Business Environment for IKEA UK - Research Paper Example

24 August 2007 Business Environment for IKEA UK Structure, Aims and Objectives Known worldwide, IKEA is a home furnishings company that reflects simplicity, color and reasonable pricing. There are 15 IKEA sites in the United Kingdom with at least two more planned for winter 2007. The Shop Online! Web site is the latest innovation for IKEA customers. IKEA's trademark is good design and function at affordable prices (About IKEA). The company focuses on the needs of many rather than only those who can afford a quality product. IKEA's business idea is and has been a partnership with the customer. Using the IKEA catalogue, the customer chooses the furniture and picks it up at the self-serve warehouse. The product is packed flat for easy assembly at home by the customer. IKEA began in 1943 in a small farming village in Sweden. Ingvar Kamprad started the business at age 17 and used his own initials plus the first letters of Elmtyrid and Agunnaryd, the farm and village where he grew up, to create the name IKEA. Although it didn't start out as a furniture company, furniture became the focus of the business in the 1950s when IKEA turned its problems into opportunities (About IKEA: Timeline) by: 1) Opening a showroom that allowed customers a three-dimensional look at the furniture it sold. 2) Designing its own furniture and lessening its dependence on suppliers. 3) Creating flat packaging when an employee removed the legs from a table so that it would fit into a car. The IKEA group has 90,000 co-workers and operates in 44 countries, and the unique focus of IKEA UK continues to be on its customers, offering eye-appealing furniture design and keeping prices low by finding ways to shorten the route from manufacture to customer without detriment to the quality and ease of assembly for the buyer (About IKEA: in the world). A SWOT analysis of the organisation shows internal and external factors which affect its overall identity in the global marketplace. According to Wikipedia, Albert Humphrey developed the SWOT analysis in a research project for Stanford University in the 1960s and 1970s. It evaluates strengths, weaknesses, opportunities and threats in an organisation-the first two internal, the second two external. IKEA's major strengths are brand recognition, customer communication and staff satisfaction. Strengths: Brand Recognition One of the most difficult selling points to establish in an organisation is positive brand recognition. Over time, IKEA UK has managed to do this by not compromising on its promise to its customers to maintain brand quality, easy construction and low prices. In addition, the packaging of the various components is personalised by simplifying instructions (the need for the customer to buy an electrical cord for a lighting product is shown by a simple sketch of the cord on the package) and creating a connection between the customer and the company by giving the product a unique name and printing the designer's name on the package. The personal touch establishes the brand and makes the customer feel a special bond. An additional benefit for the customer is the ability to design a complete room and to be given a copy of the plan if the purchase will be made at a later time. Strengths: Customer Communication Good leadership creates good business practices. Never has this been more evident than with the IKEA group. The organisation started its first store in the United Kingdom in 1987, and as it expanded, customer satisfaction was key. Convenient IKEA distribution centres in different sections of the UK offer customers the opportunity to go directly to the warehouse and centre and pick up materials after utilising the IKEA OnlineWeb site to design and order whole rooms of furniture (Investor). By encouraging the "IKEA Way," the company has established its unique methods-according to CEO Peter Hogsted, "we do 50-you do 50" (Lewis, par. 20). Another area of customer relations is recognizing concern for the environment, and IKEA was the first to suggest reuseable shopping bags for their customers instead of plastic bags. It cut back on use of disposable plastics by 90 percent. By embracing the use of IKEA's "Big Blue Bag," customers can feel they are contributing to ecology throughout the world. The organisation initially gave away 32 million bags in 2005 and is presently charging for disposable plastic bags (Laumer). Strengths: Staff Satisfaction No matter how popular a particular brand becomes and no matter how the company encourages customer interaction, if the staff is dissatisfied, the company is in danger. From the CEO down to the factory workers, IKEA makes sure satisfaction prevails. One recent act was that IKEA UK gave all 9000 co-workers folding bikes as a corporate Christmas gift. In addition, they were eligible for 15 per cent subsidized travel tickets to encourage use of public transport to work. This act by IKEA not only benefited its employees, it also showed IKEA to be an "eco-friendly" company (Reid). Weaknesses: Financial In an apparent effort to insure continued employee satisfaction at IKEA, the company cut 300 managerial jobs throughout the UK rather than laying off regular floor workers in showrooms. The company said in a statement that its UK operations needed to be "more productive, efficient and flexible" (Ikea to cut, par. 1) and that the home furnishing sector is being challenged by the supermarket sector. Weaknesses: Limited Marketing Because IKEA has stayed with its home furnishing products exclusively, this has created a weakness in the organisation. With new competition from supermarkets such as ASDA (Wal-mart UK) and John Lewis, these companies have a cushion with their grocery items that IKEA does not have. A shoppers' survey last year put John Lewis in first place ahead of IKEA, with Waitrose (owned by John Lewis) coming in second (John Lewis). The John Lewis Partnership includes Waitrose, John Lewis and Greenbee, and all 68,000 permanent staff are Partners who own 26 John Lewis department stores, 185 Waitrose supermarkets and Greenbee's three production units and a farm (About Us). It is highly unlikely that IKEA would enter the grocery business, but there are other areas for company expansion. Given the marketing methods at IKEA, it is not surprising that the company has moved into the U.K.'s prefab housing market (Dilworth). It has been active in this field in Scandinavia, Norway and Finland and is now constructing 36 dwellings in St. James Village. Boklok apartments are composed of two modular units. The buildings are L-shaped with two stories and three apartments on each floor. The L-shaped buildings can be grouped together to form a semi-enclosed courtyard. Needless to say, these dwellings will require home furnishings. PEST Analysis The PEST analysis focuses on the external environment of an organisation by considering political, economic, social and technological factors. It can be used in conjunction with the external aspects of the SWOT analysis to analyse business and environmental issues (PEST). In a global economy, expanded marketing becomes an opportunity for IKEA. The fastest growing area in the world right now is in China, and the challenge of meeting the needs of customers in China should be examined carefully. China's cultural environment is far different from the United Kingdom where Sweden's simple styles are appealing and lower prices are available. China is immersed in ancient designs, and it would be feasible for IKEA to design simple furniture that incorporates Asian art. At present, the Swedish group is concentrating on its Asian market. Whether or not its expansion into China will be successful in the long run remains to be seen. In 1999 IKEA opened in Beijing selling mostly highly priced imported furniture attracting mostly high-income and design-conscious social elites. In the business arena, retailers were aware that China's growing elite population preferred well-known, highly popular brands, and IKEA was ready to fit that profile. However, it soon became evident that home furnishings were a growing need with Chinese homeowners and apartment dwellers multiplying and having to furnish their living areas. IKEA lowered its prices and made the most of its ability to design rooms of furniture best suited for the space available in an effort to reach the burgeoning white-collar market in China. The major problem IKEA now faces in China is pricing. Because they started the market there with high prices, Chinese customers tend to think of IKEA as an expensive product and hesitate to consider the company for its needs. Looking to the expansion of IKEA United Kingdom, the company showed its ability to move beyond its traditional marketing to incorporate "pop culture" into its offerings by purchasing Sir Terance Conran's Habitat and Storehouse; however, in 2004, it became evident that Habitat was losing money and IKEA's Ingvar Kamprad was reported to consider selling the group. With only 15 stores presently in the United Kingdom, it seems evident that further expansion in the UK should be part of IKEA's future plans. Although more stores are planned, one of the problems at present is overcrowded conditions for parking. The personal attention that is so much a part of the company has decreased because of crowds. In terms of supply and demand, the more popular IKEA's sales methods become, the more overcrowding will occur, eventually creating a loss of its customer base as people avoid the traffic jams. Balanced Scorecard Once the organisation has analysed its structure, the next step would be to develop a "balanced scorecard" to establish aims and objectives that can improve the company's standing in the marketplace. There are four perspectives in a balanced scorecard-financial, customer, internal and learning and growth. It assists business in clarifying vision and strategy and provides a way to translate these into action (Arveson). In creating a practical strategic plan, it is important to present clear-cut problems and suggested improvements within a linked framework. The balanced scorecard was initiated by Robert Kaplan and David Norton in 1992 and goes beyond financial performance to create a balanced performance management system. Its benefit is to permit managers to see their company more clearly and be capable of making wiser long-term decisions. Below is a diagram of a Balanced Scorecard as presented by 12Manage online: The Business Process Perspective, Sec.3-par.4 (Balanced Scorecard) It is evident from the above that strategic objectives require communication from leadership through management to staff and beyond to suppliers and distributors and back to leadership. In IKEA's case, the scorecard has been a useful tool. But in a global community, IKEA UK's success is limited. Only by making use of technological advances that allow them to communicate throughout the United Kingdom and meet customers' expectations, no matter what location, can they improve their strategy. The weaknesses, such as the apparent failure of their acquisition of Habitat and Storehouse, must be addressed. Though IKEA does have a food line and a restaurant, it is specialized and it cannot compete with large supermarkets. It might be useful to consider offering customers online options such as adding cookbooks to their kitchen furnishings, and following this up with recipes from the cookbook presented in their restaurant so that customers can peruse kitchen plans while eating food for which recipes are available. IKEA is in direct competition with Wal-mart in the UK, but it is questionable whether IKEA is threatened by their presence, mainly because IKEA is a successful specialty business and Wal-mart has yet to establish itself in the UK. It is known here as ASDA, not Wal-mart UK, and lacks a competitive advantage in terms of efficient supply chains. Competition from companies which exclusively sell home furnishings is not an issue so far. IKEA's simplistic style has been copied, but because IKEA maintains its quality and style in a unique manner, no one has yet matched their products. Technological Environment: What Lies Ahead Certainly IKEA UK has opened a whole new marketplace by offering prefab housing, especially when the structures are being built as multi-apartment estates that will need home furnishings when completed. It might be helpful to make sure there is an IKEA outlet near the housing units. Another area in which IKEA UK should be investing, if they have not already, is marketing to older customers who have used IKEA's unique processes when they first furnished their homes and are now interested in new furnishings for guest rooms or adding to kitchens, and especially indoor-outdoor furnishings for those who are retired. Utilising computerised methods and programs to study the marketplace can develop the company's customer base easily. In addition to adding to the customer base, IKEA must collect demographics about their customers to determine the best way to meet customer needs. One asset for IKEA UK is its Web site (About IKEA). The design incorporates the simplicity and bright colors of the company's products and offers not just suggestions for different products but the ability to design an entire room online. For instance, if a customer wants to design a living room, the IKEA catalogue can be accessed online and a choice can be made for different living room layouts (IKEA Online Brochure 2008). One benefit that IKEA's competitors do not have is this ability to design tailor-made virtual rooms with the use of its downloadable Planner (About IKEA: IKEA planner tools). IKEA UK has the ability to utilise online advertising through its Web site in a way that is not available to competitors John Lewis or Wal-mart. The Internet is not so much an option for those organisations because they sell far more than home furnishings. They can make home furnishings part of their catalogue, but for IKEA the Web site becomes a visual and virtual showcase. The future of IKEA depends on its ability to offer the public more options as electronics continue to improve. Conclusion By applying the format of a balanced scorecard, it is evident that IKEA UK has weaknesses that need to be addressed in the next five years. Competition with John Lewis is already an issue, and Wal-mart, with its worldwide popularity, might come up with a plan that directly impacts IKEA. In China, its brand recognition is negative so far because of initially trying to capture a high-end customer market. The most positive aspects at the present time of maintaining success in the UK are the pre-fab housing units and the plan to open more stores to alleviate crowded conditions. The organisation, as a worldwide market, can do more online than any of their competitors, and their virtual design ability can insure IKEA's popularity. Wireless technology has offered immediate communication between customer and supplier, and IKEA will be able to do more and more one-on-one marketing, cutting out the need for more showrooms. Expanding its area for customers throughout the UK with the growing wireless technology will establish a comfortable customer base, but it is necessary to keep in mind the loss of personal attention that is available in the real-time setting of a showroom. With a technological environment that will only become more streamlined in the future, IKEA already has advanced one step beyond its competitors. It is important, however, that they keep the proper balance. Works Cited "About Ikea." Inter Ikea Systems. 2007. 11 August 2007. http://www.ikea.com/ms/en_GB/about_ikea/splash.html "About Us. John Lewis Partnership.com. n.d. 13 August 2007. http://www.johnlewispartnership.co.uk/Display.aspxMasterId=768e29e8-41aa-4716-bce2-df302fa1c3d8&NavigationId=543 Arveson, Paul. "What is the Balanced Scorecard" Balanced Scorecard Institute. 1998. 11 August 2007. http://www.balancedscorecard.org/basics/bsc1.html "Balanced Scorecard: The Business Process Perspective." 12 Manage. Last updated 19 June 2007. 14 August 2007. http://www.12manage.com/methods_balancedscorecard.html Dilworth, Dianna. "IKEA Enters U.K.'s Prefab Housing Market." Architectural Record. 18 April 2007. 13 August 2007. http://archrecord.construction.com/news/daily/archives/070418ikea.asp IKEA Online Catalogue 2008. 15 August 2007. http://info.ikea-usa.com/IkeaOptin/OnlineBrochure/ "Ikea to Cut 300 Managerial Jobs." BBC News. Last updated 10 July 2007. 13 August 2007. http://news.bbc.co.uk/1/hi/business/6288588.stm "Investor Kick-starts Events at Armthrope." Doncaster On-Site, Issue 4. 2000. 13 August 2007. http://www.doncaster.gov.uk/Images/ONSITE4_tcm2-8042.PDF "John Lewis Tops Shoppers' Survey." BBC News. Last updated 23 January 2006. 13 August 2007. http://news.bbc.co.uk/2/hi/business/4637320.stm Lewis, Mark. "The Big Interview: Ikea's Chief Executive on the Way It is." Cabinet Maker. 26 July 2007. 13 August 2007. http://www.cabinet-maker.co.uk/articles.asparticle_id=6439 "PEST Analysis." Value Based Management.net. Last updated 1 May 2007. 11 August 2007. http://www.valuebasedmanagement.net/methods_PEST_analysis.html Reid, Carlton. "Ikea Gifts Folding Bikes to 9000 Staff." BikeBiz. 15 December 2006. 13 August 2007. http://www.bikebiz.co.uk/news/25105/Ikea-gifts-9000-folding-bikes-to-staffH "SWOT Analysis." Wikipedia. Last modified 8 August 2007. 11 August 2007. http://en.wikipedia.org/wiki/Swot_analysis Read More