The Strategy of IKEA - Essay Example

The Strategy of IKEA Introduction For the period of its seven decade history, IKEA has developed from a little home furniture company to a worldwide retailer with stores in 38 countries and with over a hundred thousand employees. This company is privately owned by the Stichting INGKA Foundation, the latter which is dedicated to the promotion and maintenance of advancement in architectural and interior planning. The Foundation is listed in the Netherlands and it is completely administered by the Kamprad family. Since the beginning of its international expansion some five decades ago, it has been supported by what has come to be termed as firm-specific knowledge-based assets. In addition, it has been able to develop a standard operating procedure that has been largely responsible for the identification, acquisition, and transfer of knowledge between the different stores in the company’s network. Because of the skill displayed by its management when handling diverse issues from its numerous stores globally, and also being able to venture into countries which speak different languages, IKEA has achieved success on the international scene where other companies take years to achieve the same. IKEA Vision The vision of IKEA is to generate an enhanced daily life for the many people and in order to achieve it; this company has worked toward the provision of a range of well-designed and serviceable home furnishing (Meisler, 2004). In addition, it has ensured that the cost of production is low enough so that the sale price of its products is low enough to so that as many people as possible can be able to purchase them. IKEA Mission The mission of IKEA supports it vision through the development of a diverse range of useful household and office products at prices which are low enough to ensure that as many of its customers as possible can afford them (Jonsson & Foss, 2011). In order to fulfill its mission, this company focuses towards the creation of good furniture design that is set at a low price. The furnishings that are offered by this company vary to a great degree and these cover every room in the home, with the aim of satisfying those people ranging from the romantic at heart to the minimalist. The company’s stores are so well coordinated that the designers are normally able to come up with products which meet the daily needs of their customers through the elimination of all those parts which are unnecessary. The cornerstone of IKEA’s mission is ensuring that the prices of its products remain low so that they can be available to everyone. In order to fulfill this mission, the company attempts to do everything in a better, simpler, and more efficient manner that is also cost effective. IKEA’s mission is to ensure that it has a straightforward approach to its business so that it develops furniture with the eventual cost in mind. The way of this company when conducting its business is through the effective use of raw materials so that it can fulfill its customers’ needs by offering products of high quality at prices that are affordable. IKEA Values Throughout the years, the company has devised a set of values that have come to affect the way that it works and these values have the same level of importance in all of its stores globally. Among the aspects of these values are humbleness and willpower, where the company’s employees not only respect each other but also respect their customers as well as suppliers (Meisler, 2004). Another basic value of the company is leadership by example where the store managers are required to set a good example for their coworkers and to expect the same from the latter. Furthermore, IKEA encourages its employees to dare being different so that they often question the old ways of conducting business, and whenever a better idea is found, the company is always willing to adapt to change. The company also encourages its employees not only to work together, but also to ensure that they are enthusiastic in their work as this provides them with the unique ability of solving problems that would normally seem unsolvable. Cost-consciousness is very important for IKEA because there is the realization that low prices are impossible without low costs (Meisler, 2004). Moreover, the company encourages its employees to have a constant desire for renewal and is normally dome through adapting to customer needs through the development of innovative solutions that saves money. Finally, IKEA encourages the acceptance and delegation of responsibility since it works towards the promotion of those employees with potential so that they can surpass their expectations. IKEA Porters five Forces Bargaining power of suppliers It can be argued that one of the reasons for the global success of IKEA is the way it handles its human resources as well as its suppliers and other relevant people to ensure that its ventures are successful. The way through which IKEA manages its relationships not only with its employees but also those who facilitate its ventures, such as suppliers, is based on the understanding, according to its mission, which the company’s management has for each of these individuals, and this is consistent with Porter’s bargaining power of suppliers analysis. One would argue that because of the friendly attitude of the management at IKEA, these individuals do not feel intimidated by their supervisors, and are in fact, encouraged to voice their opinions concerning matters which can be improved (Anderson, 2005). It has been found that the understanding that is developed by the store managers towards employees and suppliers enables them to determine the abilities of these individuals and this ensures that they are treated with high regard within the company’s stores which will further its growth and achievement of its goals. Furthermore, one would suggest that the management’s understanding is designed to help the company to determine the areas whose performance needs to be enhanced as well as ensuring that the employees are provided with the opportunities that are necessary for the promotion of their professional growth. The close relationship between the company and its suppliers provides the latter with the opportunity to make an analysis of the factors that determine how the company performs over a certain period (Lessard, Lucea & Vives, 2013). In addition, the company has a diverse number of suppliers which enable it to maintain its independence through not relying on only one supplier; a case which at times has led to the charging of exorbitant prices since a single supplier holds a monopoly. It is a means through which IKEA’s management is able to be in a position where it is competent enough to provide guidance to its employees towards a path which will lead to improving customer service. In the current competitive business world, it is understood that organizations can only contend with their adversaries by innovating, and organizations can be inventive by managing their human resources well. The human resource system of IKEA has become more effective by having a legitimate and precise reward management system used for rating the performances of its employees (Berger, 2011, p.3). It has been found that the perceptions of employees about the objectives and uses of reward management results have been beneficial depending on a number of factors. An example of this is when employees are more likely to be open and accommodating of a given the reward management program if they perceived that the process as a useful source of response which helps to improve their performance. Employees at IKEA have come to embrace and contribute significantly to the various reward management schemes that have been introduced by its management since they have come to recognize opportunities for promotion (Stahl, Björkman, Farndale, Morris, Paauwe & Stiles, 2012). In addition, it is a path that can be used for personal improvement opportunities, as well as a chance to be able to be seen and to demonstrate their skills and abilities, and an opportunity to get to interact with others within the company. Thus, the company has been able to contain the power which both its suppliers and its human resources would have had over it. Bargaining power of customers IKEA has dedicated a lot of resources in an attempt to understand consumer demand for its goods and services and this understanding has been harnessed and used to forecast consumer demand. According to Porter’s bargaining power of customers’ analysis, this enables the company to keep the right amount of stock at hand because if the demand is underrated, sales can be lost due to a shortage of supply of goods. IKEA has throughout its history, attempted to adopt those practices that cause the standard cost of producing its products to reduce while the quantity of its production increases (Casey, 2005). There are two varieties of these attempts and the first are internal where funds have accumulated to the company in spite of the industry, market or atmosphere in which it functions. This has been done through the economical use of all the material available for the making of products. The second of these, which are external factors, have come to benefit the company because of the way in which its industry is organized (Urde, 2009). An example of this is that the company has managed to carry out sophisticated research because it is able to spread this expenditure across a greater volume of sales and this has led to many improvements over years. IKEA has pursued a policy of standardization of products in its attempt to reduce costs of product production while increasing the quality by using more efficient methods of production. This has been done through the minimization of the differences in the products which it produces and by doing so, production has been rapidly increased, in the process reducing the cost of raw materials (Klevås, 2005). Aiming at the average customer has made it possible for IKEA to offer a generalized set of utilities in a product to cover a greater number of customers. This has enabled the company to spend less in producing its products but at the same time gaining more because the average customers are a large market. The cost of production at IKEA is normally quickly recovered and in the process, a large profit is made. IKEA has often invested in research and development leading to cost saving technologies and as a result, has been able to trade an increase in fixed costs for a reduction in variable costs. Investment in cost saving technologies has allowed for the lowering of overall costs and provided a degree of information and control that was previously impossible to achieve. Threat of substitute products or services In its attempt to ward off the threat of substitute products and services, IKEA has worked towards the introduction of the latest technology to aid its employees in their work. This new technology has been found to be immensely attractive to the younger generation of employees, who are often quick to adjust to its use, unlike the older employees who are the ones that tend to take more time to learn. Trainings normally ensure that all the employees involved have adapted to the new technologies and IKEA is no exception since it organizes training in the use of the new technology for those employees who are new to its use (Jonsson & Foss, 2011). As the employees come to learn how to use this technology, and they find how much easier it is to use in place of the older ones. In this way, the employees who have undergone training come to accept it as a fundamental part of their working environment. With this acceptance the desired technological changes in the company is often done in a swift manner, ensuring that the employees retain their high capacity of production and efficiency (Senge, Carstedt & Porter, 2001). The use of new technology enables the employees of IKEA to feel well accommodated at work and this has created an environment where they are able to work without any need for close supervision, hence enhancing their creativity. The fact that the employees of this company are in a good working environment helps in the increase of their productivity. The creativity of the employees of this company is among the main reasons why there are many innovations within it which it rivals are normally not able to replicate (Weinstein, 2006). The innovation at IKEA through the effective use of new technology means that it continues to remain competitive and also enables it to replicate its products in all its global stores. This replication also works towards the development and maintenance of consumer confidence since the company is consistent in the design and quality of its products. Intensity of competitive rivalry One will find that IKEA has worked intensity of competitive rivalry into its policy as seen through its attempt to maintain its competitiveness through the development of better products as opposed to its main rivals in the market. Not all companies, with very few exceptions, have displayed a high capacity for being able to manage and develop their brands to a high quality level that many of their rivals have rarely been able to match. This skilful management of IKEA’s brands in different countries has enabled this company to become highly successful, as those who work for it receive a high level of training to ensure that the high quality of its products is retained. It is true that the IKEA’s edge over its rivals is based on the encouragement, by its management, for its employees to be innovative so as to achieve its vision of providing the best possible services to ensure the creation of a better way of life for its customers (Elg, Ghauri & Tarnovskaya, 2008). While there are still some furniture companies which have a complete lack of innovation has made their products not suitable for the global market, IKEA has managed not to fall into the same predicament. One of the ways through which this company has achieved its success has been working towards ensuring that the innovative aspects of the development of its products are not only based in some of its brands, but in the promotion of all its brands. In this way, there has developed a balance where all the sectors within it are able to produce those products of the highest quality for both the domestic and the international market (Das, Vijayakumar, Debnath, 2010, p.639), hence ensuring that the international growth of IKEA, as well as its popularity continues at greater heights than it has achieved already. Threat of new entrants One of the most important ways through which IKEA has developed its powerful competitive strategy has been through the motivation of its workers to continue with their efficiency through the promotion of those who are exemplary in their innovation skills as well as the giving of pay bonuses, which ensures that the workers continue to strive to do their best (Barthélemy, 2006). It is the motivation of IKEA’s workers not only to be innovative, but also to be humble and provide the best services possible to its customers that is for the most part responsible for not only the swift growth of the company at the international level but also for its sustenance. This is mainly because without the enthusiasm that these workers have for the promotion of IKEA’s values, then the company would not continue to grow at the same rate as it is today. It is the dedication of its employees as well as their relatively high level of enthusiasm for their work coupled by their high efficiency that has enabled the success of this company over the year in ensuring that it blocks any new entrants into the markets that it dominates (Taylor, 2007). It is a fact that because of the highly efficient ways through which IKEA develops its products, this company is able to sell most of the product at relatively cheap prices when compared with its rivals. This is the reason why IKEA has come to grow so fast internationally, with business relationships and operations running all over the world. Conclusion IKEA’s international success has been based on what has been considered to be its unattainable mission, namely to create a better way of life for the many people. This mission has guided the steps that this company has taken and has ensured that its employees relate well not only with its customers, but its suppliers as well. In order to achieve its objectives, all employees are trained to do what they can to ensure that their work does not unnecessarily add to the costs of the company. The way in which it not only manages its employees but also the innovative ways of developing its products as well as its relationship with its suppliers and customers has ensured its continued success at an international level. 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