Business Consultancy: IKEA - Essay Example

? Business Consultancy- The case of IKEA Part Report Table of Contents Executive summary 3 Introduction 3 2. IKEA - Situational analysis 4 2.1Market context of IKEA 4 2.2 SWOT analysis 4 2.3 Competitors 6 2.4 Competitiveness of the organization within its industry – changes required 8 2.5 Implementation of the suggested changes 11 3. Conclusion 12 References Appendices Part 1 – Report Executive summary The survival of firms in the global market is depended not only on the market trends but also on the strategic choices employed. Firms with a well-known brand name, like IKEA, have to continuously alternate their strategies in order to secure their position within their industry. The methods used for the implementation of these strategies are critical for the success of such projects. In the case of IKEA it has been made clear that the change of a firm’s existing operational strategies is feasible only if the relevant plans are fully supported by the organization’s stakeholders. 1. Introduction IKEA is the most powerful firm – in terms of its market position – in the Home Furnishings & Housewares Retail industry (Hoovers 2010). The success of the firm in the global market has been related to the following strategies: a) the emphasis given on innovation, b) the offering of fine products at competitive price, so that most consumers are able to buy them, c) the facilitation of shopping – ‘tape measures, pencils, shopping list and catalogues’ (Kendrick et al. 2010, p.340) are available in the firm’s stores for facilitating shopping. IKEA has become popular for ‘the design and layout of its stores’ (Griffin 2006, p.344); at the same time, the low prices of its products – compared to similar products of competitors – has been a key reason for the firm’s high level of sales – as of the particular industry – within the global market. However, because competition in the specific sector is high it would be necessary for the firm to introduce a series of strategic changes, aiming to secure its role as the most powerful competitor in the Home Furnishings & Housewares Retail industry. A series of such changes are indicatively suggested above. Reference is made, primarily to the market context of the firm and the terms of its competitiveness; then the changes that would be required for securing the firm’s stabilization in the global market are presented. The criteria for the alteration of the firm’s existing practices are presented and analyzed focusing on the strategic choices that are most feasible – taking into consideration the current market context but also the prospects of the particular industry in the future. 2. IKEA - Situational analysis 2.1 Market context of IKEA IKEA is the leading firm in the Home Furnishings & Housewares Retail industry worldwide. The important distance between the profits of the firm and those of its competitors reveals the effectiveness of the firm’s policies but also its potentials for a further growth (Table 1, Appendix). For 2010, the sales of the organization have been estimated to 32,475.05 m (in millions) where the sales of the industry’s second competitor, the Bed Bath & Beyond Inc, have been estimated to 8,758.50 m (Table 1, Appendix), an impressive difference in terms of performance. In accordance with a report published in Internet Retailer (online periodical), in 2008 the sales of the industry’s firms have been increased ‘by 20% to $3.9 billion from $3.24 billion in 2006’ (Briggs, 2008). It is explained that the above increase has been mostly facilitated by e-commerce. The above increase indicates the prospects of the industry, under the terms that appropriate strategic choices are implemented. 2.2 SWOT analysis The current position of IKEA in the global market is significant; the prospects for further expansion are many. However, the delays in the development of the firm’s daily operations have not been avoided. Through the SWOT analysis, the operational status of the firm and the conditions of its environment will be made clear. In this way, appropriate plans and practices can be implemented for securing the position of the firm towards its rivals – even if the distance between IKEA and the other firms operating in the same industry is significant. The SWOT analysis for IKEA could be described as follows: a) Strengths: a1) innovation; innovation is used in every part of the firm’s operations, keeping the customers satisfied and ensuring the increased competitiveness of the firm within its industry, a2) brand name: IKEA has a strong brand name; in fact, the name of the organization has been equalized to low cost furnishing products of fine line; despite the fact that other firms have entered the particular industry, aiming to get part of the market, still the brand name of IKEA has remained unique, not just because it was the first firm adopted an innovative operational style – as described in the introductory section of this paper – but mostly because it managed to keep this style despite the market pressures and the, initial, doubts of the consumers who were not familiar to such organizational practices, b) Weaknesses: b1) the products of the firm follow common rules regarding their design/ pricing; these products, or part of them, may not be welcomed by all markets, as for example the beds/ bedding in USA the profits of which were initially quite low as these products were based on metrics different from those used in USA; the fact that most of the firm’s branches are established in Europe has negatively influenced the firm’s marketing and operational strategies – being aligned with the characteristics and the demands of the European market, b2) the criteria for the establishment of the firm’s branches should be reviewed; in markets where the demands of customers for the firm’s products are high, a differentiation in the firm’s customer services’ practices should be decided so that the time for the process of the customers’ orders to be reduced; this problem is clear in UK where the lack of sufficient staff/ appropriate administration of the firm’s stores results to huge queues (IKEA, United Kingdom, Local stores, 2011); c) Opportunities: c1) the existence of markets which could support the increase of the firm’s sales, as for instance the markets of the BRIC countries, as the Chinese market which is continuously growing, or the Russian market which also shows trends of stable growth, c2) the development of e-commerce schemes, as incorporated in the firm’s strategy, could further support the increase of the firm’s profitability, even in the long term; the company has already transformed its website in order to respond to the needs of each market; the firm’s central (main) website has been used as the basis for the development of websites of the firm’s branches around the world. In this way, the needs of customers in each market are addressed more effectively; d) Threats: d1) the processes required for the establishment of the firm in new markets are not simple; for example, in China the firm has faced delays in the development of its branches because of the bureaucracy; this fact could lead to the limitation of the firm’s profitability in these markets, at least for a particular period of time; d2) the firm’s competitors are willing to fight for their expansion; even if the firm’s practices are difficult to be imitated, still it is possible for the competitors to develop operational practices similar to IKEA, as for instance, the Kmart but also the Target, two firms competing IKEA even if their presence in the international market is not at the level of IKEA. The problem of strong competition, as a threat to the firm’s further expansion is analyzed in the section that follows. The specific problem can be resolved by introducing appropriate changes in the firm’s existing practices and rules, as explained in the section 2.4 of this study. 2.3 Competitors As explained above, IKEA operates in a variety of sectors. Apart from the Home Furnishings & Housewares Retail industry, the firm has also entered the ‘Grocery Retail and the Nonstore Retail sectors’ (Hoovers 2010). The competitors of the organization do not meet the requirements of all these sectors – simultaneously; rather, they are likely to focus on particular products, such as the Kmart, which is a major competitor of the firm in the Home Furnishings & Housewares Retail industry; also, the US firm Target has a significant performance in the above industry but its market is rather limited, in terms of geography, compared to IKEA. Other competitors of the organization, but at lower position, are Wal-mart and Howden. The position of the firm towards its competitors can be made clear by comparing the performance and the size of the organization with those of its rivals. Kmart (part of the Sears Holdings Corporation) is an important competitor of IKEA; the above firm was established in 1899. Through the decades the firm managed to increase its sales reaching, currently, the 133,000 employees (Kmart, Corporate Website 2011). It should be noted that in 2002 the firm, along with its subsidiaries, had to file for Bankruptcy. The firm managed to recover soon but it stills fight for securing its position in the market. The firm operates in just two countries, but it is well expanded: in USA the stores of the firm are estimated to 1,307 (in 49 US states, Sears Holdings, Financial Results 2010). The other major competitor of the firm, Target, also focuses on the US market. In 2010 the employees of Target were estimated to 351,000 (Target Corporate Website 2011). The performance of Target can be characterized as more stabilized – compared to Kmart; indeed, for the last three years, referring to the after-crisis period, the profits of the firm have been kept at a stable level, showing trends for increase. Indeed, in 2010 the profits of the firm reached the $67,390 while in 2008 they were $64,948. Wal-mart is also considered as a competitor of IKEA even if it does not have similar operational strategies; another key difference between Wal-mart and IKEA is, again, the limited market, in terms of geography, compared to IKEA, which is expanded globally. The balance of power among Kmart, Target and Wal-mart can be identified in Table 2 – Appendix – where the financial data of these three firms are presented, available for a comparative analysis. 2.4 Competitiveness of the organization within its industry – changes required In order to identify the level of competitiveness of the organization it would be necessary to refer to the firm’s strategic choices, as reflected in its decisions on critical organizational issues. One of the key elements of IKEA strategy has been the continuous expansion of business units worldwide. Indeed, through the decade the branches of the firm internationally show a trend for continuous increase – a fact which has been related to the effort of the firm to respond to the needs of consumers for fine furniture at low cost. In accordance with Prasad (2009) the expansion in the global market has been a key target of the company – almost since its establishment. However, the practices required for the achievement of this target were not made clear early. It is explained that the identification of the strategies required for becoming a MNC can take a significant amount of time, at least up to the identification of the plans that will ensure the alignment between the organizational practices and the market trends/ needs. This process is characterized as strategic fit (Prasad 2009, p.8). The achievement of strategic fit was delayed in IKEA, a fact that is revealed in the limited number of countries where the firm was initially established. Actually, it was just in 1990s that the potential development of the firm to a MNC was made clear – taking into consideration the fact that the firm was established in 1943 (Corporate website, Facts and Figures, 2011). Moreover, it was only after the introduction of changes – which supported the achievement of strategic fit – that the expansion of the firm in the global market was achieved. In any case, it seems that the competitiveness of the firm towards its rivals has been based on the following issues: before the appearance of IKEA in the global market customers had to wait for quite a long for the completion of their orders (delivery of ordered products); also, the cost of this delivery was usually too high preventing customers from ordering furnishing products. On the other hand, furnishing products of fine line was high; people had to compromise with products of poor design/ quality because of their low cost. In this context, IKEA introduced the idea of fine furnishing products at affordable cost, an idea that was welcomed by customers worldwide (Prasad 2009). The research on the firm’s decisions and practices over the years has led to the following assumption: the growth of the firm in the global market has been achieved because of the ability of the firm’s managers to promote the necessary changes on the firm’s strategies in order to meet the needs of customers in the international market. Indeed, as noted in the study of Prasad (2009) the expansion of the firm from 1990s onwards was achieved because of the following changes: the firm’s products were alternated in order to meet the habits/ preferences of people in new markets – reference is made particularly to the firm’s branches in Eastern Europe but also in Far East and in USA. The preferences of customers in these markets were slightly differentiated from those of customers in the European market; the firm’s managers had to identify these differences and promote the necessary changes on the firm’s product lines. The changes promoted in the firm’s product lines as a result of the expansion of IKEA in the global market are reflected in the following case: after entering the US market, managers in IKEA were trying to resolve the following problem: the sizing of beds was based on different metrics – compared to the US metric system; as a result the performance of the firm’s beds and bedding in USA was quite low. The change in the sizing of beds – using the relevant standards of USA – allowed the improvement of the performance of the firm in the particular sector (Black 2001, in Elearn Limited 2005, p.72). The above example shows that managers in IKEA are willing to develop any change required for the improvement of the firm’s performance; it is also implied that the operations of the organization are closely monitored so that any need for change to be identified on time, avoiding major organizational losses. Other changes in the firm’s practices for responding to the needs of the global market have been the following: the service of the firm’s customers has been changed emphasizing on the demands/ habits of the local population – referring especially to the US and Far East markets. In addition, the firm had to differentiate its strategies regarding the control of its business units worldwide. Because the direct monitoring of the firm’s operations in ‘far too distant markets, for example the Australian market or the Far East market’ (Prasad 2009, p.9) was too difficult, the firm’s strategic managers decided to use the concept of franchising for controlling their operations in these markets. The establishment of franchising as a tool for promoting the firm’s activities worldwide has been another change introduced by the firm’s managers in order to increase the firm’s competitiveness worldwide. In order to secure its competitiveness in the future, the firm needs to develop a series of strategic changes, meaning that certain of the firm’s existing operational strategies and principles need to be alternated. At a first level, the firm’s environmental policies should be reviewed. The Environmental Action Plan that the firm adopted in 1992 (Kendrick et al. 2010, p.340) had not resulted to the benefits expected by its initiators. Of course, the efforts of the firm to alternate its products so that they become more eco-friendly cannot be ignored but it seems that these efforts are not adequate. On the other hand, the radical change of the firm’s product line, referring mainly to the material but also to the principles/ methodologies used for the production of the firm’s products, would require significant time and funds, with no guaranteed payback. The use of appropriate strategic plans could increase the chances for success of these initiatives – at the level that such plans can secure the firm’s position in the international market where environmental - friendly production policies are highly appreciated by consumers. Another important change for the increase of the firm’s power towards its rival would be the following one: new products lines would be developed aiming to respond to the preferences of consumers in markets with specific culture and traditions – meaning the countries with non-western ethics and traditions. Moreover, the firm’s managers should identify a mechanism for controlling the performance of the firm’s stores globally; because of the expansion of the firm in countries worldwide it is difficult to identify and evaluate operational weaknesses or failures. The use of franchising has partially resolved the above problem; an alternative scheme for controlling the development of the firm’s policies globally should be implemented – aiming to eliminate the chances for severe organizational failures that would cause major damages on the firm’s image. 2.5 Implementation of the suggested changes The changes introduced in organizations worldwide are likely to belong in one of the following categories: a) planned changes, which are developed ‘in an orderly and timely fashion for anticipating future events’ (Griffin 2006, p.346), b) reactive changes for responding to emergent organizational needs and failures; planned changes are considered as more effective – compared to reactive changes – having the advantage of time availability for their testing, meaning the evaluation of their effectiveness. The changes suggested in the previous section could be implemented using the following policies: a) establishment of a team of supervisors for monitoring the performance of the firm’s stores globally – possibly categorization by country, b) increase of the firm’s e-commerce activities, based on the improvement of relevant features of the corporation’s website, c) alteration of the principles defining the firm’s products line – meaning the use of different criteria of production in accordance with the local ethics and traditions, or else, the introduction of flexible principles of production, d) increase of the firm’s workforce globally, aiming to meet more effectively the needs of customers, e) improvement of terms of employment – employees should be protected against unethical customer behaviour. 3. Conclusion The development of IKEA as a leading competitor in the Home Furnishings & Housewares Retail industry should be characterized as impressive. The expansion of the firm globally was further enhanced by the fact that the preferences of consumers around the world in regard to furnishing products are similar, a fact which was identified by managers in IKEA. The firm’s mission statement related to the offering of fine furnishing products at low cost caused turbulences in the furnishing industry – which was characterized by the high cost of fine furnishing products (Prasad 2009). The success of the firm has led to the imitation of its strategies by the competitors – like Target and Kmart. However, IKEA has managed to keep its market share in the international market; the establishment of the changes suggested above could support the further growth of the organization, either in the short or the long term. In any, the relevant plans should be reviewed periodically, as of their feasibility and requirements, taking into consideration the high pressures on markets internationally. References Baraldi, E. (2008) Strategy in Industrial Networks: Experiences from IKEA. Harvard Business Review. Online. Available from Bloomberg Business Week (2005) Ikea - How the Swedish Retailer became a global cult brand. Online. Available from Briggs, B. (2008) Housewares and home furnishings retailers weathered ‘07 economic storm. Internet Retailer, online, available from Craven, N. (2010) Competition cuts Ikea sales in UK. This is Money – Financial Website. Online. Available from Elearn Limited (2005) Management Extra: Change management. Oxford: Elsevier Griffin, R. (2007) Fundamentals of Management. Belmont: Cengage Learning Griffin, R. (2006) Management. Belmont: Cengage Learning Hoovers (2010) Inter IKEA Systems B.V. · Delft The Netherlands. Online. Available from Hoovers (2010) IKEA Competitors. Online. Available from Hoovers, 2011, Home Furnishings & Housewares Retail, online, available from < http://www.hoovers.com/industry/home-furnishings-housewares-retail/1538-1.html> IKEA (2011) Corporate Website. Available from Kendrick, D., Vershinina, N. (2010) Management. Belmont: Cengage Learning Kmart (2011) Corporate Website, available from Malaysian Franchise Association (2007) IKEA: Put All Your Eggs in One Basket. Online. Available from Prasad, K. (2009) Strategic Management. New Delhi: PHI Learning Pvt Retail IT (2007) IKEA Revamps Supply Chain Strategy With Demand And Fulfillment Solutions. Online. Available from Target (2011) Corporate Website, available from ?hompson, J., Martin, F. (2005) Strategic management: awareness and change. Belmont: Cengage Learning Appendices Top 5 Companies Company Sales Location Inter IKEA Systems B.V. 32,475.05M Delft, The Netherlands Bed Bath & Beyond Inc. 8,758.50M Union, NJ Williams-Sonoma, Inc. 3,504.16M San Francisco, CA MEUBLES IKEA FRANCE 3,233.98M PLAISIR, France NITORI HOLDINGS CO.,LTD. 3,215.87M KITA-KU, TKY Table 1 – Top 5 companies in Home Furnishings & Housewares Retail industry (Source: Hoovers, 2011, Home Furnishings & Housewares Retail) Table 2– Kmart, Target and Wal-mart (Source: Graff 2006, p.56) Part 2 – Personal Development Plan Table of contents 1. Skills 2. Knowledge 3. Behaviour 4. Summary – Why Me References Part 2 – Personal Development Plan 1. Skills A managing consultant is expected to have specific skills. At a first level, he has to be experienced in the particular position – though the exact period of experience is not standardized (Insight Now, Job specification, Managing Consultant, 2011). An important requirement for working in such position is also the ability to handle particular software tools – which can be differentiated in accordance with the sector in which the relevant position involves – for example ‘the software tools helping organizations to improve their contacts’ (Insight Now, Job specification, Managing Consultant, 2011). At the same time, it is necessary for the managing consultant to have highly developed communication skills - both with employees and customers, being able to identify the needs of each assignment/ project and initiate the appropriate solution. In addition, a successful managing consultant should be able to develop effective proposals and reports analyzing the requirements of the organizations involved – either of the organization in which he is hired or of another business, meaning a rival or a strategic alliance. The skills of a managing consultant in terms of project management should be also exceptional (Insight Now, Job specification, Managing Consultant, 2011). The ability of the managing consultant to run effectively workshops and to arrange plans of action in case of emergent business needs would be highly appreciated by employers. In case that the managing consultant is going to focus on specific organizational activities, for instance, sales, then additional skills may be required, for instance, a Licence related to the particular sector (in the real estate industry a Real Estate licence is necessary for working as a sales consultant, Dougmal Real Estate 2011). Additional skills – in accordance with the position involved – could also include: ability to negotiate, ability to communicate with customers and ability to pay attention to detail; a driving licence may be also required, if the position requires continuous travelling (Dougmal Real Estate 2011). 2. Knowledge The knowledge of managing consultants on specific software programs, such as Excel and Access, is vital for their hiring. Moreover, the knowledge on methods for improving organizational performance and supporting the increase of effectiveness of a firm’s customer services sector is of high importance, reflecting the ability of the consultant to respond to a wide range of organizational needs. The awareness of well-known methodologies for business analysis and optimisation – such as benchmarking and Six Sigma – are considered as competitive skills of a managing consultant (Insight Now, Job specification, Managing Consultant, 2011). Depending on the sector where a consultant is going to work, the knowledge of the relevant industry and of the characteristics/ demands of the local market would be significant advantages (Dougmal Real Estate 2011). When evaluating the skills of a managing consultant, the term knowledge does not involve solely in particular theoretical frameworks – used commonly in addressing daily organizational problems. It may refers to the behavioural trends of people across the organization or people within a particular market – meaning the consumer trends as influenced by the psychology of consumers. 3. Behaviour The behaviour of a managing consultant should be characterized by the following qualities: a) high confidence, b) strong communication and leadership skills, c) desire to cooperate with others in order to achieve the organizational targets, i.e. ability and desire to act as a member of a team but also as a leader, d) ability to motivate the followers – meaning the employees, e) ability to identify solutions even for problems which seem to be quite complex (Insight Now, Job specification, Managing Consultant, 2011). Of particular importance is the willingness of a managing consultant to participate in programmes for improving his skills – meaning simple training programs of his organization or educational seminars for the acquisition of diplomas necessary for a particular position – for instance the CPD points required for the owners of a professional licence (Dougmal Real Estate 2011). Depending on the needs of each role, a managing consultant should be also able to suggest effective alternatives – when existing plans are proved inadequate to cover organizational needs. The willingness of managing consultants to promote innovation is also highly appreciated, reflecting their active involvement in the increase of the organizational performance. Under certain terms, a managing consultant should be willing to compromise with the existing resources – referring to the case when initiatives need to be taken for facing specific organizational problems or for alternating one or more organizational processes. At this point, the ability of a managing consultant to effectively promoting change – avoiding high resistance in the workplace – reflects his leadership and communication skills, which are necessary for his hiring in a managing consultancy position. 4. Summary – Why Me In accordance with the issues discussed above, I would be appropriate for the role of the managing consultant in the organization analysed above – IKEA. Indeed, I have an excellent knowledge of the particular industry not only in the European market but also in the global market – where the firm faces the most challenges, as explained above. Moreover, I am able to communicate effectively with people of different backgrounds. In terms of leadership abilities, I would be able to take initiatives, if necessary in order to respond to the organization’s needs; however, I would prefer that any solution would be decided in common with other colleagues. IKEA is an organization focusing on customers’ satisfaction; stores have been designed for facilitating shopping and a highly effective delivery mechanism has been established ensuring the rapid delivery of the ordered products. My communication and cooperation skills would allow me to highly perform within the particular organization, no matter the role involved. A managing consultant role, however, would be quite important for me, since it would give me the chance to further develop my skills – through participating in relevant training programs – and to learn a wide range of methods for handling daily organizational needs. In the long term, I could further improve my position in the organization, using my communication and cooperation skills. My IT skills and my knowledge on various theoretical methods for facing organizational problems would be also highly appreciated, either in the short or the long term. References Dougmal Real Estate, Job Description, Sales consultant, 2011 Insight Now, Job specification, Managing Consultant, 2011 Read More