Management Analysis of Ecostore in New Zealand - Case Study Example

Mаnаgеmеnt Аnаlysis of Ecostore Name Course Instructor Date Executive Summary The following paper is a report on Ecostore’s management practices. The report considers the company’s leadership styles, management strategies, structure and stakeholders, and their role in promoting sustainability, entrepreneurship and innovation. The paper reports that Ecostore’s management practices and strategies are closely aligned with the founder’s vision of developing a sustainable business in the cosmetics industry. This has enabled Ecostore to make huge gains in the fiercely competitive industry. Ecostore’s foreign operations are very successful and have motivated the company to expand to more foreign markets. However, the company faces intense competition from leading cosmetic manufacturers and distributors. This competition can be a major threat to the sustainability of Ecostore’s business operations. Table of Contents Executive Summary 2 Introduction 4 Company Background and Industry Overview 4 Analysis of Ecostore’s Sustainable Management Practices 6 Amarjit (2041, p. 123) argues that the cosmetics industry is a high-tech industry, with various factors affecting the adoption of innovative technologies as a basis for sustainable business practices. The most important of these factors is the growing importance of biotechnology. This is a key driving force in the cosmetic industry and has seen many cosmetic firms move from the traditional formulations to developing special products such as age prevention products. Another technological factor with an impact on Ecostore is the convergence of medical and cosmetic solutions. A good example here is the pairing of cosmetic products with those from other industries such as health foods and electronic devices. For example, Ecostore manufactures rechargeable facial brushes, which can be used in place of the traditional face wipes. Ecostore has successfully taken advantage of these emerging technologies to develop innovative and sustainable solutions for the cosmetic needs of its consumers. 10 Entrepreneurship and Innovation 10 Amarjit, S 2041, Sustainability: How the Cosmetics Industry is Greening Up, New York: Wiley. 15 Karl, L 2009, Global Regulatory Issues for the Cosmetics Industry, Boston: Elsevier. 15 Mаnаgеmеnt Аnаlysis of Ecostore Introduction This report presents a strategic analysis of Ecostore’s management practices. Ecostore is a leading manufacturer and distributor of cosmetic products in Australia and New Zealand. The report is divided into three major sections. The first section covers important aspects of Ecostore’s profile including summary of products and brands, history and business philosophy. The second part explores the company’s management practices and how they are geared towards enhancing sustainability. This section has explained how the company’s organizational behavior and culture, international business practices and integration of information technology are contributing to sustainability. Section three gives a detailed discussion of Ecostore’s entrepreneurship and innovative strategies. The last section is a list of recommendations that the company can implement to create more sustainable business, expand the market share and gain more competitive advantages in the industry. Company Background and Industry Overview Ecostore is a leading manufacturer of cosmetic products in Australia. Cosmetics are chemical products used to improve the odor and appearance of the human body (Perry, 2014). Deodorants, make ups, skin care, sun care and fragrances are the most common cosmetic products associated with Ecostore. The history of Ecostore dates back to 1993 when a New Zealand couple, Malcolm and Melanie Rands formed a company that manufactured and marketed health laundry and body care products. Their products were an instant success due to the innovative marketing strategies employed by the founders. Within a few years, the company opened several stores across New Zealand, making it a major new entrant in the cosmetics industry. Initially, Ecostore focused on laundry and body care products for adults. In early 2000s, it expanded the range of its product portfolio to include household cleaners and baby care products, which were also very successful in the market. As is profits grew, the company decided to venture into the international market by opening stores in the United States and Australia. Despite the challenges associated with the global economy, Ecostore’s foreign businesses are competing effectively with other industry players (Ecostore, n.d). Generally, the global cosmetics industry is very big and extremely diverse. Leading global players in this industry are Lóreal, Procter & Gamble, Unilever, Estée Lauder and Avon. Together, the top five companies and their subsidiaries control over 80% percent of the global cosmetics industry. Over the past few decades, the global cosmetics industry has experienced steady growth chiefly due to the rise in disposable incomes, growth in national economies and rising demand for skin and body care products. The industry grew by 4.5% between 2000 and 2010. A gradual shift in preference for organic cosmetics has created opportunities for cosmetic manufacturers to innovate new products to fill gaps in this category. Although the industry is very successful in many parts of the world, it is prone to fluctuations in the global economy. For instance, the industry was severely affected during the 2007-2010 global economic crises (Karl 2009, p. 64-67). Compared to the top five global market players, Ecostore is a relatively small company. Even in Australia, Ecostore commands a small market share than L’Oreal or Unilever. However, it is well known among Australian consumers because of its expansive product category, innovative product designs and strategic market moves. In Australia, the cosmetics industry contributes a small percentage to the overall economy. Nonetheless, the sector has expanded significantly in both the export and domestic market. In all its markets, Ecostore distributes products through retail stores including specialty stores, supermarket chains and exclusive brand outlets (Ecostore, n.d). Analysis of Ecostore’s Sustainable Management Practices Sustainability is a major concept and a critical component of strategic business management. It refers to managerial practices and activities that can simultaneously deliver benefits to the business, stakeholders and the environment (Fletcher 2001, p. 482-491). Sustainable companies gain benefits in the form of cost reductions, energy efficiency, increased staff engagement, reduced wastage, improved process efficiency and reduced risks of costs from environmental degradation. Other benefits of embracing sustainability include reduced risks of negative publicity and opportunities for green markets. According to Swiss (2005, p. 592), sustainability can be a source of competitive advantages when implemented well. In the cosmetics industry, the concept of sustainability is important because of the immense benefits that companies can gain by embracing it. Ecostore is one of the several cosmetic companies that have embraced sustainability as the bedrock of its management practices as explained below. i. Evaluation of Ecostore’s Sustainable HRM Practices Human resource management (HRM) is the most important managerial function at Ecostore. It is concerned with the sourcing, management and deployment of employees to achieve business goals and objectives (Torres-Coronas & Arias-Oliva 2004, p. 123). Through HRM, Ecostore attracts and develops talented and loyal employees, who are the company’s most important strategic asset. Due to the fact that Ecostore is a large company with thousands of employees and a wide branch network spanning several countries, the company has implemented the hybrid system of human resource management. This system is a combination of centralized and distributed HR decision making (Nag, Hambrick & Chen 2007, p. 595). Under Ecostore’s hybrid system, each retail store is responsible for recruiting of its staff and for implementation of HR policies. However, the corporate office retains overall power regarding which policies should be implemented at the stores. Each store or subsidiary under the Ecostore brand is headed by a human resource manager, who coordinates the translation and implementation of the company’s policies. In terms of the structure of Ecostore’s HRM function, it is divided into three subdivisions, namely administration and employee relations, benefits and compensation, and HR support and services. The HR support and services helps in recruitment, conflict resolution, employee motivation and labor relations. The other two divisions are responsible for coordinating issues pertaining to labor, policy implementation, and benefit administration. In order to eliminate redundancies and balance the demand and supply of labor, Ecostore uses complex decision support and management information systems to analyze movements in workforce needs. Through this system, Ecostore is able to predict undesirable movements in the workforce such as turnover and take appropriate remedial measures. It can be observed that the above HRM strategies play a critical role in advancing Ecostore’s sustainability initiatives by reducing risks of corporate failure and by driving the company’s success through people. According to Swiss (2005, p. 595-956), HRM is the quintessential function that links all corporate strategies and resources to achieve business goals. Essentially, all business goals can be achieved through sustainable allocation of human resources. Accordingly, the HR department endeavors to ensure that the human capital at the company plays a critical role in fostering efficiency and effectiveness in business operations. Another way through which Ecostore’s HRM practices plays a critical role in advancing sustainability is by minimizing business risks. O'Donovan (2006, p. 64) has noted that successful companies reduce risks of business failure by aligning human resources with corporate vision. Ecostore’s business risk management is reliant upon the knowledge and skills possessed by its employees. Through employees, the company is able to reduce operating costs, serve customers with diligence and achieve business goals. This way, the employees help the company in driving sustainable results despite stiff competition in the industry. ii. Evaluation of Ecostore’s Organizational Behavior Organizational behavior refers to the totality of actions and attitudes exhibited by people’s interactions towards organizations and among themselves. It entails a system of shared beliefs, assumptions and values, which govern the behavior of individuals in an organization. These behaviors contribute to the unique business environments in different organizations. Organizational behavior provides direction and helps in predicting an organization’s future life. It also helps in promoting healthy interpersonal relationships, which is essential for improved performance (Nag, Hambrick & Chen 2007, p. 935). In order to affirm its position in the cosmetics industry, Ecostore has developed a unique system of organizational behavior, which emphasizes collaboration, respect, teamwork and excellent customer service. Driven by the desire to become a major player in the domestic market, Ecostore is strongly committed to its employees and dedication to customers is the hallmark of its corporate success. To ensure high levels of efficiency in the production and marketing of goods and services, Ecostore’s organizational culture encourages continuous employee training and development. The company encourages employees to embrace learning, which, is a solid foundation for competitiveness in the cosmetics industry (Adams & Jeanrenaud 2008, p. 108). An important aspect of Ecostore’s organizational behavior is its leadership and management style. Ecostore has adopted the participative management style, which encourages managers and team leaders to embrace servant leadership. This leadership style makes employees feel valued at the company and is responsible for the many gains that the company has made despite having been launched only two decades ago. All the above aspects of Ecostore’s organizational behavior have helped in cultivating a culture of sustainable workplace value and business values. iii. International Business and Information Technology Companies can reap many benefits by expanding their operations into foreign markets. These benefits include gaining more customers, more sales and enhanced managerial experience (Klerck 2009, p. 84). Ecostore has globalised its operations with the objective of maximizing revenue by selling to underserved and untapped segments in the international market. Currently, the Ecostore brand of products is actively marketed in Australia, New Zealand and the United States. The company has future plans to open more stores in other countries particularly in Europe and Asia. Initially undertaken in response to saturation of the domestic market (New Zealand), Ecostore’s international expansion program has been aided by three key factors. First, removal of trade barriers between New Zealand and her major trading partners made it possible for Ecostore to expand into the US and Australia on a massive scale (Daniels, Radebaugh & Sullivan 2014, p. 123-125). Secondly, by expanding to the foreign markets, Ecostore has been able to reap immense economies of scale from mass production. International expansion gave Ecostore an enhanced size, which it uses as a bargaining power to demand big discounts from suppliers. Third, technological advances have enabled Ecostore to exert control over it international business, tracking pricing, inventory, store sales and profit on a daily basis. Today, Ecostore’s international operations are a success story, closely mirroring the route followed by L’Oreal, Unilever and other competitors. Amarjit (2041, p. 123) argues that the cosmetics industry is a high-tech industry, with various factors affecting the adoption of innovative technologies as a basis for sustainable business practices. The most important of these factors is the growing importance of biotechnology. This is a key driving force in the cosmetic industry and has seen many cosmetic firms move from the traditional formulations to developing special products such as age prevention products. Another technological factor with an impact on Ecostore is the convergence of medical and cosmetic solutions. A good example here is the pairing of cosmetic products with those from other industries such as health foods and electronic devices. For example, Ecostore manufactures rechargeable facial brushes, which can be used in place of the traditional face wipes. Ecostore has successfully taken advantage of these emerging technologies to develop innovative and sustainable solutions for the cosmetic needs of its consumers. Entrepreneurship and Innovation Entrepreneurship is the ability to conceive a business idea and turn it into a successful business. Successful entrepreneurship requires elaborate planning, risk taking, prudent financial management skills and customer service skills (Zahra 2009, p. 519). Usually, the spirit of entrepreneurship is motivated by the desire to take advantage of opportunities in the market. Ecostore is an example of a successful enterprise that has grown in a very short time to become a multinational company. The founders of the cosmetics company were motivated by the high demand for natural and organic body care products. Ecostore’s success story is testimony to the fact that innovation is the backbone of successful entrepreneurship. Innovation refers to the strategy of devising creative new ways of doing things (Strumsky, Lobo & Tainter 2010, p. 496). Ecostore has implemented several innovative business strategies that have made it a successful entrepreneur. The innovative strategies that the company implements can be classified as follows: low cost operational structure, product proliferation, e-retailing platform and broad differentiation. Ecostore implements the broad differentiation strategy by recognizing different segments in the market and developing different products to suit each segment’s needs. The company has developed different distribution channels based on the identified customer needs. The distribution channels are maintained carefully to strengthen relationships with customers and to protect brand image. The innovative strategy of product proliferation involves marketing multiple variations of the same product to appeal to as many customers as possible (Shane 2013, p. 473). Ecostore achieves this by emphasizing variation in colors, packaging and product sizes. This makes the company’s products to look diverse and capable of capturing the interest of different customers. In order to adapt to technological shifts, Ecostore is focusing its efforts on expanding the e-retailing platform. In Australia, the company runs a dedicated ecommerce platform which enables the company to interact with its customers and makes sales via internet technologies. Besides the website, the company uses social media technologies to market and sell its products. This is crucial for Ecostore because it is competing in a mature industry where competition is high. The integrated international production and distribution system is another important innovative strategy Ecostore uses to maintain a sustainable business environment. The Australian and American subsidiaries of Ecostore are very successful and tailored to satisfy the local needs of consumers in those markets. Recommendations i. Ecostore harbors ambitious global expansion strategies. However, competition in the international cosmetics market presents major obstacles to Ecostore’s ability to create a sustainable global business. In order to effectively penetrate profitable markets in Europe, Asia and the Americas, it is recommended that the company pursues the strategy of foreign acquisitions. This strategy will allow Ecostore to eliminate competition as it diversifies globally (Cartwright & Schoenberg 2006, p. 1-5). ii. Secondly, it is recommended that Ecostore invests a substantial part of its resources in supporting corporate social responsibility needs. For example, it can support environmental conservation efforts by partnering with lobby groups in its business sector. The company can benefit from this initiative through improved brand equity and positive affiliation (Lantos 2001, p. 595-597). iii. Lastly, it is recommended that the company focuses its resources on research and development especially in the natural cosmetics sector. Across the world, there is a growing demand for natural cosmetic products. By diversifying to this sector, Ecostore will develop competencies and expand its revenue base significantly (Ortega, Potters & Vivarelli 2011, p. 817-839). Conclusion Ecostore is a successful business and a sustainable cosmetics manufacturer mainly because of the entrepreneurial spirit created by its founders. A key strength of the company is that due to its rapidly growing size, it can benefit from economies of scale in production. Investments in technology, human resource management and innovation have enabled Ecostore to save costs, which is an important aspect of its sustainable business practices. Although the company has been able to launch into foreign markets successfully, it faces stiff competition from major international cosmetic companies such as L’Oreal. Ecostore can counter these competitive forces and build a more sustainable business by embracing cost leadership and differentiation strategies. In doing so, Ecostore will expand into more profitable markets at a quicker and improve to defend itself against competition. References Adams, W & Jeanrenaud, S 2008, Transition to Sustainability: Towards a Humane and Diverse World, Gland: IUCN. Amarjit, S 2041, Sustainability: How the Cosmetics Industry is Greening Up, New York: Wiley. Cartwright, S & Schoenberg, R 2006, ‘Thirty Years of Mergers and Acquisitions Research: Recent Advances and Future Opportunities’, British Journal of Management, vo. 17, no. 1, pp. 1-5. Daniels J, Radebaugh L & Sullivan D 2014, International Business: environment and operations, Boston: Prentice Hall. Fletcher, C 2001, ‘Performance appraisal and management: The developing research agenda’, Journal of Occupational and Organizational Psychology, vol. 74, pp. 482- 491. 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