Business Finance Homework Help

Using the course textbook and 1 additional article of your choice (use LIRN to research this), in at least 250 words, please answer each of the following:

(a) Describe what are: ‘External Assessment’ and ‘Internal Assessment’.

(b) What does ‘external assessment’ focus on? What does ‘internal assessment’ focus on?

(c) Please share 1 real-life example of a company’s external / internal assessmen t.

(d) What are some of this company’s main weaknesses and threats?

reply#1

External and Internal Assessments in the context of strategic management are crucial for giving an organization the complete picture of their current situation and steps they can take to continue growing, attaining their goals and objectives, and planning their most optimal strategic course of action. As per Leonard (2019), internal elements are also known as the micro-environment relating to elements found within the company whilst external elements can be known as the macro environment, which refers to conditions outside of the company’s control.

David & David (2017) succinctly define an external assessment as the ‘process of identifying and evaluating trends and events beyond the control of a single firm, in areas such as social, cultural, demographic, technology, economic, political and even competition.’ An external assessment focuses on revealing key opportunities and threats that confront an organization and prepares managers to better formulate their strategies. An external audit is beneficial to organizations to determine key variables that offer actionable responses. A better understanding of a firm’s industry, competitors, and markets can be obtained with this assessment as key factors could vary over time and by industry.

The Industrial Organization has stated that in regards to strategic planning external (industry) factors tend to be more influential than internal factors in order to maintain and develop a competitive advantage. Frameworks that are beneficial in evaluating external assessments are PESTLE which looks into external forces that affect organizations such as; political, economic, social, technological, legal, and environmental, in addition to Michael Porter’s Five Forces model that focuses on reviewing external forces as well as industry variables in terms of competitive advantage.

David & David (2017), on the other hand, define the internal assessment as the ‘process of gathering and assimilating information in the functional areas of business including the firm’s management, marketing, production, finance, R&D, and Management Information Systems operations with the purpose of identifying/evaluating and prioritizing a firm’s strengths and weaknesses.’ Relationships between these areas are also closely monitored and reviewed, with strategic implications of functional area concepts elaborated upon. Value chain analysis (analyzing internal firm activities and recognizing which activities are the most valuable) and benchmarking (measuring and continuously improving an organization’s processes, procedures, and policies against that of best practice) are useful tools to utilize in relation to this assessment.

By coupling both internal strengths and weaknesses, and external opportunities and threats, alongside clear and concise mission and vision statements, a company can ultimately provide a basis for establishing goals, objectives, and strategies. The emphasis is on the internal strengths and external opportunities. By performing a complete assessment, companies can effectively formulate, implement and evaluate strategies and gain competitive advantage (weaknesses – strengths – distinctive competencies – competitive advantage).

L’Oreal classifies itself as a world-leader in beauty offering all women and men worldwide the best of cosmetics, haircare, and perfume in terms of quality, efficacy, and safety. It is also the largest cosmetics company globally.

L’Oreal is a leading name in the world of cosmetics and beauty, its’ name synonymous with a luxury brand given its high profile promotions and instant recognition internationally. They have a powerful portfolio of brands including Lancôme, Yves Saint Laurent, Viktor&Rolf, Ralph Lauren Fragrances. Its high quality, international access, and continued research & development efforts satisfy and meet customer expectations and offer top-of-the-line products that consumers crave. Withisuphakorn et al (2019) state that L’Oreal does ‘manage to effectively pursue sustainable development initiatives without compromising on its economic prosperity’. L’Oreal’s initiative and values incorporate the following four points: reducing the environmental footprint, respecting biodiversity, optimizing packaging, and zero deforestation.

For weaknesses, L’Oreal does struggle with a decentralized organization structure that has numerous subdivisions leading to poor employee management. Furthermore, given the significant established brands increasing market share could be challenging for L’Oreal. L’Oreal did encounter negative headlines of being involved in animal testing prior to acquiring the Body Shop in 2006 with the hope of changing their image. Corporate Social Responsibility needed to be addressed as that scandal caused a substantial impact on the company’s reputation and image. (Koczor, 2013).

As for external assessment, L’Oreal focuses on expanding its consumer base and reaching all demographic categories and continues to specialize in the fields of hairstyling and color, cosmetics, perfumes, and skincare. Their name offers a competitive advantage, as does the growing market that involves aging, affluent, and the masses in developed countries. They also have a noteworthy number of patents registered by the company. It can also new products for niche customers.

Competition has always been a threat to consider with brands such as Yatsen Holding, Estee Lauder, Avon Products, Revlon, Coty and CHANEL being keen to surpass L’Oreal. They also do have a tricky cash flow issue especially in light of the pandemic where there was a profound economic downfall and the company ‘shortened its payment times for small suppliers’. Also, their prices might not accommodate underdeveloped countries. (Hamilton, 2020). The pandemic may have offered clarity to consumers that their product is not a necessity but rather a want and doesn’t fall in the first levels of Maslow’s hierarchy of needs.

References:

David, F., R & David, F., R. (2017). Strategic Management: Concepts & Cases – A Competitive Advantage Approach. 16th edition. Pearson

Hamilton, P. (2020). L’Oreal freezes payments from salons to help with cash flow. The Irish Times. Retrieved from https://www.irishtimes.com/business/retail-and-services/l-oréal-freezes-payments-from-salons-to-help-with-cash-flow-1.4230539 (Links to an external site.)

Koczor, N. (2013). Corporate Social Responsibility and its effect on image and reputation: The Case of L’Oreal and its acquisition of The Body Shop. Management from the NOVA – School of Business and Economics. Retrieved from https://run.unl.pt/handle/10362/9559?mode=simple (Links to an external site.)

Leonard, K. (2019, March 7). Internal and External Strategic Plan Development. Chron. Retrieved from https://smallbusiness.chron.com/internal-external-strategic-plan-development-12123.html (Links to an external site.)

Withisuphakorn , P., Batra, I., Parameswar, N. & Dhir, S. (2019, May). Sustainable Development in Practice: Case Study of L’Oreal. Journal of Business and Retail Management Research. Retrieved from https://www.researchgate.net/profile/Sanjay-Dhir-3/publication/333431989_Sustainable_Development_in_Practice_Case_Study_of_L%27Oreal/links/5cf1fd86a6fdcc8475fb9414/Sustainable-Development-in-Practice-Case-Study-of-LOreal.pdf