IKEA Beating the Competition - Assignment Example

IKEA Table of Contents: Sr.# Topic Pg.# 1. Introduction 2 1.1. Brief Outline 2 1.2. Nature of Business 3 1.3. Organizational Structure 4 1.4. Main Competitors 5 2. Strategic Analysis 6 2.1. Approach to Generic Strategy 7 2.2. Models, Tools and Techniques of Strategic Analysis 8 2.2.1. SWOT Analysis 9 2.2.2. Core Competencies 10 3. Analysis and Discussion 12 References 14 1. Introduction IKEA - a Sweden based home furnishing company, has shown tremendous growth from a locally based small organization to a global giant which boasts of a significant presence on almost all the major continents on the globe. The case of IKEA is representative of an incredible business strategy and an amazing framework that combines creative and innovative marketing ideas that helped it add figures in millions to its balance sheet since decades. An organization can be viewed as a semi - autonomous body with a series of goals and objectives aimed at achieving high profitability, enhancing customer satisfaction, increasing global presence and attaining industry leadership. This report Human Resource Management report on IKEA, strives to provide a detailed analysis of the various aspects related to the organization such as the nature of its business, its organizational structure, the markets or industry sector it caters to, its main competitors, etc. as well as analyze it from the strategic analysis perspective, which includes PEST analysis, SWOT analysis, Porter’s five forces model, etc. and financial analysis, etc. in order to understand the corporate strategies and structure of IKEA. 1.1. Brief Outline IKEA is a privately owned, retailer engaged in the business of selling a wide range of international home products such as flat pack design furniture, accessories, bathroom and kitchen wares etc. IKEA was founded in the year 1943 by Ingvar Kamprad in Sweden and is owned by and registered in the name of the Kamprad family. IKEA is the parent company for all IKEA group companies based in the Netherlands. It owns about 262 stores in 24 countries which are owned and managed by the IKEA group. In totality, there are about 296 IKEA stores in 36 countries which are owned and run by franchisees outside the group. It plans to expand their business further by setting up an additional 12 stores during the current financial year 20091. The IKEA group has successfully managed their business since decades to become one of the largest furniture manufacturers in the world2. 1.2. Nature of Business The Swedish company which has world wide operations is believes in offering a wide range of well designed functional home furnishing products at relatively lower prices so as to make them easily affordable to all categories of customers3. Its mission is to "create a better everyday life for the many"4. The IKEA Group co-operates with a wide range of corporate partners and organizations. Its long term sustainability direction is to have an overall positive impact on people as well as the environment in which it operates. It is committed to offering high quality product and services which are environment friendly and safe for its customers in terms of health perspective. As a part of its business idea it strives to maintain lower costs through wise use of its resources, intelligent designing of its products, and smart and innovative marketing strategies. 1.3. Organizational Structure 1.4. Main Competitors IKEA's competitors can be categorized into two main sets: direct and indirect competitor. The direct competitors include specialty furniture stores while the indirect competitors includes full and discount department stores. The top two retailers which posed direct competition to IKEA in the U.S. include K Mart and Wal Mart. In the specialty stores, wholesalers and home center category the main competitor were Heilig Meyers, and J.C. Penny. Figure 1: IKEA’s Competitors5 However, in U.S. IKEA faced major competition from specialty stores such as Pier One and Conran and in France from Fly Furniture. IKEA faces a high degree of competition from local manufacturers and stores in international locations since they have better knowledge about the customers’ tastes and preferences and understand them better6. Overall its competitors include U.S. based Ashley Furniture, and Wal – Mart, and U.K based Galiform Plc. 2. Strategic Analysis In an industry which is highly fragmented and where very few companies dare to venture beyond their home country base, IKEA a small Sweden based company managed to become a world leader and ruled the home furnishings market since decades. The strategic analysis provides a basis for understanding the manner in which an organization develops survival tactics and gains leadership position in an industry and hence is discussed below. Figure : Strategy Map of IKEA (Source: Kwapong, O. A., (2005). MBA Concepts and Frameworks: Tools for Working Professionals, Pp. 74) 2.1. Approach to Generic Strategy IKEA's approach to generic strategy can be best understood through Porter's generic strategies theory. According to Porter, any organization can base their long term strategies on the basis of its core competencies. These strategies include: cost leadership, differentiation and focus on a particular market segment. Figure: Porter’s Generic Strategy Model (Source: Porter, M.E., (1985). Competitive Advantage: Creating and Sustaining Superior Performance, Free Press.) A generic cost leadership strategy is based on enhancing the organization's operational efficiency which helps an organization in reducing costs. Such a strategy would be successful only if the organization is able to offer a clear competitive advantage. IKEA's vision is to offer high quality furniture at relatively low prices achieved by efficient production, smart designs, efficient logistics and attaining economies of scale. This is indicative of a cost leadership strategy. Porter suggests several ways of achieving effective cost leadership which includes providing good quality products and services, understanding the competitors’ strategies, combining the overall organizational strengths and understanding its various stakeholders. IKEA's mission links all these activities which are evident from the fact that it provides best quality products to its customers, efficiently uses its wide network of buyers and suppliers in reducing costs and achieving economies of scale to provide a multiple competitive advantages. IKEA's competitive advantage based on cost leadership strategy can be easily replicated by its competitors; hence it focused on differentiation strategy as well, which involves an increased focus on factors such as types of product/services offered, organization's image in the industry etc. IKEA broadened its product range to include all kinds of products ranging from wardrobes to flowers and products to be used in kitchen to the living rooms. This strategy differentiated the company from its other competitors who had a comparatively limited range of products to offer. IKEA started off by concentrating a select range of customers, mainly comprising of young buyers and middle class families. Today, it covers almost all the market segments and targets all price conscious customers irrespective of their profile7. 2.2. Models, Tools, Techniques of Strategic Analysis The various tools and techniques used for conducting a strategic analysis of IKEA include SWOT analysis and assessment of its core competencies which are discussed below. 2.2.1. SWOT Analysis Strengths: IKEA has a strong network of suppliers and dealers which adds to its business value systems It offers a wide range of low cost high quality products across the globe It exercises a centralized control over its functional activities It implements innovative and integrated business systems It has a unique and exceptional business model which is difficult to replicate warding off direct competition Weaknesses: IKEA depends largely on the European and Western markets with almost 90% of its businesses based in those countries and largely ignores the upcoming markets in the developing world Some of the services offered by IKEA are of relatively lower quality, for instance the customers are left to roam about by themselves in the furnishings store with little or no assistance from the in house staff. This sometimes adds to confusion and chaos and adds to customer dissatisfaction. Opportunities: IKEA has planned on expanding its market reach to additional 12 outlets in 36 different countries. This is a significant opportunity for the company to expand its business to a new level i.e., from an international organization to a global one. IKEA predominantly deals in lower priced products and services and caters to customers who seek lower priced goods. Owing to the organization's world wide presence and high profitability ratios, the company must venture into a mid to high range products and exploit its strengths. With the growth and development of ecommerce, building association with corporate partners and establishing strong value based relationships with customers has become relatively easier. IKEA may want to exploit this opportunity through its web portal and expand its customer base and enhance customer satisfaction Threats: Local companies and retailers are increasingly replicating IKEA's business model which is a threat to its competitive positioning With the ongoing economic meltdown, IKEA may have to face declining sales and a shift in customer preference. Core Competencies IKEA's business strategy is representative of a highly successful and radical business innovation in the modern era. It has revolutionized the extremely conventional and highly fragmented furniture and home furnishings industry into one representing stylish, comfortable, creative and intelligently engineered world class products at amazingly lower prices. It has combined various industry segments including manufacturing, designing, direct marketing, and retailing to form a single gigantic organization and hence is able to leverage the global forces to create a completely new set of core competencies, which were seen never before, in this industry8. IKEA performs activities in a radically different manner as compared to its competitors. It offers a range of services which are not offered by its rivals for instance, in case of the showroom display, a typical conventional furniture showroom, the products are displayed in various settings and the customers are usually escorted by sales assistants who assist the customers in making a purchase decision. The purchase decision once made, the customers are then delivered the product to their doorstep in about six to eight weeks. However, in case of IKEA, it offers trade off services to its customers whereby instead of a customer service representative following the customer everywhere around the store, IKEA uses a self service display model with clear in - store displays. In huge stores, IKEA arrange the furnishings in a room like setting, hence it provides an ease to the customer in imagining how it would look like when pieced together. The customers are expected to arrange for their own pickup and delivery and also arranges for a roof rack for cars which for a refund on return. It also offers other unique services such as an in – store child care service as well as extended hours for customers who are not wealthy, have children but no nannies, and have a need to shop at odd hours9. All these services are conveniently aligned with the needs of its customers and hence widely appreciated worldwide. Such innovative marketing strategies are the core competencies of the organization which are easy for an organization as huge as IKEA to implement but difficult for its rivals to replicate. The Swedish furniture giant has today occupied a position of leadership in the industry owing to its generic strategies, as well as its creative supply and marketing practices. The innovative marketing policies adopted by the company such as supplying its products in kit forms world wide has helped IKEA in achieving economies of scale, exceptional quality and price ratios, and low cost through its wide network of suppliers and distributors. IKEA is an international organization based in Sweden, but having strategic business units across the globe while a majority of its competitors enjoy a strong competitive advantage in their local markets for instance, MFI in UK, Concorde in Germany and Conforma in France. IKEA's core competencies include its creative design capabilities, and distribution network. It offers a wide range of well designed and innovative products at substantially lower prices. Its products were initially designed and engineered in Sweden and produced by external subcontractors who are based in the over 70 odd branches of the store across the globe. It has set up its centers strategically in places where the availability of raw materials is high and the cost of labor is relatively lower, with an easy access to distribution channels. This avoids hold up problems and the requests of the customers are easily met at ensuring faster delivery10. 3. Analysis and Discussion IKEA aims at continuing its steady development streak which is evident from its various expansion plans and seeks to ensure a better corporate environment in the near future which includes aggressive marketing and communication activities, development and promotion of its ecommerce framework, aligning its strengths in response to the threats posed by the prospective entrants in the industry, as well as improving the craftsmanship and quality of its products to suit the changing needs and tastes of its huge customer database. A significant portion of its business activities are centered in European and North American markets and it plans to continually invest in emerging markets such as China, Japan and Russia with a view to accelerate its growth and double its cash inflows. Also the increasing competition in the local markets and the innumerable clones that have cropped up world wide, has weakened its competitive strength and it plans to grasp the opportunities presented by newer and fresher markets in order to ward off competition and sustain its competitive standing in the industry. Although replicating the low cost strategy of IKEA might be easy for the new entrants, IKEA’s strong brand presence is adequate to ward off competition and its expertise in world class designs further helps it in sustaining their leadership positioning in the industry. As the company grows in size and form, it continues to face a range of obstacles, political, social, and economic; however, the inherent organizational strength of IKEA such as strong brand presence, vast dealer and supplier network, strategic location of its outlets, among others help the organization in overcoming these minor setbacks. REFERENCES: Secondary Sources Dupuis, M., Dawson, J. A., (1999). European Cases in Retailing, Wiley Blackwell Publishing, Pp. 46 Kwapong, O. A., (2005). MBA Concepts and Frameworks: Tools for Working Professionals, Songhai, Pp. 74 Nankervis, A. R., (2005). Managing Services, Cambridge University Press, Pp. 137 Navaretti, G. B., Venables, A., Barry, F., (2004). Multinational Firms in the World Economy, Princeton University Press, Pp. 36 Porter, M. E., (2008). On Competition, Harvard Business Press, Pp. 47 Rosenhauer, S., (2008). Profit is a Wonderful Word, GRIN Verlag Publication, Pp. 8 - 9 Primary Sources IKEA Group (2009) Our History, viewed: April 3, 2009, from: Business Exchange (2009). Business Week, viewed: April 3, 2009 from: http://bx.businessweek.com/ikea/ IKEA (2009). About Us, viewed: April 3, 2009 from: Mission Statement IKEA Beating the Competition, viewed: April 4, 2009 form: Read More