final presentation luxottica group

PROJECT WORK: LUXOTTICA’S MANAGEMENT DASHBOARD

Professor: Emanuele LettieriTutor: Antonio Conte

INDEX

• COMPANY PROFILE• GLOBAL COMPETITIVENESS AND EXTERNAL ANALYSIS• MISSION AND STRATEGY• CRITICAL SUCCESS FACTORS• STRATEGY MAP• FINANCIAL PERSPECTIVE• CUSTOMER PERSPECTIVE• INTERNAL PROCESSES PERSPECTIVE• LEARNING AND GROWTH PERSPECTIVE• METHODOLOGY• CRITICAL ANALYSIS• CONCLUSION• REFERENCES

COMPANY PROFILE

Market leader in eyewear market (sun and prescription eyewear)Excellent design, high quality and well known brands are its characteristics.

73,400 employees

Production facilities in Italy, China, USA, and Brazil

Wholesale distribution network in 130 countries across five continents

Retail Store Chains:North America: LensCrafters and Pearle Vision Sears Optical and Target Optical

Asia-Pacific:OPSM and Laubman & Pank

South America:GMO

China:LensCrafters

Global:Sunglass Hut, ILORI, and The Optical Shop of Aspen

In total more 7000 stores

GLOBAL COMPETITIVENESS AND EXTERNAL ANALYSIS

Some authors argue that Luxottica is an undercover monopolist since it controls over 80% of the market.However the company has though competitors in North America like Walmart and CostcoIn luxury eyewear market, there are strong players such as Safilo, De Rigo, Marcolin, Silhouette.It is critical to keep and obtain the brand licenses of high-end fashion brands, which contributes to the rivalry.

Opportunities of Luxottica: acquisition of new brands and competitors, entering emerging markets, operating synergies, new technologiesIncreasing fashion content of frames and general eyesight worsening of the population are advantages for Luxottica.The company takes the advantage of scale economies that creates high entry barriers for the incumbents.Threats of Luxottica: substitute product like contact lenses and corrective surgery.

MISSION AND STRATEGY

Expansion and

GrowthAcquisitions Organically

Customer Satisfaction

Creating Value for its Employees

Vertically Integrated Business Model

Partnerships with Fashion Brands

Distribution Structure

Product Differentiation

Technological Innovation

Wholesale Network

Cost Advantage

Value Advantage

Retail Stores

CRITICAL SUCCESS FACTORS

Vertically Integrated Business Model: • Provides both cost and value advantages • More efficient, flexible and faster in product design, manufacturing and logistics• High quality

Distribution Structure:• Serving both wholesale distribution networks and its own retails stores• One of the most extensive and effective in the optical sector

Pre- and Post-Sales Services:• Highly automated order management system that reduces delivery times and minimizes inventory

Hiring and Training Process:• Critical to employ and retain the most outstanding professionals for its strategic objectives

Welfare System: • Health care for specialist visits• Listening service for both employees and their families to improve the quality of labor and social

relations • The possibility of access to a micro-credit system of solidarity to financially support employees in

need • Free transport system

STRATEGY MAPFi

nanc

ial

Cust

omer

Inte

rnal

Lear

ning

an

d Gr

owth

Growth

Net Sales Growth Rate (+)

Profitability

ROI (+)

Effectiveness of Customer Service

Net Promoter Score (+)

Efficiency of Manufacturing

Defect Rate (-)

Efficiency of Wholesale and Retail Distribution Networks

Number of Back Orders (-)

Design and Technological Innovation

Number of Patents and Trademarks (+)

Time To Market for New Products (-)

Strategic Objective

Performance Measures

Effectiveness of the Brand Portfolio Management

Brand Equity Index (+)

Customer Satisfaction

Surveys (+)

Competences and Commitment

Average Hours of Training (+)

Reinvestment level (>0)

Product Return Rate (-)

Expansion into Emerging Markets

Number of Retail Stores in Emerging Markets (+)

Inventory Turnover (+)

Lead Time (-)Average Cost of Production (-)

Engagement Index (+)

FINANCIAL PERSPECTIVEGROWTH: Main driver of the financial performance

Net Sales Growth rate Reinvestment Level

Organizational Unit in charge

• Administration, Finance, Control and Legal• Internal Auditing


Formula

Difficulties in measuring,

monitoring and controlling

• Effects of currency fluctuation• Constant exchange rate should be used for

comparison purposes

• Goodwill should be considered because purchased businesses contributes to the growth

Target setting • Explicit target setting system• Market and local condition should be considered

• Implicit target setting system because it is not affected by the market conditions and can be determined by the company

2013 situation • 7313 million Euro • 8.16 %

Initiatives • Expansion in emerging market• Investing in new technologies• Levering new sale channels like e-commerce and

travel retail

• The same with one of net sales growth rate

FINANCIAL PERSPECTIVEPROFITABILITY: Critical to have profitable growth

Return on Investment



Formula



• Effects of currency fluctuation• Constant exchange rate should be used for

comparison purposes

Target setting • Explicit target setting system• The company is setting a value considering target

net sales growth rate

2013 situation • 18.81 %

Initiatives • For the top-line growth, the initiatives are explained in the previous slide

• For the internal efficiency, implementing enterprise resource planning software and fulfilling the vertically integrated business model

CUSTOMER PERSPECTIVEEFFECTIVENESS OF CUSTOMER SERVICE

Net Promoter Score

Organizational Unit in charge • Quality• Marketing, Style and Product

Formula

Difficulties in measuring, monitoring and controlling

• Conduct a survey• Online survey can be an option

Target setting • Implicit target setting system

2013 situation • No available data

Initiatives • Decrease the price• Increase the quality of customer relationship management• Increase brand awareness, especially among ‘passive’ customers

CUSTOMER PERSPECTIVEEFFECTIVENESS OF THE BRAND PORTFOLIO MANAGEMENT

Brand Equity Index


Formula The Moran Brand Equity Methodology:• Effective Market Share (EMS), which is the summation on the total number of segments in which

the brand operates (national markets, for instance) of the products between the brand’s market share in that segment (the ratio of the brand’s sales to the total sales in that segment) and the proportion of the brand’s sales in that segment (the ratio of the brand’s sales in that segment to the brand’s total sales);

• Relative price (RP), which is the ratio between the price of the brand’s product/service over the average price of a competing product/service;

• Durability (D), which is the measure of customer retention or loyalty, expressed by the forecast of the percentage of a brand’s customers who will continue to buy the brand’s goods in the following years.

Moran Brand Equity Index=EMS*RP*D


• In the eyewear industry, segmentation is straightforward• Sales data is easily available • Durability requires a detailed market research • This analysis can be applied to ‘Luxottica’ brand or each of its brands or other brands to consider

purchasing

Target setting • Explicit target setting system

2013 situation • No available data

Initiatives • Focusing on leading brands• Balancing proprietary and licensed brands• Avoiding brand dilution• Lengthening the average term of licensing agreements with profitable partners.

CUSTOMER PERSPECTIVECUSTOMER SATISFACTION

Surveys Product Return Rate


• Quality• Marketing, Style and Product

• Quality• Marketing, Style and Product

Formula There is no formula. The company simply has to collect data through the administration of paper or electronic surveys regarding customer satisfaction.



Companies very often submit online surveys in order to understand the customers’ needs and their feelings about products’ features. Online surveys are particularly easy to administer and the results can be monitored on a daily basis.

The company calculate this indicator from sales records.The company is also able to know the reasons behind the returns and thus to adopt measures that prevent the phenomenon from happening in the future.

Target setting There is no target to set for a survey, only the necessity to collect positive data on customer satisfaction.

Explicit target setting system

2013 situation No available data No available data

Initiatives • Improving its quality control program.To assure its quality standards worldwide and the right support for quality improvement, Luxottica has four main labs, one in Italy, one in China, one in the United States and one in Brazil. Each lab is responsible for establishing and maintaining the quality standards in the region where it is located and supports activities in engineering, production and market feedback management. All of these labs conduct the same tests using the same equipment and procedures, which are developed and approved in the central Italian lab. Every year Luxottica enhances the performance criteria used in its standard tests and introduces new requirements

• Improving its quality control program.

CUSTOMER PERSPECTIVEEXPANSION INTO EMERGING MARKETS

Number of Retail Stores in Emerging Markets


Formula Simply the numbers of stores


No difficulties

Target setting An explicit target setting system is suggested: Luxottica is able to make precise evaluations about the geographic coverage of its distribution network and come up with a detailed plan for the opening of new stores in emerging markets.

2013 situation

Initiatives • Opening new stores

INTERNAL PROCESSES PERSPECTIVEEFFICIENCY OF MANUFACTURING

Average Cost of Production Defect Rate


• Operation • Administration, Finance, Control and Legal

• Operation

Formula



• Production process and raw material used are different for different types of product, therefore production mix of a certain time period has an effect on average cost of production.

• Raw material and energy costs can also change during the year.

• The company should consider these external and internal factors that can mislead the indicator.

By recording each defected product manufactured, Luxottica can easily measure this indicator.

Target setting • Explicit target setting system • Explicit target setting system


Initiatives • Invest in production process technologies • Luxottica has specialized production facilities, which makes

each facility excellent on certain types of production processes, thus decrease the average cost.

• Luxottica is also investing in China for production to take the advantage of low labor cost.

Luxottica in particular uses a “six-sigma” approach to improve this indicator: the methodology consists in designing production systems in a way that only one out of a million parts can turn out to be defective.

EFFICIENCY OF WHOLESALE AND RETAIL DISTRIBUTION NETWORKS

INTERNAL PROCESSES PERSPECTIVE

Lead Time Number of Back Orders Inventory Turnover


• Operation • Operation • Operation

Formula the period of time between the placement of an order and the delivery of the product. In this definition, the order placement is done by storeowners or managers of the stores. Therefore this indicator is not related to final consumers.

the number of customer orders that cannot be met when presented, and for which the customer is prepared to wait for some time

Difficulties in measuring, monitoring

and controlling

Easily measured with Luxottica’s advanced order placement system

Easily measured with Luxottica’s advanced order placement system

can be found in the consolidated statements of income and financial position

Target setting • Explicit target setting system • Explicit target setting system • Implicit target setting system


Initiatives • Investing in information technologies (IT) to support its logistic system

• Automating the operations in its logistic hubs

• Investing in information technologies (IT) to support its logistic system


• Investing in information technologies (IT) to support its logistic system


LEARNING AND GROWTH PERSPECTIVEDESIGN AND TECHNOLOGICAL INNOVATION

Number of Patents and Trademarks Time To Market for New Products


• Administration, Finance, Control and Legal• Business Development • Marketing, Style & Product • Quality • Operation

• Operation • Marketing, Style & Product • Wholesale • Retail

Formula the amount of patents and trademarks held by the company the period of time from when the idea for a new product obtains general agreement and resources are committed to the project, to when the final product is available for sale.



No difficulties By carefully managing all the phases involved in the launch of a new product, the company is able to easily handle this indicator.

Target setting • Implicit target setting system • Explicit target setting system

2013 situation Currently Luxottica holds more than 600 patents worldwide. In the course of 2013, the Group added approximately 1,900 new styles to its eyewear collections

No available data

Initiatives • Investing in research and development activities• Partnership with Google for Google Glass

• Optimize all phases from design to manufacturing of products

• Decrease design mistakes• Reduce the time required by prototyping and

assembly

LEARNING AND GROWTH PERSPECTIVECOMPETENCES AND COMMITMENT

Average Hours of Training Engagement Index


• Human Resources • Human Resources

Formula the average number of hours spent in training (of all kinds) by the company’s employees

an aggregated percentage of employees who are satisfied with their working environment after the administration of an internal survey



No difficulties No difficulties

Target setting • Explicit target setting system • Explicit target setting system

2013 situation No available data

Initiatives • Investing in training and its human resources

• Offering wide range of courses (“Fabbrica delle Competenze”)

• Organizing out-of-hours events• Cultural diversification in the company• Prioritizing people’s health and safety• Effective health care syste

METHODOLOGY

In order to synthesize the strategy of Luxottica, its annual reports, official reviews, press conferences, interviews are used as reference.FINANCIAL PERSPECTIVEGrowth was tackled as a financial strategic objective, so we decided to measure it through the company’s net sales and investment efforts.Of course top-line growth is aimed at maximizing the company’s bottom-line margin, so we connected the growth objective to another crucial financial goal, profitability, which is measured through ROI. CUSTOMER PERSPECTIVELuxottica is investing much effort in achieving growth by attempting to penetrate emerging markets, levering customer satisfaction and finally improving the effectiveness of its customer service and brand portfolio management.INTERNAL PROCESSES PERSPECTIVETo decrease costs, Luxottica increases the efficiency of its manufacturing and logistic systems. To measure these two objectives, measures are selected by considering directly relation and easiness-to-measure LEARNING AND GROWTH PERSPECTIVECompetences and commitments of employees are crucial to support all the strategic objectives. Training hours and engagement index are selected to measure them. Design and technological innovation is the other critical objective for Luxottica because of its highly competitive market.

CRITICAL ANALYSIS

Difficulties related to each indicator are explained and should be taken into account by Luxottica.

while selecting the strategic goals of the company, a balance between short and long term objectives considered.

Considering eyewear market, there are numerous small player affecting the whole market and its hard find data about them because their characteristic. It this report, main competitors of Luxottica is focused in terms of analysis of competition.

When measuring the performance of brand portfolio management, the power, impact, and market coverage of each brand are critical. It is estimated by using limited data in this report so further study should be carried out.

Because of the vertically integrated business model, Luxottica has a wide range of internal activity. Therefore it is hard to cover the performances of all internal activities. Two internal processes objective that are strictly related to the strategic objectives are selected.

CONCLUSION

We believe the BSC we created for Luxottica can be deemed as both reliable, in terms of alignment with the company’s actual strategic objectives, and beneficial to the organization’s management, as it provides decision-makers with a detailed and coherent set of performance measures.

The information we used for describing the company’s direction was gathered from the documents Luxottica drafts for its external accountability (annual reports, annual reviews, etc.) and also from interviews with the press and financial analysts. Several indicators we included in the scorecard are actually being monitored by the organization, as we understood by reading those documents.

The connections among the company’s strategic objectives as they appear in the strategy map (the strong suit of a 2nd-generation BSC) have been thoroughly discussed by our group and justified through coherent explanations, therefore we believe that the company’s performance could benefit from the application of our tool: by following the stream of cause-and-effect relationships we identified, the achievement of Luxottica’s general strategy becomes both more explicit and feasible.

REFERENCES

1. Arnaboldi, A. Azzone, G. and Giorgino, M. (2014) “Performance Measurement and Management for Engineers” Elsevier.

2. Luxottica Annual Financial Report as of December 31, 2013

3. Luxottica Group conference call transcript event: 3Q 2014 resultsdate: October 29, 2014

4. Luxottica Annual Review 2013

5. http://www.luxottica.com/en/company/investors (on December 31, 2013)

6. Eyewear Market (Spectacles, Contact Lenses, Plano Sunglasses) - Global Industry Analysis, Size, Share, Growth and Forecast, 2012 – 2018, Transparency Market Research

7. Safilo Group S.p.A. Annual Financial Report 2013

8. Marcolin S.p.A. Annual Financial Report 2013

9. De Rigo S.p.A. Annual Financial Report 2013

10. Eric Coppola,“The Eyewear Market Luxottica’s Leadership, Strategy and Acquisitions” Dipartimento di Economia e Finanza Cattedra Markets and Strategies

http://www.luxottica.com/en/company/investors

final presentation luxottica group

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