IKEA Company - the Best Means to Maintain Competitive Advantage - Case Study Example

Running Head: IKEA COMPANY IKEA Company Date IKEA Company The IKEA Company is not only the largest designer in United Kingdom but also a retailer of well-designed, inexpensive and functional furniture for households. Every year, IKEA has more than 140 million visitors who visit 140 stores in 29 countries and disperse more than 80 million IKEA catalogues. IKEA Company designs many items which are roughly 11,000 in the product line. IKEA manufacture their own products which are supplied to various branches across the world. The employees of this company are close to 40,000 (Hitt 2008, pp. 80). An Environmental scan of this organization can be analyzed effectively through SWOT analysis. A SWOT analysis is a very essential component in the premeditated process of planning in an organization. It is used to describe the strengths, weaknesses, opportunities and threats which the company will face and how it will react to them so as to gain a competitive advantage (Furnham 2005, pp. 170). The central idea of the IKEA analysis of SWOT is to find out the strategies which support the company’s capabilities and that which match the company’s resources with the constant demands which arise from the environment. This is in line with the customer trends, the customer profile and the segmentation process which the company has adopted. The IKEA appeals to several groups in the market which make it have a competitive advantage over the other products from the same organization and other organizations which offer similar products (Furnham 2005, pp. 172). There are two aspects in IKEA which needs to be analyzed, this include the internal and external environment. The internal environment of this organization comprises the strengths and weaknesses. The IKEA Company owns a large market share and is a market leader in its line of production. It has segmented its market effectively and normally maintains their performances standard in offering quality products at affordable prices. They meet all the needs of it customers effectively. The organization has been successful because of it internal strength such as large economies of scale. This has enabled the organization to employ some defensive strategies such as the use of lower prices (Fincham & Rhodes 2005, pp. 84). Lowering the prices of the products and at the same time offering high quality products which satisfy the customer’s needs is very essential because it creates customers loyalty to the organization. This has enabled the organization to understand its customers well and create a long term relationship. As a result of such relationships, the organization has benefited a lot from the customers who offer referrals. This is a very effective means of advertising which the IKEA Company has been using for a long time. However, the company has some weaknesses. The IKEA Company is using a lot of resources to defend its current market instead of exploring new markets which the competitors have not entered. IKEA Company is experiencing the problem of declining profit margins as a result of the expansion into existing and new emerging markets without carrying extensive market research so that they can identify customers’ wants and needs; this exposes the company into uncertainties such as low number of customers to be served in the new market segment. The company had experienced some problems in its management, for example it had a problem with the flight connection to the headquarters and also some bureaucratic form of management which had to be followed, this delayed the decision making process in the company because decisions must be made from the top management (Rollinson 2005, pp. 48). IKEA should develop some differentiating strategies so that they can differentiate their products from those of its competitors, this will not only help in preventing the followers from entering the market but also ensure that there are no cases of confused positioning in the part of customers. The external environment of IKEA Company consists of many factors. These factors can be divided into threats and the opportunities. The threats of the company include competition, unstable customer preference and the social trend. The major competitor of IKEA Company in UK is ILVA Company. ILVA Company has used a name which is close to that of IKEA so that it can make the customers of IKEA to believe that the companies are sisters to one another. This is the strategy used by many companies when attacking the market leader. It is a strategy which the company (competitor) can easily use to penetrate into the market (Rollinson 2005, pp. 49). Frequent changing of the consumers’ preference has been a great problem affecting IKEA Company. The company should carryout market research from time to time, to identify the behaviors of the customers in the market. This will help in ensuring that their products are appealing to customers. Technology has been the major cause of changes in customers’ preference; therefore, IKEA Company should adopt the latest technology in offering their products. This will aid the company in maintaining a competitive environment in the market (McKenna 2006, pp 85). Another threats which is facing IKEA Company is the social trend, this is a situation whereby customers take time to create loyalty on the company’s product, this may force the company to carry out heavy promotions. Further it may be expensive to the company if its promotion campaign is targeted to the wrong market segment. The sales margin of IKEA has reduced by a high percentage due to the current recession which has affected the world; this has affected greatly the profits of the company. IKEA has been offering the same furniture without considering the geographical segmentation of the market; they believe that demand for households is the same in all parts of the world. This however, is not the case since they should know that culture is the determinant of the customers buying behavior though it varies from one place to another (McKenna 2006, pp 87). The major opportunities of IKEA are the possibility of establishing branches across the world. IKEA has been able to offers it product at lower prices. It has developed a good reputation of its company. This has facilitated the company to have an excellent image on the market, which has been an opportunity for expansion in the region because of the ready market. The above issues may either impact on the organization negatively or positively, depending on the nature of those factors. The internal strength of this company is the size of the market share it owns. To serve this market in an efficient way, the company should ensure that they have enough employees; the management of the organization should consider hiring more employees so that they meet the large number of customers in the market. The HR manager needs to make sure that they identify employees who are supposed to be trained. These trained employees would be helpful in the company for the following reason. Firstly, they can lead or manage the rest while working. Besides, these employees who are trained can be prepared for succession plan in the organization (McKenna 2006, pp 87). When the company has successfully won the customers loyalty, the human resource manager should ensure that they develop effective customer care service in the company. This customer care service will help in solving customers’ complaints. The human resources manager should further ensure that the customer care personnel undergo the necessary training, allocate enough resources and define the role of customer care. Customer care in every organization is very important because it acts as a bridge between the organization and the customers. The human resource should define clearly the objectives of customer care; this is because customer care service can improve on the perception of the customer towards the company (Furnham 2005, pp. 172). The HR manager needs to make sure that market research is carried out before the company can open the branches. This will help in reducing the wastage of resources in the company. The company should serve a profitable segment, and this can be achieved by ensuring those customers’ preferences and their behavior is researched. This will help in decision making concerning the production of the product. The company will be in a position to manufacture the appropriate product which will satisfy the customers’ needs. Customers who are satisfied are willing to pay premium prices and the company would be in a position to carry out cross selling of the products or services within the company (Furnham 2005, pp. 172). Competition is an issue which the company should pay close attention to. Human resource managers should make sure that the company is offering high quality products at a lower price than the competitors. The company should employ defensive strategies so that they can prevent the competitors from entering the market (Furnham 2005, pp. 172). In conclusion, the company needs to diversify its line of production and continue to produce high quality products to maintain it competitive advantage in the market, they should also develop an effective succession plan, this is done by training those who posses leadership qualities and those who are potential to be managers. Potentials managers are selected according to their performances in place in the place of work. Another factor which can indicate the potentials of a person is his educational backgrounds. Bibliography Dowling, P. J. and Festing, M. 2008. International human resource management. Cengage Learning EMEA. Pp 78-80 Hitt, M. A. 2008. Strategic management: Competitiveness and globalization. Cengage learning. Pp78-81. Fincham, R. & Rhodes, P. 2005 Principles of organizational Behaviour, 4th ed., Harper row Press, pp. 78-85. Furnham A 2005 The Psychology of Behaviour at work: the individual in the organisation, Psychology press, pp. 165-176 Martin, J. (2005, 3rd ed.) Organisational Behaviour, New York: New York Press McKenna , E. 2006, Business Psychology and organisational Behaviour, 4th. Ed., Long man Publishers, pp. 84-93 Rollinson, D. 2005, Organisational Behaviour and analysis, 3rd. ed, Harper and Row Press, pp. 43-67 Rosenhauer, S. 2008 ‘Profit is a wonderfull world” The IKEA’s strategy behind the profit. GRIN Verlag 101-104 Read More