by Ralf W. Seifert, Richard Markoff Published 13 July 2022 in Innovation • 4 min read
French beauty company L’Oréal first embarked on its digital transformation journey more than a decade ago. Today, it provides an excellent case study of effective, successful digital transformation. L’Oréal’s journey emphasizes the role of senior leadership in setting the vision for transformation, and highlights the importance of linking supply chain digital strategy to company-wide digital strategy.
L’Oréal is one of the largest consumer goods companies in the world. The company prefers to manage its own production, and has a global footprint of 40 factories that manufacture more than six billion units a year. It has more than 50,000 suppliers upstream and over 500,000 delivery points.
In 2010, the dawning digital world promised a future full of possibilities. L’Oréal CEO Jean-Paul Agon recognized this, and declared 2010 “The Year of Digital”. He encouraged different functions within L’Oréal to begin exploring digital transformation, as part of his broader vision to rethink the beauty industry as a whole. Functions were tasked with continuing to provide the best products, but to adapt these to changing market and consumer needs. This was a complex challenge in an industry distinguished by its heavy turnover of products and launch cycles, high promotional activity, multiple distribution channels and changing consumer tastes.
Agon’s vision spurred functions, especially sales and marketing in the different countries, to begin growing organic initiatives with entrepreneurial zeal. Four years later, the company employed its first Chief Digital Officer, who began building a structure and framework around Agon’s initial vision under the banner 20/50/100 (20% of sales should be through e-commerce, 50% of all interactions personalised and 100% of the company’s brands should engage with consumers through social media). This was met with some scepticism internally, with the belief that the luxe channel required in-person interaction. Digital transformation meant a radical rethinking of the way the company understood the market, and it found itself on a journey that challenged its culture, its approach and even its value proposition.
In 2016, L’Oréal created the position of Chief Operations Digital Officer to understand and explore how new technologies could change how the company manufactured and distributed products, while maintaining a coherence with the company’s digital transformation efforts. This brought the role of the supply chain in the transformation journey to the fore. The focus was on developing new capabilities and outcomes rather than on implementing specific technologies; this included lowering product development time, developing products that interact with the consumer, fostering manufacturing and distribution agility to respond to ever-increasing demand volatility, developing personalised products and leveraging data to improve the supply chain.
“L’Oréal introduced many innovations in the space of personalization and increasing the proximity of interactions with the consumer”
It is important to note that Agon’s vision of transforming the beauty industry extended beyond products to services, such as diagnostics, consumer experience and personalisation. To enable this, the company focused on technology and IT as key enablers to deliver these services. IT moved from Finance to Operations, and Beauty Tech was born with the goal of bringing resonance to the transition from just products to both products and services. Beauty Tech went on to deliver a range of new capabilities including AI-enabled virtual testers for make-up and hair color, shade finder diagnostic tools, and tele-consultations.
Of the many initiatives enabled, two offer an understanding of the capabilities prioritized by L’Oréal in service of its vision of a future of tech-enabled agility and beauty-as-a-service proposition.
The first was demand sensing; the ability of L’Oréal to successfully anticipate and plan demand was key to its ability to respond to changing market trends. The company already had a global end-to-end planning system; this was extended to integrate with suppliers through a pioneering digital initiative to use a Platform-as-a-Service to share the packaging component and raw material requirements digitally with the company’s huge vendor base. The objective of Demand Sensing was to use a cloud platform to integrate daily order portfolios in distribution and actual consumer demand as well as sales on e-commerce in branded retail stores. The company then imagined deploying machine learning to automate the demand planning calculations.
L’Oréal also introduced many innovations in the space of personalization and increasing the proximity of interactions with the consumer. One such example is the Lancôme brand’s Teint Particulier foundation concept, which analyzed consumer skin tones at the beauty counter enabling a foundation to be blended on the spot to meet their needs.
L’Oréal’s journey demonstrates that, if executed correctly, the supply chain can become a strategic element in the value proposition and even participate in shaping entire markets in terms of their consumer offering and expectations.
The success of L’Oréal’s supply chain transformation has not gone unrecognized. Gartner, the supply chain advisory firm, conducts an annual ranking of the top supply chains in the world. In 2012, L’Oréal was ranked 71st in the world, according to Gartner. In 2020, L’Oréal cemented its place in the global supply chain ranking by finishing in the top 10 for the first time. You can read more in the IMD case: L’Oréal: The beauty of supply chain digitalization.
Ralf W. Seifert
Professor of Operations Management at IMD
RalfW.Seifert is Professor of Operations Management at IMD and co-authored“The Digital Supply Chain Challenge: Breaking Through”. At IMD, he directs the Digital Supply Chain Management program, which addresses both traditional supply chain strategy and implementation issues as well as digitalization trends and new technologies.
Supply chain researcher, consultant, coach and lecturer
Richard Markoff is a supply chain researcher, consultant, coach, and lecturer. He has worked in supply chain for L’Oréal for 22 years, in Canada, the US and France, spanning the entire value chain from manufacturing to customer collaboration. He is also Co-Founder and Operating Partner of the Venture Capital firmInnovobot.
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What does digitalization do for the supply chain? ›
Digitization improves supply chain forecasting and allows for better inventory planning. Businesses can access vast amounts of data and analyze them in near real-time to accurately forecast future demand or changes in the supply chain.Which strategy does L Oréal employ for entering a new market? ›
L'Oréal has chosen a unique strategy: Universalization. It means globalization that captures, understands and respects differences. Differences in desires, needs and traditions. To offer tailor-made beauty, and meet the aspirations of consumers in every part of the world.Why is L Oréal so successful? ›
Client & Competition
By controlling a range of brands, from low end to high quality, and offering cosmetic products to men, women, and children around the world, L'Oréal has effectively positioned itself as a company that has a product for everyone.
Internet-connected sensors can detect supply chain disruptions or quality issues and address the issue or adapt production flows in real-time with minimal human intervention. When done right, results include increased visibility, responsiveness and resiliency across the entire supply chain ecosystem.What are the positive effects of digitalization? ›
Digitization has a proven impact on reducing unemployment, improving quality of life, and boosting citizens' access to public services. Finally, digitization allows governments to operate with greater transparency and efficiency.What is digitalization and why is it important? ›
Digitization is a process of converting information from the normal form into a digital (computerized) format. This format presents data that is represented as bits or bytes. Digitalization of business helps to improve the efficiency of its process, consistency, and quality.What strategies make L Oreal an unbeatable beauty company? ›
- Innovation – The prime motivator.
- The unwavering Global Cosmetic Leader.
- Connect with the consumers.
L'Oreal S.A., in the course of implementing a global diversity strategy, is faced with challenges. These challenges include cultural differences among countries and low awareness of the advantages that a diversity strategy may bring.What are the main principles of L Oréal sense of purpose? ›
Our goal is to offer each and every person around the world the best of beauty in terms of quality, efficacy, safety, sincerity and responsibility to satisfy all beauty needs and desires in their infinite diversity.What challenges does LOreal face? ›
L'Oréal's biggest challenge is getting consumers to come on board with sustainability, according to the cosmetics and beauty company's director of corporate social responsibility and sustainability Alexandra Palt.
What are the weaknesses of L Oreal? ›
Weaknesses of LOreal
Due to the different divisions, the corporation is regarded to be slow and bulky. The management of personnel is also a concern in L'oreal as the company employs about 60,000 people. Therefore, the expenses of human capital are enormous.
L'Oréal's continuous technological advancements across decades, its ability to balance between both global and local audience and its intuitive marketing strategies are all factors that have landed the beauty brand as a clear favorite among its consumers and a leader in the beauty industry.What are the top 3 challenges your company has overcome using digitization? ›
- Employee Pushback.
- Lack of Expertise to Lead Digitization Initiatives.
- Organizational Structure.
- Lack of Overall Digitization Strategy.
- Limited Budget.
- Increases Customer Satisfaction. ...
- Drives Data-Based Insights. ...
- Enables Software Monetization. ...
- Enables High-Quality User Experience. ...
- Encourages Collaboration & Improves Communication. ...
- Increases Agility. ...
- Limits Human Error. ...
- Encourages an Environment of Employee Excellence.
Digitalization in business helps to improve the efficiency of its operations, making automation possible. There are fewer human errors and operational costs are reduced, due to the decreased need for human resources.What is digitalization explain with examples? ›
Digitization refers to creating a digital representation of physical objects or attributes. For instance, we scan a paper document and save it as a digital document (e.g., PDF). In other words, digitization is about converting something non-digital into a digital representation or artifact.How does digitalization improve the economy? ›
Creating digital markets and boosting digitization can yield significant economic benefits and lead to substantial social benefits to societies and communities. Digitization has the potential to boost productivity, create new jobs, and enhance the quality of life for society at large.What is digitalization short answer? ›
Digitalization is the use of digital technologies to change a business model and provide new revenue and value-producing opportunities; it is the process of moving to a digital business.How digitalization is leading innovation? ›
For established companies, there's new urgency to innovate as a matter of survival. While innovation has long been an integral part of industry, digitalization is changing the very nature of the innovative process. Most importantly, it's providing companies new opportunities to create value, evolve, and grow.How digitalization is changing the face of business? ›
Increases overall efficiency
Because all your processes are now streamlined, thanks to digitalisation, you no longer have to worry about unexpected bottlenecks. Digital processes allow the quick flow of inter-departmental information, eliminates redundant tasks, and improves the overall efficiency of the business.
How L Oreal has reworked how they innovate to be more sustainable? ›
The company has come under fire in the past for using lead and cancer-causing chemicals in several of its products; since 2013, it has revamped 22% of its products to make use, instead, of raw materials sourced from renewable plant sources like quinoa, which is used in skin exfoliating products.What are some strategies the beauty industry uses in advertising? ›
- Build a community of customers.
- Include testimonials in your product pages.
- PRess the difference.
- Create lots of (quality!) ...
- Micro-influencers are the key to the customer's heart.
- Find customers through social listening.
- Try marketing collaborations.
- Encourage multicultural and socio-economic diversity.
- Accelerate the inclusion of people with disabilities.
- Take into account people of all ages and generations.
- Continue to promote gender equity and foster inclusive environments for LGBTQIA+ people.
L'Oréal's desire for global integration and economies of scale poseschallenges for the cosmetic based brand. Uniformity to some degree isneeded to achieve global integration across markets, but being acosmetics brand they are highly sensitive to the preferences of theculture they are marketing to.What are the cross cultural challenges for L Oréal as it expands to international locations? ›
- Adaptability and flexibility. ...
- Multicultural marketing. ...
- Working team and product adaptability. ...
- A strong management team. ...
- Maintaining global-local balance.
Discover How we create the beauty that moves the world
Our goal is to offer each and every person around the world the best of beauty in terms of quality, efficacy, safety, sincerity and responsibility to satisfy all beauty needs and desires in their infinite diversity.
In fact, according to L'Oreal, the majority of all makeup users are over the age of 50, but the percentage is currently on the decline.What type of organizational structure does L Oreal have? ›
The Organizational Structure of L'Oreal is considered both hybrid divisional and functional structures, since a through the functions of both work and organizes divisions.What is Loreal doing to be sustainable? ›
Preserving Natural Resources. L'Oréal has partnered with Green Salon Collective, which helps their salons sustainably manage their waste. GSC recycle hair, used foils, empty colour tubes, PPE, plastic, paper and even salon towels.What marketing strategy does Loreal use? ›
Our Strategy: Universalization
L'Oréal has chosen a unique strategy: Universalization.
How is Loreal helping the environment? ›
At the same time, we lighten packaging, offer refillable solutions and develop manufacturing processes that use less energy and are less harmful to the environment. By 2030, 100% of our packaging will be more virtuous: 100% of our glass jars will be lightened, using recycled glass.Who is Loreal's biggest competitor? ›
L'Oréal Group competitors include Estee Lauder Companies , CHANEL, Unilever, Revlon and Edgewell Personal Care.What is Loreal unique selling point? ›
L'oreal is the leading name in the cosmetic and beauty world. Their extensive portfolio of hair, skin, and makeup products is the reason why. This brand is the only one offering so many inexpensive as well as luxurious beauty options.What strategies make L Oreal the unbeatable beauty company? ›
- Innovation – The prime motivator.
- The unwavering Global Cosmetic Leader.
- Connect with the consumers.
L'Oréal, which receives over a million applications and recruits 5000 apprentices and interns every year, is highly sought after its creative environment, its energy, its high-appeal products and services, and the training it offers employees. “This recognition is very important for L'Oréal.What is unique about L Oreal? ›
What makes us unique? The passion for innovation transmitted by our founder, a researcher. We have an obsession with superior quality, efficacy, sincerity, and safety of our products. Respect for diversity with strong brands that meet all needs and desires.What are the advantages of digitalization? ›
- Access. ...
- Generating income. ...
- Brand. ...
- Searchability. ...
- Preservation. ...
- Interaction. ...
- Integration. ...
- Disaster recovery.
Fear of Change
The potential for employee resistance to digitalization is one of its biggest barriers.
Why does digital transformation matter in supply chain management? Digitization in supply chain management empowers your planning, sourcing, and logistics teams to collaborate, automate and effectively leverage analytics. It has also proven to drive growth, mitigate risk, and optimize costs.What are the key success factors for digital transformation? ›
Six factors seem to determine the success of outcomes from digital transformation projects: leadership, people, agility, business integration, ecosystem and value derived from data.
How has technology helped supply chains? ›
IoT supports operational efficiencies in areas such as asset tracking, inventory management and forecasting, improving productivity and aiding decision-making across the supply chain. For example, companies can track products throughout the entire lifecycle with RFID and GPS sensors.What is the key to successful digital transformation? ›
The GetSmarter survey finds that the two most crucial ingredients for digital transformation success are strong leadership and effective change management. Collectively, they ensure that all the employees are inspired, motivated, and aligned to their business's plan for digital transformation.What are the three most important technologies in supply chain currently? ›
For instance, managers may use AI-based forecasting tools to plan supply chain operations and identify cost-cutting opportunities. Real-time reporting, interactive data visualisation, and enhanced intelligence are all provided by these technologies, which are all found in business applications.What is the most impactful technology coming to supply chain? ›
The impact of technology in supply chain management can be best seen in bringing the Cloud and AI systems together, which makes use of the market indicators and past trends to achieve the following processes: Powering of the automation process.
By 2026, more than 75% of commercial supply chain management application vendors will deliver embedded advanced analytics (AA), artificial intelligence (AI) and data science. Improved decision making through the use of AA and AI is a high priority for supply chain users in all markets and industries.