Analyze IKEAs Competitive Standing against a Background of Competitive Strategy - Case Study Example

IKEA Competitive Standing Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Name Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Course Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Instructor Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Date Analyze IKEA’S Competitive standing against a Background of Competitive Strategy Models IKEA is a globally known home furnishing retailer. The company has grown rapidly since it was established in the year 1943. Today, the company is the globe largest furniture retailer which is recognized for its unique Scandinavian style. Majority of the furniture produced by the company are flat packed allowing customers to readily assemble them. Through flat packing, the company is able to achieve a reduction in costs and packaging (Chunhua 2009). IKEA have 18 stores in UK. Apart from furniture, IKEA stores include cafés and restaurants which are involved in serving Swedish food. In 2008, IKEA had a total of 253 stores in 24 countries with 32 additional stores run as well as owned by franchisees. This same year saw the company welcome 565 million visitors with a further 450 million visitors visiting their website. Further, in 2008 IKEA sales reached 21.2 billion Euros which was a 7% increase from the previous year. Chunhua 2009) maintains that, the biggest sales were received from UK, Sweden, France and Germany. As part of its strategic growth, IKEA opened 21 stores in 2008 in 11 countries and 20 more in the year 2009 (Chunhua 2009). It is quite evident that the company has a well established competitive standing against a background of competitive strategy model. This paper focuses on analyzing IKEA competitive standing through analyzing the company generic competitive, its five porters, SWOT analysis, strategic drift as well as its cultural web. These five theoretical models have enabled the company create a competitive advantage ahead of its competitors. Since it was established, IKEA has always had a major concern for its environment as well as its people. This can be described in its vision ‘to create a better everyday life for many people’ thus significantly put a concern on the company business. From its analysis IKEA competitive standing, it is evident that the company has greatly responded to people raising concern for sustainability in its choice of suppliers, stores, communication and product range. Based on the company SWOT analysis, IKEA uses this analysis in achieving its goals and objectives. SWOT analysis as a strategic tool that has enabled the company focus on its key issues. For IKEA, its strengths and weaknesses are internal aspects. This implies that they are within the control of the company operation. For instance, IKEA key strengths are largely established in its strategic aim where by the company ensures that it does not waste its materials through making sure that no more material is used than one which is necessary in the production of each item. In addition to this, the company have developed various product plans so as to increase its use of recycled or waste products (Benshun 2003). For instance, IKEA OGLA chair is made using wood waste whereas its LACK table’s uses a sandwich of several stiff cards between wood sheets so as to reduce the amount of solid wood used. Further, the company has an established strength whereby it has include a specialist marketing expertise. By so doing the company has managed to have a strong international brand which attract key customer groups, a well defined strong concept through offering well designed as well as functional product at low prices and finally a more democratic design that enable the company reach an ideal balance between quality design, price and function (Benshun 2003). According to Benshun (2003) IKEA Company uses its well established strengths to take advantages of the various opportunities that arise. The company believes that its environmentally focused business will greatly result in good returns even at any price sensitive to its markets. Evidently, there is a good business potential for the companies in providing solutions that will largely enable its customers live a more sustainable life while at home. Some of the various opportunities the company takes advantage of through its well defined sustainability agenda are; an increased demand for greener products, increased demand for low priced products which is defined in the current financial climate trend and finally demand for lower carbon footprints as well as water usage (Daqian 2005). For it remain as the world largest retailer, IKEA has greatly acknowledged its weakness so as to improve as well as manage them. By so doing the company is able to set its objectives as well as develop new strategies. Daqian (2005) asserts that, the company scale and size of its international business is a weakness that could make it hard for IKEA to control its quality and standards. Some countries where IKEA products are produced do not implement legislation that will ensure working conditions are controlled. Lack of legislation implementation present a weak link in the company supply chain thus affecting consumer views on their products (Daqian 2005). Even with the need to provide products at a low cost, it is important for the company to balance so that to ensure low quality goods are established. The company needs to differentiate itself as well as its product from competitors. Finally, if IKEA is aware of possible threats then it can be able to counteract them. It is quite evident that through developing new ideas, IKEA can utilize its strengths to defend itself against arising threats within its markets. Some of its threats are market forces where more competitors are entering the low price furnishing and house hold market, economic factors whereby the recent global recession have slow down customer spending and finally, social trends which has slow down new buyers entering the house hold and furnishing market (Daqian 2005). Porters five forces analysis is of help in analyzing IKEA competitive standing against a background of competitive strategy model. Five porters assist the company in analyzing its industry as well as develop its business strategy. Based on buyers’ power, IKEA has little power due to the existing low price options. Consumers are perceived to have limited alternative choices regarding furniture, making IKEA products unique amongst its competitors. In addition, low price strategy is a way in which IKEA response to buyers needs. On the power of suppliers force, IKEA suppliers have set standards in relation to delivering materials (Brugmann and Prahalad 2007). Once in a while, the company is engaged in bidding contracts with various companies so as to craft same products. Most IKEA suppliers competing with other suppliers thus have a little bargaining power. The company is very careful at selecting the manufacturers of its products. Due to this, IKEA has its own production factories as well as designers which make it less dependent on other manufacturers. Further, bargaining power of suppliers can be viewed as a threat to IKEA due to the high level of competition in this kind of business (Brugmann and Prahalad 2007). It is quite evident that IKEA still dominates in both the household furniture as well as food retail across the world. The company offers different functionality and styles ahead of its competitors. It is quite evident that IKEA is most successful in delivering a complete package for the consumer that largely reflects on weak rivalries. Based on substitutes, it is evident that there is no specific product that can be used to substitute IKEA furniture but it is important for the company to keep up with latest trends so as to avoid being out of style. Another advantage in relation to substitute is by way of leading in technology, the company can adapt a new style fairly which involves moving its products into its various stores. Evidently, the furniture market is highly competitive. Therefore, the risk of new entrants is not extremely high because of the huge capital involved in starting this kind of business (Edvardsson and Enquist 2009). However, research indicates that IKEA stores are not situated in small towns creating an opportunity for new competitors to venture into small as well as midsize cities. IKEA has a well established competitive advantage in that it is not easy to venture into cities since new entrants have to establish a more vast supply chain as well as create a unique brand name to beat IKEA. Though IKEA have a myriad of strengths and opportunities compared with its competitors, the company need to posses both differentiation and low cost. These two basic types of competitive advantages largely influence five forces and are known to determine the company profitability. It is further evident that when IKEA combines this basic competitive advantage with various operations it is able to result to achieve three generic strategies namely cost leadership, focus and differentiation. Based on cost leadership, IKEA have achieved this by provision of products with low prices (Edvardsson and Enquist 2009). Due to this, the company has been able to be an above average performer translating to high returns. Further, based on differentiation, IKEA has been able to be unique in its industry in term of products and prices offered therefore being valued widely by its customers. For IKEA, differentiation is mainly based on its products, delivery system and the company marketing approach. The company realizes there is a competitive advantage if the extra cost for differentiation is less compared to premiums price in that it is able to get better profitability compared to its competitors. Finally based on focus, IKEA is involved in optimizing its strategies thus achieving an overall competitive advantage in all its target segments. The company focus strategy has two variants namely cost and differentiation focus. Based on its cost focus, the company seeks a cost advantage over its competitors in its target segment whereas in differentiation focus, IKEA seeks a well defined differentiation in its target segment (Edvardsson and Enquist 2009). Cultural web is defined as the representation of the various paradigm of a given organization as well as physical manifestations of organizational culture. IKEA cultural web is defined in its hybrid strategy, power structures, organizational structure and control system. Based on their hybrid strategy, IKEA recognizes that it can be able to achieve high standard product at a low cost concentrating of establishing differentiation on the basis of stores and logistic operations and marketing. Based on the company power structure, IKEA uses an egalitarian leadership styles. Here, the company customers are given powers on the kind of operation to be undertaken by IKEA. Edvardsson and Enquist (2009) maintains that, all IKEA employees are taught as well as trained in the company way defining their cultural web. It is quite evident that even though IKEA is a large company with several divisions, the company has no strong emphasis of having a hierarchy. Their structure encourages collaboration between all employees from support staff to top management (Edvardsson and Enquist 2009). IKEA being a multinational organization is facing competition from all angles therefore, the company has intensive control regarding its distributors and suppliers. For instance, if one of its suppliers is operating in an unethical manner, the company gets bad media coverage. So as to avoid this, the company ensures it tries to optimize the contract it has with other suppliers so that such issues do not arise. .According to Johnson Et al (2011), for IKEA, strategic drift is when strategies are developed incrementally basing on the history and culture of the organization without keeping pace with surrounding changes The strategic drifts don’t prioritize fixing what is broken but it banks a lot on the familiar answers and the solutions that have always worked. This strategy influences how an organization responds to change. IKEA systematically redefined the roles, relationships and organizational practices of the furniture business. The focus of strategic analysis is primarily not the company but the urge to create quality and the reinvent the business to a system that delivers it for an entire cast of economic actors. IKEA product is homogenous worldwide; they don’t differ from country to country Czinkota et al (2000). IKEA largely fosters competition among suppliers and treats them as long time business partners. The suppliers have to proof their worth and reliability since once they win tenders they become permanent business partners. IKEA banks mostly on the pool of suppliers they have had for sometime although new ones come along as the market expands (Margonelli 2002). It maintains low costs without compromising the quality. The challenge is maintaining high volume production. IKEA does everything to reduce cost of their products (Margonelli 2002). IKEA’s market and target customers are the young people who are educated. IKEA also faces challenges because there are other enterprises that give their clients a chance to add value something that is not available at IKEA. Although, the IKEA products are international the company continue to stress its Swedish roots notably the design and advertising. The company also applies the same formula throughout the world such as putting on offer the same range of products without considering different cultures. Production strategy faced challenges especially in the American market due to dimensions of the products making. The company had to deviate from the strategy and make products that were suitable to the American market and counter the challenges since it has a defined clearly its mission; produce and sell furniture and furnishings to the largest possible market (Margonelli 2002). Finally, being a well known global brand with hundreds of stores across the world, IKEA must access its external and competitive environment. This will assist in revealing opportunities it can take advantage of and the challenges to deal with. 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