Strategic planning & Management analysis help : IKEA analysis

Q?? Write an analysis of IKEA management??Solution:

1.      Introduction

The document describes the strategic environment of IKEA. An analysis of the external environment that IKEA is done along with the Identification the core resources and competences of the corporation .The key strategic choices of the organization are discussed in detail. Finally recommendations are done which the IKEA can pursue for the next five years and justify your selection (IKEA, 2004).

2.      About the organization

 IKEA is an international home-furnishing retailer with operations across different countries across the world. The vision of the organization is to creating a better life every day for many people. The business idea of  IKEA  supports the vision of the organization  by offering a wide range of  well designed home furnishing products at lower prices  so that more and more people can afford to know them. The company was founded in 1943. The company is one of the largest furniture retailers in the world.  IKE furniture’s are usually flat pack, which can be instantly assembled by the customer. IKEA has a product range of around 9500 products, which includes home furniture as well as accessories. The wide range of accessories is available in all IKEA stores and customers can order the furniture’s through the IKEA website also. IKEA also includes restaurants as well as cafes, which serve Swedish food. IKEA also has small food shops, which sells Swedish groceries. According to 2008 figures, IKEA group owned around 253 stores in across 24 countries. The biggest markets are Germany, USA, UK, France and Sweden. One of the attractions of IKEA products are their low prices along with wide range of choices (Walton, 1977).

3.      External environment

Political factors

Increased globalization and protectionism has presented a challenge as well as opportunities to IKEA. The challenges will be competing against the unknown forces and sourcing the best quality financially viable products from across the world. IKEA can enter emerging country markets through partnership for exploring into these markets. Company should be vary about the protectionist policies  of many host nations since high tariffs may be imposed on goods which are imported for encouraging domestic production.

Economic factors

 The fluctuations in the commodities as well as raw material prices across the world will result in increased purchasing cost for IKEA. This has impacts on the margins of the organization and can lead to passing over the cost to the consumers through high prices, which adversely affects the competiveness of the organization. The credit crunch has an impact on IKEA in a negative manner as it can decrease the purchasing ability of the consumers. Furniture in not like fast moving consumer goods and are durable and can last for long years even in times of economic uncertainly. IKEA may face tough competition from small local retailers who can offer furniture at more affordable prices. Which can attract the cost conscious consumers? This may cause to reduce the margins, which affects the profitability (Yip, 1989).

Social Factors

When IKEA focuses to tap markets such as India and China, Social factors are to be considered. Asian consumers are savers than spenders and Asian consumers may not be willing to spend on new furniture. The affluent consumers may not be willing to buy IKEA since it requires self-assembly (Robbins, 1996).

Technological factors

RFID technology can be used in the supply chain which can help in inventory savings resulting in lesser costs for the company.

Resources and Competencies

IKEA is a strong global brand, which attracts a key consumer groups. The organization offers the same product quality across the word/.The concept of organization I s strong, which is based on the offering of producing a wide range of well-designed products at relatively lesser prices. The design is democratic which helps to reach an ideal balance with function, high quality, superior design, and lesser price. IKEA is cost conscious which means the low prices are taken into account when each product is designed.  IKE measures its strengths with the help of Key Performance Indicators. Some of the strengths of IKEA are

1)      Increased usage of renewable materials. The percentage of use increased from 71% in 2007 to 75% in 2009 (IKEA, 2004).

2)      Smart use of raw materials. Here IKEA increased the use of recycled materials and reclaimed the waste products in energy production across all the stores from the 84% in the year 2007 to 90% in the year 2009.

3)      Volume commitments- IKEA aims at the creation of long term partnerships with the suppliers for achieving this. IKEA is able to negotiate on low prices by making the commitment to buy large volumes over a number of years. This benefits the suppliers as they enjoy increased security because of having guaranteed orders.

4)      There is economy of scale  due to bulk purchases at cheap unit costs

5)       Sourcing of materials close to the supply for reducing the transportation costs

6)       Delivery of products directly from the supply to IKEA stores. This reduces the handling costs , reduces the road miles  and reduces the carbon foot print

7)      IKEA has been using new technologies, for example, OGLA chair that has been continuously changed due to reduction for raw materials used.4.      Strategies

IKEA has been following a cost leadership strategy. IKEAs target market is young buyers who are in constant search of stylish furniture’s. IKEA offers home furnishings, which combine better design, functionality, and acceptable quality at lesser prices. Low cost has been an important priority for IKEA, which applies to all of their activities

 IKEA does not rely on third party manufacturers; instead, the engineers design low cost modular furniture, which can b readily assembled by the user. The customers of IKEA can view different furniture combinations  in one setting which  that eliminates the need for sales people  helping the user to imagine how furniture arrangements will look like in the customer’s house. This approach demand for lesser r people keeping the cost low. IKEA encourages transporting their purchases rather than providing delivery source to the clients place (Moncrieff, 2006).

IKE also offers a  differentiated features which appeal to the target customers  which includes  store play rooms for kids,  wheel chair support  for customer use and extended hours. IKEA stores, which are situated outside the home country, have Sweden shops, which sell Swedish specialties. IKEA believes that these services as well as products are aligned with the needs of the customers, who are young, not affluent, who need to shop outside for a long hours. IKEA has focused the low cost leadership strategy finds differentiated features with the low cost precuts.

The concept of IKEA is based on the principle that customers should choose, collect, transport and assemble IKEA products by them. Customer involvement contributes to lesser prices from IKEA. IKEA has been successful in most nations due to the increased public awareness of IKEA brand (Lamb,  2005).

IKEA aims at selling the products, which are free from hazardous materials. IKEA has established IWAY, which are the minimum criteria for suppliers and what the suppliers expect of IKEA. IKEA has specified the rules for working conditions, minimum wages, etc. IKEA has very few manufacturing units of their own. Instead, the production takes place at around 1600 suppliers in Europe, Asia, North America, usually in low cost countries. IKEA thereby help in raising the standards, and increases the prosperity in developing countries. There are highly trained  inspectors who visit the  supplier sites and  monitor that the  IWAY  criteria  is met  and helps suppliers  who experience difficulties.

The principle of IWAY means better working conditions for employees, and more efficient production for suppliers. In 2006, the number for trading offices was 46 spread across 32 countries. The top five purchasing countries are China, Poland, Sweden, Italy and Germany. There are 28 distribution centers in 16 countries, which supply to IKEA stores. In addition to having a large base o f supplies all over the world IKEA also buys from Swedwood which is an industrial group owned by IKEA. The basic rationale of IKEA relationships  lie in the company business idea  of producing  low price products  in a much more socially responsible and  environment friendly way.  The IKEA way of purchase of home furnishing products provides the basis for company relationships with the global suppliers (Johnson, Scholes & Whittington, 2008).

The relationship with the suppliers are built on a very personal level where IKEA representatives getting actively involved in different issues  of factory production,  supply  and even HR activities.  The first purchasing market outside Sweden was Poland where IKEA started purchasing as early as 1961.

IKEA has been building online help for guiding the customers for a more sustainable life.  The focus is on home improvement in the slow housing markets. IKEA support their customers with tips on their website on how to reduce the impact on the environment. This will help to save the money. The personnel of IKEA are trained on sustainability mainly on what IKEA doing and how the responsibility can be taken for a sustainable is living.

 IKEA is a large organization, which enjoys economies of scale. This lessens the average cost in long run through the better use of technology in by recruiting specialized managers. The economies of scale also give the organization a competitive advantage if the cost savings are passed to the customers as lesser prices. This will serve as a barrier to entry for the small firms who plan to enter the market (Hamel & Prahalad, 2008).

 The low prices of IKEA make it attractive to customers even in tough financial times. It is vital for keeping the prices as low as possible at the time the retail industry is depressed. The pricing strategy of IKE A is targeted at consumers with lesser power to purchase. The products also appeal to those with high budgets and   better quality and design.  IKEA aims to use the latest technology for environmentally appropriate buildings and energy utilization while in a serious manner at local level by participation in different activities for supporting the selected local and regional projects.  All the suppliers have adopted the IKEA packaging as well as delivery systems and has even started direct delivery to stores (Anon, 2008).

The generic global strategies of the organization include cost reduction, diversification, focus strategy. The company aims to reduce the costs both upstream and downstream which is a two way value system between the customers, suppliers, as well as IKEW head quarters.

5.      Recommendation

The IKEA should aim to improve the marketing activities as well as build a better brand image through environment friendly ad sustainable practices. This can be achieved by

• IKEA can benefit from a strong integrated marketing plan. The integrated marketing plan should be bold and innovative. It should focus more on internet ads and corporate website.
•  The organizations should concentrate on stores to be placed in the metropolitan areas.
• IKEA stores should be placed in areas, which are convenient for target market.
• They need to focus on those markets where the populations are transient and tend to move more frequently.
• IKEA should address the environmental impact for the transportations requirements effectively.
• IKEA should strive to create better conditions for the suppliers ‘ employees
• All IKEA stores need to have an environmental coordinator  as well as an action plan for working  with recycling, waste sorting, energy savings , transportation and education
• All employees should be given environmental training and there should be regular follow up courses for the employees (IKEA, 2004).
• Many suppliers have expressed the desire for participating in product development together with IKEA, which should be encouraged.
• IKEA should consider the supplier’s suggestion to use local partners as sub suppliers with no compromise to quality rather than a global supplier base. This will help to reduce the cost.

6.      Conclusion

IKEA has been a popular global brand with many stores across the world. IKEA should examine its internal and external environment for improving its performance.  This will help to understand the key opportunities, which can be of advantage to IKEA. IKEA has responded to both internal and external challenges in a proactive manner. IKEA can generate the strong growth, which is required by retaining a strong identity in the market. The passion of IKEA is a combination of best design, low prices, and economic use of resource. Responsibilities to the people as well as the environment. The products of the company, processes, and systems demonstrate the stance of the company towards the environment. IKEA understands that there cannot be any compromise between doing good business and about being a good business. IT goes beyond profitability and reputation. IKEA aims to become a leading example in the development of a sustainable business.

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