MMM132 Assessment 1.3 Courtney Parker PDF

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Assesment is business report on Luxxotica
management environment
specific and general
coporate social responsibility
ethics...

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218184773: Courtney Parker

Assessment 3: Business Report

Unit code: MMM132 Unit chair: Dr Wendy Webber Author: Courtney Parker 218184773 Date submitted: 28/01/2019 Word count: 3327 words (excluding reference list) Oganisation: Luxottica - http://www.luxottica.com

218184773: Courtney Parker

Executive summary This business report is analysing and evaluating the managerial environment of Luxottica Group SpA. This organisation are an international company who manufacture, distribute and sell eyewear (Luxottica 2017, p.10). This organisation are operating on a global scale, across various politico-legal environments, with a small number of major competitors and comprised of people from varying cultural backgrounds. The general environment in which Luxottica operates is heavily impacted by the politico-legal environment through taxation laws, import regulations, varying employment and contract laws between countries in which they operate. More recently, the politico-legal issue of Private Health Insurance in Australia is proving to be a contentious issue in the Eyewear industry, as Private Health Insurance membership is the leading economic driver of eyewear purchase in Australia (IbisWorld, 2018). The specific environment encompasses all the individual, groups and organisations with which Luxottica do business (Pearsons et al.2018, p.37). Discussed is the correlation of market share to profitability, and analysed is the managerial decision of an acquisition merger between Luxottica and their main global competitor, Essilor International SA. Luxottica have a broad yet stringent Code of Ethics, and a clear sustainability mission that are both non-financial. However, the importance of both of these aspects of the organisation is highlighted in their dedicated mention in both the Annual Report, and their website. With the Annual Report tradiotionally presenting only the financial-oriented results and missions of an organisation, the inclusion of these non-financial objectives emphasizes their significance to Luxottica. Explored is also my own suitability on an organisational cultural level for a role with Luxottica, and the discussion of their culture.

218184773: Courtney Parker

Table of contents Introduction........................................................................1 General Environment...........................................................1 Impact of the Politico-Legal.....................................................................2

Specific Environment...........................................................3 Impact of Competitors on Specific Environment....................................4

Ethics and Corporate Social Responsibility............................5 Analysis and Evaluation of Ethics and Corporate Social Responsibility...6

Organisational Culture.........................................................7 Personal Fit Quiz: Results........................................................................9 Cultural Suitability for Luxottica: A Personal Analysis.............................9

Conclusion...........................................................................9 References.........................................................................11

218184773: Courtney Parker

Introduction This business report analyses and discusses the managerial environment of Luxottica Group SpA. Four facets of the managerial environment are explored in the context of the 2017/18 environment as it pertained to Luxottica, and some specific examples of the impact of both of the general and specific environment on Luxottica are discussed. Luxottica are an international organisation that operate in over 150 countries and have over 85,000 employees world-wide (Luxottica 2017, p.10). They specialise in the manufacture, distribution, sales and servicing of Eyewear (Luxottica 2017, p.32). From contact lenses, to prescription glasses and designer sunglasses, Luxottica represent a huge market share in their industry (Passport, 2018). As an international organisation, not only are they more susceptible to the general environment (Guerva et al. 2016), but their specific environment is extremely diverse. The Luxottica approach to ethics and CSR has to be strong, as such a large organisation they are somewhat under the microscope from competitors, shareholders and consumers. Their strong stance in that failure to comply with their Code of Ethics is reason to terminate a contract highlights the importance of this to Luxottica. Their organisational culture would have difficult to establish, as so many different people and cultures make up a global organisation that is so diverse both geographically and in its operations. Their quality-centric organisational culture is one that speaks across a number of cultures and corporate divisions.

General Environment The world has become so economically interconnected that international events, advancements or issues can now have a serious impact on localised and/or internal operations. These external factors are referred to as the General Environment (Robbins et al. 2016, p.32).

218184773: Courtney Parker Mastering Strategic Management (2016, p.22) explains that the General Environment of an organisation is used to describe the set of factors that largely lay beyond its influence. Such factors include: political, legal, economic, technological, and sociocultural (Robbins et al. 2016, p34-36). Having a healthy understanding of the General environment allows Managers and Organisations to make decisions that will allow a company to ‘adapt to the changing world’ (Robbins et al. 2016, p. 33) and develop strategic safeguards to protect the business from situations that may have a detrimental impact on the organisation. Robbins et al. continue that failing to do this is one of the biggest mistakes a manager can make, and can result in an organisation being less likely to survive.

Impact of the Politico-Legal

While Fitzpatrick (1983) highlighted this issue some time ago, the point still remains valid in the contemporary economic world; the politico-legal environment can impact an organisation in many ways – including leading to losses if management lack an understanding of the Political Environment in which their business operates. In this way, Fitzpatrick highlighted one of the core concepts of the General Environment in that good management understand the general environment in which they operate (Noe et al. 2015). The global environment describes the ‘factors that operate across national boundaries’’ (Robbins et al. 2016, p.36). Robbins et al. (2016) continue that this includes any large change or event that originate in other countries that affect organisations either direct or indirectly. As a financially globalised company (Stulz 2005) Luxottica face additional challenges in that they operate in a number of different political/legal environments (Luxottica 2018, p.10). For each country in which they operate, there would be different laws surrounding taxation, employment, resource management etc. This is difficult to discuss on a global scale, as there as so many differentiating factors, all of which have the potential to affect an organisation. For the purpose

218184773: Courtney Parker of providing a specific example of an element of the general environment, we will focus on the Australian market for Eyewear. Luxottica holds a 21% market share for eyewear in Australia; accounting for a $2.3 Billion USD of Luxottica’s Income (Passport, 2018). The key economic driver of the Eyewear market in Australia is Private Health insurance membership, with over 60% of the industries income coming from Private Health Insurance Benefits (Richardson 2018). In this way, any reforms to Private Health Insurance legislation will be likely to affect the industry (IbisWorld, 2018). Changes to the Private Health Insurance rebate come in to effect on 1 April each year (“Private Health Insurance Rebate” 2018), with a continual decrease seen each year over the last ten years. This has resulted in a higher cost of membership for the consumers, and a number of people cancelling their cover due to affordability (State of the Health Funds Report 2017). The government late last year introduced a reform that is aimed to simplify Private Health Insurance and help address affordability concerns (Private Health Insurance Legislation Amendment Act 2018 (Cth).), but the outcomes of this legislative change will impact the general environment of Luxottica in Australia.

Specific Environment The Specific Environment of an organisation is comprised of the people, organisations and groups with which they conduct business (Campling, Poole & Wilsner 2006, p.36). As Pearsons et al. (2018, p.37) explained, ‘For most organisations the specific environment includes customers, suppliers, competitors, industry regulators and government agencies, employees and labour markets, interest groups and strategic partners’. As a financially globalised organisation (Stulz 2005), the Specific Environment of Luxottica is very diverse, as for an organisation operating in over 150 Countries with over 85,000 employees (Luxottica 2017, p.10) there are a huge number of individuals, groups and organisations with which they conduct business.

218184773: Courtney Parker As a company with diverse market offering, their customer base is equally diverse. Manufacturing, distributing and retailing globally and offering everything from designer sunglasses to budget contact lenses (Luxottica 2017, p. 29) their customer base is as diverse as the collective knowledge and experience of their staff. One of Luxottica’s competitive advantages is their unique structure that consists of a vertical integration model. This unique approach allows ‘direct oversight of the entire production platform … [making] it possible to verify the quality of both products and processes, introduce innovations, identify synergies and new operating methods and optimize service, quality and costs.’ (Luxottica 2017, p.19)

ensuring that from an organisational level they are able to maintain control of the entire value chain from production to service delivery/sales. This model means that they deal with a variety of individuals, groups and organisations that they would not interact with if they only operated in sales, manufacturing or distribution; rather than all three. One of the key components in Luxottica’s Specific Environment is their competitors. Schermerhorn et al. (2017, p.151) defined competitors as ‘the individuals and organisations with whom it competes for resources’. Though, as Robbins et al. (2016, p.38) explains, the term ‘competitors’ is more commonly used to describe other organisations competing for the same customer base by ways of similar product offering. Data from Passport (2018) shows Essilor International SA as being Luxottica’s largest competitor in the Eyewear industry; with their annual gross profit for 2017 being $8.55 Billion USD (“Essilor: Key figures 2017 Annual Report” 2019) compared to Luxottica who experienced $5.88 Billion USD (Luxottica 2017, p.15).

Impact of Competitors on Specific Environment As Robbins et al. (2016, p.38) highlights, competitors are organisations which compete with your own for their customer base. In this way, an organisations success is negatively correlated to that of its competitors (Armstrong & Green 2007) meaning that if a competitor experiences a large increase in profits, your organisation will experience an equal decrease – as you are competing in the

218184773: Courtney Parker same market (excluding any additional fluctuations or changes to market). In the same way, if a competitor experiences growth in market share, another organisation, or organisations, will experience a decrease. While a relatively old article, Gale (1972) highlighted the relationship between market share and profitability; a relationship reaffirmed by a number of more recent works including that of Kumar, Anand & Song (2017). The aim of most major organisations is to establish dominance in their market through holding the majority of a market share (Prescott, Kohli & Venkatraman, 1986). Analysing data for the eyewear industry uncovers that since 2009, Essilor International SA has surpassed Luxottica as the market leader in the Eyewear industry based on value share (Euromonitor 2016). In 2017, Essilor held 13.8% market share, while Luxottica held 10.3% - the next closest competitor, Johnson & Johnson Inc held only 3.7% (Passport 2018). With such a clear market share, and close competition, Luxottica made the step to undergo a merger/acquisition of Essilor International SA (Luxottica 2017, p.6). A merger/acquisition is an organisational tactic often utilised by large companies with a small number of other close competitors, in order to gain a large percentage of the market share (Karier 2015 p.78). Extrapolating the data from each organisations performance in 2017, it can be inferred that, without any additional growth of either company, Luxottica-Essilor would command a market share of 24.1%; almost a quarter of the global market. Moazed & Johnson (2016, p. 147) suggested that in order for an organisation to have an industry monopoly, they must hold: the highest market share, combined with either over a 50% market share OR a market share greater than 20%, combined with the next closest competitor holding less than 0.25 times their market share.

Following this rule, Luxottica would now have a global monopoly of the eyewear industry.

Ethics and Corporate Social Responsibility

218184773: Courtney Parker While Robbins et al. (2016) defines Corporate Social Responsibility (CSR), also referred to as ‘social responsibility’, as ‘an organisation’s intentions to go beyond its legal and economic obligations to act in ways that are good for society’. Carroll & Shabana (2010) go a little further to define four components of CSR; ‘The social responsibility of business encompasses the economic, legal, ethical, and discretionary [later referred to as philanthropic] expectations that society has of organizations at a given point in time.’

This definition touches more on societies expectations of an organisation. Robbins et al. (2016, p.53) explain that there are a number of arguments both for an against the concept of businesses establishing Corporate Social Responsibility. Arguments for corporate social responsibility include; -

Improved public perception

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Improvement to long term profits

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Balance of responsibility and power

While arguments against CSR include more short term financially-oriented arguments such as; -

Cost

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Violation of profit maximisation

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Dilution of purpose

Moore & Kinley (2017, p.211) suggest that an outlet for an organisations Corporate Social Responsibility approach is through their Code of Conduct. In this way an organisation are able to clearly outline a code of acceptable behaviours and attitudes (Doh, Husted & Yang 2016). Robbins et al. (2016, p. 56) outlines that there are a number of factors that affect an individual (or organisations) ethics. Werhane, Freeman & Dmytriyev (2017, p. 152) highlight the importance of corporate responsibility or “ethics” for businesses, a theme continued by Soltani 7 Maupetit (2013) who builded upon this concept and added that ‘integrity, accountability and transparency’ are the three building blocks of corporate ethics.

218184773: Courtney Parker Robbins et al. (2016, p.63) highlight that an effective way of achieving these three fundamental components of Corporate Ethics is by a business establishing a ‘code of ethics’

Analysis and Evaluation of Ethics and Corporate Social Responsibility The Luxottica Annual Report (2017, p.96) highlights the presence of a Code of Ethics utilised across the organisation; all three modes (manufacture, distribution and service/sales), all companies and even extending this accountability to its contractors. The Annual Report explains that: ‘The Code of Ethics, originally approved by the Board of Directors in 2004, has been updated over the years and its new version was approved by the Group Board of Directors, the principal guarantor of the Code, on January 29, 2016.’ (Luxottica

2017, p.96) This code of ethics was built upon in 2017 when Luxottica launched their ‘be transparent and keep it transparent’ compliance program, which outlined a list of behaviours and rules for conduct by the organisation and their partners, suppliers etc. (Luxxotica 2017, p.100). The implementation of this compliance program saw mandatory training for all of their staff. Luxottica’s dedication to ethical behaviour is apparent in the fact that failure to adhere to this set of guidelines and/or the company Code of Ethics is grounds upon which a supplier’s contract can be terminated (Luxottica 2017, p.103). Their Code of Ethics and Code of Conduct work together to embody the organisations approach to both Corporate Ethics/ Responsibility and their Corporate Social Responsibility. Luxottica’s Code of Conduct, as their Code of Ethics, extends to their staff, partners and suppliers (Luxottica 2017, p. 132). These Codes can be found on the website and are freely available to the public, creating a sense of accountability. Luxottica have a dedicated mission statement to sustainability (self-described non-financial mission), which comes under the CSR banner (Robbins et al. 2016, p. 52). Their sustainability mission is highlighted and measured in their Annual

218184773: Courtney Parker Report, and also in a dedicated section of their website that expands on the mission, explaining: ‘It stems from a notion of universal beauty that comes to life at the intersection of personal well-being, respect for the environment, ethics and the transparency of relations.’ (“Our mission: to see the beauty of life” 2019)

This explanation and inclusion in an Annual Report, a document traditionally used to highlight financial gains and losses, highlight the importance of this mission to Luxottica.

Organisational Culture Organisational Culture was described by Robbins et al. (2016, p.42) as ‘shared values, principles, traditions and ways of doing things that influence how organisational members act’. While an organisations code of conduct may serve as the foundation for their culture, their behavioural expectations and/ or company values may further influence this ‘culture’ (Anitha & Bagum 2016). Chatman & Jehn (1994) highlighted the dimensions of organisational culture as; 

Innovation and risk-taking



Attention to detail



Outcome orientation

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People orientation

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Team orientation



Aggressiveness



Stability

This is a theme explained and expanded on by Robbins et al. (2016, p.42) as individual behaviour that can be reflected in a team and, by extension, an organisational environment. Employees learn this ‘culture’ once becoming a part of an organisation (Ramdhani, Ramdhani & Ainissyifa 2017), and learning this culture is an integral component to their retention (Hussein et al. 2016). Employees learn

218184773: Courtney Parker organisational culture in one (or a combination of) 4 ways; ‘stories, rituals, material symbols and language’ (Robbins et al. 2016, p.42). This learnt behaviour effects an individual, and by extension their team and then organisation, in their approach to planning, organising, leading and controlling (Robbins et al. 2016, p.44). Luxottica place a strong importance on “quality”, which appears to be a resounding theme throughout their mission statements, publications and even their market offering. Their website hails them as having a ‘global culture of quality’ – a value which can be translated acros...