The Organizational Environment of Ikea - Case Study Example

PESTLE Analysis Contents Contents 2 Introduction 3 Literature Review 3 Research Methodology 4 Discussion 4 Methods chosen by IKEA 4 Political Factors6 Economic Factors 6 Social Factors 8 Technological Factors 8 Legal Factors 8 Environmental Factors 9 Conclusion 9 References 10 Introduction This study shall focus on strategic analysis of IKEA. The company belongs to the retail industry and was incorporated in 1943. It is a multinational enterprise which sells and designs wide array of ready-to-assemble furniture. Home accessories, appliances and motor vehicles are also sold by the company. IKEA is considered to be the largest retailer dealing in furniture across the globe. Modern architectural designs are the major strength of this firm. These designs are framed for its furniture and home appliances. Eco-friendly aspect is closely knitted with IKEA’s interior design work. In UK market, there is further scope of growth for the company. UK’s consumer market demand is well aligned with business strategies of IKEA. The company has been able to secure desirable market share due to its effective cost control strategies, continuous new product development and competitive operational procedure. IKEA is inclined towards offering low prices to customers for its wide array of innovative products. Literature Review According to Allen (2006), PESTEL analysis is a strategic tool that helps to determine key drivers of change present in the business environment. The main components of this tool are political, economic, social, technological, environmental and legal factors. Political factors stands for government policy which directly impacts workplace environment, technology quality, health and safety conditions, etc. Economic conditions include interest rates, rate of economic growth and taxation charges. Social factors relate to all possible events which are affecting community and market socially (Allen, 2006). As per Das and Teng (2009), it comprises of population dynamics, cultural expectations, norms, health consciousness, etc. Technology factor states that new products or processes are developed with the support of advanced technology. This factor facilitates quality enhancement, innovation and reduction in overall costs. Legal aspect corresponds to legislative and regulatory framework that governs countries of operations or respective product areas. Environmental factors encompass changes in climate and weather. Environmental awareness is an area of concern for all business organizations (Das and Teng, 2009). Research Methodology Research methodology lays the foundation for any research study. Any study can be classified as quantitative or qualitative research study. Quantitative study deals with market related data which can be statistically analyzed. On the other hand, qualitative study is opinions or views of experts. There are two forms of data collection tools – primary and secondary data collection methods (Silverman, 2010). Secondary data analysis technique shall be utilized in this research study. This analysis is conducted through interpreting data contributed by other individual. It is an effective tool in terms of gaining knowledge and evaluating wider perspective of research issue. Secondary data analysis is a cost effective way to analyze country specific conditions, cross-national behaviour, changes in market trends, current market scenario, etc. This data collection procedure is chosen for the research study since it shall help to save money as well as time (Bryman and Bell, 2003). Multiple secondary sources would be accessed in order to address research problem. Discussion Methods chosen by IKEA IKEA has implemented forward thinking strategy and this has supported the firm to expand its business operations. This innovative strategy made IKEA the topmost furniture seller across the globe. There is no other retailer who has been able to make its basic model successful in various locations (Simerson, 2011). IKEA’s overall revenue is approximately $36 billion, operating in 26 countries with 298 stores. The first method adopted by the company was to resolve a worst part associated with purchasing furniture. People usually considered furniture to be an investment for longer period of time but this mindset was altered by IKEA. The company believed in designing innovative products (Barney, 2006). IKEA provided flexibility to customers in terms of disposing their products with changing market trends or lifestyle. This firm was even determined to target right demographic (Ulwick, 2005). Young generation is the main target market of the company. This is simply because young people would possess more demand towards newly designed furniture, home appliances, etc. The products designed by the firm were of high quality and simply aesthetic (Cole, 2003). IKEA’s entire production process is transparent so as to eliminate any loophole from the system. Quality management techniques and being aligned with market demand enabled the company to expand its business operations across the globe. Competitive pricing technique has been implemented by the company. The products manufactured by IKEA are neither too cheap nor expensive (Henry, 2011). They fall under the affordability range of customers. This company had incorporated this method simply because it provided them with competitive advantage in market place. Discounts on furniture or appliances are also offered by Aldi but IKEA tries to offer value to customers along with low prices (Lasserre, 2012). Price range of IKEA is comparatively low than Bath & Beyond, and West Elm and Bed. E-commerce platform had been advantageous for many companies but IKEA had accepted it as a challenge in context of attracting more customers to its retail stores (Mintzberg, 2006). IKEA developed a unique destination in the form of elaborate cafeteria and showroom. Product differentiation strategy proved to be beneficial for the company. The organization was able to analyze future trends and accordingly structured its current business operations (Pringle, 2008). It can be stated as a survival strategy in an intensely competitive industry. (540) Political Factors Consumer taxation and corporate tax level greatly affects after tax income of any organization. In UK, 30% of total profit margins acquired by a company are subjected to tax. Regional tax laws are to be maintained by IKEA. Trade barriers along with corporate tax also affect business operations of IKEA in UK. IKEA is more dependent on local manufacturers rather than importing materials and this has decreased the level of trade barriers. Political stability in UK favours IKEA’s operational procedure. This region has witnessed recent developments in political system which is proving to be advantageous for companies such as IKEA. Economic Factors Economic growth in many emerging economies has positively influenced business operations. Inflation rate tends to affect consumer experience along with business. UK market encompasses high inflation rate. This in turn destabilizes market situation, deforms behaviour of customers and generates resource shortage (The Times, 2015). IKEA is bound to witness high demand of trade unions in context of wage structure. Global economic recession in UK has adversely affected businesses like IKEA. However revenue percentage of the company has increased in UK market in past few years as stated in figure 1. Figure 1: Revenue of IKEA (Source: Torekull, 2011) The company can efficiently increase its performance level in future years. As highlighted in figure 2, in nearby future, UK households will possess disposable income to spend on such products. Figure 2: UK household income and spending (Source: Reynoso, 2009) IKEA can acquire higher percentage of market share in UK due to presence of more number of households and stable GDP growth rate as forecasted (Friedman, 2006). Social Factors Social conditions are associated with ageing population being less prone towards purchasing innovative furniture. On the contrary, younger generation in UK market is likely to purchase fashionable furniture which adds on value. Less costly products like that of IKEA are highly in demand for rural population who has shifted to urban areas. Fashion trends and cultural factors regulate demand conditions in terms of ready to assemble and less bulky furniture. Technological Factors Technological innovations existing in UK market has enhanced business operations of IKEA. RFID technology, mobile shopping and online shopping are key features benefitting corporations like IKEA. RFID has enabled the company to regulate inventory level, facilitated fast checkout process, etc (Johnson, Scholes, Whittington, Angwin and Regner, 2014). Social media also emerged as an efficient platform in UK business environment whereby IKEA can easily communicate with its consumer market. This technological support shall help the company to further build strong relationships with customers and increase speed of its overall operational procedure (Akinsowon, 2013). Legal Factors Sale of Goods Act holds great deal of significance in UK market. This Act states that products being sold should be of high quality. Brand image is negatively affected if an organization is not well aligned with legislative framework. Apart from addressing market demand, IKEA needs to develop a safe and healthy workplace environment (Barney, 2007). This organization takes into consideration employee benefits. Legislative conditions not only revolve around customers but also comprises of additional benefits being offered to employees by corporate. Environmental Factors Environmental regulations are strong in UK market. Large scale firms like IKEA is responsible for carbon emission, disposal of manufacturing waste, etc. UK government has set forth a specific environmental standard which needs to be followed by all companies (Grant, 2013). It is major responsibility of UK government to ensure that external environment is prevented from any form of hazards. An organization is denoted as successful if it is able to comply with such environmental standards. Conclusion As per this study, IKEA has been able to secure a reputable market position because of its innovative designs and product line. This organization had initially confined its operations to Sweden but later expanded into approximately 26 countries. The growth of IKEA is totally dependent on creative business strategies which were more inclined towards long term survival. PESTEL analysis of IKEA clearly reveals current environmental scenario of UK and scope of further growth and development in this country. Political stability has supported business operations of IKEA. On the contrary, economic recession has reduced profit margins of the company. However the company is expected to grow in future years, due to increase in UK household income. References Akinsowon, P., 2013. Strategic management. London: Peter Akinsowon. Allen, M., 2006. Analysing the organizational environment. UK: Select Knowledge Limited. Barney, J., 2007. Gaining and sustaining competitive advantage. 4rd edition. New Jersey: Pearson Education International. Barney, J.B., 2006. Looking inside for competitive advantage. 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