IKEA: Past Present and Future - Case Study Example

1a. Company’s mission, vision and values To formulate a corporate strategy every organization has its mission and vision and the core values defined. The mission is usually one brief sentence that defines the purpose of the organization. It is information to the employees of the goals that have to be achieved. The strategy in fact is based on the mission and vision, which has to be developed before the corporate strategy is formed (Schraeder, 2002). The mission statement reflects the company’s desires to adhere to them. The mission has to be evaluated against the external environment before the strategy is formulated. Vision according to Collins (2006) is a combination of three basic elements – the reason for existence which is often also referred to as mission, the core values and the aspirations that are usually high but achievable. Vision is a statement that defines the mid- to long-term goals of the company. It is always external and market-oriented. It also portrays to others how the organization wants to be perceived. Thus, it is necessary that the vision statement should be inspirational, aspirational and measurable (Schraeder, 2002). Vision should be quantified so that the outcome is measurable. This gives a clear focus of the strategy and carries a time line within which the vision has to be accomplished. A vision, according to Porter, sets a company apart from its competitors (Schraeder, 2002). When the instruction through the vision statement is clear, it becomes easy to formulate the strategy. A vision statement serves to enhance the clarity of the message and also defines success. This is transmitted to the lower levels through the vision statement. There has to be an alignment between the values, the mission and the vision. Any strategy in an organization has to consider the alignment between these three elements. If the alignment is perfect, even a stranger would be able to understand The core values are the ones that matter the most to an organization. The values describe the behaviour, character and culture of the organization (Schraeder, 2002). According to Graham (2000) the four basic values than can lead to superior performance are – produce high quality goods that serve the consumers and the customers, be a good place for the employees to work in, behave in publicly responsible manner and provide the owners with a good return on their investment. The mission and vision statement should ideally contain few words and it should summarize the purpose of the existence of the organization. It should also communicate where the organization is headed. Thus the mission of the company describes the purpose of its existence where as the vision statement describes where the organization is headed. It provides the direction and focus for growth and development. The vision statement should be market-based and serves as a functional framework to guide strategy development (Spallina, 2004). The mission statement serves as the foundation for the vision statement. The core values for the foundation which helps an organization to fulfill its vision and accomplish the mission. They usually describe the philosophies and the ideals. The core values should lead to a homogenous organizational culture. Mission, vision and values serve as the platform for strategy development. The failure of certain companies such as Marks & Spencer’s and BMW suggests that a clear and articulate strategic vision leads to sustainable competitive advantage (Graham, 2000). Companies have to be distinctly different and unique in their vision. Most often companies are confused about their vision, mission statement and core values. People often use adjectives in their mission statement and everyone claims they are different from others but everyone uses the same words and they have little significance. Values too tend to be generic across industries and organizations. 1b. Difference between resources and capabilities Strategy of a company is based in matching the resources to the capabilities of the firm. As the industry environments have become unstable it is necessary to use the internal resources capabilities for formulating the strategy (CSAC, 2007). Resources are the productive assets owned by the firm and capabilities are what the firm can do. Individual resources when pooled together create organizational capability. Capability leads to superior performance. Resources can be tangible (financial resources and physical assets), intangible (technology, brand name and trade mark) and human resources. However, resources cannot be productive on their own. A team of resources working together develop the organizational capability. Capabilities are the bundles of professional skills and accumulated knowledge, which enables the firm to coordinate activities and utilize the assets in an optimum manner (Yang, 2008). An organizational capability hence is the firm’s capacity to deploy the resources to achieve the desired result or fulfill its mission/vision. The capabilities have to be integrated with other resources. Every organization has its own routines which form the predictable patterns of its activities. Routines form the basis of organizational capabilities (CSAC, 2007). Routines help to convert the practices into capabilities. Companies have started taking the resource-based view (RBV) which sees the companies as a collection of physical and intangible assets and capabilities (Collins & Montogmery, 2008). The assets and capabilities determine how efficiently a firm can perform its functions. Competitive advantage is a valuable resource that enables the company to perform better and cost effectively compared to competitors. 2. Business impact of IKEA’s capabilities in relation to international expansion Resource-based view has a major impact on strategy thinking. IKEA’s international growth has been modest compared to other international retailers. However, they did not keep away from foreign markets because of stiff competition. In fact, they deployed their resources and capabilities to gain competitive advantage by entering new markets (CSAC, 2007). This was their primary goal for strategy. IKEA possessed the tact to integrate its capacity and deployed the resources at hand. Their human resources were very capable assets and they always sent their own people overseas to apply the best practices and nuances of IKEA. The lessons learned from the past were the knowledge that the company had accumulated and this has significant bearing in new situations, specially new markets with different cultures. This was a strategic move because the human resources were already trained and were capable of handling any situation that arose when IKEA was introduced in new surroundings. They feel that those with IKEA experience alone can sell IKEA. They are thus able to deploy their resources and translate into the core capabilities of the firm. The people with knowledge of internationalization were sent overseas. This way they could teach foreigners the IKEA way of running the business. Thus, in this process they developed new capabilities while building resources. Their profits arose from superior resources known as Ricardian Rents and not because of market power (CSAC, 2007). They employed the existing intangible resources to enhance their profitability. Their brand name and trade mark perhaps made it easier for them to enter and establish in the new markets despite the cultural differences. They knew that customers would be willing to pay the price for a known product. However, they always maintained prices lower than the competitors while profiting more than the competitors. However, they did bear the risk of adapting to local circumstances which the expatriates were ill-equipped with. To combat this situation, they hired local employees who were competent in market knowledge of the country where they ventured. They thus filled up the resource gap and build capability for the future. Thus, they integrated their resources and their capabilities to gain competitive advantage. This process also encouraged forward, reverse and lateral knowledge sharing in its international expansion ventures, specially in Russia, China and Japan. IKEA did not try to duplicate what others were doing in new markets; they attained profitability through exploiting differences (CSAC, 2007). They exploited their own unique capabilities. The company thrived on the knowledge of the expatriates in these countries that were culturally so different from each other and from the home country culture. Like reputation and brand name, they also had other intangible resources – they were technologically advanced and the employees in each of these three countries integrated their capabilities and the resources at hand. They shared their experiences via the corporate intranet company manuals, and a staff magazine. Other novel methods they used were to put up an information-laden wall paper at the entrance to the staff restaurants. The information generated in the new markets was transmitted to the headquarters. This suggests that they further enhanced their capabilities by integrating new resources. Knowledge diffusion became organizational routine as knowledge diffusion also took place also through personal networks. Informal communication spread the word what was working or not working and this method was a very effective means of communication. This integration of internal capabilities led to superior performance even in new situations. When the company was boycotted by suppliers, IKEA did not compromise on its core values and give in to pressure. Their vision of independence, freedom and trust were their intangible resources that helped them to design their own products and find manufacturers elsewhere. They thus even explored their innovative capability. Their human resources capability led to yet another innovation of introducing flat packing in the furniture sector which helped the industry to reduce transportation costs. It also made the customers feel a participant in the furniture setting as theu could assemble the product themselves. Back at the headquarters they held feedback sessions on product lines, which helped them evaluate what was working, what could be eliminated or what product needed enhancement. Commercial reviews of new markets helped them to understand whether these markets were preserving the IKEA way of business and it also brought the perspectives of the new markets. All these demonstrate that the employees had the ability to harmonize their efforts and integrate their separate skills towards enhancing the organizational capability. This shows that the organizational culture was strong which influenced the employees to integrate their interpersonal skills. The core managerial values at IKEA could lead to superior financial performance despite the company attempting to reduce the prices by 2-3% every year. The organizational culture is a great resource which the company does not realize unless its importance is observed. Capabilities lead to competitive advantage but this should be sustainable. IKEA could sustain the competitive advantage despite having a modest market share in foreign markets. Their profitability was around 18% compared to single-digit margins that competing retailers had. Hence, their modest market share did not seem to affect their profitability margins. Moreover, the capability of knowledge diffusion helped them to enhance their profitability. They could transfer their teams to foreign markets but their capability of network relationships and corporate culture helped them reap the benefits. 3a. IKEA’s vision from the very beginning was based on assuming responsibility and gaining independence through hard work. This applied to every individual in the company right from the founder. The vision even aimed to provide the consumers with independence and freedom while ensuring that none felt deprived of a comfortable life. The furniture that they designed and introduced in the market would be affordable by all irrespective of their economic status. While its mission was not just to make profits but to give the society a better life at affordable prices, the company had the vision to share its values with the people at large and not just with their employees or customers. This was a long-term vision and not meant for gains in the short-term. Their vision was market-oriented as they wanted to cater to all segments of the society. They did not want to keep the prices high just to enhance their profits. This is the reason they had an egalitarian approach. Vision statements are usually drawn up at strategic planning sessions and the people come with high flung words to convey their mission. It is then shelved with the next year when once again the executives sit down to evaluate their performance and form new vision statements. The challenge lies in using the vision to create a sense of urgency to so that the vision can be realized (Livers & Hoffman, 2005). At IKEA, the executives could translate their vision into changes and growth. The vision at IKEA was a short phrase and had clarity of expression. It was understood by all employees who felt encouraged to implement it. While pursuing a shared vision, it is important that the mission is met on a daily basis. The mission statement should be clear so that every employee understands and supports the fulfillment of the mission. Organizations that perform the best are those where every employee known, understand and supports the organizational mission. Vision statements have to be communicated regularly and clearly. These vision statements serve as the basis for all decisions taken in the organization. At IKEA, they refer to their vision and ensure they adhere to it in all respects. Their vision statement actually serves to provide direction and focus to the organization. The purpose of a vision is to establish a tension between the present situation and what it wants to achieve. This tension is necessary because it fuels growth and development. In order to fulfill the mission and vision, there has to be a shift in the organizational culture. At IKEA they believed in an open environment with very little external control. The basic organizational culture and the values were such that encouraged creativity. Mistakes were taken as lessons learned and these teachings were used for future expansion. This also suggests that employees had the freedom to experiment and think something different. This was their vision and this was supported by their organizational culture which encouraged independence. They believed in giving independence to the employees so that their full potential could be realized. They provided an environment where the employees received intrinsic motivation to work and be creative in their approach. IKEA believed in decentralized decision making and they adapted to local market conditions. This shows their flexible approach in business management. Even in their internationalization strategy, the expatriates were given the freedom to adapt to local environments and recruit locals for their marketing expertise. IKEA’s vision was to provide independence to its employees, suppliers and consumers alike. Towards achieving this vision, they had a corporate culture based on shared values. Employees were partners in the company and not employees. They recruited people who shared the core values of IKEA. The workers were allowed to unfold and realize their full potential. The company knows that when autonomy is granted to the individuals, they come with ideas that can create a stir in the market place as was the case with their flat packing strategy. Thus, IKEA’s vision was supported by the core values and the corporate culture which has helped the company to fulfill its mission. They believed that IKEA contributed to the society because of its ideals of providing freedom with responsibility. When the employees were given freedom, along with freedom comes responsibility and the corporate culture encouraged them to accept responsibility for their own action. Because of their diversified product range they provided choices to the consumers and they believed that product enhancement should be an ongoing process. They did not believe is doing something just because others are doing it. They wanted to be different and they did success in their mission. Hence, their vision has been supported by their core values that promote togetherness while maintaining mutual respect. They have always maintained a cost-conscious attitude towards their products and consumers. 3b. The IKEA group is owned by a Foundation and this restricts their rights to bring about changes in the organization and its core values. The law of Netherlands limits changes that can be made to the purpose of the Foundation. Thus, the dream of the founder would likely remain unscathed although certain changes in the external business environment may be deemed necessary. The founder imbibed the values from the place he was born in. The founders of IKEA never owned shares in the company but their ability to influence the operations and management remained intact. The organizational form is such that the founder’s philosophy and the core values can be retained in the future. So far the company has been able to keep the founder’s vision alive while maintaining growth but the external environment keeps changing and it may be necessary to change their vision and thereby the strategy. One of the major drawbacks at IKEA has been the high staff turnover despite its partnering with the workers. This suggests that their workers lack intrinsic motivation and not all may be able to work along with the vision of the company. It is also possible that the staff are not well-paid compared to competitors and hence the high turnover. Kamprad believed that only one who put in some efforts was likely to make mistake sand not someone who slept. However, it may be difficult to fund people who share the same vision and IKEA may need to offer higher wages to get people for the smooth running of the organization. This could translate into compromising on the core values and could bring about change in the organizational culture. For instance, independence may have to be done away with as errors could be costly for the company to absorb. This in turn means that freedom would no more be te core value of the company and the strategy towards retaining employees would have to undergo change. They have so far been able to attract innovative thinkers but they have not been able to retain them. Only those who nurtured their own dreams and found this a place to pursue their dreams, stayed on. Such people are few as most want to be a part of the herd. Unconventional workers and thinkers are few and hence IKEA may be forced to change their people policy. Such a change would affect the corporate culture. So far everyone looked up to Kamprad as an icon since he was the founder. The culture of togetherness would change because each may be inclined to follow his own goals. Kamprad would no longer be able to keep actively involved in the daily affairs of the company and this could impact the cost-conscious culture. To attract people with higher wage structure, the company would have to retain higher profits which mean the company may no longer be able to sell at affordable prices. This means they may now segment their products and target the up market segment. Their products would be affordable only a segment of eth society. This suggests that the vision would undergo an upheaval as the situation demands. Reference: Collins, J. (2000). Aligning with Vision and Values. Leadership Excellence. 23 (4), 6 Collins, D.J., & Montogmery, C.A. (2008). Competing on Resources. Harvard Business Review. July-August 2008 CSAC. (2007). Analyzing Resources and Capabilities. Retrieved online March 28, 2010 from http://www.blackwellpublishing.com/grant/files/CSAC05.pdf Graham, B. (2000). The significance of strategic vision, mission and values. Strategic Change. 9 (4), 205-207 Livers, M.L., & Hoffman, N.C. (2005). A RENEWED FOCUS ON MISSION AND VISION: MARYLANDS STRATEGY FOR CREATING CULTURE CHANGE. Corrections Today. 67 (7), 56-65 Schraeder, M. (2002). A simplified approach to strategic planning. Business Process Management Journal. 8 (1), 8-18 Spallina, J. M. (2004). Strategic Planning--Getting Started: Mission, Vision, and Values. Journal of Oncology Management. 13 (1), 10-11 Yang, Y. (2008). The Roles of Human Resources, Information Technology, and Marketing Knowledge capabilities in Performance: An Extension of the Resource-Based Theory Perspective. SOCIAL BEHAVIOR AND PERSONALITY. 36 (9), 1269-1282 Read More