lead to the attacks in this segment from the competitors.
Not very good at product demand forecasting leading to higher rate of missed opportunities compare to its competitors. One of the reason why the days inventory is high compare to its competitors is that L'Or�al is not very good at demand forecasting thus end up keeping higher inventory both in-house and in channel.

Opportunities for L'Or�al – External Strategic Factors

Decreasing cost of transportation because of lower shipping prices can also bring down the cost of L'Or�al’s products thus providing an opportunity to the company - either to boost its profitability or pass on the benefits to the customers to gain market share.
Economic uptick and increase in customer spending, after years of recession and slow growth rate in the industry, is an opportunity for L'Or�al to capture new customers and increase its market share.
The new technology provides an opportunity to L'Or�al to practices differentiated pricing strategy in the new market. It will enable the firm to maintain its loyal customers with great service and lure new customers through other value oriented propositions.
Organization’s core competencies can be a success in similar other products field. A comparative example could be - GE healthcare research helped it in developing better Oil drilling machines.
Opening up of new markets because of government agreement – the adoption of new technology standard and government free trade agreement has provided L'Or�al an opportunity to enter a new emerging market.
New customers from online channel – Over the past few years the company has invested vast sum of money into the online platform. This investment has opened new sales channel for L'Or�al. In the next few years the company can leverage this opportunity by knowing its customer better and serving their needs using big data analytics.
The new taxation policy can significantly impact the way of doing business and can open new opportunity for established players such as L'Or�al to increase its profitability.
Stable free cash flow provides opportunities to invest in adjacent product segments. With more cash in bank the company can invest in new technologies as well as in new products segments. This should open a window of opportunity for L'Or�al in other product categories.

Threats L'Or�al Facing - External Strategic Factors

The company can face lawsuits in various markets given - different laws and continuous fluctuations regarding product standards in those markets.
Changing consumer buying behavior from online channel could be a threat to the existing physical infrastructure driven supply chain model.
As the company is operating in numerous countries it is exposed to currency fluctuations especially given the volatile political climate in number of markets across the world.
New environment regulations under Paris agreement (2016) could be a threat to certain existing product categories .
Liability laws in different countries are different and L'Or�al may be exposed to various liability claims given change in policies in those markets.
No regular supply of innovative products – Over the years the company has developed numerous products but those are often response to the development by other players. Secondly the supply of new products is not regular thus leading to high and low swings in the sales number over period of time.
Imitation of the counterfeit and low quality product is also a threat to L'Or�al’s product especially in the emerging markets and low income markets.
Growing strengths of local distributors also presents a threat in some markets as the competition is paying higher margins to the local distributors.

Limitations of SWOT Analysis for L'Or�al

Although the SWOT analysis is widely used as a strategic planning tool, the analysis does have its share of limitations.

Certain capabilities or factors of an organization can be both a strength and weakness at the same time. This is one of the major limitations of SWOT analysis . For example changing environmental regulations can be both a threat to company it can also be an opportunity in a sense that it will enable the company to be on a level playing field or at advantage to competitors if it able to develop the products faster than the competitors.
SWOT does not show how to achieve a competitive advantage, so it must not be an end in itself.
The matrix is only a starting point for a discussion on how proposed strategies could be implemented. It provided an evaluation window but not an implementation plan based on strategic competitiveness of L'Or�al
SWOT is a static assessment - analysis of status quo with few prospective changes. As circumstances, capabilities, threats, and strategies change, the dynamics of a competitive environment may not be revealed in a single matrix.
SWOT analysis may lead the firm to overemphasize a single internal or external factor in formulating strategies. There are interrelationships among the key internal and external factors that SWOT does not reveal that may be important in devising strategies.

Weighted SWOT Analysis of L'Or�al

In light of the above mentioned limitations of the SWOT analysis / matrix, corporate managers decided to provide weightage to each internal strength and weakness of the firm. Organizations also assess the likelihood of events taking place in the coming future and how strong their impact could be on company's performance.

This method is called Weighted SWOT analysis. It is better than doing simplistic SWOT analysis because with Weighted SWOT Analysis L'Or�al managers can focus on the most critical factors and discount the non-important one. It also solves the long list problem where organizations ends up making a long list but none of the factors deemed too critical.

Limitation of Weighted SWOT analysis of L'Or�al

This approach also suffers from one major drawback - it focus on individual importance of factor rather than how they are collectively important and impact the business holistically.

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Example of Weighted SWOT Analysis

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SWOT Worksheet & Template

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References / Citations & Bibliography

M. E. Porter, Competitive Strategy(New York: Free Press, 1980)
A. D. Chandler, Strategy and Structure (Cambridge, Mass.: MIT Press, 1962)
O. E. Williamson, Markets and Hierarchies(New York: Free Press, 1975);
L. Wrigley, Divisional Autonomy and Diversification (PhD, Harvard Business School, 1970)
R. E. White, Generic Business Strategies, Organizational Context and Performance: An Empirical Investigation, Strategic Management Journal7 (1986)