Competitive Advantage of IKEA - Essay Example

Organizations Organizational boundaries may be equated to imaginary lines that are drawn in order to set an organization apart from its surrounding environment, and such boundaries also help to set out how the internal organizational roles are related to each other and separate at the same time (Wilden, 1980). In my organization, collaboration between individuals who are employed in different divisions is policed, due to the traditional, hierarchical systems that still exist. For example, if one individual wants to directly collaborate with an individual working in a different division, the permission of both supervisors must first be sought, in order to maintain an effective line of control and only after the two supervisors agree on the collaboration, the respective team members can collaborate with each other. The argument offered in support of this position is that information may sometimes need to be kept confidential within a particular division or group, which justifies such policing. If I was the CEO of this organization, I would apply a different set of rules to such collaborations between individuals performing different organizational roles. I would utilize the tools provided by software such as wikis, to set up online areas where users can collaborate with others across the organization and modify information on websites for use by others. In this way, there is scope provided for free exchange of information and collaboration within the organization, so that the existing organizational boundaries between divisions are dissolved automatically. In the present day framework, effective communication within an organization is vital, although the confidentiality must also be preserved. Too much hierarchical control over collaboration between individuals may undermine the free flow of information, however the use of wikis offers a less rigidly policed boundary, which could be beneficial to the firm. 2. Hodgkinson and Johnson (1994) offer the argument that there is likely to be a greater degree of heterogeneity existing among organizations that function in task environments, which are more competitive. The task environment relates to those market factors that play a role in the functioning of a business. In a manufacturing organization, task pressures are higher because they are conditioned by market forces, especially in the retail sector which needs to be responsive to fluctuating customer demand. In the case of Zara, the clothing retailer, the organizational manages the competitive pressures in the environment by a re-structuring of its supply chain structure. The company produces stock in small quantities, continuously replenishing supplies with new and innovative designs, despite the enormous costs that are entailed in the maintenance of such a supply chain. In this way the company adheres to Porter’s recommended strategy to maintain a competitive advantage through the adoption of a new and innovative position in the marketplace (Porter, 1985). It provides customers with a constantly changing range of new designs in clothes and has been able to amass profits, because customers are anxious to grab clothes before stocks are withdrawn from the stores. The Company’s operations are typical of the argument that heterogeneity is more likely in the more competitive sectors like retail and manufacturing. If I was the CEO of Zara, I would continue the current policies; however I would try to consolidate the supply chain, so that instead of new stocks being supplied every week, the frequency would be reduced to once in two weeks. In this way, there would be some minimization of the wasteful expenses currently being faced by Zara in transporting new stocks in limited quantities in half empty planes and ships across countries. This would help to streamline the supply chain and make it more effective in maintaining innovation and a competitive advantage, while also attaining a cost benefit at the same time. This would help to increase profits. 3. The pressures of the institutional environment arise most often in industries which are subject to regulatory influences, i.e, accounting firms.(Meyer and Rowan 1977). Building firms in the UK are typical examples of the kind of industry that has been subject to strong regulatory pressures which has mandated functioning in an institutional environment. A Building society is subject to not only regulatory pressure from the Government, but also normative pressures. These cause an organization to rely upon social rather than commercial objectives, make decisions based upon existing rules, allow for promotions based upon seniority and years of service. Most importantly, these societies are more likely to place the emphasis on stability rather than innovation (Nellis, 1994). This is the way in which building societies in the UK have traditionally managed the institutional environment, promoting social rather than economic goals. If I was the CEO of a building society, I would place emphasis on the need for the organization to function as a viable economic unit. While there is undoubtedly a need for a building society to function within the constraints of Government regulations, there is some change that may be brought about in the manner of functioning. For example, promotions may be arranged based upon merit rather than seniority. This itself, would help to pump some fresh blood and new ideas into the organization and enable a new way of thinking about problems to arrive at creative solutions. Rather than adopting a fiscally conservative position with an emphasis on stability, I would change the manner of functioning to be more innovative and creative in responding to the competitive pressures in the environment. This would help to tackle some of the losses such organizations are facing. 4. The Swedish furniture retailer IKEA was established by its chairman Ingvar Kemprad in 1943 and started off as a small business selling odds and ends, but moved into the furniture business in the 1950s, opening the first showroom at Amhult in 1953.(www.ikea.com). The showroom was opened as a measure to gain a competitive edge over other furniture retailers, by providing customers the opportunity to examine the furniture close up before purchasing it. Similarly, the Company developed the innovative idea of flat packaging of furniture in the year 1955, also in response to competitor pressure. While IKEA originally supplied furniture sourced elsewhere, it began to manufacture its own furniture in order to respond to the boycott instigated by competitors of IKEA furniture. With the passage of the years, IKEA has emerged as a global retailer with stores in several countries, with 1997 world sales reaching an impressive amount of U.S. $7 billion (IKEA Case Summary). The organizational structure of IKEA was originally founded on the rational paradigm, wherein the administration of an organization will be good and correct if the modus operandi of the organization is such that it can “accomplish its work efficiently.” (Simon 1946:64). The focus is on economic outcomes and the structure of the organizational is hierarchical. When IKEA first started out, its Chairman IKEA was the top executive of the firm, with a definite chain of command existing within the organization. However, with the spread of the organization across several countries, and the management structure of the organization has changed to a networking approach, where power is shared between the Stitchting Ingka Foundation with Kamprad as the Chairman and management services to the entire group being provided by IKEA International I/S.(www.naturalstep.org.nz). As a result, the Company now operated on the basis of the open ended organizational paradigm, were there is a greater degree of responsiveness of the organization to changes in the environment.(Scott, 2003). The Company is able to achieve low costs with quality by sourcing its furniture from suppliers all over the world based upon a competitive bidding. But in recent years, it has begun to make further changes in response to environmental pressures that have been brought to bear on it. For example, new laws were passed in Denmark in 1981, regulating the amount of formaldehyde emissions from furniture and some IKEA furniture was found to violate these standards. In response to criticism from the Government and the public, the Company responded by taking up an examination of the source of the emissions, which were found to originate in some of the glue that was used. In adapting to this change, the company has begun to take steps to tackle the criticism leveled at it for other environmental issues, such as the use of plastic packaging. Apart from instituting and maintaining quality controls, the decision to manufacture some of its own furniture is a strategic move to deal with environmental issues. The company’s business history is a compilation of many such strategic moves taken in response to social, competitor and environmental pressures. References: * Hodgkinson, G.P., Johnson, G. (1994), "Exploring the mental models of competitive strategists: the case for a processual approach", Journal of Management, 31: 525-552 * IKEA Case Summary. Available online at URL: Retrieved March 26, 2008 * IKEA timeline. Available online at URL: Retrieved March 25, 2008. * Meyer, J and Rowan, B, 1977. “Institutional organizations: Formal structure as myth and ceremony”, The American Journal of Sociology, 83: 340-363 * Nellis, Joseph, G, 1994. “The changing role of building societies” IN “The future of Services Management” (C Armistead edn), London: Kogan Page * Porter, Michael E, 1985. “Competitive Advantage”, New York: Free Press Wilden, Anthony, 1980. “System and Structure, Essays in Communication and Exchange”, (2nd edn), Tavistock * Scott, W. R. (2003). Organizations: Rational, natural, and open systems (5th ed.).Upper Saddle River, NJ: Prentice Hall. * Simon, Herbert A, 1946. “The proverbs of administration”, Public Administration Review, 6: 53-67 * “Zara case study.” Available at URL: http://www.3isite.com/articles/ImagesFashion_Zara_Part_I.pdf > Retrieved March 25, 2008 Read More