MGT657 (STRATEGIC MANAGEMENT)

Case Study : Estee Lauder Companies, Inc.- 2011

(page 29 case section of the text book)

Based on the case, you must:

1. Develop a vision for the company

2. Develop a mission for the company

3. Perform an external audit/analysis to identify and discuss:

i. 5 opportunities

ii. 5 threats

1 Perform an internal audit/analysis to identify and discuss :

i. 5 strengths

ii. 5 weaknesses

The assignment must be

Type written

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Submit hardcopy during seminar

Due date: 14 May 2017

In the world of business today, where competition is one of the major challenges that
every organisation is facing, the need for strategic planning and analysis arises. These
are essential for the survival of an organisation as well as determining the direction in
which an enterprise is going in relation to its environment in order to achieve a
competitive advantage by formulating a competitive strategy. It is important that an
organisation grabs every opportunity that is coming along its way, and responds to any
risks and limitations presented by the external environment.
In order for an organisation to make and take correct decisions, it requires an
understanding and knowledge about the impact the environment can have on the
organisation. This is strategic management. It is therefore important not only to look at
what is best for the organisation, but also to take the needs of shareholders into
consideration. For effective strategic management, it is important to have a strategic
analysis. The reason for an analysis is because; the issues that are ''being analysed are
often quite complex'' even if there may be enough information available Fleisher. C &
Bensoussan .B (2002).
This study is organised as follows; Chapter two defines important terms which will help
in the further understanding of this study. Chapter three introduces the company Estee
Lauder. Chapter four evaluates the strategic analysis of Estee Lauder by looking at
techniques, models and processes, and chapter five concludes.

Chapter 2

Strategic Analysis
This is where a strategy is formulated by carrying out a research on the organisation
and the business environment in which the organisation operates (BNET Business
Dictionary.)
However, Professor Les Worrall defined it as,''a theoretically informed understanding
of the environment in which an organisation is operating, together with an
understanding of the organisation's interaction with its environment in order to improve
organisational efficiency and effectiveness by increasing the organisations capacity to
deploy and redeploy its resources intelligently.''
2.1 Strategic model
Managers must take in to account three major factors when strategic decisions are
made;
The shareholders expectations and objectives - it is important that organisations are
clear about their long-term objectives. However, due to factors that an organisation does
not have any control over may influence the organisation to change its objectives, thus
conflicting with the shareholders. Therefore, management must know how to reconcile
the shareholders expectations while setting the objectives of the organisation.
Available resources for an organisation to achieve its objective - Depending on the
strengths and weaknesses of organisations resources, the firm can pursue its
strategies. However, these may change with the prevailing environment.
Total environment within which the organisation operates - Forecasting what the future
may bring is a difficulty that managers face, because the environment is uncertain. This
factor also has an influence on what strategy can be pursued.
Taking each of the above three factors into consideration is known as strategic analysis.

2.2 Aim of strategic analysis

It understands an organisations strategic position.'' Strategic analysis forms a view of
the key influences on the present and future well-being of the organisation and what
opportunities are afforded by the environment and the competencies of the
organisation'' Baily. P, Farmer. D, Jessop. D, Jones. D (2005).

2.3 Importance of strategic analysis.

Strategic analysis is important in providing an organisation with meaningful insights and
with a clear framework so as to prepare itself for change. Its importance lies in
evaluating patterns and trends for the organisation. It is also important in the
identification and assessment of the opportunities available to the organisation Fleisher.
C & Bensoussan .B (2002). It also helps the organisation understand its strategic
position by providing information such as; what is happening in the business
environment and industry, and what competencies should be developed so as to stay
competitive.
It gives the description of strategic goals and the firm's business strategy. Strategic
analysis also leads to goals that are clear and relevant, helps in the taking of decisions
with better quality, and provides a secure future by preparing the organisation with what
may happen in the future.

Strategic management
This is a process of making and implementing strategic decisions. The organisation
must also analyse the competencies already present in the organisation. These
competencies help in formulating strategies. The process should consist of the following
elements;
The analysis of a strategy- Understanding the changes going on in the environment in
which the organisation exits, and how these affect the organisation, its activities, its
strength of resources and the expectation of stake holders, also analysing competitor
strategies through assumptions, focusing on weaknesses and threats.
The choice of strategy- This is concerned with all the possible causes of action which
may be taken. Eliminating out many other strategies chosen, and putting in order of
importance.
An evaluation of each of the causes identified- The selection of those which the
organisation must attempt to follow, and therefore discuss at length the strategies short-
listed.
Implementation of selected planned strategy- This is turned into an effective caused
action. Discuss on implementing, but not actual implementation.

2.4 Importance of strategic management

It is a planned process that needs to be followed
Its considers the future and anticipates what it could bring
It increases organisational growth as it brings in opportunities
It also looks at the threats the external environment may poses and works on how to get
rid or manage these
Helps companies remain stable by foreseeing what the future may bring.

Chapter 3

3.1
An Organization is a consciously coordinated social entity, with a relatively identifiable
boundary, that functions on a relatively conscious basis to achieve a common goal or
set of goals. Richard, (2002)
Estee Lauder was founded in 1946. It is a globally recognised company, whose
headquarter is in New York, but is in over 140 countries. It manufactures and markets
hair care products, fragrances, skin care and makeup. The company has 29 brands,
some of which are; Estee Lauder, Clinique, M.A.C, Aramis, Bobbi Brown, Darphin and
many more. Estee Lauder is technologically advanced and has a reputation for
innovation, superior quality and sophistication.

3.2 Estee Lauders Strategy

Koontz and O'Donnell describes strategy as "a decision about how to use available
resources to secure a major objective in the face of possible obstructions.such as
competitors, public opinion, legal status, taboos and similar forces".
Their strategy is to build a diversified business base, which they believe will strongly
boost up their growth globally. Their focus is to remain a distinguished leader in the
global prestige cosmetics. Their three essential growth strategies are:
Their geographic presence should be expanded and strengthened
Their product categories should also be strengthened
Their channels of distribution should also be strengthened and diversifiable.

3.3 Vision & Mission

A company's mission and vision is for its employees and customers. The Mission
defines and reflects the company, its core purposes, its values and principles. The
vision however, provides an image of the future.

The Vision Statement of Estee Lauder:

"Bringing the best to everyone we touch". By "The best", we mean the best products,
the best people and the best ideas. These three pillars have been the hallmarks of our
Company since it was founded by Mrs. Estee Lauder in 1946. They remain the
foundation upon which we continue to build our success today."

3.4 Objectives
They are energetic, innovative and first for customers
Power endeavour to do our very best and enhance the company's leadership
throughout the world
Building strong global brands through innovative delivery of products and increase
revenues
Look after our people so they can look after our customers
Understand customers better than anyone and Use our strengths to deliver unbeatable
value to our customers
Business relationships
Through distribution channels, reaching the customers globally
Trust and respect each other

3.5 Scope
According to Mintzberg and Quinn there are five definitions of strategy:
Strategy as a plan
Strategy as a pattern
Strategy as a position
Strategy as a perspective
Strategy as a ploy
Estee Lauder adopted:

Plan
Estee Lauder has good planning and they strongly believe all their success is all
because of its planning.

Perspective
Estee Lauders perspective was to increase its company growth globally by 2008. This
was achieved mainly because of the international business, mainly from emerging
markets such as China and India.

Chapter 4

4 Estee Lauders External environment analysis

4.1 PESTEL Analysis for Estee Lauder:

PESTEL analysis is the external analysis of the different macro-environmental factors
that a business must consider. Kotler (1998)The PEST analysis is a useful tool for
understanding the position, potential and direction for a business as well as the market
growth or decline.
"The radical and ongoing changes occurring in society create an uncertain environment
and have an impact on the function of the whole organization" Tsiakkiros, (2002). Hence
the analysis of the macro-environment is very important to identify factors which could
affect various variables and arrangements within the organisation.
Macro-environmental analysis assist Estee Lauder management to increase its
attentiveness of appropriate environmental changes thus improve strategic planning by
enriching its industrial and market analysis. The PESTEL analysis in addition to Porter's
Five Force model and SWOT can be applied by an organization to review its strategic
direction. These have been discussed below.

Political factors
The political environment within which an organisation exists has far reaching
consequences. The political environment most obviously operates at National level, but
may also be significant at local and international levels. Estee Lauder gives direction to
countries through the way they exert control over the economy. Estee Lauder should not
only be cognisant with the politics of a country, but also with the media, industry and
labour leaders. The following political factors can affect the business environment:
Level of government involvement in business
Stability
Liberalisation
Taxation
Co-operation and integration, e.g. EU

Economical factors
This is concerned with the nature and direction of the economy in which a firm operates.
Estee Lauder looks at the interplay of market forces that dictate the state of the
economy and implications on both commercial and non-commercial organisations.
Prices vary from brand to brand and product to product, but these are usually in the
higher ranges of an industry. The factors include:
Exchange rates
Interest rates
Spending power
Inflation and employment

Socio, Cultural Factors

The socio cultural influences on businesses vary internationally. These affect a society's
basic values, perceptions, preferences and behaviours. It is vital that such factors are
considered if an organization wants to achieve its proposed objectives. Factors include:
The dominance of the religion
Education and belief
The impact of language upon the diffusion of products onto markets
When do customers have time for shopping
The roles of men and women within society and depending upon that the products
should be launched
Estee Lauder has received customer complaints regarding the fact that new products
are being tested on animals first. They have to look into this matter as it can pose
serious issues with the customers.

Technological factors
More and more businesses are affected by technology. Technological factors affect the
operations of the firm since technological changes serve to avoid obsolesce and to
promote innovation of relevant techniques in the industry. Estee Lauder has rapid
technological changes in its products, and these products can be accessed online via
the internet. Some technological factors are:
IT rapid growth
Innovation
Government spending on research
New discoveries and developments
R & D expenditure
Product life cycle

Environmental Factors
These factors are also known as the Natural factors. These factors help Estee Lauder in
showing strategic doubts and their worth in the predicting and planning processes using
environmental aspects. There have been emissions of harmful gases and
fluorocarbons, which Estee Lauder must take care of as it is and environmental threat.
Its increases the significance of the following factors:
Shortage of raw material
Increased pollution
Increased governmental intervention

Legal Factors
Estee Lauder functions within a structure of Government regulations and legislations.
These laws and regulations should be considered when running businesses:
Labour laws and industrial relations
Municipal licenses
Formation
Taxation
Competition
Copyright and patent laws
Minimum wages laws and Employment law

Demographic Factors
These factors may also exist under the macro-environmental factors. Following factors
must are considered with regard to the key Demographic trends by Estee Lauder:
World population growth
Changing household
Geographic population shifts
Better-educated, more white-collar workforce
Increasing Diversity
Changing age structure
Population consists of generational groups.
Distinct segments typically exist within these generational groups.

4.2 Porters Five Force Model

This model evaluates a company's competitive position. Any business works to develop
an edge over its rival firms. This model helps in the understanding of the 'industry
context' in which Estee Lauder operates. Below is a diagrammatical representation of
the model.

Barriers to entry
This is low in the case of Estee Lauder as it has made its position pretty strong and
hence new entrants will not pose a threat to it as it will be difficult for these to enter into
the market as the barriers are pretty high. They also have good access to their
distribution channels and the correct knowledge of the segments they are operating in.

Substitutes
This is also low in the case of Estee Lauder. Customers have built a customer loyalty.
Estee Lauder also provides the best quality products whose performance is to the mark
as is the name, therefore threat of substitutes will be low.

Bargaining power of suppliers

The suppliers would have a low bargaining power as Estee Lauder is a huge brand and
the volume of goods required from the suppliers around the world is also huge. There
would be very many suppliers willing to supply such a company, hence it is important for
the suppliers to provide the company with what they require and something that is
unique from its competitors.

Bargaining power of buyers

This is high as buyers can easily switch to other big brands as the number of these
brands present in the market segment is high. However, due to customer loyalty to the
brand, it does not face much of this as it provides its buyers with what they want and
how they want it.

Competitive Rivalry
This is high in the case of Estee Lauder. Its major competitors are; Avon, L'Oreal, P&G,
Max Factor, Revlon, etc. Estee Lauder therefore needs to have constant innovation of
its products so as to stay ahead of competition. There are various brands under the
company, therefore, it is important that the range of price is good and they can
differentiate their products well without customers facing high switching costs.
Estee Lauder created the line designed for men in 1976. It was called ''skin supplies for
men'' (Estee Lauder 2003a). Avon, Max Factor and Revlon did not have men lines.

4.3 SWOT analysis for Estee Lauder

A SWOT analysis is important as a clear basis is provided to examine the performance
of a business. It is also very important for the products a company offer, as it is essential
in the branding and marketing of the company products. This model helps in the
understanding of the 'firm and its surroundings'.
Internal
Strengths
Weaknesses
Strong brand name
Research and development focus
Strong distribution network
Robust revenue and profit growth sales
Weak liquidity position
Customer concentration
Weak performance in a few markets
External
Opportunities
Threats
Demographic trends in the United States
Cosmetics markets in emerging nations
Growing riches- Rich getting wealthier
Counterfeit products
Intense competition
Increasing regulations

Strengths
The brand name, ''Estee Lauder'' itself is a strength. The name is linked to quality and
luxury. The company is also a global licensee for other big brands like; Tommy Hilfiger,
Donna Karen, etc. Estee Lauder leads in each market segment in the industry as it
develops new products, redesigns existing ones and identifies and considers consumer
preferences.
It has a large network of retail. This therefore increases the market penetration
opportunities and creates closeness to target customers. It has a strong management
strategic perspective, and is also having a great growth. It also has various innovations
such as; offering shopping via the internet (it was the first major cosmetic firm to have
offered shopping via the internet.)

Weaknesses
The company bargaining power could be lowered by it concentrating on a single biggest
client. They also have a poor cost structure in some areas, hence a decline in the
performance of sales in certain regions. The company could be exposed to the debt
market due to low liquidity levels, and this could thus affect the company growth. It is
the Family members that have most of the power over the company. The company's
organisational structure is not easily distinguished. In America, there are particularly
lower sales in the fragrance category.

Opportunities
Estee Lauder targets aged people and therefore makes products to suit these people.
Its revenues could be boosted by having a strong and great presence in its segments,
thus also increasing growth. The cosmetics markets are doing good in emerging
markets like India and China, as there are many beauty contests that take place. This
cosmetics market is growing due to younger and middle aged women that are being
more style conscious. Estee Lauder is also well positioned in these emerging markets.
There is also a demand in the luxury goods. More money is spent on these goods.
Therefore, the needs of these wealthy people are also taken into consideration, and
products made to meet their needs and wants.

Threats
Many fake products are being sold, thus affecting Estee Lauders sales. This can lead to
the company losing its exclusivity of the brand. This could thus harm the image of the
company. Customers may also be dissatisfied with these products as the fake product
may harm them, thus the company would lose out on customers. Many big brands such
as; Revlon, L'Oreal, would increase competition in the market. The government may
also impose certain rules and regulations on the products saying that the product has
high levels of chemicals which are harmful to people. This may thus lead to an increase
in the cost of developing the products and also in the launching of the products.

Chapter 5

Conclusion
Businesses are different in many ways; therefore every organisation needs to have a
business plan, which needs to be reviewed in order to keep it up to date. The plan at
Estee Lauder is articulated by corporate leaders, who give the organisation direction, so
as to avoid a strategic drift. They create a vision of a possible future that allows both the
managers and others to see clearly the direction to take, building upon the company's
current capacity and strength.
To gain competitive edge and analyze the external environment, Estee Lauder could
further use the Value chain, BCG growth model and scenario analysis for its strategic
analysis. Recommended strategies that Estee Lauder could use are; Forward,
backward, horizontal integration, product and market development, market penetration
and more diversification. Estee Lauder took the approach of providing great customer
service, great quality and staff ownership, hence making it different from the rest.