Business Analysis of IKEA Company - Case Study Example

IKEA Name Institution Introduction This essay seeks to conduct a case study on IKEA company. There are various parameters of this company that will be highlighted in this paper. These are Internal Environment Analysis broken down into facets such as investigation of the firm’s resources, capabilities, core competencies, value chain activities, financial condition, current strategies and objectives. IKEA is a multinational corporation with branches extending into major countries and cities in the world (IKEA website, 2013). IKEA- Brief company profile IKEA stands for Ingvar Kamprad, Elmtaryd and Agunnaryd. The first two initials IK standing for Ingvar Kamprad represent the name of the founder of the company. The other two represent the farm and the hometown he grew in respectively. Ingvar Kamprad founded IKEA in the year 1943 in Sweden, his home country. Since then, the company has grown in leaps and bounds to have over 330 stores in more than 38 nations across the globe (IKEA website, 2013). The expansion of this company into overseas market has amassed a fortune for the company and a personal fortune for the founder, Ingvar Kamprad, making him be recognized as one of the wealthiest men in the world. IKEA resources The company has grown over to amass quite a considerable amount of resources from their humble beginnings in a farm in Sweden. Now the company has become a brand name and its products are found in many stores across the globe. Being able to maintain a sense of consistency to grow a company from nothing into a brand requires a lot of resilience (Boyatzis & Soler, 2012). The resources of a company are divided into two sections; the human and the capital resources and both must be in cohesion to ensure that the goals of the company are achieved (Vroom & Gimeno, 2007). These are tangible and intangible resources. IKEA has abundance of both human as well as capital resources. On the human capital frontier, the intangible resource, the company boasts of an employee base of over 139000 by the year 2012 (IKEA website, 2013). It had over 29 billion Euros as total equity by the same year with the total assets clocking over 44 billion Euros. Most of these resources are used to expand into new markets and as working capital for the giant corporation. The workers of the company by region have been distributed as follows: Europe: 99,000, North America: 18,000, Asia & Australia: 11,000 and Russia: 11,000. On the tangible resources part, the company boasts of an equity of over 29 billion Euros. This gives the company enough capital to run the company, expand and explore new grounds. The full run of the financial power of this company have been analysed in a latter section in this paper. IKEA capabilities A firm’s capabilities are measured by the capacity of the firm to make more money (Oosten, 2006, p.710). In other words, this is the measure of how solid the company is based on financial strength. The company has two core and well-recognized capabilities; financial power is one of these capabilities. The company has enough money to take care of its strategic plans, expand into new markets and explore new ideas. Financial might is always a key capability for companies wishing to bring their strategic plan and objectives to fulfillment. The company also boasts of a large and loyal customer base. Having been able to appeal t to majority of the clients through offering them quality products at a very affordable price, the company has been able to achieve a huge client base. This forms one of the core capabilities of IKEA Company. IKEA financial position From the IKEA website, as of the end of the fiscal year 2012, the company’s financial standing was as the following table summarizes. Parameter Figure (in Billion Euros) Revenue 27.6 Operating Income 3.5 Net income 3.2 Total assets 44.7 Total Equity 29.1 The company’s sales volumes and hence revenue growth has been on a steady rise. This rise in a span of four years from the year 2008- 2012 could be summarized in the table that follows (IKEA website, 2013): Year Figure (In Billion Euros) 2008 21.5 2009 21.8 2010 23.5 2011 25.2 2012 27.6 The chart below offers a more clear insight into these financials: This revenue is inclusive of sales of goods and rental income from commercial property. A further illumination into the financial standing of this company could be done through looking at the consolidated statement of income for the years 2011 and 2012. These are as shown below; parameter 2011 (in Billion Euros) 2012(in Billion Euros) Revenue 25.17 27.62 Cost of sales 13.77 15.72 Gross profit 11.4 11.9 Operating cost 7.8 8.4 Operating Income 3.5 3.4 Total expenses 0.165 0.427 Income before minority interests and taxes 3.7 3.9 Tax 0.781 0.695 Income before minority interests 2.9 3.2 Minority interests -0.01 -0.012 Net income 2.9 3.2 The graph below summarizes this information. Another comparison will be conducted here. This compares the consolidated balance sheet figures for years 2011 and 2012. Parameters 2011 2012 Group Equity 25.4 29.1 Total non-current liabilities 4.6 4.1 Total current liabilities 11.9 11.5 Total Equity and liabilities 44.8 44.7 The information is summarized in a graphical format as follows; IKEA competency The most easily recognizable competency of the IKEA group is the presence of a network of very capable and very talented employees. The company has over 139000 employees depending either directly or indirectly from the company. These employees are the key pushers of business in the IKEA group. A company which does not have competent employees is bound to fail irrespective of other strengths such as tangible resources such as capital (Grant, 2003, p.492). Value chain analyses of IKEA Diagram source: cripoll.wordpress.com From the image above, it can be observed that the value chain is broken down into six departments namely Business intelligence, Design department, Trading department, Distribution department, Retail department and finally the Marketing department. These departments work in harmony to ensure the product goes through all the stages from inception as an idea to the finished product at the customer’s doorstep. Current strategies and objectives of IKEA A company cannot be able to meet its goals and objectives if it has no clear cut and well formulated strategy to go about it (Fairholm, 2009, p.55). Through its sustainable growth charter, IKEA has been able to develop a number of strategies. Some of these strategies have been outlined in the paragraphs that follow. Higher sales and investments in sustainability From the financial analyses conducted in the preceding section, it has been observed that total sales rose by up to 9.5% to 27 billion Euros having a 7.1% adjustment due to currency impact (IKEA website, 2013). Much of the recorded growth and sales volume came from new markets such as China, Russia and Poland. The other nations including USA and Germany also continued to register considerable growth figures. With continued strength and expansion, the company has good prospects of business in the future. In line with this, the IKEA group wishes to explore the investment in wind power. Having started the project, the company boasts of having 126 wind turbines and solar panels at over 75 of their stores worldwide. This has pushed IKEA group’s total renewable energy production, inclusive of biomass energy to an all time high of 34% by the year 2012 (IKEA website, 2013). Another strategy is ensuring that the inventory of the stores were kept high all the time to ensure that the clients got exactly what they wanted. They also improved the supplier from the suppliers to the stores to 55% ensuring that availability is not compromised, there are lower costs of transportation, lower transport damages and reduced carbon footprint. Lowering prices Perhaps this is still the major factor and strategy that has kept the company in the market for so long and has continued allowing the company to make sales. Without compromising on quality, IKEA company has managed to cut costs to an extent that they keep the prices of their products low. Low high quality products are always appealing to customers who are always on the lookout for a bargain (Elbanna, 2009, p. 78). The company is also seeking ways and means of being efficient in its operations. For instance, the company has introduced a re-packaging system and equipment in their stores. This allows the company to save on handling and transport costs. Conclusion The discussion above has given an insight into the world of one successful company, IKEA. The discussion has shown how the company, incepted as a small business in a farm grew to become a brand that is well recognized by many consumers worldwide. Various aspects of the company have been discussed namely profile of the company, investigation of the firm’s resources, capabilities, core competencies, value chain activities, financial condition, current strategies and objectives.  References Boyatzis. R & Soler. C (2012). Vision, leadership and emotional intelligence transforming family business. Journal of Family Business Management journal. 2(1): 23-30: DOI 10.1108/20436231211216394 Elbanna. S (2009). Determinants of strategic planning effectiveness: extension of earlier work. Journal of Strategy and Management. 2 (2):175 – 187. Fairholm. M (2009). Leadership and Organizational Strategy. The Innovation Journal: The Public Sector Innovation Journal. 14(1): 16-23 Grant. R.M. (2003). Strategic Planning in a Turbulent Environment: Evidence from the Oil Majors. Strategic Management Journal. 24(6): 491-517. IKEA website (2013). Welcome inside. Retrieved 14 October 2013 from http://www.ikea.com/ms/en_US/pdf/yearly_summary/ys_welcome_inside_2012.pdf Oosten. E.B (2006). Intentional change theory at the organizational level: a case study. Journal of Management Development. 25(7): 707-717. DOI 10.1108/02621710610678508 Vroom. G & Gimeno, J (2007). Ownership form, managerial incentives, and the intensity of rivalry. The Academy of management journal. 50 (4): 901-922. Read More