Company Capabilities and Value Chain of IKEA - Case Study Example

Company Capabilities & Value Chain The gurus of value chain analytics believe that the capabilities that a firm has, have a significant impact on value chain and the processes of a company. In addition, the renowned companies, the big brands and the huge names have had clear capabilities that had a positive affluent impact towards their operations. The following paper aims at analyzing this with respect to the case of IKEA. Introduction A business to sell its products and/or services needs to develop a certain proposition that is known as a USP – unique selling proposition. A USP is defined as a cutting edge or a differentiation that separates one product or service from its competition. This, however, does not imply that the other products do not sell in the market. In a market, there are several products, each with a differentiation, each with a cutting edge – each having a separate USP associated, and the admirers of the particular benefit are retained by that product/service or brand. For example, in many regions, COKE is stronger in taste compared to PEPSI, and therefore, individuals having taste for stronger beverages prefer COKE, while others go for PEPSI. The critical point in this discussion is that both products sell, and sell well. This way, the capability of a firm to develop a USP has turned on its sale volumes. Subsequently, moving backwards in the value chain, when a supplier sees the manufacturer doing well, the supply chain strengthens itself in terms of its operations and processes. Other than the operations in the value chain, the operations within the manufacturing unit have also illustrated positive impact. Some authors associate this feel like a current flowing in a wire; it becomes similar to the capabilities flowing backwards to where it is supplied from. The ideas, values are engraved in the roots of the organization and from there, it circulates to all parts of an organization and the business itself indulges in boosting its unique edge for its customer values. Following is the discussion of the IKEA case that depicts a classical example of the same. IKEA – Capabilities, Value Chain & Operations Fundamentally, IKEA is all about furniture of various sorts and types and kinds. The idea behind IKEA is to offer a wider variety of designed and functional, home furniture products, at a low price to increase their target audience; because expensive furniture curtails the target audience, and with affordability of a brand, comes better life style for not-so-rich individuals and families. This fundamental idea provides the foundation for the products that go through the phases of design, manufacturing, transportation, selling and assembly. These phases are actually assist in the conversion of the idea of IKEA into ground breaking realities. The three words that come to mind of IKEA customers when they see the name IKEA are (i) cool (ii) trendy (iii) cheap. These words define the capability of IKEA i.e. it can produce cool, trendy and cheap furniture through its own retail outlet and a superb set up. However, a noticeable point is that IKEA would not have been able to establish these capabilities if it hadn’t had an appropriate value chain and supportive processes and operations. IKEA has a different set up when compared to traditional furniture marts, and this explanation is worth mentioning as it links to the impact created on value chain as well as the processes. In a traditional furniture mart, there would be existing sample furniture, catalogues, and almost predefined styles and fashions of furniture to choose from; in one sentence, it would be a menu pre-written. IKEA on the contrary offers a range of customization to generalization; there are: Catalogues of existing styles Make your own furniture – customization Alter the existing to suit your style – semi customization The first category is fairly similar to the traditional marts. In the second category, the customers can choose to ‘create’ their own furniture the way they want using the given resources, and to bring a paper work into reality, the customers have to pick parts and pieces from various parts of the store, like a jick-saw puzzle. In the third category as well, while picking up the readily available, customers can alter various flexi components in furniture. The model can be considered a replica of the model followed by DELL, allowing pre-defined configurations as well as customization for building up the computer systems as per the liking of the customer. Taking lessons from the example of DELL, and considering the readings and experiences of visiting IKEA outlets, it can be seen that such capabilities of these big names, mainly referred to as make-to-order by the gurus of operations management; these are the skills that actually make them stand out from their competition. However, such operations are very critical because the availability of parts and pieces has to be appropriately managed; not just in terms of on shelve inventory but also the stocks and their levels have to be maintained in accordance with the demand of these bits and pieces. Such efficiency leads to the concepts of effective value chain mechanisms as well as efficacy amongst processes and operations. Value Chain is a critical phenomenon in businesses today, whereby efficacy of businesses is judged through the effectiveness of their value chain. Value Chain is classically defined as a process of value addition and value creation in an organization. Subsequently, all the departments in a firm, working from procurement of raw material to processing, and from there to the delivery of service, and till the service contract (if any) expires – subsequently, it can be visualized that the networking in the whole organization is what a value chain is all about. As this paper studies a manufacturer and a retailer, IKEA, it becomes easier to analyze the affluent nature of a value chain. The capabilities of the big names like IKEA (DELL, etc.) rightly make a huge impact on their value chain because their capabilities, as mentioned previously, are what their brand names sell for i.e. their cutting edge over their competitors. Moving backwards from the point of sales to the point of procurement, it can be seen that the reliability and credibility of the value chain really makes these capabilities a success, and accordingly, it is the push of such capabilities that affluences the value chain and appreciates their effectiveness that due to their competitiveness, the firm can reach and attain such skill set. At the same time, the importance of operations cannot be undermined by any means; as stated, the skill set that the firms establish as their unique selling point have a significant impact on the operations on a positive note. This is because the operations department sees that the firm is beating its competition on grounds on the competencies that have been created due to the effective operations. Once they see their efforts achieving results, the motivation within the department rises and the sense of ownership reaches a peak whereby employees do not feel the organization as an employer but feel that they have stake in the well being and progress of the organization. This impact is felt throughout the value chain and an association with the firm establishes, whereby, each employee feels ownership. In accordance with the knowledge of organizational behavior, once this sort of a feeling develops amongst employees, they tend to be more responsible towards activities and more productive towards the outcome that they get. Conclusion The fact cannot be denied that the capabilities that a firm attains through its unique selling point amongst its competitors greatly influence its value chain and operations. Often the gurus of business management define the cycle in a bottom up approach i.e. business comes from sales, while sales links towards customers and customers seek a difference to appeal them against the competitive offerings. Thus, this difference creation should be a major operation of the business, and the business processes should include such differentiation that ultimately would impact the bottom-line of the business. The positive influence of the firm’s capabilities on the value chain as well as the operations cannot be denied by any means, especially when it comes to products, whereby, each department and each individual can clearly see their individual impact of their respective products that the firm products and sells. The clearest indication of such an example comes from classical cases such as those of IKEA and DELL, whereby the effectiveness of value chain and the efficiency of operations can be visualized by seeing that they are hardly out of stock in terms of shelve stocking, their clientele is highly loyal in nature and do not switch, the employee turnover is on the lower side, and consumers prefer association to these brands when it comes to illustrating their lifestyles – this is a true success of capabilities, value chain and operations. References David Barnes (2000) Understanding Business Processes. Routledge Read More