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Analysis Of Strategic Change In Avon Commerce Essay

The main aim of this report is to investigate an organisation that is undergoing major strategic change. Firstly the report will describe the change that has been adopted. It will then evaluate the effectiveness of the change strategy in terms of the organisation’s structure, culture and politics.

Organisation Background

The organisation that has been selected is Avon Cosmetics Limited. Avon is a global manufacturer and marketer of beauty and related products and one of the world’s largest direct sellers of cosmetics and other beauty products. 98% of its revenue comes from the sale of lipsticks, perfumes and powders by the famous “Avon ladies” directly to women. The company markets to women in more than 100 countries through more than 5 million independent sales representatives. Product categories include: Beauty, which consists of cosmetics, fragrances, skincare and toiletries; Beauty Plus, which consists of fashion jewellery, watches, etc and Beyond Beauty, which consists of home products, gift and decorative products, candles and toys. (Avon, 2008 and Keynote, 2007) .In fact 98% of the company sales is generated via direct sales. This sales approach had also been successful in the Latin America and Asia market. However, the same could not been said for the American market.

The meanings and theories of strategic change

According to Lynch (2000, p921), “Strategic change is the pro-active management of change in organisations to achieve clearly identified strategic objectives. It may be undertaken using either prescriptive or emergent strategic approaches”.

Avon’s strategic change

Avon’s vision statement is to:

“To be the company that best understands and satisfies the product service and self-fulfillment needs of women – globally”

According to Johnson and Scholes (2002) define that it is vital to understand the magnitude of the challenge faced in trying to effect strategic change. However In orders to diagnose the strategic change within Avon, it is important to consider the type of change that is required and also identify the type of change that has been adopted within Avon.

Being a global manufacturer and marketer of beauty and related products, Avon has been through several changes since it was founded in 1886. For over 120 years, Avon has been devoted to empowering women by helping them to look good and feel beautiful. The major strategic change is to:

▪ Commit on brand competitiveness by investing millions in research and development on product innovation and increase advertising;

▪ Re-design the organizational structure to eliminate layers of management in order to take full advantage of the global scale and size; and

▪ Build a better tomorrow for women across the world both through representative earnings and helping millions of women to become entrepreneurs and run their own business. (Avon, 2008) (Multi channel Marketing, 2007)

Organisational structure

The effectiveness of change efforts is determined on how an organization is structured. According to Carnall (1999), an ideal organization structure will provide the right balance of information, power and resources to support the various activities within the organization in achieving its objectives.

Avon’s business is conducted worldwide primarily in one channel, direct selling. They are based on geographical operations in six regions. Avon has sales operations in 63 countries, including America and Avon products are distributed in 51 more countries through distributorships. Sales of products are made through a combination of direct selling and marketing by 5.3 million Avon representatives worldwide. Representatives generally purchase products at a discount from a published brochure price directly from Avon and sell them to their customers. In many countries, representatives can use the internet to manage their own business online, including order submission, order tracking, payment, and a two way communication with Avon. In the US, representatives can build their own Avon business through personalised web pages. The research and development facility is located in New York.

ORGANISATIONAL CULTURE

According to Cameron and Green (2004) that organizations should only involve themselves in culture change if the current culture does not adequately support the achievement of strategic objectives.

However, Avon is one of the most recognisable organisational cultures in the beauty products industry of modern times. It was the company that pioneered the door-to-door selling model in the cosmetics industry and has been using the same sales model since its humble beginning in 1886. Revenues from its beauty and personnel enhancement products reach nearly USD6 billion annually and from it 98% is generated via direct selling. In fact, Avon has been so successful that most of the other beauty products companies adopted the same direct sales model.

Appendix 3 illustrates Avon’s organizational culture by using the cultural web model from Johnson and Scholes (2002, p232, fig 5.8).

Stakeholder analysis

According to Joyce (1999), a stakeholder analysis requires you to identify the stakeholders, how they influence the organization, what the organization needs from each stakeholder and the stakeholder’s needs and expectations. Through the concept of organisational stakeholders

Stakeholder analysis for Avon

Stakeholder

Power

Interest

Attitude

Needs/expectations

Government

Worldwide

H

H

Mixed

Avon to meet or exceed all environmental laws of the countries and communities they operate

Executive team

H

H

Positive

To give full recognition to employees and representatives worldwide, on whose contributions Avon depends and to share with others the rewards of growth and success

All other employees

L

H

Positive

To achieve economic independence and an opportunity to earn in support of their well-being and happiness

Customers

L

L

Positive

Active interest in cosmetics and fragrances and keen to look after their appearance

Suppliers

L

L

Neutral

Secure contracts and fast payment of bills. Suppliers in turn to add value to the procurement of the materials to produce Avon products

Communities

L

L

Mixed

Show respect to the environment through the efficient use of natural resources, waste minimization, reuse and recycling practices

Media

M

M

Negative

Always looking out for negative publicity on harmful ingredients in everyday cosmetics and linking it to various health problems

Shareholders

H

H

Positive

Dividends, share price growth

The key environmental influences

The PEST framework categories environmental influences into four main types: political, economic, social, technological.

Political factors

In all the countries where Avon operates, it offers women a means to achieve financial independence and career self-determination. Although in some countries, it is considered as an economic growth and prosperity of its citizens, Also countries worldwide have different legislation on taxation and employment law. Some countries have different views on the issue of privacy such as Data protection Act within the European Union is designed to protect the privacy of its citizens. As a result this will have an impact on Avon representatives calling door to door..

Economic factors

Consumer spending on Avon products is generally affected by a number of factors, including economic conditions, inflation and interest rates. Avon is also subject to currency fluctuations and currency rates. Avon has recruited almost 5.3 million representatives all over the world. This means they have a disposable income and money to spend on cosmetics and beauty related products.

Social factors

In the cosmetics industry, consumer preferences, consumer spending powers and preferences cannot be predicted can change rapidly. Different countries have different cultures, and these cultures result in different work-related issues. For instance hot and cold regions will require differently formulated products to suit the climate change. Avon is also affected by differences in culture and the way of life in other countries. Women all over the world have similar aspirations when it comes to beauty products and share the same desire to look their best. However the greatest challenge in creating beauty products for different ethnic groups is finding the right balance between embracing their similarities while respecting and celebrating their differences

Technological factors

The nature of technology can influence the behavior of people in work organization. In terms of research and product development activities, new products are essential to growth in the highly competitive cosmetic industry. Avon is committing on brand competitiveness by investing millions in research and development on product innovation and increase advertising.

3.2 Managing strategy change

It is stated by Mullins (2002) that an organization can only perform effectively through interactions with the broader external environment. In order to decide how Avon’s strategic change can be implemented The SWOT analysis will help to increase the forces pushing the change and reduce the strengths the forces opposing the change.

SWOT analysis

Strength – Avon is known worldwide as a direct selling organization for its cosmetics and beauty related products. The company’s geographical coverage is divided into six regions and its presence is in well over 100 countries.

Weaknesses – The cosmetic industry is very lucrative, innovative and fast paced industry and product life cycles tend to be short for Avon make-up. The safety of cosmetic products is constantly under scrutiny and Avon must comply with higher and higher standards.

Opportunities – Currently Avon Have a presence in over 100 countries an internet web site to provide a direct sales channel for Avon's full product line. The use of online interactions as a new marketing channel and it will help to decrease other traditional marketing channels .The markets of Eastern Europe, Asia and Latin America offer great potential to increase sales. In order to increase their image, brand reputation and sale , Avon should consider expanding advertising from brochure to TV, radio, favorable magazines and newspapers across the world .

Threats –

Fierce competition from other direct selling organizations and products sold through the mass market and retail channels also Counterfeit products are estimated to exceed 6% of global trade.

Conclusion

This report offers an attempt to understand the major strategic change undergone by Avon Cosmetics Limited. Furthermore, report evaluated the effectiveness of the change in relation to Avon’s structure, culture. Being a global manufacturer and marketer of beauty and related products and a direct selling organisation, Avon was faced with several challenges in the external environment. The factors were: fierce competitions from multinational companies, consumer behaviour worldwide, government rules and regulations, technological and social background. It was found that the major strategic change does relate to the objectives of the organization and matches the organisation’s capability, including its structure, culture and politics.

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