Case study: Lessons learned

Coty’s approach to creating value through technology

Coty is a world leader in beauty and home to a number of iconic brands in cosmetics, skincare and fragrances. Coty has a clear mission: to make over the beauty world by encouraging authenticity and celebrating diversity. Coty has two main divisions – Coty Prestige and Coty Consumer. The company has gone through major changes in the last couple of years, and has put consumer needs and sustainability at the heart of their innovation.

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Coty’s approach to creating value

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At a time when conventional retail business models were already under threat, the pandemic heavily impacted the beauty industry and required a different perspective on its whole go-to-market approach. The past few months have seen a record surge in deal activity in consumer markets - three times pre-pandemic levels. Companies have been turning to M&A for value preservation and creation – looking to deals to help build the capabilities they need to accelerate digital transformation and build resilience and agility.

Intelligent use of technology has long been seen as essential to maintaining a competitive edge, and this approach has gained a new urgency in the retail sector. For established companies such as Coty, one of the world’s largest beauty companies, the challenge is to maximise the value creation potential of technology throughout the business, while managing the challenges and opportunities brought by the complex divestiture of the Wella business.

Technology as a strong business enabler

Technology is at the heart of value creation at Coty, helping it understand the business, focus on customers, develop new products at pace, target advertising effectively, and operate more productively and efficiently. It has made effective use of high-profile, innovative technology, notably its augmented reality-enabled ‘Magic Mirrors’, which allow customers to virtually try on products, but the real value of technology is largely unseen, driving efficiency throughout the business. “We are a beauty company, not a tech company,” says Jerome Auvinet, Coty’s Chief Information Officer. “But tech is everywhere. It is a route to spending less and spending better, allowing us to free up investment to work on compelling and innovative products .”

“CIOs are seeing IT budgets trending upwards, with a greater share of IT spend being dedicated to innovation related tech - including emerging technologies, cyber security, modernising processes and remote workers.”

Grainne Marry, Partner, Value Creation and Technology in Deals, PwC UK

Creating a dynamic business environment

Auvinet sees the role of a CIO as making sure the tech ecosystem is in place – the structure, tools and equipment, security and privacy protocols, data lakes and so on – to create a dynamic business environment.

The benefits of this approach were seen clearly in the first months of the pandemic, when Coty was also in the midst of finalising the divestment of 60% of its Professional Beauty and Retail Hair business to the investment firm KKR as part of its wider strategy to focus on its core business.

Coty was able to pivot at speed when its business model – which was heavily reliant on supplying hair and beauty salon businesses and face-to-face sales – were put under pressure by pandemic restrictions. The company was able to switch to a new digital business and operating model within days, minimising the damage to its valuation. The deal was then successfully completed in December 2020.

Coty’s transformation journey has taught important lessons about tech integration. Auvinet, for example, advocates pushing through the early design phase of a project as quickly as possible. “It’s easy to waste time thinking about what you want to do, and then have to change direction in the face of reality,” he says. “The discovery phase is important. We do a lot of testing and simulation but you will always get surprises. So, build the time pressure into the design phase and release it as you go along.”

“As businesses grapple with accelerating change along with disruptive ‘events’, a focus on their overall technology capability, resilience and agility is increasingly critical.”

Gaurav Choudhary, Director, Technology Value Creation, Data and Digital Specialist, PwC UK

Prioritising the right investments

When tech-powered opportunities are everywhere, maximising value creation is about making the right choices. “We choose our battles” says Auvinet of his approach at Coty. “We try to detect what really does create value, and what is just a gimmick.” He stresses that it’s vital to remain open to suggestions from anywhere: “Sometimes the best tech ideas come to us from third parties. Tech doesn’t belong to IT any more, good ideas can come from every function.

The decisions begin with the organisation’s strategic priorities: “We know the four or five strategic areas where tech is likely to be of most benefit, for example consumer data and B2C. Then we look at the potential benefits of better tech and solutions in each of these areas, and calibrate, so it doesn’t become an open battle for investment.”

The temptation is often to focus more investment on innovative tech for front end commercial work (exacerbated by the tendency for front end teams to have a well-prepared business case for investment) but the reality, says Auvinet, is that a modest percentage allocation to new technology is enough. “If you allocate 20% or 30% of your tech budget to new, advanced commercial work, that’s a lot of money. Back end tech is important – it’s like the foundations of your house – and it’s expensive to maintain. You will always need to replace laptops and upgrade software.

It’s counterintuitive because most people will want to invest in the new tech. The role of the CIO is to maximise the investments to contribute to the company growth

“IT operating models and cost structures are changing at pace, however it will take time to free up budget from end of life technologies and mandatory system upgrades”.

Grainne Marry, Partner, Value Creation and Technology in Deals, PwC UK

Taking care of people

Auvinet says it is inevitable in a company the size of Coty that new tech will sit beside older, legacy systems. “You can’t change everything at once so it’s not unusual to have a 10 or 15-year gap between your oldest and newest tech,” he says. This presents a people challenge, as there’s a risk of the workforce splitting along ‘old vs new’ lines. “We have a group of people who are using legacy tech – and we need them, especially those working on our ERP – and a group that are working on small scale Proofs of Concept, and a big group that have a foot in both camps. We take care of the older teams while bringing in new blood. Making everyone feel comfortable is the key. Transformation happens from both directions – the two groups are learning from each other and are slowly converging.”

Auvinet argues that IT specialists are rapidly becoming a ‘function enabler’ working ever more closely with the business, a trend that will continue as tech becomes more and more prevalent and accessible in the coming years. “We all need to work together because tech is everywhere – creating value is not about DevOps so much in a business like ours. The nature of our work is definitely evolving.” But however they operate, the ability of tech specialists to create value in the business will endure.

“Optimising the profile of IT investments has become the top priority of CIOs, requiring proactively balancing the dual demands of value preservation to value creation.”

Grainne Marry, Partner, Value Creation and Technology in Deals, PwC UK

Technology and transformation: Lessons from the frontline

Coty’s history of deals and transformation has taught it valuable lessons about the role of technology in value creation:

Keep it simple

“We try the tech out first on the simple things that eat up people's time, and which we can control – we are exploring bots, for example, as a way of performing repetitive tasks in finance and accounting. The temptation is to use automation and AI to attack the most complicated things but it’s important not to be too ambitious. It’s easy to automate simple tasks; what’s difficult is replacing the human brain.”

Create sophistication when you can

“We invest in tech and data where there is potential to create value, but that doesn’t mean you have to do everything at scale. Don’t be afraid to use the best of breed solutions for a subset of customers.”

Learn at a small scale

“We have changed our approach to developing new tech. We used to do it at scale but now we perform proofs of concept at a smaller scale. We want to be able to exit at an early stage if we need to and try again. We have failed and succeeded and that’s what we want.”

Pay attention to ESG

ESG factors have become integral to investment decisions across the deals landscape – and that means that ESG is also a consideration for the CIO. “Tech is a polluting activity,” says Auvinet. “We are working with our partners to understand where we consume resources and how we can improve, and to see where the innovative opportunities are.”

Serving two masters

“Many people try to transform very quickly and often it’s not successful. We are going to use a mix of tech for many years, from almost obsolete tech to the most advanced, which means the transition is happening slowly. Transformation happens from both directions – the two groups are learning from each other and are slowly converging.”

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Grainne Marry

Grainne Marry

Partner, Value Creation and Technology in Deals, PwC United Kingdom

Tel: +44 (0)7775 811365

Gaurav Choudhary

Gaurav Choudhary

Partner, Technology and Digital Value Creation, PwC United Kingdom

Tel: +44 (0)7730 146575