IKEAs Competitive Behavior - Case Study Example

Student Name Tutor Title: Firms’ Competitive Behavior: The Case of IKEA Institution Date Firms’ Competitive Behavior: The Case of IKEA Introduction Organization Competitive behavior is one of the concepts that have received a lot of renewed attention in the modern or contemporary management literature. This can be attributed to various factors among them the increasing changes that companies face today, the complex and dynamic business arena, globalization, the ever changing consumer preferences, competition, introduction or revolution of information technology communications as well as the discharge of global trade (Kahreh, Ahmadi and Hashemi, 2011: 28). Despite this renewed interest, there still exist information gap particularly in organizational management strategies. One question one might ask is how companies cope with these dynamic business environment and new challenges. This paper is aimed at discussing in details the subject of competitive behavior and how IKEA has survived in this challenging business environment. In particular, it will explore IKEA’s competitive standing against a background of generic competitive strategy models. This paper is structured in four parts. The first section as already seen presents a brief introduction to the study problem. The second section will give a brief description of IKEA while the third part introduces a light touch on related or key concept. Part four gives a SWOT analysis of IKEA followed by the fifth part which gives key management strategies adopted by IKEA with special emphasis on competitive advantage as well as generic competitive strategy. Finally, the study will conclude in the last part by giving a summary of the major findings drawn from the analysis. Background Information IKEA is a Swedish home-furnishings retailer and has 231 stores in 33countries, mainly from European countries, Canada, Canada, United States , Asia, as well as Australia. More than 20 opened in the year 2005. IKEA is regarded as one of the few store chains known located in Israel and the Middle Eastern nations. The company is quite famous for its affordable furniture which consumers are required to assemble for themselves (accessed on 3rd March, 2012; 2:05am). Key Concepts Competitive advantage mainly relates to firms Competitiveness which in simple terms means the relative advantageous position of an organization against its rival companies or firms. Competitive advantage are basically formulated from the values that can be created by the company, so customers are willing to buy products at cost price the vendor supplied in creating, while the value is what buyers or consumers are willing to pay and superior value derived from it offer lower prices than competitors for corresponding benefits or giving unique remuneration that more than just compensate the higher price. (Porter quoted in Suliyanto, 2011: 30) In summary, competitive advantage generally entails a unique position through which organization improves itself in an effort to beat its rivals (Suliyanto, 2011: 31) On the contrary, a Competitive strategy mainly has emphasis on ways through which an organization or a firm can acquire the most advantageous position that it possibly can. Generic strategy is simply those approaches used to outdo competing firms. Porter (1998:35) describes strategies as simply those often intended to compete or outperform other organizations in a business and is mainly composed of cost leadership, differentiation, as well as focus. IKEA SWOT analysis Strength The major survival strategies adopted by IKEA form part of its key strengths. In particular, its wide base of suppliers is its main strength and success especially because this allows for greater earnings or profits (Ocicka, 2009: 3). Furthermore, it has been acknowledged both the international arena as well as the world over having in its key values, the principle of low priced products together with amazing sales. The international brand recognition is particularly built upon a unique philosophy and low product prices, combined with solid sales. It also offers values and exhibits some level of specialization which forms one of its major strength. Weakness IKEA’s main weakness relates to its inability to adequately serve all its clients partly because of its large or extensive base. It has over 230 stores in 33countries particularly in Europe, USA, Canada, Asia, and Australia. It is quite a challenge serving all clients. Another weakness is associated to its raw material, the limited supply of wood as it is a large organization. Besides, there is a great possibility of IKEA facing stiff opposition by conservation quarters or groups. Threats Nevertheless, some of these extra developments can pose further threat. A case in point is the possibilities of market infiltration when competitive companies adopt similar measures like are introduction of similar low priced products. Another threat could also be attributed to the Global economic instability. (Johnson, Scholes and Whittington, 2005). Opportunities On the other, IKEA is able to counter some of its weaknesses or challenges by exploring its potential opportunity. One of this is the expansion into emerging markets in Asia and Eastern Europe which will significantly increase its sales. In addition, it can explore IKEA’s major its greener products which can also counter the issues it has to deal with for instance wood supply and confrontation by conservationists. IKEA’s Management strategies IKEA’s management strategies are closely linked to the existing business forces including rival companies. IKEA relies a lot on its competitive advantage for its survival. A competitive advantage can only meaningful if at all it is simply related to those values or attributes highly values in the industry or market and which must be associated some product/delivery attributes as key buying criterion in the existing market. Some of these attributes can be in the form of reduced costs, improved quality products with corresponding high performance, availability of a wide range of products as well as better or quality services, all delivered simultaneously to facilitate the value of their consumers (Kushwaha, 2011) Good quality products are one of the fundamental values or principle at IKEA. The firm bases its assessment of “the right quality” on the needs of its consumers. To make sure that all IKEA home furnishing products meet the expectations and requirements of the customers as well as all the mandatory standards and norms, the products are tested in the IKEA Test Laboratory (Web accessed on 3rd March, 2012; 2:35am). In addition, IKEA also allows for self-assembly fittings goods at rather an affordable price. In one way or another has given IKEA and edge over other firms like Habitat. IKEA has also made good use of its available resources as one of its management strategies in order to have a competitive edge. According to Raduan and his colleagues, a business management strategy of a firm needs to consider manipulations of the various resources over which it has direct control and these resources in the long run have the ability to elicit corresponding advantage. This is all about the resource based theory. These types of resources owned and controlled by firms have the potential and promise to generate competitive advantage and eventually superior firm performance (Raduan et al., 2009: 406). On the contrary, Suliyanto believe competitive advantage is more than just having the resources alone but it must be accompanied by some commitment towards continuously learning and understanding the development of a dynamic market. Quoting from several sources, he believes that a superior skill is a unique capability that can go along way as a source of advantage. In addition, there is need for Special abilities acquired mainly through the activities and organizational behavior, new product development and service provision, where the companies put their efforts in coordinating these activities to have a competitive advantage. (Suliyanto, 2011: 31) This can also go along way with considering an appropriate Cultural market orientation which basically can be converted into an organizational performance in a bid to providing a continuously competitive edge to consumers. IKEA has also adopted value chain strategy to gain advantage over its rival companies. This is very important to a firm when it is faced with competition. According to Clulow and his colleagues, “A firm is said to have a competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential player” (Clulow et al., 2003). On the same note, Porter believes that a firm can position itself to gaining competitive advantage by means of some key internal activities or operations in the value chain at rather a lower cost, that which is better than its rival companies. This may include primary activities like logistics, production, and marketing, among others. Also important is the secondary activities which mainly relates to the organization’s infrastructure, workforce, adoption of technology, as well as procurement. Although some scholars believe that the issue of value chain for the final customer is the value only in its theoretical context and not practical terms, IKEA has tried to some extent to implement it for instance the self assembly products. As one of its management strategies, IKEA has positioned itself appropriately in dealing various competitive forces among them is the threat of new entrants, bargaining power of buyers, threat of new products or services, bargaining power of suppliers as well as the rivalry among existing firms. According to Porter, these forces often exert some kind of pressure on every player in a particular industry. He suggests that there is need for a firm to position it-self adequately or appropriately to counter these five forces (Porter 2008: 26-27). Looking at IKEA’s case, it is clear that it really tried particularly in dealing with bargaining power of suppliers by having a larger base of suppliers compared to other firms like habitat. In dealing with the threat of a new product in the market, there is need for a company to think ahead of other rivalry organizations in order to achieve a competitive benefit, the fashion of a game theory, taking note of alternatives, and anticipating the reactions of other players in the same game. To this end, IKEA has not only made a good use of catalogue but also has done remarkable job to maintaining its brand name. IKEA has also considered a generic strategy to gain a competitive edge over others. Generic strategy entails those methods employed by firms to outdo rivalry firms. Porter (1998:35) describes strategies as simply those intended to outperform other firms in a business and mainly include cost leadership, differentiation, and focus. Cost leadership is where the organization work hard to become the leading cost producer and distributor in the industry, differentiation relates to firm’s approaches to produce and distribute products seen as unique throughout the entire industry . Focus entails emphasis on a smaller part with an aim to satisfy the consumer with lower cost relative to its competitors. (Porter cited in Venohr 2007: 36). So far IKEA has remained one of the leading companies with concerns to cost leadership. It core value is production at a lower cost (Porter 1996: 71). Apart from cost leadership, IKEA has really tried to achieve differentiation by creating a market position that is perceived as being unique industry-wide and that is sustainable over the long run. This has involved design or brand image, distribution among others (Frambach, et al. 2003). IKEA has also tried very hard to offer a high-quality product supported by good service at premium prices (Baroto and Abdullah, 2011:1364). With respect to Porter’s generic focus dimension, IKEA has adopted the Practice of Cost-based focus with a greater level of specificity where the firm’s focus is based on the needs of a customer group (Porter 1996: 67). Combination of these strategies can also be used to counter the competitive forces. Low cost and differentiation strategy may be compatible approaches to dealing with competitive forces (Allen and Helms, 2006). A good example is combining low cost with differentiating components (Gopalakrishna and Subramanian, 2001). IKEA uses a combined generic strategy since these strategies notably cost leadership and differentiation. This it has achieved through its “self-assembly” which is not only associated with saving the cost of transport but also giving the designer more room to seek the differentiation (Zhi Li 2010: 27). Various companies have so far failed to achieve what IKEA has attained due to various reasons but which mainly revolves from the fact that they have not adopted some of the strategies which have assisted IKEA to maintain its position as world famous furniture producers despite the challenging business environment. IKEA is one the firms that has really succeeded in advertising its products. Conclusion The aim of this paper was to explore how IKEA has survived against its competitive standing and generic strategy. The company has employed various approaches which generally relates to various theories of management. Its key advantage relates to its wide base of suppliers, international recognize brand and its core values of producing low price product. In particular, it has survived by adopting Porter Generic Strategy. Reference Allen, R.S. & Helms, M.M. 2006. Linking Strategic Practices and Organizational Performance to Porter’s Generic Strategies. 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