To define the objectives and mission of a business organization it is very essential to realize what are its existing situations and the kind of obstacles the company has to face in its existing environment. With the help of successful organizing strategies, a business can realize its objectives and mission. Therefore, the company should have knowledge of strategic management and strategic planning. Strategic planning requires effective strategic thinking as it is an essential tool of management, which supports executives to identify the priorities and define key actions required to attain the objectives and mission of the company. Today, strategic management has been one of the fundamental subjects in the organization’s management of the vibrant environment (Athapaththu, 2016). This paper entails the concept of strategic capabilities about the IKEA Company. It will analyze the macro-environmental factors that affect the operations of the company. Besides this, appropriate framework and strategic options will be highlighted that can be adopted by IKEAS in the coming future. In the end, the paper will evaluate some issues related to ethics and corporate social responsibilities that IKEA has faced in the past five years.
IKEA is a multinational group of furniture industry with headquarter in the Netherlands. It designs and sells ready-to-assemble furniture, kitchen appliances, and home accessories, along with various other services. IKEA is the world’s leading retailer of furniture in the world since 2008. A 17-year-old carpenter in 1943, Ingvar Kamprad, who is listed as the world’s tenth richest person in 2015 by Forbes, with the worth of around $40 billion, established the company in Sweden (IKEA, 2018). The business is established in the market due to its modernist designs for numerous types of furniture, appliances, and its interior design work is frequently related to eco-friendly simplicity. In addition, the firm is famous in the market for its strategies of cost controlling, continuous product development, and operational details (Bloomberg, 2018).
IKEA is focused on creating a better life every day for numerous people. The business idea of the company supports this notion by providing a varied variety of elegant, functional home furnishing products at affordable prices such that everyone can afford it (Jurevicius, 2013).
Porter Five Force framework
Porter’s Five Forces model is a standard framework that determines the structure of the industry into five fundamental competitive forces (Roy, 2011). Porter’s five forces of IKEA are presented below:
The threat of substitute products for IKEA is low. This is because the market does not comprise numerous products that could satisfy the home appliance and furniture demand. Similarly, it could be debated that increasing online applications and services signify an indirect substitution for some type of products provided by IKEA. For instance, increasing –books popularity affecting the IKEA’s bookshelves demand at some level. There is a very low switching cost in this market for the customers, which increases the threat for the company (Dudovskiy, 2017).
The competition among existing players in the industry is intense. Most of the large supermarkets like Target, Sainsbury’s, Wall Mart, and Tesco sell few categories of furniture. Besides this, there are direct rivals for IKEA that comprises Ashley Furniture and Rooms and Argos. Moreover, numerous local small-sized furniture manufacturers raise severe rivalry to IKEA. Besides this, there are online retail giants like Alibaba, eBay, and Amazon. Within the international furniture industry, the growth rate is not considerable and this increases rivalry among the existing players (Dudovskiy, 2017).
The threat of new entrants for home appliances and furniture manufacturing industry is significant. There are minor or no regulatory hurdles within the industry. However, the new entrants will not be capable to benefit from the economies of scale at a certain level as IKEA at least at the preliminary operation stages (Pratap, 2017).
The bargaining power of the suppliers of IKEA is low because they are available in large number but their weak financial position and small size do not provide them sufficient power. IKEA can simply shift from one supplier to another while if the supplier misses the business opportunity from IKEA, it could be a very tough condition for him.
The bargaining power of buyers is insignificant for IKEA, as a huge group they possess some substantial power, which supports them in focusing towards retaining and attracting consumers (Pratap, 2017).
IKEA operates its business activities in around 41 nations. There are political forces in all the countries and influence the operations of the company. From the activities of supply chain to the activities of sales, these forces influence all of them. Stability in the political situations results in economic stability and eventually, it offers improved profits and sales (Pratap, 2017).
Economic factors perform a significant role in the environment of business. The situation of the economy of the world reflects the amount of revenue and profit company will earn. Numerous of the big brands were in poor condition at the time of recession. It was majorly due to the recession that had resulted in a decline in the purchasing power of people. Many people lost their jobs and enforced to reduce their cost of living. IKEA has successfully managed its prices of the products, which support it in handling the pressure that is created due to economic fluctuations.
Cultural and social factors have a deep influence on the company and its profit margins. Before initiating feet towards any international markets, it is essential to receive the local nuances right. It is essential to give respect to the cultural and social values on the domestic market. IKEA not always has these domestic nuances right. The business came under fire in Saudi Arabia for Photoshopping women out of its log and for eradicating a lesbian couple in Russia from its magazine. As per the communication officer at IKEA i.e. Kajsa Orvarson, the company has done a lot of mistakes, but today they are trying to become updated and aware about enhancing things and share their values (Pratap, 2017).
Technological Factors
Today, Technology has become a key aspect in every business organization. From HR to customer service and finance all over the place companies are utilizing IT to offer superior service to their consumers. Brands such as IKEA are concentrating on offering a sort of experience through digital channels that can provide the real-life experience of shopping. IKEA is also utilizing better reality to recover the customer service it offers (Dudovskiy, 2017).
Legal Factors
The legal threat is a key issue in front of big brands. It is due to the strict regulations and laws and even a minor disturbance with the law can be proved costly. Labor laws are an essential concern however, there are other laws also that need compliance and can increase operational costs. Quality of the product is also an essential concern. Some cases have been faced by IKEA that has caused death due to its furniture (Dudovskiy, 2017).
Environmental Factors
Sustainability is today an essential focus zone for every brand because it supports business in creating a superior image of the brand. It helps in decreasing the operational cost of the brand but also enhance the image of the company and the whole experience. IKEA also focussed on the sustainability. According to the Guardian report, the company has invested in climate, around $1 Billion in renewable energy to support the poor countries to cope up with the climate change threat (Dudovskiy, 2017).
Opportunities for IKEA
Online channels are developing at a higher rate; IKEA can get into this space and can widely consider the way they can develop exponentially. If the focus is diverted towards the retail market they have developed up to 6% in emerging nations in the last some years, thus it is an untouched market where IKEA can expand its operations and record growth in top-line (Management Study Guide, 2018).
The low-cost retailers are present in the market in huge number. The frequency of online retailers has flawed the execution of the cost leadership strategy of IKEA. Along with this, all these retailers enjoy similar kind of strengths as IKEA, i.e. high customer base, market coverage, and low cost (The Times 100, 2018). Some of the low-cost retailers are Tesco and Wal-Mart who have arrived in the homeware market where IKEA operates its activities.
IKEA has accepted various numbers of exclusive designs that have offered it a excessive competitive advantage over its competitors present in the industry. There is a number of capabilities and assets of IKEA that add extra value to the firm’s competencies. It includes:
IKEA knows its customers very well as compared to its rivals, which offers an advantage to the organization. The company has made some alterations in its best practices statements and affiliated its objectives to the purchasing aspect that affect consumers to buy a variety of products. Low-cost strategy is another basis that they have been comprised of the business model. Thus, it has both cost leadership and efficiency with respect to its rivals. The company always work for the nourishment of the environment and innovated in numerous ways to maintain low cost and operate in tandem with the environment (Jurevicius, 2013).
Weaknesses of IKEA
IKEA has been criticized numerous times for concerns such as inadequate treatment of personnel and some practices of advertising that are uncertain. Besides this, they have been criticized by the media sectors for lobbying with administrative authorities (Bhasin, 2018). This has resulted in some kind of adverse publicity; hence, they announced their sustainability action plan by considering farmers in mind.
IKEA has an exclusive model of business that links the requirements of the customers with the options on the factory floor. With a thorough understanding of the life at home and the challenges of the limited space, IKEA mostly creates its products on the factory floor. The preliminary topic for product designers and developers is always the price. With the skilled suppliers, the company ensures maximum possibilities in the production plants. They adopt the constructions and sizes of their products such that they can create, transport, and package them in a well-organized manner (Pratap, 2017). They also make a lot of effort in the development of the materials, to enhance them and save resources.
Entering the new markets and targeting new segments with prevailing products, the possible aids of worldwide expansion are better market share, buyer awareness, profit, and revenue.
IKEA is presently placed as one of the key players in the furniture industry due to its unique image and strategies. The strategies that have supported the company in attaining a competitive advantage in the market are good service, varied range of products, low price products, and good quality, unique designs. Besides this, it has a team of developers who create new products, promotes technological developments, and updating technologies (Jurevicius, 2017). Most of the products of IKEA are trendy that makes the unique image of the company in the eyes of the customers.
The future of IKEA in this world of competition is very bright. It must include numerous strategic operations in the potential as well as current markets because the rivalry is growing and the developments in the business are in an active situation. The business has a capability to defeat its competitors in numerous ways. The business has a plan that cannot be matched by other retailers present across the world and the company needs to operate in few of the areas of marketing strategies and technology in order to maintain its place in the international markets (Epine, 2016).
Ansoff’s matric is a tool of strategic planning that offers an outline to support the administrators of the company to develop forthcoming approaches for the organization (Kilgore, 2017). The IKEA make use of this toll to define its market growth and product strategy.
Market Penetration
When a business agrees to endure selling its prevailing products in the prevailing markets, then it purposely tracks a policy of market penetration (Farris, Bendle and Pfeifer, 2017). The company has complied with a policy of vending more to the existing visitors in the store. Possibly, the present strategy of the company concentrates on announcing a number of innovative and promotional undertakings in the existing stores to concentrate.
New Product Development
IKEA has always executed well in relation to the new product development in the present markets. The décor offering and modern furniture has always performed a superior part in enticing patrons and has formed many possibilities for the business to entice new markets. However, the market is huge and numerous opportunities are present that can support IKEA in attaining a topmost position in the market.
New Market Development
The firm has carried its current setup to other worldwide markets and henceforth this created the strategy for its market development. IKEA has expanded its operations in the Turkish markets for superior profits. Though the company desires to stay connected with its own format and strategies in dynamic markets such as China, the firm has decided to adapt its strategies of the marketing mix as per the buyer’s needs (Business Today, 2013).
Diversification
Innovation is one of the vital basics for the people working for IKEA. The similar type of attitude has been noticed when the company tried to present an idea of selling food and opening restaurants in the stores of the company. This strategy of diversification has permitted the customers to eat and try varieties of new frailties while they purchase furniture for their home (IKEA Curiosity, 2017).
Strategy Evaluation
From the above strategies, the most extensively used approach could be diversification and new product development. Both the strategies assure to run for longer time duration because the products being presented along with the markets being explored are new. Some of the criteria are presented below that could represent the rate of success of this future strategy:
Suitability
The strategy of diversification and new product development is appropriate as it adjusts very effortlessly with the company’s mission that is to offer a superior quality to every customer across the world. As the statement says that the company desires to reach every conceivable market across the globe, henceforth this can be done if it comprises a extensive range of product lines in its portfolio. The concept of starting a restaurant within the store will offer another income source to the company.
Feasibility
It is already understood that the business possesses various types of exclusive resources that can be used in numerous innovative ways to create and operate new product-lines, henceforth the strategy of diversification and new product development can make a competitive advantage for the company in contradiction of different rivals in the market business is going to explore.
The high visitors flow at single time results in numerous issues leads to many problems due to lack of employees (Business Line, 2010).
Solution
IKEA has utilized visitor flow system i.e. Bionic’s Traffic insight in order to confirm its counters are never short-staffed.
Problem 2
The company experience absence of innovation and faced the option of providing the same kind of product base. This is because of the lack of fresh blood within the company. The hiring policy of IKEA the same sort of people results in inhibiting variety and innovation to encounter a change in the new markets.
Recommendations
IKEA must widen its selection base of employing candidates. Whereas not altering the main capabilities mandatory of key staff, importance must be given on employing people of mix personalities and backgrounds. This will encourage diversity, a mix of new ideas, and confirm the wealth of the culture.
Limitation
This diversity can result in lack of objective congruence and diversion from the collective gaols. There can be a wastage of resources to attain this type of varied group to agree to a common standpoint.
Problem 3
IKEA does not have enough of the like-minded managers (Swedes) in order to handle stores (Hullinger, 2018).
Recommendations
The solution can be to employee more Swedes with the same kind of philosophy and cultural similarities. Another solution is to endorse successful executives from diverse nations to expatriate jobs in different geographies. This will not only support in attaining strong transplantation of talent but also form committed and strong worldwide managers.
The vision of IKEA is to make a superior life for numerous people. Their idea of business supports their vision by providing a extensive variety of functional home furnishing, elegant products at affordable prices. The company put its efforts to make a better life for the stakeholders, comprising, employees, communities, customers, and suppliers. It attains this with the help of executing core values, supplier code of conduct, and a strong vision statement (Daniels Fund Ethics Initiative, 2014).
Core Values of IKEA
The managers of the company perform according to the values of IKEA, make an atmosphere of well-being, and expect a similar kind of attitude towards IKEA from its co-workers.
The company adopts an easy-going approach while resolving the issues, dealing with the challenges or people (Daniels Fund Ethics Initiative, 2014).
Conclusion
IKEA is one of the famous companies of home furnishing that has accepted a differentiation and cost leadership strategy to fulfill the demands of the customers globally. Diverse kinds of tools were used to analyze the business internal as well as the external environment of IKEA. From the analysis, it has been identified that IKEA is the one, which offers products at affordable prices, and it fulfills the suppliers’ requirements by creating a strategic relationship between the two. The alternate decisions and strategic choices accepted by IKEA Company has allowed it to maintain a competitive advantage in the market and manufacture products due to market leadership.
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