Strategic operations management in ikea
Strategic operations management in IKEA
The present essay aims to evaluate the strategic positioning, competitive characteristics and global performance of IKEA. IKEA is a Swedish manufacturer and retailer of furniture which successful performance is a result of the company's mission and business values - creating a better life for many. This slogan which has been deeply embedded in IKEA's operations was developed and applied by the founder Ingvar Kamprad, which transformed into successful philosophy.
Apart from IKEA's winning business philosophy, the company has developed a business model of operations, which can be admired for the clear objectives and unique selling proposition of low priced furniture with high quality and innovative characteristics (ikea.com, 2009). Furthermore, the creatively developed products, effective pricing structure, cost efficient supply-chain, the well-developed in terms of scope and efficient sales network, the unique store environment, which stimulates an unforgettable purchasing experience are one of the fundamental competitive advantages, which IKEA possess.
2. COMPETITIVE ANALYSIS
The main competitive strengths of the company can be identified to be the low priced product range of furniture, which possess high value in terms of quality and innovative characteristics at given price. In other words, IKEA's business model provides consumers with home and office interior quality and affordable prices.
Furthermore, IKEA has developed and has been continuously developing a network of stores to increase the organisation's brand recognition, proximity to consumers and product availability. The well-developed store environment is accompanied by high quality of customer service, physical evidence of quality and purchasing processes to enhance the pleasure of the IKEA experience.
Moreover, IKEA's success is reinforced by the well-developed pricing structure of the company. The company has set its supply-chain operations to minimize cost and enhance profitability by the implementation of a number of competitive tactics, such as: unification of product range; flat packing; distribution channels, etc.
However, IKEA would not have been the successful company as it is today if the managerial towards the human resources of the organisation are not adequately customized to stimulate the successful conduction of the company's supply-chain operations. In this respect, the company relies on personnel equality, team work and horizontal hierarchy which would stimulate information flow and knowledge-sharing (ikea.com, 2009).
There are a number of weaknesses, which can be recognised in the operations of the company. First, the unification of product ranges, which is applied globally, is often failing in identifying the local preferences of consumers. Second, IKEA finds an obstacle in its expansion ambitions because of recognised bottlenecks in the production processes. Moreover, the company appears to be unable in withstanding with the pace of network store development. Third, despite its brand recognition the company still has relatively small market share in comparison to its competitors in a number of international markets (ikea.com, 2009).
IKEA has a great number of opportunities for expansion and further product development. The company has excellent prospects of expanding in emerging markets in terms of new consumer needs and purchasing behaviour, such as USA and Japan. Apart from the emerging international opportunities the company can still acquire greater market share in the present countries of operation.
Furthermore, IKEA has a wide scope of opportunities in terms of product range. The company can enhance its innovative product lines and thus respond to the preferences of different segment groups. This would not only increase the company's market share but would also enhance the brand recognition of IKEA among diverse segment groups (ikea.com, 2009).
Some of the threats, which IKEA is likely to experience, can be divided into external and internal threats. One of the greatest internal threats for IKEA is the change of the organisational culture and operational philosophy of the company. In other words, it often very challenging for companies to sustain the same environmental culture endlessly. This may have significant impact on the competitive advantages of the company.
In the context of IKEA's macroeconomic threats it can be suggested that as the company is interdependent with the construction and real estate industries, a global economic downturn is likely to impede the company's competitiveness and would specifically have impacts on IKEA's pricing structure. This can be also observed in cases when the price of raw materials fluctuate, which would increase the production costs of the company and thus impact IKEA's profitability (ikea.com, 2009).
3. IKEA's VALUE CHAIN
A value chain can be described as a web of interdependent operations, which contribute to a particular amount of value to each business process. The fundamental force which stimulates the dynamics of a value chain is the consumer (Krajewski et al., 2007). In the present examination, the value chain is IKEA's supply chain of processes.
The supply chain of the company can be explained as a framework of task and processes, which are focused on collecting and converting raw materials into finished products. These processes are executed in order to provide value to the end-consumers in exchange of financial reward.
On the one hand IKEA's supply chain can be recognised as simply constructed by the processes of collection, conversion and distribution of raw materials and final products. However, on the other hand, IKEA's supply chain possesses numerous complex characteristics and responsibilities, which contribute to the continuous management and distribution of value across the supply chain of the company (van Hoek and Harrison, 2008).
A supply-chain can be identified to be divided into two distinctive areas, such as: back-end and front-end. The back-end is responsible for the manufacturing of products, whereas the front-end is concentrated on the distribution of the manufactured final goods (Ballou, 2004). In this respect, IKEA's back-end operations can be characterised with the processes of purchasing of raw materials and warehouse storage, product design, manufacturing, packaging and transportation. On the other hand, the front-end of the supply chain is responsible for selling the products, which includes customer service, order processing, sales forecast, etc (Hill, 2000). However, it should be identified that the back-end and front-end of a supply chain are interdependent parts of an organisation. In other words, if they lack operationally synchronization this would cause significant damages to the successful performance the company (Simchi-Levi et al., 2003).
As it was already recognised the back-end of a supply chain encompasses mainly the processes of raw materials acquisition and conversion into final products. However, these two main back-end activities are accompanied by a number of other supply chain operations. In this respect, the processes, which can be identified as having a significant impact on IKEA's back-end, are: purchasing; capacity management and inventory management (Hill, 2000).
As IKEA is one of the most popular global brands in furniture manufacturing and retailing, the dynamic operations of the organisation and the continuously growing ambitions to entering in new markets can be suggested to result in pressure on IKEA's present capabilities of efficient capacity management. In this respect, inventory control, capacity management and cost-efficient transportation can be identified to be one of the most challenging areas within a supply-chain (Beech, 1998).
IKEA's supply chain reveals a number of operational approaches, which significantly contribute to enhancing the company's ability to perform cost efficiently. For example, IKEA's items are provided to consumer in a flat-packed form. This can be recognised to result in a wide range of supply chain contributions. On the one hand, flat-package reduces transportation costs because of its compact size which allows great transportation capacity. Moreover, flat-packed items minimize construction costs and do not involve labour force costs. Furthermore, the small package size enhances the storage capacity of the company, this allows greater warehouse space for storage, which can be suggested to reduce a great number of storing costs); finally, the compact size of the flat-packages decreases inventory damage, such as: shrinkage, theft and loss) (van Hoek and Harrison, 2008).
Another highly competitive feature of the supply-chain of IKEA and in particular to the back-end can be suggested to be the supply-chain partnerships, which the company has been establishing for years. In other words, the company possesses a big network of suppliers, which enhances IKEA's ability to continuously gain and generate industrial knowledge and know-how. Furthermore, the company has attracted its suppliers closely to supply-chain processes. This has created greater information flow facilitation and operational efficiency (Ragatza et al., 1997).
IKEA's operational efficiency in the back-end provides contributes to the efficient performance in the front-end of the company. It is important to be outline that these two supply-chain areas are significantly interdependent and that often the emergence of back-end constraints can result in front-end lack of efficiency and inability to continuously sustain high levels of profitability (Johnston and Clark, 2005).
In the present examination, IKEA's back-end efficiency appears to be one of the many competitive advantages of the company. In other words, the company arranges its in-store environment and purchasing processes, to promote greater consumer interest and facilitate the buying behaviour of customers. Moreover, IKEA is specifically concentrated to several essential components of the extended marketing mix of 7Ps, such as: physical evidence for quality; processes; people; products; and price (Groucutt et al., 2004).
Furthermore, IKEA's front-end operations benefit from the company's continuous communication with end-consumers. IKEA focuses on extracting customer insight by market research, observations and ongoing communication. These processes of insight extraction contribute to IKEA's creative design solutions, product promotion and anticipation of consumer preferences. Furthermore, the close relationship with consumers, which result in front-end efficiency, has a positive effect on the back-end operations of the company. This is not only a beneficial stratify for IKEA's production design and marketing promotion but provide valuable know-how to IKEA's suppliers. In other words, IKEA is capable of supplying suppliers with information which serves as a source of valuable knowledge of types and amounts of production material which would be needed. This increases coordination and can be recognised to decrease procurement costs associated with purchasing and transportation of raw materials (Mason-Jones et al., 1999).
IKEA's competitiveness is deeply rooted in the company's efficient value chain. It is not only the identified efficiency in the front-end and back-end of the company, which to the company's global success but the synchronization between the two supply chain areas, which result in IKEA's competitive sustainability. Based on the present examination it can be suggested that the IKEA concentrates on achieving internal resource integration, which can be suggested to be an essential factor for operational synergy and efficient reaction to external opportunities and threats (Szulanski, 1996).
An example of the internal integration of resources is the intensive team working environment which can be recognised within the structures of IKEA. Moreover, the company has a flat hierarchical structure, which promote an open-door environment where sharing of knowledge and responsibilities are valuable source of continuous competitiveness. Furthermore, in order for IKEA to continuously achieve it innovative performance the company needs long-term top management levels support (Afuah, 2003).
IKEA is a company, which has been always focusing on generating design creativity through a network of freelance designers. This network can be suggested to be a valuable source of creativity as it provides a great degree of flexibility which freelance designing provides. In this respect it can be suggested that the network of freelance designers, the integration of a team work of people from a wide range of professional and personal backgrounds, and the creative flexibility which this network provides are some of the most significant promoters of design creativity which IKEA demonstrates in its furniture (Tidd et al., 2005).
Deriving from the argument above, it can be suggested that the supply-chain structure of IKEA demonstrates significantly high levels of agility. In other words, as an agile supply chain is characterized with close customer contact, reduction of non-value adding processes; communication transparency and decreased production complexity these are the very same components, which not only characterise the value chain of IKEA but the company's business philosophy and operational model (Christopher, n.d; van Hoek and Harrison, 2008).
This is the reason why, it can be proposed that IKEA has developed a supply chain of operation which are characterised with a great degree of agility. In other words, IKEA has developed a deeply rooted competitiveness, which is characterised by the company's capability to respond efficiently to the continuously changing external environment.
In conclusion it can be said that IKEA's great current success predetermines its future strategy. IKEA is a company, which is an example of internal efficiency which predisposes to external competitiveness and operational agility. The company's successful performance is the product of a symbiosis between its innovative product design, cost-efficient strategy, pricing structures, unique selling proposition, human resource management and winning business philosophy.
The future of the company is challenging - the environmental threats, which question the social and environmental responsibility of companies, which operate with raw materials as wood and plastic. This is likely to increase the prices of the raw materials and affect the pricing structure of IKEA. This is the reason why it can be suggested that the most important future capability of IKEA is the capability to develop and adopt innovation. Innovation would be the key to success for IKEA as the company should sustain its cost efficiency and high quality of design and materials in order to keep its successful global performance.
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