Harvard Case - Oriflame S.A. (A)
"Oriflame S.A. (A)" Harvard business case study is written by David F. Hawkins, Karol Misztal, Daniela Beyersdorfer. It deals with the challenges in the field of Accounting. The case study is 26 page(s) long and it was first published on : Nov 9, 2010
At Fern Fort University, we recommend Oriflame S.A. implement a comprehensive strategic plan focused on strengthening its core business model, expanding its reach into emerging markets, and fostering innovation. This plan should prioritize a balanced approach to growth, profitability, and sustainability, leveraging strong corporate governance, effective management accounting, and a robust risk management framework.
2. Background
Oriflame S.A., a Swedish direct-selling company, faced challenges in the late 1990s, including declining sales, increasing competition, and pressure from investors for improved financial performance. The case study highlights the company's efforts to address these issues by implementing a new strategic plan, restructuring its operations, and focusing on international expansion.
The main protagonists of the case study are:
- Bj'rn Wahlroos: Chairman of the Board and a driving force behind the strategic shift.
- Magnus Br'nnstr'm: CEO, responsible for implementing the new strategy.
- The Board of Directors: Responsible for overseeing the company's strategic direction and financial performance.
3. Analysis of the Case Study
This case study can be analyzed using a combination of frameworks:
Strategic Framework:
- Porter's Five Forces: Analyzing the competitive landscape, Oriflame faces intense rivalry, strong bargaining power of suppliers, and potential threats from new entrants.
- Ansoff's Matrix: Oriflame's growth strategy focuses on market penetration and market development, expanding into new geographical markets.
- SWOT Analysis: Oriflame possesses strengths in its strong brand, direct selling model, and global reach. However, it faces weaknesses in its reliance on a single business model and potential risks associated with its international expansion.
Financial Framework:
- Financial Statement Analysis: Oriflame's financial performance reveals declining profitability and increasing operating expenses.
- Ratio Analysis: Key ratios highlight concerns regarding profitability, liquidity, and asset efficiency.
- Activity-Based Costing: Implementing ABC could provide a more accurate understanding of product costs and profitability, enabling better pricing strategies and resource allocation.
Management Accounting Framework:
- Budgeting and Variance Analysis: Oriflame needs to strengthen its budgeting process and implement effective variance analysis to monitor performance and identify areas for improvement.
- Performance Indicators: Developing key performance indicators (KPIs) aligned with strategic goals will provide a better measure of progress and accountability.
- Cost Systems: Oriflame should consider implementing a cost accounting system that supports its strategic objectives, such as activity-based costing or target costing.
4. Recommendations
Strengthen Core Business Model:
- Product Innovation: Focus on developing innovative and high-quality products that meet evolving consumer needs and preferences.
- Customer Relationship Management (CRM): Implement a robust CRM system to enhance customer engagement, loyalty, and retention.
- Direct Selling Model Optimization: Refine the direct selling model, leveraging technology and digital marketing to enhance efficiency and reach.
Expand into Emerging Markets:
- Market Research & Due Diligence: Conduct thorough market research and due diligence before entering new markets, considering cultural differences, regulatory environments, and competitive landscapes.
- Partnerships and Joint Ventures: Explore strategic partnerships and joint ventures to leverage local expertise and reduce entry barriers.
- Localized Product Offerings: Tailor product offerings to meet the specific needs and preferences of target markets.
Foster Innovation:
- R&D Investment: Increase investment in research and development to create innovative products and enhance existing offerings.
- Cross-Functional Collaboration: Encourage cross-functional collaboration between R&D, marketing, and sales teams to accelerate innovation.
- Digital Transformation: Embrace digital technologies to enhance product development, marketing, and customer service.
Strengthen Corporate Governance:
- Board Composition: Ensure the board of directors possesses the necessary expertise and experience to guide the company's strategic direction.
- Transparency and Accountability: Enhance transparency and accountability by implementing robust internal controls and reporting mechanisms.
- Compliance and Ethical Conduct: Establish a strong code of ethics and implement compliance programs to mitigate risks related to fraud and corruption.
Improve Management Accounting:
- Activity-Based Costing: Implement ABC to gain a more accurate understanding of product costs and profitability, enabling better pricing decisions and resource allocation.
- Performance Measurement: Develop and implement key performance indicators (KPIs) aligned with strategic objectives to monitor progress and accountability.
- Budgeting and Variance Analysis: Strengthen the budgeting process and implement effective variance analysis to monitor performance and identify areas for improvement.
Robust Risk Management Framework:
- Risk Identification and Assessment: Conduct a comprehensive risk assessment to identify potential threats and vulnerabilities related to international expansion, operational efficiency, and financial performance.
- Risk Mitigation Strategies: Develop and implement risk mitigation strategies to address identified threats and vulnerabilities.
- Risk Monitoring and Reporting: Establish a system for ongoing risk monitoring and reporting to ensure timely identification and response to emerging risks.
5. Basis of Recommendations
These recommendations are based on a careful analysis of Oriflame's internal and external environment, considering:
- Core Competencies and Consistency with Mission: The recommendations align with Oriflame's core competencies in direct selling and its mission to provide high-quality products and opportunities for individuals.
- External Customers and Internal Clients: The recommendations address the needs of both external customers and internal stakeholders, including employees, distributors, and investors.
- Competitors: The recommendations consider the competitive landscape and aim to differentiate Oriflame from its competitors through innovation, product quality, and customer experience.
- Attractiveness - Quantitative Measures: The recommendations are expected to improve profitability, enhance financial performance, and drive sustainable growth.
6. Conclusion
Oriflame S.A. faces significant challenges and opportunities in the global marketplace. By implementing a comprehensive strategic plan that focuses on strengthening its core business model, expanding into emerging markets, fostering innovation, and strengthening corporate governance, Oriflame can achieve sustainable growth and profitability.
7. Discussion
Alternative strategies not selected include:
- Mergers and Acquisitions: Oriflame could consider acquiring or merging with other companies to expand its product portfolio, geographical reach, or distribution channels. However, this strategy carries significant risks and requires careful due diligence.
- Focus on Developed Markets: Oriflame could focus on consolidating its position in existing developed markets, rather than expanding into emerging markets. However, this strategy could limit growth potential and expose the company to increased competition.
Key assumptions underlying the recommendations include:
- Consumer demand for Oriflame's products will continue to grow in emerging markets.
- Oriflame will be able to effectively manage the risks associated with international expansion.
- Oriflame will be able to successfully implement its strategic plan and achieve its objectives.
8. Next Steps
- Develop a detailed strategic plan: This plan should outline specific goals, objectives, and action steps for each recommendation.
- Allocate resources: Secure the necessary financial and human resources to implement the strategic plan.
- Establish a project management team: This team will be responsible for overseeing the implementation of the strategic plan and monitoring progress.
- Communicate the plan to stakeholders: Ensure all stakeholders, including employees, distributors, and investors, are aware of the strategic plan and its implications.
- Monitor and evaluate progress: Regularly monitor and evaluate progress towards achieving the strategic goals and objectives.
By taking these steps, Oriflame can successfully navigate the challenges and opportunities of the global marketplace and achieve sustainable growth and profitability.
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A direct-selling cosmetics company involved in emerging markets exhibits significant foreign exchange risk exposure and profitability swings in the wake of the 2008 financial crisis. Students must review the company's use of derivative instruments and other hedging techniques to establish whether it pursues the right FX risk mitigation strategy.
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