Programme Master of Business Administration Financial Risk Management Master of Business Administration - General Cohort MBAFRM/13/PT Aug MBAG/13/PT Aug MBAG/13A/PT Master of Business Administration - F MBF/13A/PT Masters of Business Administration in Project Management MBAPM/13/PT Aug MBAPM/13A/PT Examinations for 2014 2015 Semester I / 2014 Semester II MODULE: STRATEGIC MANAGEMENT MODULE CODE: MGMT 5310 Duration: 3 Hours Instructions to Candidates: 1. This question paper consists of Section A and Section B. 2. Section A is Compulsory. 3. Answer any two questions from Section B. 4. Always start a new question on a fresh page. 5. Total Marks: 100. This Question Paper is printed on BOTH SIDES. This Question Paper Contains 4 questions and 9 pages. Page 1 of 9
SECTION A: COMPULSORY QUESTION 1: (50 MARKS) Case Study: L'Oréal Group For more than a century, L Oréal has devoted itself solely to one business: beauty. It is a business rich in meaning, as it enables all individuals to express their personalities, gain self-confidence and open up to others. Beauty is a language. L Oréal has set itself the mission of offering all women and men worldwide the best of cosmetics innovation in terms of quality, efficacy and safety. It pursues this goal by meeting the infinite diversity of beauty needs and desires all over the world. Beauty is universal. Since its creation by a researcher, the group has been pushing back the frontiers of knowledge. Its unique Research arm enables it to continually explore new territories and invent the products of the future, while drawing inspiration from beauty rituals the world over. Beauty is a science. Providing access to products that enhance well-being, mobilising its innovative strength to preserve the beauty of the planet and supporting local communities. These are exacting challenges, which are a source of inspiration and creativity for L Oréal. Beauty is a commitment. By drawing on the diversity of its teams, and the richness and the complementarity of its brand portfolio, L Oréal has made the universalisation of beauty its project for the years to come. L Oréal, offering beauty for all. Our ambition for the coming years is to win over another one billion consumers around the world by creating the cosmetic products that meet the infinite diversity of their beauty needs and desires. At L Oréal, we are convinced that there is no single and unique model of beauty, but an infinite diversity of forms of beauty, linked to periods, cultures, history and personalities. In our view, to universalise does not mean to impose uniformity, but on the contrary, to be inspired by diversity to innovate. At the heart of this project, our Research and Innovation reinvents itself to create cosmetics products adapted to the immense diversity of the world. In each region of the globe, we have set up Research platforms, true centres of expertise, designed with tailor-made beauty in mind. Page 2 of 9
These research poles invent new products that can become worldwide successes. This is a real turning point in the way we think about Innovation. In a market undergoing substantial transformations, L Oréal takes steps forward each year to make the best in beauty available to everyone. With a portfolio of 27 international brands and an organisational structure based on distribution channels, we have the ambition to meet the needs of every consumer according to his or her habits and lifestyle. To win over another one billion consumers around the world is an ambitious project that motivates all our teams. An economic but also human adventure, which requires the rapid deployment of our forces and an accelerated transformation of the company in every field, including Research, manufacturing, marketing, sales, human relations and administrative teams This major project is also an opportunity for innovation and progress to build the L Oréal of tomorrow. L Oréal's ambition is to be an exemplary enterprise and it integrates ethics into the very heart of its business practices. Its governance relies on its Board of Directors, composed of very diverse profiles, and the directors' commitment to supporting L Oréal's development; support on which the senior management and the Executive Committee can depend, to meet the challenges of the future. Some milestones: 1909-1956: The first steps, constructing a model In 1909, Eugène Schueller, a young chemist with an entrepreneurial spirit, founded the company that was to become the L Oréal group. It all began with one of the first hair dyes that he formulated, manufactured and sold to Parisian hairdressers. With this, the founder of the group forged the first link in what is still the DNA of L Oréal: research and innovation in the service of beauty. 1957-1983: "On the road to the Grand L'Oréal" Present in the Brazilian market since the late 1930s, L Oréal responds to the 1950s boom by establishing a direct presence in the country, forming FAPROCO (Fábrica Produtos Cosméticos S.A.) in 1959. It is so successful that, with its two plants in Rio de Janeiro and São Paulo, L Oréal Brasil is today an export platform for the whole of Latin America and is ready to celebrate in 2009 its 50th anniversary. Page 3 of 9
L Oréal Net for hairdressers in 1958 followed by Elnett (from elle (she) and nette (neat) for consumers in 1962, are not only a complete departure from the established tradition of hairstyling products, hitherto dominated by brilliantine and gum lacquer, but are above all a new and extraordinary way to fix hairstyles. L Oréal takes hairdressing salons into ground-breaking territory, complementing the usual colouring and styling services with a new concept: haircare, with a specialist range of products called Kérastase. The acquisition of Lancôme in 1964 is the first stepping stone on the road to becoming a luxury goods empire. Armed with Lancôme s perfumery experience and keen to continue its expansion in the luxury goods market, L Oréal joins forces for the first time with a major French couturier, Guy Laroche, to create a number of fragrances. The purchase of Garnier enables L Oréal to acquire a portfolio of complementary haircare products with an organic positioning a different approach to haircare. In recognition of its spectacular yet sound development, the L Oréal Group is listed on the Paris Stock Exchange which gives it access to new financial resources. The Group s market capitalisation has increased more than 750 times since 1967. Until now, the sole purpose of shampoos has been to make hair clean. In 1972, Elsève ventures into new territory with a new kind of shampoo that enhances the beauty of the hair, giving it softness, suppleness and shine. And a new market is born: beauty shampoo. Synthelabo is one of the leading lights in the French pharmaceutical industry. With L Oréal s research teams now reaching beyond cosmetics and getting closer to remedial dermatology, this acquisition in 1973 gives the Group the means to develop its dermatological and dermopharmaceutical activities. Gemey, a make-up brand specialising in foundations and face powders, has been present in France since 1923. Cult products include Fluid Make-up, the first fluid foundation in a tube, and Dernière Touche, the first compact powder. With the acquisition of Gemey, L Oréal gains a significant position in the volume retailing make-up market in its country of origin. In 1976, L Oréal buys out the mascara brand Ricils and attaches it to Gemey to expand its offer in all make-up segments. The agreement with Nestlé in 1974, which adds to the stability of the Group s shareholders, is also conducive to L Oréal s international development in certain markets, particularly Japan, the future bridgehead of L Oréal s expansion in Asia. Page 4 of 9
In 1975, the launch of Equalia, meticulously planned over several years, is still a textbook case even today. The basis of the Equalia phenomenon is the concept of skin rehydration. Thanks to its highly original formula, Equalia restores and maintains exactly the right balance of water in the skin, a balance which is threatened by the effects of the wind, sun and ageing. In 1981, The result of a 50/50 association between Nestlé and L Oréal, Galderma (whose slogan is Committed to the future of dermatology ) is devoted to the worldwide development and marketing of world-renowned dermatological remedies effective against skin, hair and nail complaints (acne, psoriasis, onychomycosis, rosacea, ). In 1983, François Dalle sets up an Applied R&D centre for hair and skincare to tailor the Group s products to the Japanese market. The new lab, which has since grown from a team of four people into a team of 150, is given the task of researching hair and skincare issues to help develop a range of products in tune with the specific needs of Japanese consumers. 1984-2000: Become No 1 in the beauty industry At the forefront of new trends, L Oréal embraces the style of the 80s. The street is bursting with endless sources of inspiration, hairstyles are let loose and become a mark of individual expression. L Oréal therefore creates a complete line of hairstyling products: gels, mousses, sprays. Based on unique, innovative formulas, these products give everyone, regardless of age or hair type, the freedom to create their own style. It constitutes a veritable style toolbox, allowing users to become their own hairstylists. The result is tremendous worldwide success. Twenty-five years later, Studio Line retains its pioneering spirit, and remains in the avant-garde of hairstyling trends. L Oréal obtains the Ralph Lauren licence, and continues the fabulous saga of Polo fragrances for men, created in 1978. The acquisition anchors L Oréal s position in the Luxury Products market in the United States and in luxury men s fragrance. In 1993, the Group undertakes a series of strategic acquisitions in the United States in order to expand its Professional Products Division and make the United States the second stronghold for L Oréal in the world, after Paris. The 1st step involves the purchase of the premium hairstyling brand, Redken, with its young, urban, New York-inspired image. Page 5 of 9
Until the beginning of the 90s, laws in several Asian countries prohibit foreign companies from operating on their territories. In 1994, L Oréal becomes the 1st international cosmetic group to which the Indian government grants the status of wholly-owned subsidiary. This allows L Oréal to consolidate its presence in a country experiencing tremendous economic growth. Embodying the sophisticated and understated Armani style for men, Acqua di Gio has enjoyed resounding, unabated success since it first hit the market in 1996. It remains the leading fragrance for men worldwide. In collaboration with Suzhou Medical College, one of the oldest universities in China, L Oréal creates the company, Suzhou L Oréal Beauty Products. In 2000, L Oréal acquires Matrix, the US leader in professional haircare products, known for its youth, creativity and quality. The objective is to strengthen the Group s market share in the US, develop a brand that complements L Oréal Professionnel and Redken through user-friendly products and services, and exploit its strong international potential. Mission accomplished: Matrix s friendly, upbeat image continues to win over hairstylists throughout the world. 2001 Present day: Diversity of beauty worldwide In 2003: This is the only centre in the world dedicated to this type of research. The Institute endeavours to develop knowledge about the skin and hair of individuals of African origin in order to design products that are better adapted to their needs. The Institute is based in Chicago, the city with the broadest range of ethnic diversity in the United States (more than 70 different ethnic groups). The main purpose of L Oréal s 14th research centre which opened in 2005 in Pudong, near Shanghai, is to develop excellence in Asian skin and haircare that can address the diversity of culture and climate in Asia. Yves Saint Laurent (YSL) Beauté and its crown jewel YSL join L Oréal s Luxury Products Division on July 1st 2008. With this strategic acquisition, L Oréal opens a whole new chapter in its history with the ambition of becoming world leader in selective distribution. YSL Beauté has six brands of fragrance, make-up, and skincare: Yves Saint Laurent, Roger & Gallet, Boucheron, Stella McCartney, Oscar de la Renta and Ermenegildo Zegna. Page 6 of 9
In 2013, L Oréal announced the creation of a Scientific Advisory Board composed of nine distinguished scientists from diverse disciplines and of varied nationalities, whose mission will be to bring unexpected ideas pertaining to L Oréal Research s fields of interests in order to prepare the future through the exploration of emerging scientific and technological domains. Research has always been at the heart of L Oréal's growth, with three major drivers of innovation: active ingredients, formulation, and evaluation. Its Research & Innovation model, unique in the cosmetics industry, is organized around three major entities: 1. Advanced Research, tasked with continuously enriching scientific knowledge about skin and hair around the world, and discovering new active ingredients; 2. Applied Research, which develops formulation systems, which are then played out in the different families of products; 3. Finally, Development, which provides the brands with innovative formulas adapted to their identity and to consumer expectations around the world. Assets for innovation To stay ahead of the game and make major cosmetic innovations available to everyone, the group relies on three major assets: a unique collection of proprietary active ingredients, which Advanced Research enriches each year with new elements, molecules, or ingredients... ; expertise in formulation, this decisive phase that makes it possible to transition from the molecule to the finished product. Every year, thousands of formulas are developed by the teams at L'Oréal. Research that listens to consumers At L'Oréal, innovation has always been nurtured by a constant dialog between science and marketing. It is founded on ever-more precise scientific knowledge of skin and hair around the world, but is also based on attentive listening to consumers on every continent and on the observation of their behaviour where beauty is concerned. A true source of inspiration, the great diversity of beauty rituals opens up new fields of exploration. A global vocation By strengthening its global presence through the six regional poles - Europe, United States, Japan, China, Brazil and India - L'Oréal's Research and Innovation comes closer to its major markets, but also to the wealth of scientific knowledge of each region. Page 7 of 9
Governance The Board of Directors comprises 15 members since July 15th 2014: the Chairman and Chief Executive Officer, five Directors appointed by the majority shareholders, three of whom are appointed by the Bettencourt Meyers family and two by Nestlé, seven independent Directors and two employee Board members. The balance of power The balance of powers on the Board is ensured through a very precise definition and sharing of the tasks to be carried out by everyone, with, on the one hand, the Chairman and CEO and, on the other, fourteen Directors who are independentlyminded and free to exercise their judgement. Well-informed, independent Directors L Oréal s Board of Directors is informed on an ongoing basis of all the aspects of the state of the Company s business and its performances by meeting a large number of senior managers and engaging in open and constructive dialogue with them. Beyond the presence of strongly committed Directors with complementary experience (financial, industrial or business expertise, etc.), some of whom carry the memory of the Company s history, as they have longstanding in-depth knowledge of the Company and its environment. EXTRACT: http://www.loreal.com/ Required: (a) With reference to the case study, identify and critically analyse the strengths of L'Oréal. (15 marks) (b) What are the core growth strategies adopted by L'Oréal? Comment on them accordingly. (15 marks) (c) The challenge of many firms today is not how to build competitive advantage, but rather to sustain it over time. Evaluate the capacity of L Oréal to build and sustain competitive advantage. (20 marks) SECTION B: ANSWER ANY TWO QUESTIONS QUESTION 2: (25 MARKS) According to Michael Porter (1996), the essence of Strategy is choosing to perform activities differently than rivals do. Discuss. Page 8 of 9
QUESTION 3: (25 MARKS) A company has 30 million MUR to spend on a new strategy and is in a dilemma whether to go for market development or product development. What are the determining factors that would be most important to consider when deciding on the new strategy? QUESTION 4: (25 MARKS) Explain the following Grand Strategies and discuss how and when a company should contemplate using them: (a) Integration strategies (7 marks) (b) Intensive Strategies (8 marks) (c) Diversification Strategies (10 marks) ***END OF QUESTION PAPER*** Page 9 of 9