Digital Makeover: How L'Oreal Put People First to Build a Beauty Tech Powerhouse

BÉATRICE COLLIN

MARIE TAILLARD

DIGITAL MAKEOVER

HOW L'ORÉAL PUT PEOPLE FIRST TO BUILD A BEAUTY TECH POWERHOUSE

Copyright © 2021 by Béatrice Collin and Marie Taillard. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

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Foreword: Permanent Reinvention in the Genes

Over the last ten years, the pace and intensity of change have increased like never before. Everywhere, the world has been transformed at dizzying speeds. And as I write this preface, the current COVID‐19 crisis is further accelerating these massive shifts, especially those related to digital.

With advances in science and technology, the digital tsunami that has seeped into all spheres of life, and the environmental and societal changes, we're experiencing a veritable Big Bang that has shattered our landmarks. From consumer behavior to marketing, distribution, and competition, a new world has emerged:

A world whose only permanence has become movement

A world that is volatile, uncertain, complex, and even more demanding

A world where metamorphosis has become vital for companies

This unprecedented situation is undoubtedly the biggest upheaval of my entire career.

In more than forty years at L'Oréal, I thought I had already been exposed to the greatest shocks: I had been appointed head of our Asia zone one month before the Asian crisis of 1997, and head of North America a few days before September 11, 2001. And when I took over as Group CEO in 2006, I was almost immediately confronted with the crisis of 2008, which has been, in the end, an opportunity to redefine the company's major fundamentals:

Its mission: beauty for all

Its strategy: universalization (i.e. globalization) while respecting differences

Its self‐renewed objective: the conquest of a billion additional consumers

But a redefinition was no longer sufficient after the titanic changes of the last few years. They required a revolution, a full reset of our hard drive.

We've carried out our revolutions on three fronts, almost simultaneously:

The digital revolution, which started in 2010, is widely described in this book so I will spare the fine details here. The COVID crisis has only deepened and quickened the digital wave. Everywhere, e‐commerce is exploding. It will be the big winner from the crisis, as many consumers have experienced the convenience of purchasing online and will not go back. Its potential is immense and global. Thanks to online commerce that facilitates the delivery of products to even the most remote areas, the democratization of beauty will boost the market for many years to come. Additionally, consumers are developing stronger relationships with their favorite brands thanks to the internet and social networks. Today, on top of the digital revolution, winning the battle of Beauty Tech is vital. Our ambition is to be the undisputed world leader in Beauty Tech. This is the mission of the next few years, the one that will, once again, give us the edge over our competitors.

The sustainable revolution launched in 2013 with our Sharing Beauty With All program. Since then, we have fundamentally shifted our paradigm, revolutionized our business model, and reinvented our approach in all areas of the company. We added sustainability as a criterion in product design, alongside quality and profitability. We have rethought procurement and production with new processes to reduce our footprint. We have largely decarbonized our production and proved that it is possible to decouple economic growth and environmental impact. For all of us, the pandemic crisis is a wake‐up call to rebuild a greener economy with greater solidarity and cohesion. The environmental and social emergency is such that if we do not act, we will forsake our own future. This is why last June we launched our new L'Oréal for the Future program, with which we are committing to a new sustainable and inclusive revolution. The two are inseparable.

Finally, we have been carrying out a cultural and managerial revolution that started in 2016. We are committed to our Simplicity program to transform the way we work and respond to the new expectations and aspirations of our employees. We're improving our daily working experience through better meetings, increased cooperation, cross‐functionality, and a culture of constructive feedback. This leads to renewed relationships with work and management.

Each of these revolutions has helped us navigate the company through the great ruptures and shifts of the twenty‐first century. What makes each of these revolutions so successful? First and foremost, L'Oréal's ability to reinvent itself.

For me, one of the strengths of this book is that it seeks to find, within the L'Oréal cultural genome, the springs of its continual adaptation, its agility, and its responsiveness. This is also the reason why I wanted to preface it.

Because the history of L'Oréal is one of constant reinvention. This capacity to reinvent ourselves is part of our genetic map. Generation after generation, our company has always known how to transform itself, to adapt, while remaining faithful to our founding principles and identity.

It is this permanent contrast that produces the originality of our business and cultural model. This simultaneity, where long‐term vision meets short‐term pragmatism, helps create a group that is strategic in its course, mission, and objectives while pragmatic in its tactics and approach.

Central to L'Oréal's culture of consistent renewal are our extraordinary teams. Our employees combine unparalleled commitment and a constant pursuit of excellence with the ability to permanently reinvent themselves.

Each of L'Oréal's five chairmen in 110 years has had to face major upheavals to their environment and seize the opportunities they offered. Every leader has shown an obsessive desire to transform the company into each new world.

Eugène Schueller initiated the scientific and industrial adventure at the beginning of the twentieth century. François Dalle led the thirty glorious years in France and Europe and the birth of mass distribution. Charles Zviak championed scientific and research innovation. Lindsay Owen‐Jones piloted globalization. And I helped usher in the transformations at the dawn of the twenty‐first century: the rise of China and Asia, the digital revolution, and the advent of social and environmental responsibility.

Permanent transformation is, for me, the only compass in our modern world, a world with chronic volatility and uncertainty that makes it more demanding but also incredibly stimulating. By following this compass, L'Oréal has been able to achieve sustainable growth for more than 110 years without ever denying its past.

This ability to reinvent itself has, in my opinion, become the true performance criterion for companies, if not the means of survival.

I have always sought to maintain this L'Oréalian culture of challenging the status quo, which I have borne for the last fifteen years.

And when I look to the future, I am extremely confident.

Confident because beauty is a universal human aspiration that will continue to drive the cosmetics market.

Confident also because L'Oréal is perfectly equipped to be the beauty champion of the future; beauty enhanced by technology and digital capabilities; beauty that is responsible, sustainable, and natural, based on the new green sciences that our laboratories are inventing; and finally, beauty that is diverse and inclusive, adapted to everyone's needs and expectations.

Mirroring this beauty of the future, L'Oréal's new collective adventure will be to invent the company of the future, in the decade 2020–2030:

A company that is ever more tech and digital—intelligent, agile, connected—where cloud, data, and artificial intelligence will be at the service of augmented employees and consumers.

An exemplary company in terms of responsibility and sustainability, motivated by the new L'Oréal for the Future commitments we made this year.

And finally, a company where, more than ever, people remain at the heart of everything, and where values, ethics, inclusivity, diversity, development, social protection, and human rights will remain absolute priorities.

Jean‐Paul Agon

L'Oréal CEO

Introduction: Building a Beauty Powerhouse

Early in 2010, L'Oréal CEO Jean‐Paul Agon, a company lifer with a friendly, easygoing disposition, began experiencing a feeling of premonition, one that had become familiar to him throughout his executive career. Experience told him he should trust this sense that something dramatic was about to take place and that he needed to get ahead of it. Bits of ideas gleaned in informal chats with well‐informed friends and in his travels, meeting other leaders, economists, politicians, academics, and media types, were starting to create a picture in his mind of something big that was about to change the course of industry.

In a matter of just a few weeks, the image sharpened: a wave of digital technology that had already transformed many aspects of daily life and business was about to surge with such disruptive intensity that it would transform entire industries and threaten the survival of companies that did not ready themselves in time for its assault. Agon was the night watchman who could sound the alarm. He knew that the future of his century‐old company was at stake, and he needed to inspire his colleagues to take action and drive the transformation before the wave overwhelmed them. A charismatic CEO with a sterling record, Agon knew he could count on his senior leadership team to listen and respond. He was far from clear on the actions they should take, but the alarm needed sounding, loud and commanding, now.

To stir his troops to action, Agon resorted to a jarring and violent metaphor. He began predicting the arrival of a digital tsunami. First internally, to his executive committee, then more publicly, he took to forecasting that the relatively peaceful waters of the cosmetics industry were about to be dramatically agitated by a massive tidal wave. He referred to the digital disruption that had begun to shake many sectors and industries, turning market leaders into insignificant players and small entrants into powerhouses overnight. The disruption was about to hit the tranquil shores of the beauty sector, a $500‐billion global industry that had, until then, remained relatively unscathed, dominated as it was by a handful of long‐established and successful multinational players—Europeans such as L'Oréal and Unilever, Americans such as Procter & Gamble and Estée Lauder, and the Japanese Shiseido.

Most executives, including Agon, had seen the initial technological wave unfurl over the course of their careers: firms had integrated information technology into their operations and were communicating effectively with consumers who used the internet in their daily lives for everything from obtaining information about products they wanted to buy to sending e‐mails and posting pictures on social networks. What many businesses across sectors, including cosmetics manufacturers, had failed to recognize was that this first wave had triggered a much more powerful cataclysm that would encompass far more than technology and would in fact transform everything from consumer behavior to the way companies are managed and even which companies would survive. Agon's premonition was right on the mark, auguring a deep and broad upheaval in the sector. He succeeded in rallying his troops to launch L'Oréal's response to the disruption, a dramatic transformation that allowed the company to position itself ahead of the incoming wave.

It is this roughly ten‐year transformation that Digital Makeover: How L'Oréal Put People First to Build a Beauty Tech Powerhouse explores. Our investigation dives into the breadth and the depth of the disruptive wave, looking not only at the companies and brands that produce beauty products but beyond them, to the way the disruption engulfs consumers of beauty products; influencers such as celebrities, actors, models, journalists, and other opinion leaders whose conversations fuel the demand for these products; value chain partners both upstream and downstream; and, finally, the very core notion of beauty in the minds, practices, and looks of consumers around the world.

The disruption caused by information and digital technology over the course of the past forty years has been broad and multidimensional. Its business dimensions, while enormous, are but one aspect of the overall phenomenon: the deeper sociological, political, and economic ramifications are immense and still being played out at the global, regional, and national levels. The full scope of the disruptive potential was identified and understood early by the most focused and astute observers, many of whom used this advance knowledge very legitimately to build or transform businesses and diffuse generally useful information. Others, having devised less benevolent uses of digital information and digital channels, whether for political or economic reasons, have contributed to the destabilization of the post–Cold War world order. The ability to use digital channels to spread disinformation and further political agendas is an important factor in the rise of populism and poses a significant threat to democracy. The remarkable effectiveness of positive as well as nefarious applications serves to emphasize and remind us of the potential disruptive power of digital technologies.

From Disruption to Transformative Action

The very notion of a market has been disrupted by the availability of information and the disintermediation of many transactions. This has reversed the traditional power dynamics between sellers and buyers. To take the familiar case of consumer goods, consumers now have much more control over their relationship with brands and their purchasing process as they benefit from far greater access to information about the brands and products they select. At the level of individual firms, the incoming wave has been tackled in very different ways. Some leaders, Agon among them, sensed the wave's early signals, understood the power of the disruption as well as the opportunities and challenges it carried with it, and responded by launching a corporate digital transformation early on. Others were less heedful. The retail sector has been particularly disrupted and provides countless examples of bankrupt brands whose failed attempts at transformation were too late or too cautious. Across sectors and companies, disruption remains a survival challenge.

At the personal level, digital disruption has been just as real, and many of us have had to engineer our own digital transformations, in either our professional lives or our personal lives. Take our own digital disruption. We are both business school professors with decades of teaching experience. As educators, we have had to gradually rethink the way we teach. Twenty years ago, we adopted PowerPoint slides as a teaching support. Later, as it became clear that much of the content we had been teaching was readily accessible online, we refocused on guiding students to develop skills and mindsets rather than on delivering content.

More recently, we allowed our students to use devices in class for notetaking and to check out brands, people, and concepts during lectures. We welcomed our students' ability to tap into unlimited amounts of information and data about brands and their strategies, allowing them to benchmark, compare, contrast, and learn. Class presentations grew more elaborate as students mixed media resources creatively and deftly. Gradually, we reimagined our teaching role in the face of changing technology and in response to our students' increased expectations and proactivity. Try competing with a world‐renowned, TED‐powered expert on a topic you thought you knew inside out!

Then, in March 2020, within the span of a few days, we found ourselves locked down in our respective homes, each facing the prospect of teaching dozens of hours online on a platform we had never used before. Sitting in front of a live webcam for a three‐hour lecture was simply not an option. We reinvented our teaching overnight. Steeped in the tradition of business school case studies, we were both adept at leading class discussions. We reimagined our teaching as facilitating virtual collaborative learning, and our role as coaching learning teams. After sharing a few fundamental concepts and frameworks with a class, we sent them into breakout groups at the push of a button to work collaboratively. We rotated virtually among groups, listening in on their conversations, challenging them to dig deeper, and prodding them to take away new learnings and share them with others.

Our relationship with our students grew stronger and became more supportive, more empowering. The feeling was exhilarating, the feedback was enthusiastic, and the possibilities now seem endless. Our digital transformation started gradually and accelerated suddenly. Along the way, we learned that adopting new technologies is decidedly not what digital transformation is about. We and many colleagues have reinvented our role as educators, along with our practices and the very definitions of teaching and learning.

Beauty Disrupted

Together with the travel and hospitality industries, beauty has been one of the sectors most severely affected by the COVID‐19 pandemic. The spread of the virus triggered both the closing of retail stores, which most beauty consumers still favored, and the at‐home lockdown of the entire population of many countries, drastically decreasing the consumption of many categories of beauty products. The sector has traditionally shown resilience to crisis, often benefiting from the so‐called lipstick effect,¹ the documented increase in sales of relatively affordable feel good indulgences such as lipstick in periods of crisis. The COVID‐19 crisis may force a renaming of this effect to highlight mascara or eye shadow as mask‐wearing consumers shift their indulgence buying from lipsticks to eye