Global strategy change in Avon Company
Strategy in the global environment Avon Products Strategic Management
Global strategy change in Avon Company
Case summary International or global operations are the dream of any one company in the market today. There are numerous advantages that accrue to a firm that pursues operations across the national borders. Some of the advantages include a spread of risks, a greater market, a greater pool of skills and ideas and ultimately, a good reputation for the ability to serve markets beyond the national borders. However, international operations involve a lot of input especially on the administration that is responsible for devising the operational strategies to acquire and maintain operations in the global arena. This move therefore translates to even greater challenges as presented by the global market. The management and especially the CEO therefore needs to understand various components, among them, the controllable internal factors and the uncontrollable external factors. Any strategy that is implemented should seek to position the firm competitively in the global market. In addition, the strategies implemented need to be quite flexible as to change with the dynamic nature of the global market. Challenges may arise in the operating environment that may impede the operations of the firm. Some changes in the environment may actually render the initial strategy obsolete. It is therefore important to keep abreast with the operating environment and make timely and appropriate strategic changes to address the changes and maintain the firm`s competitiveness. Avon CEO, Andrea Jung was faced with an experience of changing operating environment. New challenges arose that caused panic in the firm`s stakeholders. Profitability was taking a negative trend and she needed to devise as well as implement a strategy to correct the situation. Her strategy only bore result in the short run but did not sustain the operations in the dynamic global environment in the long run. Competition and other external forces arose and saw the firm in a second struggle to sustain operations. Avon`s global standardization strategy in the early 2000. Avon was pursuing a global standardization strategy until the mid-2000 when the need for a new strategy arose to counteract the various challenges that the company was experiencing at the time. The standardization strategy as adopted by Avon at the time involved a keen focus on expansion to other countries and awareness creation in the foreign countries. Increasing profitability was mainly based on market expansion and this was duly achieved as the company made a huge presence recording around 5 million representatives globally. However, the company maintained most of the mother company`s marketing strategy which was basically direct marketing and this was applied in all the foreign countries that the company had expanded operations to. The managers in the various countries were accorded autonomy over operations but they had to employ the same direct sales marketing strategy as well as use the Avon brand in the local market. The autonomy accorded to the various managers enabled them to develop new products and sell under Avon brand. The result was multiplication of the products, inconsistency in marketing strategies as each manager implemented new and different strategies and ultimately
Global strategy change in Avon Company
accountability and communication systems were impossible. The global standardization strategy had faced so many challenges that it failed to deliver as expected. Advantages of the global standardization strategy The global standardization strategy may not have worked in the long run, but as a strategy, it delivered some advantages for the company for a while. The strategy was able to help the company gain substantial foreign markets in a short while. The strategy was also able to minimize costs as it did not involve much customization of the products. Through allowing a high degree of autonomy to the managers in the different countries, the strategy was able to enjoy a pool of ideas and skills from different foreign countries; such would be harnessed to propel the company`s strategy further and achieve greater productivity. Short comings of the global standardization strategy It failed to address the specific local preferences in the foreign markets and at some point lost control as the products were increasing profusely. This had the impact of confusing the customers leading to reduced customer loyalty. The strategy did not address the need to increase profitability through cost reduction and local responsiveness, it simply focused on market expansion which would become saturated at some point and require a new strategy. The global strategy failed to address the need for customization in the marketing strategy and on the contrary adopted a homogenous marketing strategy as applied in the US in all the other foreign countries. This was bound to fail as the various markets were not homogenous in nature. Strategic change in Avon by Andrea Jung Andrea Jung was faced with a difficult situation as the centre of company`s management especially from the shareholders. The initial strategy was no longer producing results, if anything, performance was on decline and the impact was visible even with the falling share price at the stock market. Jung had to do a thorough revamping of the company which featured the following, restructuring the managerial structure, change of strategy, management team and narrowing of the product portfolio. Managerial restructuring involved deployment of seasoned managers obtained from highly performing companies to head the various functional parts of the company. It also included laying off 30% of the managers that initially performed in the various countries. The restricting also involved reduction in the layers of management from 15 to 8, which was more or less half of the management layers that existed before. This served to cut on the overall costs and ultimately Jung was able cut costs by $1b annually. The supply chains were also rationalized to eliminate duplication in distribution that existed under the earlier system. This was backed up by reduction in the number of products that were
Global strategy change in Avon Company
offered by Avon Company by 25%. Only the leading products with substantial market share as well as the highest profitability margin. Jung also proposed production centres in designated regions and a block buster line of products that could sell globally. This would allow the company to realize economies of scale as well as cut costs otherwise incurred through customization of products in the various locations. Benefits to the new strategy by Jung included cost reduction, standardization of products to have a global appeal and increase expertise through hiring experienced managers. The transnational strategy implemented in Avon In her pursuit to salvage the company from the fall of the strategy initially adopted, Jung introduced a number of changes especially in the management. She introduced a new framework which constituted of a simpler management structure for improved accountability and communication. The new structure also involved a change in the production where the focus was now on block buster products that could sell globally. This way, economies of scale would be realized. Further, production was undertaken in certain locations and distributed to other regions. The supply chains were rationalized to minimize duplication and thus increase efficiency. The above changes in the framework as introduced by Jung to counteract the challenges that were happening at the time was inclined towards the transnational strategy. The core aim was cost reduction as well as pressure to improve local responsiveness. The production of the products in specific locations as per the market characteristics and customer preferences indicates a level of differentiation in products. The engagement of new managers with the expertise aims at fostering flow of skills to improve the operations in the firm.
Change in strategy and the challenges in 2010-2011 The problems that Avon Company faced in 2010 and 2011 were partly as a result of the changes in the strategy implemented in 2005. However, this was just a small portion of the causative factors. The only way that the strategy contributed was through the inadequate implementation of an information system. This resulted in numerous operational mistakes that were costly to the company. However, a great chunk of the problems was as a result of changes in the operational environment. There were changes in the competitive forces as rivals increased and competition set in. This caused Avon to struggle in retaining its market share. Second was the slow economic growth in developed markets which was again out of the company`s control. Other elements included the malpractices that tarnished the company`s name like the corruption in China by the executives were paying bribes to government officials to pursue their marketing operations. This again was not related to the strategy. It can therefore be concluded that the strategy implemented in 2005 was not the cause of the problems that Avon experienced in 2010 and 2011.