LOral Takeover Body Shop - Assignment Example

Case study: L'Oreal takeover Body Shop In last March world's leading cosmetics company L'Oreal has acquired Body Shop, a self-styled ethical retailerbased in Britain for about 652.0 million pounds or about 940.0 million euros. Body Shop was founded in 1976 by Anita Roddick and it was leading so called ethical business sector. L'Oreal is the world's largest beauty products company including makeup, perfume, hair and skin care as well as conducting cosmetology and dermatology research. It also owns a number of brands such as Maybelline, Lancome, and Redken and several European brands. L'Oreal reported revenues of $19.8 billion in 2004 with more than 52,000 employees worldwide. The news of acquisition has surprised Animal protection organizations and ethical consumers worldwide. Though this deal has been endorsed by financial analysts for its financial viability there are sharp protests from ethical consumer forums. They have reacted with surprise at the news that L'Oreal will acquire The Body Shop International. There have been particular concerns over the future of The Body Shop's firm and consistent stance against animal testing and ethical consumerism. The groups issuing this statement work together in a global coalition operating those programs such as the Corporate Standard of Compassion (US) and Humane Cosmetics Standard (EU), working closely with leading cosmetics companies worldwide to end animal testing. Challenges Ahead L'Oreal The acquisition is over but major challenges lying ahead of L'Oreal and Body Shop of identifying the metrics to measure success, and unifying the contrasting 'people' cultures and management styles of a French corporate giant and a UK-based company whose culture - and business and operating model - is inextricably based upon a strong ethical trading stance, is matter of importance for success of merger. Though L'Oreal and Body Shop belonged to the same business domains there was a large gap between their operating business philosophies. While Body Shop has been a champion of ethical business and ethical consumerism L'Oreal's track record in this field has not been that clean. L'Oreal has accepted in past, the use of animal testing for their cosmetology and dermatology research. L'Oreal receives a worst rating from Ethical Consumer for its animal testing policy, and also has had boycott calls against it for testing its cosmetic products on animals. And while the Body Shop has always considered natural ingredients as important, L'Oreal is criticized by environmental campaigners for including harmful pollutants and worrying chemicals in its cosmetics. Another worry is its link to Nestle. In many European surveys consumers have voted Nestle as a least ethical and responsible organization because of its baby milk which it advertise to be substitute of breast milk. Business Ethics Body shop has sensitized the European customers about the business ethics. According to business philosophy of Body Shop it is opposed to testing products and various ingredients used in cosmetics on animals. Body Shop has also been a champion of business ethics and corporate responsibility to contribute for the cause of society. Following are some lines from the corporate values they are said to follow: "We consider testing products or ingredients on animals to be morally and scientifically indefensible. We support small producer communities around the world who supply us with accessories and natural ingredients. We believe that it is the responsibility of every individual to actively support those who have human rights denied to them. We believe that a business has the responsibility to protect the environment in which it operates, locally and globally." Considering above statements, L'Oreal and Nestle, which owns 26% of L'Oreal, do not have a healthy records at least for the social activists, environmentalists and for Body Shop till the date of acquisition. Anita Roddick, CEO and founder of Body Shop, has many times lashed out at the policy of Nestle of not being ethical. Following Anita's statements are quote worthy in this regard: "I object to the way Nestl behaves. I am all too aware of their track record on baby milk, GMOs and Ethiopia; you have to have been living in space to not know their reputation. So if you have to bloody boycott - then boycott. Boycott all the products that Nestl own 100 per cent But for goodness sake strengthen the arm of anyone who sees an opportunity of changing the black hole of the corporate world." Many consumer forums raising their voice for ethical consumerism are raising slogans to boycott the Nestle, L'Oreal and Body Shop. Following quotes are important to understand the feelings that may be generated among the European consumers: Mike Brady of Baby Milk Action, a non-profit organization involved in ethical consumerism, said: "Many Nestl boycott supporters will abandon Body Shop if the takeover goes ahead and buying its products puts money into Nestl's pockets. In a global internet vote last year Nestl was proclaimed the world's 'least responsible company'. How could the Body Shop, with its stated ethical values, have fallen into its hands We are asking supporters to send messages to Anita Roddick calling on her to reconsider. The Body Shop has voiced its support for boycotts and the impact the individual can make and shareholders can send a strong message by refusing to link up with Nestl." Ruth Rosselson from Ethical Consumer magazine said: "It's ironic that a company well-known for its anti-animal testing stance should sell-out to one that tests on animals and which has yet to show its commitment to any ethical issues at all. I for one will certainly not be shopping there again and I urge other consumers concerned about ethical issues to follow my example. There are plenty of other higher scoring ethical companies out there" The success of consumer boycotts addressing animal testing in the late 1980s still influences the tone of contemporary campaigns. There are a lot of examples for cue: The boycott by Respect for Animals' campaign in 1994, to stop the export of live animals resulted in the P&O, Brittany, and Stena Sealink ferry companies stopping their carriage of livestock. There was an overwhelmed public response for the cause. In 1993 the Environmental Investigation Agency's boycott of Taiwanese goods resulted in prompt reaction from Taiwan government. It banned trade of endangered Rhinoceros horn. Second problem for L'Oreal and Body Shop merger will be synchronization of functioning of two companies. It could be difficult issue as the two companies have had very different ideologies. Assimilating the current employees of Body Shop in L'Oreal fold could be difficult task. Already five members of board of directors of Body Shop have left the company. The moral of employees which were groomed in Body Shop's philosophy will obviously be down. It will be interesting to see how these companies sail through the merger process. Third problem that will arise is of brand image. According to various surveys brand image of Body Shop has plummeted after the merger although their share prices have risen considerably. The brand image of Body Shop has suffered from the merger process. Consumers with the Body Shop feel to be cheated. They think that Body Shop have sold its spirit and ideologies. According to the daily BrandIndex, The Body Shop's brand rating has dropped 10 points to -4 since the beginning of the month, the public's "general impression" of it is downthree to 19 and "satisfaction" has slumped a massive 11 points to 14. "Sales would plummet, stores would close and the Body Shop would go bankrupt. L'Oreal would have totally wasted its money, which might give us a moment of pleasure, but the other repercussions might not." "Body Shops across the world would close down, so depriving us of one of the few places where we can shop where we are pretty sure that the products are made responsibly." These kinds of consumer comments are pouring on various forums. If these kind of sentiments worked and consumer boycott the Body Shop product it will damage the Body Shop business, its employees may be out of work and businesses of the hundreds of suppliers in the developing world who rely on Body Shop trade will be affected. All this may spoil investment of L'Oreal on Body Shop. Handling New Front (Options for L'Oreal) L'Oreal has said that the Body Shop business will function independently and it will not alter its corporate philosophy. Still there are doubts that it could be done. Temptation of meddling with Body Shop functioning is hard to resist for L'Oreal. Five members for board of directors will be appointed by L'Oreal, which clearly means that Body Shop is fully integrated with L'Oreal fold. In these scenarios there is an urgent need of an image makeover by L'Oreal. They need to be overt in their expression for the business ethics and corporate social responsibility. Big organizations frequently survive the people who establish them. There are many examples e.g. AT&T and IBM. In many cases such organizations are by the group of people who have not been involved in fundamental shaping of organization. A successful organization like L'Oreal should resolve early on the issue of structure of the new acquisition, that is, the definition, placement and coordination of functions and people of the new company. Body Shop then should be molded to fit in the scheme of things. Managing the Acquisition L'Oreal should take care of following points for the success of this particular acquisition: Shape the Ideology and Reasoning for Acquisition According to Lindsay Owen-Jones L'Oreal has acquired Body Shop because it believes in the ideology of Body Shop and it is better to buy such a business which it could not develop itself. L'Oreal should let Body Shop stick to its philosophy. The new management should not meddle or scale down Body Shop's distinctive functioning style and its identity of ethical business. This will be helpful to retain the brand image of Body Shop and its loyal customer's satisfaction. Respect the Sentiments of Body Shop Customers Body Shop was seen as champion of ethical consumerism. It has developed a reputation of not using any ingredients tested on animals in its products. It has been seen as an alternative to the other cosmetic products. Body Shop customers, who were addicted to its product and philosophy as well, see this acquisition with reservations. L'Oreal should expel the doubts of these customers. L'Oreal management has said that they will introduce a new distribution system for Body Shop products. And if the L'Oreal board goes with their plans it could be damaging to the brand image of both the brands. They should try to keep different distinctive distribution system of both companies separate. Reshape the Ideologies of Roddick to fit in L'Oreal Fold Anita Roddick, the founder of Body Shop philosophy till now was a driving force behind the Company. Throughout her career, Anita has campaigned passionately on ethical issues such as fair trade and sustainable development. She has guarded the ideology of ethical business with great effort. She has been vocal against the organizations like Nestle and L'Oreal for their ethical commitment or lack of it. She has been a sentry to management board to ensure that it stick to its ethical roots. L'Oreal now need to search for a new role model who can carry forward the philosophy of body shop while maintaining the values that have been part of the business for last 30 years. But still, Anita Roddick, who is a majority stake holder in the company, will undoubtedly be keen to assure that the positive image she has worked so hard to achieve during the course of the past 30 years will remain firmly in place. Avoid Interference with Body Shop Management Sir Lindsay Owen-Jones, L'Oreal CEO has said,"Combining L'Oreal's expertise and knowledge of international markets with The Body Shop's distinct culture and values will benefit both companies." L'Oreal is a giant in front of Body Shop so this acquisition should not turn out a strangulating arm around the Body Shop's neck. L'Oreal must ensure that Body Shop can function independently. The management board of Body Shop should be allowed to take decisions and function autonomously. They should be able to follow the well trodden path which has helped the Body Shop to rise in the current shape. Treating Body Shop just as a division of L'Oreal will impede its growth and the L'Oreal's expectation from the new acquisition may shatter. Blend Corporate Cultures Most of the mergers after acquisition fail to meet the acquirer's expectation because blending of two diverse corporate cultures could not be achieved successfully. If the companies involved in the process belong to different market domains and different nations the blending of corporate culture becomes more difficult. In this case, acquisition of Body Shop by L'Oreal, L'Oreal is a French company with a totally different business ethics and the Body Shop is a company based in Britain which is a leader in its new sunrise 'green' business sector. Various studies point out that in contrast to the Global business phenomenon the management style of companies varies greatly from one culture to another. To add to the complexity of management French and British management styles are known to be totally different and incompatible. L'Oreal should take care of this aspect of business and hire the management teams which can blend with British ways of business. Financials alone do not help for a successful merger of two companies that too with two diverse corporate culture and ideologies. Managing the people of acquired organization is critical in this regard. HR executives are seen as catalyst or change agents during the delicate maneuverings before a deal is done. Human resource managers are responsible for solving the problems that arises from integrating different corporate cultures and the people who vitalize them. Motivation theory could be of help to manage diversified peoples. Employees of Body Shop may feel dejected. The new management needs to motivate them for their new roles. Change Management The process of managing changes in an acquisition consists of three stages: Unfreezing Changing Refreezing The basic idea behind this concept is staged approach to solve the problems arising due to new circumstances. This framework does not allow the change management that begins with organizations in extremes i.e. the organizations that are already in the process of changing. In other words, the beginning and ending point of the unfreeze-change-refreeze model is stability - which, for some people and some organizations, is a luxury. For others, internal stability spells disaster. One very important framework for change management is problem solving. Managing changes means successful transition from one state to another without many hiccups. Problems arising due to merger of two different corporate cultures should be solved at priority basis otherwise it could dampen the employee's moral ad their productivities. At this there is need of using various motivational theories as productivity is seen as the function of ability and motivation to do the job. According to planned change model Goals should be set and achieved at various stages and various functional areas. A careful planning should accompany to assimilate new peoples, their ideas, support and commitment. Following four general change management strategies are generally used for smooth transition from corporate culture to another: Empirical-Rational People are rational and will follow their self-interest - once it is revealed to them. Change is based on the communication of information and the proffering of incentives. Normative-Reeducative People are social beings and will adhere to cultural norms and values. Change is based on redefining and reinterpreting existing norms and values, and developing commitments to new ones. Power-Coercive People are basically compliant and will generally do what they are told or can be made to do. Change is based on the exercise of authority and the imposition of sanctions. Environmental-Adaptive People oppose loss and disruption but they adapt readily to new circumstances. Change is based on building a new organization and gradually transferring people from the old one to the new one. Generally mixes of these change strategies are used in a corporate environment. How these strategies are applied depends upon a number of factors. The main points while choosing a change strategy are as follows: Degree of Resistance Strong resistance argues for a coupling of power-coercive and environmental-adaptive strategies. Weak resistance or concurrence argues for a combination of Empirical-Rational and normative-reeducative strategies. Target Population Large populations argue for a mix of all four strategies, something for everyone so to speak. While making the strategy the target consumers are main driving force so they should be major component of a strategy. The Stakes High stakes argue for a mix of all four strategies. When the stakes are high, nothing can be left to chance. Obviously stakes are high for L'Oreal in this deal so they should avoid taking any step in hurry which may destroy the delicate balance. The Time Frame Short time frames argue for a power-coercive strategy. Longer time frames argue for a mix of empirical-rational, normative-reeducative, and environmental-adaptive strategies. L'Oreal should give Body Shop space to be ready for make over. Expertise Having available adequate expertise at making change argues for some mix of the strategies outlined above. Not having it available argues for reliance on the power-coercive strategy. L'Oreal has adequate resources to train their employees. They should learn from Body Shop the concepts of ethical consumerisms. Dependency Dependency on people is a tricky question to manage.It should be treaded with a lot of care. If the organization is dependent on its people, management's ability to command or demand is limited. Conversely, if people are dependent upon the organization, their ability to oppose or resist is limited. (Mutual dependency almost always signals a requirement for some level of negotiation.) The New Leadership Another major point L'Oreal should adopt to overcome the problems is discovering new business leaders who may be able to implement the philosophies of new entity. They should play the role of mentors for current peoples and drive their zeal for excellence. L'Oreal has been to develop leaders in its domain. They should create the transitional leadership teams which will be responsible to lead the merger in a defined and agreed upon business direction. These teams could be very effective in guiding the organizations through the change and assimilation of corporate ideas. Conclusions The L'Oreal chief executive, Sir Lindsay Owen-Jones has said that "Combining L'Oreal's expertise and knowledge of international markets with the Body Shop's distinct culture and values will benefit both companies." L'Oreal should stick to this tone to dose market and consumers sentiments. Body Shop consumers should not feel that the values and ethics for which they were fan of Body Shop have changed a bit. Meanwhile L'Oreal and Nestle should work on there public images that they could also be responsible corporate. This strategy is more important to ward off apprehension raised for the Body Shop acquisition. While utilizing Body Shops specialized domain of ethical consumerism for their profits L'Oreal should think that it is their ideology for which they have paid. So it should be left untouched otherwise their investment in acquiring a company like Body Shop will go in vain. The Body Shop certainly represents a new and exciting venture for L'Oreal and if they can manage a successful merger it is believed that this acquisition can help them to build brand image and bring credence to company's business portfolio because of Body Shop's strong ethical stance and positive image in the public eye. L'Oreal should be true to its declared intention of running Body Shop as standalone unit within the L'Oreal business portfolio. To summarize above discussions, L'Oreal and Body Shop develop strategy carefully to: Both organizations should carefully analyze culture and climate due diligence and try to identify and fill gaps between the organizations. Strengths and weaknesses of both organizations should be defined clearly before moving ahead. Strengths of both organizations should be synergized for an accelerated organizational growth rates. Strength of one company should be utilized for the benefits of other. Create new transitional leadership teams to smoothen the process of merger of two organizations. These two organizations should develop specific strategies and processes for key 'people' issues, including assessment, selection, reward, performance management, and communications L'Oreal and Body Shop should stay focused on delivering the anticipated benefits while sticking to their business ideologies. Reference: 1. BBC News website news.bbc.co.uk/2/hi/business/ 2. L'Oreal website www.loreal.com/ 3. Body Shop website www.thebodyshop.com 4. EUbusiness Ltd website http://www.eubusiness.com/ 5. Baby milk action group website, http://www.babymilkaction.org/ 6. HayGroup website http://www.haygroup.co.uk 7. Robert F. Bruner, Applied Mergers and Acquisitions (Wiley Finance) 8. Teresa A Daniel, Gary S Metcalf, The Management of People in Mergers and Acquisitions 9. Animal Protection Institute website http://www.api4animals.org/ Read More