Reference no: EM132184790

Fundementals of Management

Case Application 2: Making Over Avon

Have you heard of Avon products? Have you purchased Avon products? We’re guessing that you’ve likely heard of Avon, but not as likely to have purchased any Avon products, especially if you’re young and you live in North America

As the world’s top direct seller of cosmetics and beauty related items, Avon Products has built a global brand and a portfolio of products that are marketed primarily through direct selling. Despite being based in the United States, the company’s North American revenues have continued to decline. Currently, 86 percent of Avon’s sales come from other global regions. The company’s CEO is looking at what organizational changes need to be made to address the performance problems.

Avon, founded in 1886 (yes, you read that right!), has been quite successful, up until the last five years. It was a company that got its start by recruiting women as door-to-door sellers of perfume and branching out from there. Today, there are some 6 million active sales representatives in 60 countries or territories around the world. Brazil is the company’s biggest market. However, as the industry has changed, as competitors have become more aggressive, and as technology has drastically changed the sales model, Avon has been struggling. One sticky problem the company dealt with was an expensive bribery probe centered on the company’s Chinese operations. The company voluntarily reported itself in 2008 to the Securities and Exchange Commission and the U.S. Justice Department. It took some six years for Avon to finally resolve the investigation into payments and gifts provided to government officials in China, and in late 2014 Avon agreed to pay $135 million in fines and civil penalties related to violating the Foreign Corrupt Practices Act. Another problem concerned the global rollout of a sophisticated order management system that had been in the works since 2009. Avon had initiated a massive software upgrade that would make tracking orders and compensation easier for its reps. However, the program was scrapped in 2013 after a trial rollout in Canada. A filing with the SEC said that the pilot program caused “a significant business disruption in that market, and did not show a clear return on investment.” The issue: the technology worked, but it was so hard for Avon’s salespeople to use that many reps left the company. Although Avon finally completed the first major overhaul of its Web site in 10 years, it now finds itself competing against more nimble e-commerce competitors such as Birchbox, Cult Beauty, Bliss, Doobop, and even Chanel and Clinique. On top of struggling to compete in online sales and lacking a cohesive social media strategy, Avon is being pummeled by other industry giants including L’Oreal, Unilever, and Coty, all of whom have increased their efforts to hold on to market share domestically and have made new forays into profitable developing markets where Avon has long had its strongest sales.

Changing an organization involves looking at external market conditions as well as the internal aspects. Avon’s CEO, Sherilyn McCoy, who was brought on board from Johnson & Johnson in 2012, has been struggling to find the keys to a successful turnaround. Her attempts to shape up things at Avon have revolved around overhauling the company’s top management through firings, hirings, and reassignments; addressing declining sales, especially in the North American market through expanding the range of products sold (think colourful vegetable peelers) and getting more sales representatives into the system quickly; and trying to pinpoint who and what Avon wants to be.

The world has changed. Now Avon has to try to find the right combination of people, products, and technology to once again prosper.

Questions Are:

What external forces for change do you see described in this case? Would you describe Avon’s environment as more “calm waters” or “white-water rapids?” Explain.

Why would it be important for the CEO to look at those external forces when planning organizational change?

Why might it be difficult to change a company that’s over 130 years old?

Avon is truly a global company. How might this affect the CEO’s efforts to implement organizational change?