Corporate culture and values: genesis and sources of L'Oreal's entrepreneurial orientation.

Introduction

In France, education excellence, which is regularly assessed through mechanisms of "mathematical Darwinism" (Barsoux and Lawrence, 1991), is a key factor of social success. Degrees obtained in prestigious schools offer a fast track to rewarding professional positions. Elites who come out of ENA, Ecole Polytechnique and the French Grandes Ecoles are traditionally destined to work for the state or large private companies, not to become entrepreneurs. This pattern originates from the traditions and history of this country, culturally influences all the layers of society and shapes the behaviour of French people (e.g. Suleiman, 1977; Crozier, 1982).

As opposed to other national cultures, especially the cultures of Anglo-Saxon countries, the "Hexagon" does not promote venture creation nor entrepreneurial behaviour in general. It is a commonly accepted opinion that the culture of venture creation traditionally arises from the family environment rather than other types of environments (Fayolle, 2004; Fayolle and Filion, 2006). In France, having a close parent (father or mother) who owns their own company doubles or triples the probability of an individual becoming an entrepreneur.

Large French companies as well as individuals and institutions bear the weight of this entrepreneurial "counter-culture," a phenomenon that is amplified by the size factor and its natural corollary: bureaucratisation. The larger companies grow, the larger their volume of trade, the more structured and rigid their rules and operating modes will become: this means more control and formal coordination mechanisms and less autonomy for individuals. This of course hampers flexibility, reactivity, individual initiative-taking and the seizing of new opportunities (e.g. Thornberry, 2001).

It is difficult to explain, in view of these adverse conditions--both cultural and bureaucratic--how some large French companies manage to retain collective qualities and capacities to behave entrepreneurially. The issue is a complex one as an entrepreneurial orientation or behaviour usually relies on several variables linked to the managing team, the corporate strategy and policy, the organisation, the management of human resources, and the firm's corporate culture (Basso and Legrain, 2004 ; Basso, 2004). Our perspective on the question here is therefore limited and calls for further development. We have focused on the case study of a large French group to build our hypothesis. This exploratory work supports the assumption of the predominant role of the founder-manager's values in the emergence and persistence of a strong entrepreneurial culture likely to shape the firm's collective behaviour (Hofstede, 1985).

First of all, we will highlight the strong links between the values held by its emblematic manager Francois Dalle and the firm's corporate culture, and then we would like to put into perspective the values/culture association with the entrepreneurial orientation and behaviour of L'Oreal.

Founding Values and Corporate Culture of L'Oreal

A value can be defined as: "an enduring belief that a specific mode of conduct or end-state of existence is personally or socially preferable to an opposite or converse mode of conduct or end-state of existence. A value system is an enduring organization of beliefs concerning preferable modes of conduct or end-states among a continuum of relative importance." (Rokeach, 1973: 5). In other words, a value acts as an ideal principle that the members of a community refer to in order to base their judgement, and decide which course of action to adopt. As such, it mixes cognitive, affective and behavioural elements which continually interact and are revealed in the actions and behaviours of the members of an organization. Because organizations do not form spontaneously or accidentally, the beliefs, values, and assumptions of founders or key players infuse the whole organization and shape the learning experiences of the group members during the start-up stage (Schein, 1983). When we talk about "founding value(s)," we mean consequently a value that has been passed on to the company by a founding manager, an individual value that the group has adopted during their common history. These values may be ethical, social, or even, as is the case here, "entrepreneurial" (as we will define the term further on).

The notion of culture refers to values as well as other symbolic systems that distinguish one human community from another and influence the behaviour of individuals in the group (Hofstede, 1980). A culture can be considered as a particular configuration of stereotyped models of behaviour that are passed on from one generation to another. Culture can be defined on a variety of social levels or systems, with potential interactions between them. This is how we can speak of national, professional, industrial, corporate, or family culture.

Culture, when specifically applied to corporations, can be defined (Schein, 1991) as "the pattern of basic assumptions that a given group has invented, discovered, or developed in learning to cope with its problems of external adaptation and internal integration, and that have worked well enough to be considered valid, and, therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems."

Such a definition underlines the importance of collective history and past successes or failures in the making of the corporate culture; lessons drawn from experiences are encapsulated in organizational knowledge. There is a slow process by which the whole community develops a shared understanding. It starts with explicitly stated values. When people embrace these values they start acting in ways that define them. When that behaviour is successful in solving problems, Schein (1985) notes, the values are gradually "transformed into an underlying assumption about how things really are. As the assumption is increasingly taken for granted, it drops out of awareness."

This phenomenon can be originated by the founder or leader's behaviour, as we will see through the example of Francois Dalle and the history and culture of L'Oreal, a company he managed for 37 years, from 1957 to 1984. Francois Dalle did not found L'Oreal (Eugene Schueller did), but he was a key figure of the company for more than 45 years, even designating his successors: Charles Zviac and Lindsay Owen-Jones.

Francois Dalle's Values

We do not intend to draw up an exhaustive list of Francois Dalle's personal values of course, but we would like to highlight those that made this man a true entrepreneur during his time at L'Oreal. (1) To support our view, we will rely on some of L'Oreal's internal documentation and on Dalle's autobiography, entitled L'aventure L'Oreal and published in 2001. (2)

Francois Dalle was no ordinary company manager; he used to say: "Entreprendre n'est pas gerer" (entrepreneurship is not management), and beyond the words, he demonstrated this in his company every day. By doing so, he contributed to spreading strong entrepreneurial values to his staff and throughout the company at large. His saying, "Entreprendre n'est pas gerer" refers to two organisational models that must be carefully balanced and implemented in any firm (March, 1991; Shane and Venkataraman, 2000). The first one corresponds to the exploration mode that consists in innovating and transforming the value of this innovation: designing and launching new products, new services, new activities, and conquering new markets. In this model, the company manager acts as an entrepreneur. For instance, for Francois Dalle: "When you feel you've got a good product, you mustn't be afraid of devoting all your energy to it; all the company forces should concentrate on its success. You must start by throwing money at it, you must not tolerate any delay in production or delivery, and boost the sales team's morale and put them in a condition to transmit their enthusiasm to their customers." (3) The second organisational mode is the exploitation mode. It refers to the direct input, acquisition, assembly and organisation of human, relational, technological, material and financial resources necessary to capitalise on the innovations resulting from exploration. In this configuration, the company manager sets the objectives and the strategies that should be implemented to reach them, and therefore acts as a manager or administrator.

Francois Dalle has always championed powerful ideas that are representative of his entrepreneurial spirit, preferring venture creation over business or company takeover, fighting for employment rather than fighting against unemployment, favouring the discomfort of challenging the existing rather than the satisfied tranquillity of its acceptance: "To progress, we needed clashes, to generate clashes, we needed to organise confrontations. I did just that, notably by changing the name of the 'meeting room' to 'confrontation room' at our headquarters." (4) He created businesses and developed L'Oreal, a firm which, at the beginning, was merely a large SME. When he left, L'Oreal was the world leader in cosmetics. He also developed the group's research activity with Synthelabo, created a business university with the CEDEP (Centre de Documentation et d'Education Permanente) located in INSEAD campus in Fontainebleau, and l'Institut de l'Entreprise, which is still today the major think tank of the largest union of employers in France (i.e. MEDEF formerly called CNPF).

Francois Dalle was, both inside and outside the scope of his company, a humble but nevertheless ambitious visionary with an exceptional capacity to realise his projects and visions. If we were to summarise his main values, they would be: a taste for progress and creation, a strong sense of effort, initiative and team work, a good imagination, a desire to change the world, and respect for others. (5)

L'Oreal's History and Culture

Since its creation in 1907 by chemist Eugene Schueller, L'Oreal, with a turnover of 14.5 billion euros in 2005, and a workforce of 52,000 in 58 countries, has constantly displayed a culture of innovation aiming less at developing breakthrough innovations than constantly modernising and refining the various ranges of cosmetic products throughout its portfolio of world-famous brands (L'Oreal Paris, Garnier, Maybelline, Vichy, Ralph Lauren, Helena Rubinstein, etc.).

In almost a century, only four CEOs have succeeded one another at the head of the company: the founder, Eugene Schueller, Francois Dalle, Charles Zviak and Lindsay Owen-Jones. The central character of this story is Francois Dalle, who joined the ranks of Monsavon in 1942, aged 24. He was recruited by Eugene Schueller who was clairvoyant enough to appoint him as Joint General Manager of L'Oreal as early as 1948. Francois Dalle in turn, when the time came, designated the people who were to become his successors, Charles Zviak and Lindsay Owen-Jones, that he had himself recruited.

Below are a few key dates of the company's century of existence:

* 1907: Eugene Schueller creates a hair dye called Aureale

* 1928: Takeover of the Monsavon company

* 1934: The brand Dop is launched

* 1939: The Societe francaise des teintures inoffensives pour cheveux becomes L'Oreal

* 1942: Francois Dalle joins Monsavon

* 1948: Francois Dalle is appointed Joint General Manager of L'Oreal

* 1957: Eugene Schueller dies aged 87, Francois Dalle becomes CEO

* 1963: L'Oreal is listed on the stock exchange

* 1964: Takeover of Lancome

* 1984: Francois Dalle resigns, Charles Zviak becomes CEO

* 1988: Lindays Owen-Jones, aged 42, becomes CEO of L'Oreal

* 1989: Acquisition of Helena Rubinstein

* 1996: Takeover of Maybelline

* 2006: In April, Jean-Paul Agon becomes CEO of L'Oreal.

L'Oreal's corporate culture today stems from its founding history and the numerous examples of success that have contributed to the group's construction and shaped mentalities. The company fosters an entrepreneurial spirit directly inspired by the initiatives and actions of its emblematic managers, and first in line was Francois Dalle: "I wanted to be the man of the great L'Oreal, I wanted to transform a small business into a big one, and push out of our boundaries all our foreign competitors in order to, one day, beat them on their own ground." (6) Francois Dalle embodies the true hero, a model, a source of inspiration. Everyone is therefore encouraged to behave entrepreneurially. There is even a language that is specific to L'Oreal that reflects this common cultural reference system based on a few core values. This verbal code is expressed through slogans and messages relayed and spread inside and outside the company. Here are a few examples of these mottos: "Doing and undoing in order to do better next time"; "At L'Oreal, by the age of 30, you can be your own boss"; "People who are capable of breaking the routine are the best"; "Staff must be able to manage several projects all at once, to spin Chinese plates"; "You only find in a market what you've put there."

Shaped by this promotion of the spirit of initiative and individual responsibility, the corporate culture has influenced the organisation. L'Oreal is characterised by a low degree of formality of processes and procedures. As Francois Dalle wrote: "The whole company must be engaged in a sort of Brownian movement. I have never hesitated to shake up the structures in order to organise disorder, as a certain amount of disorder is necessary to create. Accepting to do and undo ... to a large extent, implies giving up the comfort of acquired positions in the organisation chart." (7) However, at L'Oreal, disorder does not mean anarchy. It proceeds according to a method in which preparing the mind is a core element.

There is one final characteristic of L'Oreal's culture that distinguishes it from the French culture: a certain acceptance of failure, which generally translates into the promise of a second chance for the members of staff who happen to fail in one of their initiatives, projects, or in a mission they have been assigned. "Without mistakes, no change is possible, hence no possible evolution or progress... The role of the manager consists in helping those who have made the error to correct it. During my career I have devoted a great amount of time doing just that, and on those occasions I have never failed to mention the mistakes I myself had made. This goes to show that authority, the source of power, does not only stem from success, but also from acknowledging one's own mistakes and putting them right." (8)

This corporate culture has driven L'Oreal's international development. In 1985, thanks to its sole internal growth, the group made 60% of its turnover abroad, up from 10% in 1975 and a mere 3% in 1960. This is illustrative of Francois Dalle's stamp, his passion for creation (which translates into internal growth) and his prompt aptitude to seize development opportunities, wherever they may be. Since 1988, internal growth has been backed by a policy of carefully selected acquisitions. Today, international sales make up 80% of L'Oreal's turnover. Could we hence refer to an entrepreneurial orientation that would characterize L'Oreal? Does this concept help to throw light on the specific DNA of the company?

The Entrepreneurial Orientation of L'Oreal

Several patterns of corporate entrepreneurial orientations are proposed in the literature on strategic management. For Stevenson, a firm is to be labelled as entrepreneurial if its behaviours and processes are oriented towards the recognition, assessment and exploitation of opportunities, independently of the directly controlled resources (Stevenson and Jarillo, 1990 ; Stevenson, 2000). In order to ensure their survival, firms of all size relentlessly strive to identify these new opportunities (be they new products or new services). Companies organize themselves consequently to facilitate these strategic processes and improve their efficiency. The concept of "entrepreneurial orientation" is part of this perspective and relies on five dimensions that allow us to characterize and test the entrepreneurial behaviour of a given firm. According to Miller's seminal article (Miller, 1983), a firm is considered as entrepreneurial if it dedicates itself to "product market innovation, undertakes somewhat risky ventures, and is first to come up with 'proactive' innovations, beating competitors to the punch."

The dimensions to be taken into account are: innovativeness (propensity to innovate), risk-taking and proactiveness. Two complementary attributes have been added by Lumpkin and Dess (1996). The first one is closely connected to the last words of Miller's quotation ("beating competitors to the punch"): competitive aggressiveness is recognized as a key dimension of entrepreneurial orientation. The second item is borrowed from Burgelman, stating that "the motor of corporate entrepreneurship resides in the autonomous strategic initiative of individuals at the operational levels in the organization" (1983). For this reason, "autonomy" is identified as a fifth dimension of entrepreneurial orientation (EO).

The EO construct proves to be truly operational: relying on this approach, numerous empirical studies have been conducted within a qualitative or quantitative theoretical framework; these studies have allowed the building and refinement of methods and indexes to provide measures of the five dimensions (e.g. Lyon, Lumpkin et Dess, 2000 ; Kreiser, Marino et Weaver, 2002). Hence the concept of EO appears to be a relevant measurement tool to assess the entrepreneurial nature of a given company.

Let us define more precisely the five dimensions we have previously mentioned before characterizing L'Oreal's specific context.

First of all, innovativeness has been associated with entrepreneurship as a salient feature for a long time (Schumpeter, 1934). As Peter Drucker (1993) states it strongly, "To be entrepreneurial, an enterprise has to have special characteristics over and above being new and small. Indeed, entrepreneurs are a minority among new businesses. They create something new, something different; they change or transmute values." Within a company, the propensity to innovate expresses a tendency to translate into engaging in and supporting creativity, idea generation and opportunity development processes, which may lead to the emergence of new products, new services or new technologies (Lumpkin and Dess, 1996). Various measurement scales can be used to account for the diversity of types, forms and degrees of innovation as for the heterogeneity of devices, practices and levels of commitments of the firms.

Even if research literature and conventional wisdom meet to recognize risk as a crucial component of entrepreneurial behaviour, the issues related to its definition, analysis and measure remain far from easy to solve. Differing interpretations and diverse meanings of risk coexist depending on the contexts in which the notion is being used. Moreover, risk-taking can be studied through the lenses of preference or aversion, perception, propensity, and behaviour. In strategic context, Baird and Thomas (1985) distinguish between three kinds of risk: "venturing in the unknown," "committing a relatively large portion of assets" and "borrowing heavily." The first kind links risk to uncertainty while the other two derive it from the commitment of significant resources (financial, human and technological) that are essential to the firm.

The concept of proactiveness relates to initiative-taking to a certain extent, in the sense that initiative implies the vision and anticipation of a desirable future. Lumpkin and Dess characterize this dimension as such: "thus, taking initiative by anticipating and pursuing new opportunities and by participating in emerging markets also has become associated with entrepreneurship. This characteristic of entrepreneurship is often referred to as proactiveness" (1996: 130). The same authors recall that, in a broader sense, the word "proactiveness" is defined in the Webster's Ninth New Collegiate Dictionary as follows: "Acting in anticipation of future problems, needs or changes."

Firms that behave as leaders rather than followers are characterised by a high degree of proactiveness. If we consider proactiveness as a continuum, passiveness is at one end of a spectrum and proactiveness is at the other. Passiveness can be defined as indifference or incapacity to assess opportunities or act as a leader on a market.

Some authors have tried to complement Miller's approach, by suggesting that other conditions, such as competitive aggressiveness and autonomy of action, may also constitute key dimensions of entrepreneurial orientation.

Let us discuss these two notions and see whether we need to aggregate them to the original three dimensions.

The rationale for enrolling competitive aggressiveness as a supplementary dimension of entrepreneurial orientation is that new businesses and above all new firms suffer from the "liability of newness." Under these circumstances they will have to build legitimacy step by step and increase their power in their relations with all their stakeholders (customers, suppliers). Competitive aggressiveness refers consequently to the propensity of firms to directly challenge their competitors to gain access to markets and improve their competitive positioning through launching processes of new businesses (Lumpkin and Dess, 1996). There are many forms of competitive aggressiveness and they can be supported by unconventional approaches. Porter (1985), for instance, distinguishes between three different ways: doing things differently thanks to reconfiguration; changing the context through product and distribution channels redefinition and invest more than the industry leader.

Autonomy is the second new dimension that could be added to enrich the EO construct. It has to do with the independence of action of an individual or a team in the development of an idea or a vision and in their implementation. Even though autonomy is never of an absolute nature, in any case the individual or the team involved in an entrepreneurial process must benefit from some operational and strategic leeway. Such a space for tolerance allows for a greater freedom regarding the organizational constraints able to choke off any individual or collective initiative. Autonomy is of course a very relative notion which depends ultimately on the organization size, the management style, the level of centralisation and delegation, and the modes and rules of governance. As such, the autonomy of action can be encouraged and developed through organisational or structural changes aiming at suppressing hierarchical layers ("delayering") or at granting a certain amount of authority to the business unit level (Pinchot, 1985). The literature devoted to the champions (e.g. Dougherty and Hardy, 1996; Howell, Shea and Higgins, 2005) brings more information on this topic: champions are individuals that have to deal with organizational rules and corporate culture that are not always encouraging entrepreneurial behaviour. Studies show that these people can create the conditions of their own autonomy through rule-bending and short-circuiting procedures and budgets (Shane, 1994).

As far as this paper is concerned, we have retained the following criteria to analyse L'Oreal's entrepreneurial orientation: innovativeness, risk-taking, autonomy of action and proactiveness. For its inventors, the notion of competitive aggressiveness seems very close to that of proactiveness in that they both concern behaviours based on opportunity recognition and implementation. Moreover, behaving entrepreneurially within a company hardly appears to be possible without a minimum of autonomy and independence. Finally, for such practises, it also seems essential that people should be freed from some organisational constraints.

Let us see now how relevant the EO construct is when applied to the L'Oreal case.

Innovation at the Heart of L'Oreal's Strategy

Thorough knowledge of its different types of customers as well as close collaboration between Marketing and R&D enables L'Oreal to develop products that are perfectly adapted to customers' existing and latent needs. An intimate understanding of its customers has always been at the heart of Francois Dalle's preoccupations: "Discovering as yet unsatisfied needs and identifying new ones, constantly opening markets to new consumers, inquiring about their opinion of our products, these were my constant preoccupations." (9)

L'Oreal has multiplied product launches, many of them radical innovations, which have become leaders on their markets owing to their superiority over the existing products (for instance, Elnett hair spray in hair styling products, Preference hair colours, Plenitude skin care line). However, everyone at L'Oreal is aware that real breakthroughs are a rare event, so everyone endeavours day after day to improve existing innovations that consumers appreciate.

L'Oreal's innovation policy focuses on incremental innovations (versus radical ones), which consists in constantly refining and modernising their cosmetic product ranges. Their environment is highly competitive, and this type of innovation relies heavily on the sustained efforts of R&D. In 2005, the company invested 496 million euros in R&D, which represents around 3.4% of their consolidated turnover. According to a 2006 study conducted by the British Department for Business, Enterprise & Regulatory Reform (the former DTI), L'Oreal ranks first in the cosmetics and beauty industry as a world leader in R&D investment. The systematic global deployment of the innovations through the various distribution channels, signatures and countries covers the costs of R&D and enables the firm to cover the markets with sufficient reactivity to hinder and limit the penetration of competitor's products.

For its research and development, L'Oreal works with laboratories all over the world, and encourages ongoing contacts between the best researchers in its various research fields.

However, innovation at L'Oreal does not only concern the improvement of products. As shown by the last 40 years of its history, L'Oreal has innovated by taking position on unfamiliar markets, most of the time abroad. The company has also innovated both socially and commercially (10) in its recruitment policy in particular, and by going against the common trend of large companies' practices. These innovative practices, much more than the ones previously mentioned, imply risks; this is the subject of our following section.

Risk-taking: A Corollary of Innovation

L'Oreal has taken risks with its constant exploration of new markets and its high growth strategy during the second half of the 20th century. We can take the example of body deodorants, a market which, in France, was almost exclusively controlled by the brand Odorono (a brand name that conjured up more often than not images of a medicine designed to fight off body odour). L'Oreal launched its brand, "Printil," added deodorants to its main cosmetic ranges, such as Biotherm, Mennen, Vichy and especially Obao, and finally to its perfume ranges. Printil's launch was followed, two years later, by the launch of Narta, which was very successful. The lesson L'Oreal learnt from the French market of deodorants was that it is necessary to see beyond the realities of the moment and to be willing to take risks. Francois Dalle summarises this approach as follows: "We can say that, at L'Oreal, we are 'market openers', because we believe that you can only find on a market what you have put there. It is never easy because in doing this you often face the resistance of numerous people within the company. Some of them are obsessed with analysing the existing environment, are incapable of detecting possible openings, and may even deny their existence. Others shy away from risk: the administrative frame of mind takes over from the entrepreneurial spirit. My role, as head of L'Oreal, was to overcome this resistance." (11)

The culture of risk still prevails at L'Oreal, although in a different form. We would like to highlight two illustrations of the entrepreneurial spirit specific to L'Oreal. The first one relates to their innovative behaviour concerning relationships with suppliers, and the second concerns the management of human resources.

At L'Oreal the motto is "think global, act local." In contrast with most large companies, L'Oreal's structure is similar to a federation of SMEs (subsidiaries, business units) that deal on equal terms with very small to medium-sized suppliers, although there is no specific strategy or rule within the company that aims to encourage such behaviour. Although purchases of industrial supplies are centralised, marketing supplies are entirely decentralised. Each business unit or subsidiary is responsible for its own purchasing policy. This may be explained by the fact that there is a general distrust of large systems within the company. Large systems have, of course, their advantages, such as those linked to volume, but they may also become hard to manage and incur a loss of flexibility and reactivity for the company. L'Oreal is taking a commercial risk by having a vast number of very small to medium-sized companies as suppliers. These companies are selected according to quality, price and reactivity criteria, and when new suppliers 'join the club', L'Oreal works at building a long-term win/win relationship with them.

As far as the management of human resources is concerned, L'Oreal seems atypical in many ways. First of all, L'Oreal does not recruit its future staff among a certain category of graduates but instead opts for diversity. The selective criteria show a marked preference for recruiting people with sensitivity, intuition and imagination, a taste for autonomy, and a confirmed potential for completing development projects successfully: in short, would-be entrepreneurs. At L'Oreal, the management considers that these qualities can only be expressed through action, which explains why the company endeavours to entrust its young executives with projects that are likely to be sanctioned by the market. It is therefore in the field that they gain recognition. Francois Dalle has always considered that the recruitment of entrepreneurial profiles was a priority for L'Oreal: "Its growth resulted from the work of entrepreneurs, in the real sense of the word, entrepreneurs to whom I would like to pay a particular tribute." (12)

Diversity in recruitment is strategic for L'Oreal. It concerns not only academic backgrounds, but also nationalities. For example, in the UK division of L'Oreal alone, 37 different nationalities are represented. This preoccupation is so important that a position of Director of International Recruitment and Diversity was created in June 2006. The importance given to human resources is illustrated in this statement by Francois Dalle: "Our executive recruitment and training policy is entirely based on our commitment to a better integration of the realities of life. I have always strived to maintain a camp spirit, the spirit of the road, of the workshop, rather than that of offices and headquarters. I think this is particularly important for two reasons. First, progress originates in places where things are consumed, in factories, shops, and homes rather than offices. Secondly, it is in these same places that solidarities are born." (13)

At L'Oreal careers advance through successive promotions and the happy few will need to have demonstrated in their previous positions a real capacity to "show constant energy and manage an activity autonomously."

When human resources management gives so much importance to entrepreneurial talent, it comes as no surprise that at some point, after being trained within the company, some staff should decide to set up their own businesses. (14) This risk--of seeing the best ones go--is accepted by L'Oreal which constantly reorganises itself to limit the number of departures. These frequent organisational adaptations aim to reduce and counter-balance the effects of bureaucracy and to give the staff more room for manoeuvre as well as new areas of responsibility.

The Autonomy of Action: A Key Dimension of Entrepreneurial Behaviour

L'Oreal operates as a federation of small autonomous units that behave as so many SMEs. As far as organisation is concerned, L'Oreal has found inspiration in Japanese initiatives, in particular that of Ohno (the father of Toyotism). The company proclaims explicitly its choice with the concept of the 500 SMEs: "L'Oreal is no aircraft-carrier, it is a fleet of small ships."

The company has a matrix organisation with four main operational divisions: mass market, luxury products, salon professional products and products sold in pharmacies. There is an international division manager for each division, as well as regional managers. The management of this matrix organisation is highly successful owing to the great mobility, both horizontal and vertical, of its executive staff. All the staff experience all the positions. The fact that everyone changes positions regularly helps people to know one another better as well as to gain a better understanding of all the different job positions. This leads to better respect for others and what they do.

Managers of subsidiaries are like managers of SMEs. They are responsible for what happens on their territory, for the development of their subsidiary's brands, for customer relations, the quality of their management, and, finally, they are accountable to their shareholder. The company endeavours to give all the staff a strong sense of responsibility, from an early stage. Each individual must feel free to develop a project with a team. Those in charge of product development and marketing, brand management, team management, etc. are young business managers in their thirties. Some subsidiary managers are no older than 35. In L'Oreal's corporate culture, any individual can one day manage a business. This culture is close to that which the great war leaders have always applied to the battlefield. To stay within French history, Napoleon's soldiers knew that they all had a 'marshal's baton' in their bags, which must have greatly contributed to the troops' morale. On the other hand, marshals had to keep in mind that they had served at the front before learning how to read maps. At L'Oreal, the person who manages a business unit or a subsidiary is an entrepreneur, a 'gang leader' in charge of a human community. They enjoy great autonomy, of their own admission: "I have spent numerous years abroad as a business (or subsidiary) manager, and quite frankly, I am under the impression that I never once received orders. My objective simply consisted in convincing my hierarchy. I have never suffered the weight of the organisation." (15)

Although business managers enjoy a certain amount of autonomy, they act within a framework. Indeed, they cannot invent on their own the products that will be put on the market, and must accept that the group provides them with the necessary means.

L'Oreal's management system relies greatly on this principle of autonomy. As far as the management of human resources is concerned, there are systematic appraisal interviews that promote an entrepreneur/shareholder-type relationship. And as far as the wage policy is concerned, wages are systematically higher than those of competitors, and this system is complemented by an original profit-sharing system. In this system, the staff of a subsidiary or business unit get a share of the profits of the entity they work for. Executives and managers also enjoy variable wages according to their individual performance. Furthermore, L'Oreal was one of the first French companies to set up stock options in the 1970s.

This wage policy derives from a view to sharing past successes and implies a gamble on the development of the turnover of the company, and therefore its progression on the market. This is another typically entrepreneurial approach.

Proactiveness: How to Seize Each and Every Growth Opportunity

Since its creation, L'Oreal has always put a lot of emphasis on the growth of business and turnover. Although in the 1960s and at the beginning of the 1970s L'Oreal mainly expanded through acquisitions (Vichy, Biotherm, Garnier, Lancome, Guy Laroche, Gemey, Laboratoires Roja), under the leadership of Francois Dalle, expansion mainly focused on internal growth. He summarised his position in these words: "our development capitalised essentially on L'Oreal's accumulated expertise and we only acquired businesses on condition that our know-how enabled us to develop them." (16) With the arrival of Lindsay Owen-Jones in 1988, L'Oreal progressively returned to the tradition of external expansion. This policy was a careful process, aimed at conquering specific market segments in selected countries, especially in the United States where L'Oreal first acquired Helena Rubinstein in 1988 on the luxury segment, Maybelline in 1996 (mass-market products), Soft Sheen in 1998 and Carson in 2000 (ethnic hair care segment). When necessary, the group can also rely on partnerships in order to explore new distribution channels, for example with Trois Suisses (mail order cosmetics through "Le Club des Createurs de Beaute"), and more recently, Shu Uemura. To complete its internal and external expansion and increase its profitability and available cash, L'Oreal opportunely diversified its activities by investing in pharmaceuticals, namely in acquiring Synthelabo in 1972. The group applied this diversification strategy for several years, first buying Delalande and Delagrange to reinforce Synthelabo's position at the beginning of the 1990s, and secondly by taking stakes in the media industry (Marie-Claire and Canal+). Today, however, it seems that such diversification is no longer on the agenda. Synthelabo merged with Sanofi in 1999, which forecast the probable disengagement of L'Oreal, which only owns 20% of the new group, and in 2001 the group sold its stake in Marie-Claire.

Although the group always tried to maintain its historical positions in Europe, today they represent less than half of its turnover. The United States makes up 30% of its sales, and future opportunities seem linked to the development of emerging markets in which the group set up subsidiaries in the 1990s and which represent--notably in Asia--a huge potential. The fast development of emerging countries, especially China, opens new and large virgin territories to pioneers. Thanks to its culture constantly oriented towards new markets, L'Oreal is totally committed to this approach and applies a strategy consisting in distributing all over the world a limited number of cosmetic product ranges that benefit from a high level of awareness. The group is going to apply its innovation strategy in emerging countries, and for mature markets such as Japan, it will probably have to complete its presence by means of specific acquisitions.

We can see how L'Oreal's strategic approach throughout the last 20 years reflects, on the whole, the will to focus on a limited number of products that the company has systematically spread worldwide. L'Oreal not only globalised its "made in France brands," but also developed international brands of various origins (Maybelline, Helena Rubinstein). This cultural diversity is both a lever of growth and risk-reduction.

Conclusion

The life of a company is a constant cycle: it must explore then exploit, then explore again and exploit, etc. Some companies focus on one or the other in turn. Some of them lose their drive because they think they have found the recipe for success, or become bureaucratised against their better judgment, simply following a natural trend. Few of them know how to maintain the pioneer spirit that was theirs, at least at the very beginning. A company's corporate culture is a subtle alchemy whose formula it is difficult to recreate, but we know that it represents a key explanation of its collective orientations and behaviours. We made the assumption and brought some evidence that in some cases, corporate culture depends greatly on the deep values of the company's founder-managers. It also seems necessary that they should have been great entrepreneurs as well as great men. Finally, it appears that time is on their side too, which enables them to fully realise their visions. Although all these conditions were met in the case of Francois Dalle and L'Oreal, we fully understand how rare and unique their parallel destiny is. They cannot therefore represent universal models, but could represent possible sources of inspiration at a time when man is more and more pushed for time.

This brief case analysis shows also a promising track for further research regarding the relative impact of culture upon entrepreneurial orientation: one can see through the L'Oreal example that the French national culture, which does not encourage entrepreneurship as a valuable professional path, did not prevent the company developing a real entrepreneurial spirit. It seems as if, at least in this case, the corporate culture directly derived from the founder's values managed to resist the national cultural context and thrive in a sustainable way. Further studies could be handled to explore more precisely the various ways different levels of culture (national, industrial, corporate) can interact or counterbalance each other and can eventually influence entrepreneurial orientation at a firm level.

Contact Information

For further information on this article, contact:

Alain Fayolle: [e-mail]

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(1.) Francois Dalle died on August 9, 2005, aged 87.

(2.) Francois Dalle, L'aventure L'Oreal (Paris: Odile Jacob Editions, 2001).

(3.) Ibid., 102.

(4.) Ibid., 298.

(5.) Francois Rachline, "Francois Dalle," Le Monde, August 13, 2005.

(6.) Dalle, L'aventure L'Oreal, 84.

(7.) Dalle, L'aventure L'Oreal, 268.

(8.) Ibid., 381.

(9.) Dalle, L'aventure L'Oreal, 259.

(10.) An interesting example of innovative social practices widely represented at L'Oreal is the "rapport d'etonnement" (which literally means "astonishment report"). Every executive is required to report on anything they have seen, heard, or understood in a scientific, commercial or professional event or during a meeting with a customer or commercial partner. They are also asked to put particular emphasis on what has surprised and even unsettled them, rather than simply reporting on the facts or their interpretation of the facts in a conventional manner. We believe that this practice challenges the relation people have with their environment and develops observation, listening and curiosity skills; Francois Dalle initiated this practice at L'Oreal. See Francois Dalle (1990), "L'obsession de la qualite," Humanisme & Entreprise 183: 1-14.

(11.) Dalle, L'aventure L'Oreal, 278.

(12.) Dalle, L'aventure L'Oreal, 238.

(13.) Ibid., 258.

(14.) To give but two examples of well-known figures in France: Marc Ladreit de Lacharriere who set up Fimalac, a business-to-business services specialist, built around three core businesses: ratings with Fitch, the world's third largest rating agency, hand tools with Facom, the European leader in this area and chemicals storage with LBC, world's number 2. The second example is Geoffroy Roux de Bezieux who founded The Phone House, Europe's number one mobile phone retailer.

(15.) Manager interview.

(16.) Dalle, L'aventure L'Oreal, 383.

Alain Fayolle, Professor EM Lyon, CERAG (Universite Pierre Mendes France of Grenoble)/Visiting Professor, Solvay Business School, Brussels

Olivier Basso, Singleton Institute, Brussels

Thomas Legrain, President TL Conseil, Paris