L’Oréal has been the NO.1 beauty group in the world, with promising growth rate at 10% annually global wise, and especially 40% high annual growth in the medium to high end cosmetics sectors. L’Oréal has more than 20 research and innovation centers around the world to always come up with the cutting-edge skincare formula and makeup innovations, as well as engaging new ways to be socially and sustainably accountable.
To stay top of all the competitions, L’Oréal again has long ago started the Open Innovation not just in formulas but also in all types of the innovations ranging from business models changes to disruptive new tech, such as adapting VR, AI into the world of beauty.
Internally, facing L’Oréal’s employees, L’Oréal has the annual NEXT challenge. The NEXT challenge is for each brand in the group to come up with an innovation marketing campaign regardless of any forms without any limitation. The campaign is highly encouraged to test out new or not yet development ways to market the product. The application is finally evaluated approx. 70% on the value of the creativity and 30% of final sales figure, which provides a huge incentive for the employees to really try something new without considering too much pressure of sales turnout. The top three winning brands are award $10,000 prize, and also exclusive training in Tokyo and Paris for the individuals that set them on a faster pace with the corporation. From the NEXT challenge, many innovative projects have come out and was later rolled out group wise, and also brings out the best part of each employees, they no longer just follow what the company asked them to do but would be able to take a little bit of risk to showcase their creativity.
Externally, L’Oréal has started the Open Innovation program, which established lasting connections with beauty & tech startups. Together we want to create a new generation of innovative beauty products, devices and digital services. Now it has formed strategic partnerships with three of the leading incubators global wise, Station F, Founders Factory and Partech Ventures. Most managers assume that only the company employees can make the good choices and best selection and resisted the opportunities to allow many outsiders to influence their idea generation. However, outsiders can actually bring in many different perspectives and disruptive ideas. And there is a fundamental statistical principle is that the more ideas generated, the better the quality of the best one is likely to be. The value of the best idea generally increases with the variability of the ideas received. Up till today, the three partners have already provided numerous innovations that have been rolled out company wise. L’Oréal has also started working with Stanford University on New Venture Competition, to generate best ideas to fuel this beauty giant.
Both L’Oréal’s open innovation internally and externally have reinforced L’Oréal’s leading position in the world of beauty in not only product, but digital innovation, new tech adoptions pioneers, and chased by competitors and brands from other sectors.
However, with both internal and open external innovation at the same time, the incentive system is slightly misaligned. Employees in the L’Oréal group were not fully involved at the initial ideation process of the external innovation party. Many times, employees felt they have been left behind of the fundamental innovation opportunities, and more likely to be told to adopt the new innovation rather than engage in it ahead of time. And just as mentioned before, they perceived themselves to be the beauty expertise in the market, and have accumulated their own experience, networks and resources they used to use. Since the open external innovation’s success does not directly associated with the success of the managers in the company, they felt less incentivized to roll out the new innovation and give up the existing ones.
My suggestion is that to fully incorporate both the internal and external parties throughout the innovation process, stimulate cooperation since the beginning, such as having weekly or monthly meetups of the Group’s employee with the Incubators’ project. Allow the internal party to get ahead of what the Group is going for, be aware of it, and better plan for it, and further execute it willingly and motivated.
 L’Oréal 2017 annual financial statement
 L’Oréal website
 L’Oréal open innovation program at https://www.lorealopeninnovation.com/
 Kevin J. Boudreau and Karim R, Lakhani, How to Manage Outside Innovation, MIT Sloan Management Review, p5