The global beauty sector, led by mature companies like L’Oréal, Estee Lauder, Shiseido and LVMH, is not usually top of mind when it comes to innovation. However, changing industry dynamics have placed traditional beauty companies at the forefront of new approaches to product development and the retail consumer experience.
The beauty sector grew 4-5% in 2017 and is forecasted to continue at a similar pace over the coming 3-5 years .
Unlike other categories of retail where growth in online sales has come at the expense of brick & mortar (B&M) sales, the beauty sector has grown in both online and offline channels .
Underlying overall industry growth is increasing demand for natural, organic and “clean” beauty products, increasing demand for personalized products and the rapid growth of niche, indie, and social-media savvy brands. Against this backdrop, major beauty companies are innovating to stay at the forefront of new product development and the beauty consumer experience. For L’Oréal, the largest beauty company in the world, with 35+ brands across makeup, skincare, haircare and fragrance, this has required embracing the principle of open innovation to become an accelerator for indie beauty brands, beauty tech and digital marketing startups.
Unlike traditional open innovation methods like public challenges and public voting on community generated ideas, L’Oréal’s approach to open innovation is to (1) identify early stage companies creating innovative beauty products and improving the beauty customer experience via partnerships with start-up incubators Station F and Founders Factory and VC firm Partech Ventures, and (2) work with those companies for 6 to 12 months to co-create beauty sector innovation. L’Oréal offers companies mentorship and access to L’Oréal’s R&D resources and distribution channels, with the goal of building proof of concepts, testing and scaling their ideas within L’Oréal brands [3, 4]. L’Oréal, in turn, gains insight into innovative approaches to the most pressing challenges in beauty and a pipeline of potential acquisition candidates and partners. With the company’s focus on the intersection of beauty and tech, many of companies that have gone through L’Oréal’s accelerator so far fall quite far outside the company’s traditional makeup and skincare product innovation domain. They include Sampler, a marketing tech solution for targeted direct to consumer product sampling, Tailify, an influencer management platform, Riviter, a visual search solution, and Preemadonna, a custom nail art printer. As such, L’Oréal’s open innovation program is more attuned to discovering the future of beauty than iterating the present.
While L’Oréal is currently using open innovation to identify transformative solutions within a broad list of pre-determined categories like data, ecommerce, retail transformation, influencer tools, personalization and AI / AR / VR, it can and should also leverage open innovation to tackle more granular day-to-day problems by issuing specific public challenges. Consumer goods peers Unilever and Johnson & Johnson frequently issue detailed public challenges and invite technical solution proposals from suppliers, start-ups, academics, designers, and individual inventors via pitching competitions [5, 6]. The challenges describe a specific problem faced by the company (for example, a need for novel freezing and cooling technologies), main requirements for a solution and the desired outcomes. L’Oréal could similarly leverage open innovation to solve similar granular business problems more creatively and efficiently by opening those problems up to the public.
L’Oréal should also try to engage its consumers in open innovation efforts, instead of just other companies. Management experts have argued users are more likely to generate novel product ideas because they experience novel needs when using the products, while manufacturers are likely to generate incremental innovations because they are focused on the challenges of mass production . Pulling consumers into the idea generation and idea selection portions of the innovation funnel could yield significant benefits to L’Oréal and an edge over competitors more focused on internal R&D and B2B open innovation.
As L’Oréal and other beauty companies continue to incorporate open innovation into product development and their vision for the future of beauty, many open questions loom:
Do beauty companies risk losing their competitive edge by opening R&D, the highly guarded crown jewel of many beauty companies, to the public domain?
What areas of a company’s operations, if any, are not amenable to open innovation? Are certain processes better suited to traditional internal innovation processes?
How will open innovation change the beauty business model? What is a beauty consumer goods company’s core strength when idea generation and potentially even idea selection are crowdsourced? Could innovation management, manufacturing, distribution, sales or marketing usurp technological innovation via internal R&D as a beauty company’s core strength? (756 words)
 L’oreal 2017 Annual Report, “Cosmetics Market”, https://www.loreal-finance.com/en/annual-report-2017/cosmetics-market, accessed November 2018.
 Nicolaou, Anna and Keane, Aimee. “Retail: Is the beauty industry ‘Amazon-proof’?” Financial Times, May 7, 2018, https://www.ft.com/content/acfe1924-4de9-11e8-8a8e-22951a2d8493, accessed November 2018.
 L’Oréal’s Partnership with Station F, https://www.loreal.com/group/startups/stationf, accessed November 2018.
 L’Oréal’s Partnership with Founders Factory, https://www.loreal.com/group/startups/founders-factory, accessed November 2018.
 Unilever, “Open Innovation,” https://www.unilever.com/about/innovation/open-innovation/, accessed November 2018.
 Johnson & Johnson Innovation, “Challenges,” https://www.jnjinnovation.com/challenges, accessed November 2018
 K. Lakhani and J. Panetta. The principles of distributed innovation. Innovations: Technology, Governance, Globalization 2, no. 3 (Summer 2007): 97–112.