Competitive advantage and problems faced by IKEA
IKEA, a Swedish home furnishing retailer, is known as the world’s largest designer and retailer of well-designed, inexpensive, and functional furniture for the home. This is the idea the heart of everything does, from product development and purchases to how they sell their products in IKEA stores globally. IKEA was founded 1943 by 17 year old Ingvar Kamprad. As a young entrepreneur in south Sweden, Kamprad son turned his business into a mail operation selling a variety of household product, particularly furniture. IKEA sourced for the alternative suppliers outside Sweden, and IKEA’s designers furniture at factory prices continued to pull in the customer. The spirit of thriving under hardship, and turning problem into opportunities kept IKEA alive and set the foundation of IKEA’s development. Nowadays, IKEA has found its own niche which beautiful and durable furniture at prices so low that majority can afford them. Not just in Sweden, but in Malaysia, Germany, Poland, UK, US, Singapore, Australia, China, and the rest of the world.
Kampred’s innovative strategy was to design functional furniture that was easy and inexpensive to build, receive it disassembled at stores, and display it on the showroom floor with detailed explanation tickets, making salesperson assistance unnecessary. Employees were available for question but the customer could choose order, pick up, transport, and assemble their own selections. Cost saving earned by IKEA were passed through to customer in low prices that estimated cost saving are 20-50%, compared with the competition. The IKEA’s stores soon became home furnishing centers, also offering restaurant facilities and play areas for children. Customer friendly warehouses and showrooms were built and standard in-store display areas were developed specifically designed to cater to the company’s needs. The strategy continues to drive IKEA operation. IKEA’s strategy relied heavily on its wide product range that followed clear and detailed guidelines on range, quality, profile and price. The IKEA catalogue is the product of month of close collaboration between many highly specialized professional. Photographer, copywriters, art directors, project leaders, interior decorators, stylists and others work together to produce the catalogue, which is distributed to homes in the area of IKEA stores all over the world at the end of August each year. IKEA catalogue is the main marketing tool in order to educate customers about the product line and help marketing communication to build relationship and inspire people to come to the stores.
.In addition, IKEA’s business idea and market positioning statement provide a framework for all IKEA marketing communication worldwide. The founder Kamprad’s desire to integrate social value into business has strongly influenced the IKEA vision. “What is good for our customer is also good for us in the long run.” This objective of responsibility drives the company vision to create better everyday life for the majority of people. The vision is realized by offering a wide range of functional and well designed home furnishing items, at prices so low that the majority of people can afford to buy them. One aspect of the IKEA concept is to locate stores outside city centers on sites where land is cheaper. And IKEA customers also help keep price low by using the information on the product-tags, customers collect what they want to buy from the racks in the store’s Self Serve Area, take the products home themselves and put them together with the help of the enclosed assembly instruction.
Furthermore, IKEA’s vision was “To create better life for the many people.” ‘People’ included employees, customers, as well as the community. The company’s human resources philosophy subscribed to the belief that employees were more productive and committed when the company took care of them and their needs. Besides that, IKEA adopted a paternalistic stance toward employees and their needs and promoted employee empowerment. However, although the company had a positive HR philosophy and offered generous benefit, their application was more or less standardized and policies applied uniformly to all employee. IKEA's positive HR policies were supported by a strong and nurturing culture that promoted diversity and creativity. IKEA's culture was characterized by a family-like quality that made relationships between employees strong and open. For example, IKEA offers family-friendly initiatives and diverse workplace benefits including full medical or dental insurances, vocation, professional development, training and mentoring programs and so on. To join the IKEA family of coworkers, prospective coworkers must first complete an extensive hiring process and two-week program that provides on-the-job training, joined with orientation of IKEA’s unique work culture and shopping experience.
Diagnosis of problems faced by IKEA
Today, IKEA is the world’s largest furniture retailer and it is also internationally known as home furnishing retailer. IKEA always concern for people and the environment. Besides that, it also responds to the public and customer’s rising concern for sustainability in its choice of product range, suppliers, stores and communication. However, there are still problems faced by IKEA from the aspect of organization development that requires changes to take place in order for the organization to improve efficiency and effectiveness of its existing operations and also to ensure that goals and objectives of the organization can be achieved.
The first problem encountered by IKEA is the size and scale of its global business. IKEA is known as the world’s largest furniture retailer and carries a range of 9,500 products, including home furniture and accessories. It also means that IKEA’S outlet is widely establish in many other countries. Thus, this could make it extremely hard to control in terms of its standards and quality. So they must figure out some solutions to deal with the problem which will bring benefits to whole organization. Also, the quality of the products in each country may be slightly varied from others. For example, some countries where IKEA products are manufactured do not implement the legislation to control working conditions. Hence, this could represent a weak link in IKEA’S supply chain and also affecting consumer’s view towards IKEA’S products. In terms of that, IKEA has to come out with something related to quality management or supply chain management which use to solve the problem.
The second problem faced by IKEA is the challenging time trading conditions in the home furnishing sectors in 2008. To make sure the company keep maintain or increase its productivity, efficiency and flexibility, they decided to downsized their organization structure by cutting off hundred of managerial positions. This is because their management team realized that there are some of the positions that didn’t come out with any result which mean the organization cannot get what they expected from the employees. By the way, they also decided to reduce the pace of their expansion from 25 stores in a year to 15 stores because they realize that the expansion has gone a little too fast and they need to slow down. Develop a long term planning is very useful but when they come to over expansion, it is time for them to make another decision to stop or continue the plan. The reason why this kind of problem will be occurred is because of the changing environment and over planning of the management team. The management team has to make a decision very careful that well organized all of it.
The third problem faced by the company is the need and demand for low-cost products. Low prices are one of the linchpins of the IKEA concept in order to help and make customers want to buy from IKEA. Besides that, IKEA’S pricing strategy targets consumers with limited financial resources. Thus, the cost needs to be balanced against quality. This needs to be balanced against producing good quality. IKEA also needs to differentiate itself and its products from competitors. The important key is that it needs to ensure that there is no compromise between being able to offer good quality products at low prices. Furthermore, in terms of its economic factor, recession slows down consumer spending and disposable income reduces. Low prices appeal to IKEA’S customers especially in tough financial times.
The fourth problem faced by IKEA is in terms of market forces, which is there are more and more competitors from the same industry is entering the low price household and furnishing markets. Thus, IKEA needs to reinforce its unique qualities to compete with these. It also needs to differentiate its products from its competitors. Competing between competitors always occurs in the business world and it is very common. Besides that, in order for IKEA to be the world’s leader in household and furnishing markets, it needs to come out with ideas how to puts up high barriers to entry for smaller companies from entering the market. IKEA could not under-estimate all others competitors, they must put a lot of efforts to make sure the organization is performing well.
The fifth problem encountered by IKEA is people are spending less in IKEA stores. Based on the research, the average check is going down a little bit, and the numbers of visitors is reduced. People are coming less often to the stores. There should be some reasons that why people are spending less in IKEA stores. And thus, during these times, they need to come out with some suggestions and to be more creative in thinking ways so that it could attract people to the stores. Furthermore, some critics of IKEA also say that their furniture is easy to break, hard to assemble, and heavy to transport. These critics will affect the good will of IKEA so they have to find a solution as soon as possible.
The next problem faced by the company is that it needs to find ways in terms of reducing costs. One of the costs that need to be reduced is printing cost. IKEA produces more than 100 million copies of its catalogue each year that are later distributed to public for promotion purpose. This requires a lot of paper, approximately 40,000 tones per year. Thus, this may affect its company’s reputation against the environmentally friendly issue. IKEA needs to starts investigate in terms of finding other alternative ways to replace with the use of papers for printing its catalogue. IKEA needs to become more environmentally aware and keen to show an environmentally friendly image itself. This required it to do some changes.
IKEA has to acknowledge its problems in order to improve and manage them. This can play a key role in helping it to set objectives and develop new strategies. Above are the problems that is currently facing by IKEA. Changes must be made in order for the organization to improve efficiency and effectiveness of its existing operations.
OD Intervention Strategies
As the world largest furniture retailer, IKEA still need to deal with the problems that caused the IKEA need to implement organization change. There are many problems encountered by IKEA, such as size and scale of its global business, challenging time trading conditions in the home furnishing sectors, the need and demand for low-cost products, competitors from the same industry is entering the low price household and furnishing markets, customers spending less in IKEA stores, and cost reduction.
The size of IKEA and scale of its global business may cause IKEA hard to control over the standard and quality. The quality of products might slightly different in different countries; this may cause IKEA having problem in the control the standard, this represent a weak link in IKEA’S supply chain. Besides that, the slowdown in first time buyers entering the housing market also cause the IKEA need for change. The customers might not understand the products information, the uses of the particular products and how to keep it long lasting.
Furthermore, the need and demand for low cost products is demanded by the customers, customers may purchase the lower price with high quality products. IKEA’S pricing strategy targets consumers with limited financial resources and differentiate itself and its products from competitors is needed. So, IKEA need to reduce production cost in order to attract customers with high quality. There are also many competitors from the same industry is entering the low price household and furnishing markets, this cause IKEA need to reinforce its unique qualities to compete with these and come out with ideas for the new product development. Customers spending less in IKEA also cause the organization need for change. IKEA need come out the products that can attract the customers, and providing the delivery services for customers.
Cost reduction is also a problem faced by IKEA, the printing cost force the IKEA spend a lot of costs in printing their catalogues. These also affect its company’s reputation against the environmentally friendly issue, so IKEA need come out the ideas how to replace the printing catalogues.
There are many factors influence IKEA need change in order to continuously survive in the furnishing sectors. IKEA mostly was influenced by internal and external factors. For internal factors are employee’s attitude, management, existing system, organization structure, culture. For external factors there are technology, competitors, suppliers, value of customers, rule and regulation and government policies.
Employee’s attitude may influence the customer’s satisfaction and the performance of the organization. If the employees don’t provide good impression for the customers, they will never come back against for shopping; they also will tell their friends not to go for shopping at IKEA. This will bring negative impact for the organization in term of profitability. IKEA need to provide training for the existing employees which is improves employee’s morale and attitude that might improve the performance of organization.
Management also may affect the organization performance, management teams play important role in the organization. Their decision is important in term of the strategies they use, planning, and their goals. They need have clear goals for achievement, circumference planning and strategies. The management teams must ensure that they are achieving the future goals, make the correct decisions so that brings benefits for organization.
The current system that IKEA use may not suitable for them to continue for the future. They need the unified system for all stores in the world, so that they provide the standard size services to customers in different countries. Besides that, the organizational structure also the factor for IKEA. They need reorganize some departments or structure in term of the decision making. When the problem occurs, the decision maker need immediately response to the problem, they need tried to empower lower level employees for solving the problems.
Moreover advances in information technologies may influence the organizational change. Nowadays, many organizations introduced new approach to doing business through internet such as e-business, e-commerce, and internet commerce. By using the information technology, it will improve the business process and cost saving. The technology also provides some management system such as Total Quality Management, and Enterprise Resources Planning. With the system, it will change the procedures and cost efficiency and information flow. IKEA might accept the new technologies that will faster the procedures and improve performance.
Besides that, competitors and suppliers can influence the change of the organization. The more competitors entry the industry, it bring negative impact for the existing industry. They compete in term of products quality, services quality, and prices, organization need to provide a better quality in the lower price. Suppliers also affect the organization; suppliers need to continuously provide the good quality products in the lower prices. Management teams need to negotiate with the suppliers in order to get the high quality raw material and finding the lowest price for producing the products.
Furthermore, customers are the important role for the organization because the profit of the organization is come from them. Customers might look for higher quality product with the lowest price and the taste for different customers will not same. IKEA need to do the survey to get the customers expectation and design the product that they desired. IKEA might design the products for household, kitchen application and children, so that they can fulfill customers demand. Different countries rules and regulation and government policy will different. IKEA need to notice and understanding all the policy that protect the citizens or consumers, so that they don’t break the rules and regulation.
Due to the internal and external factor that influence IKEA need for change, the management teams might seek for the external consultants for implement the changes. They need search the right consultants in order to solve the problems. Besides that, the IKEA internal consultants may work together with the external consultants and seek for the advice from them. The internal consultants might communicate with the employees and explain the reason for change and the benefits of changing.
The management teams also need to communicate with all the top management of each department or stores about the change is needed. Reorganize the structure might affect the reallocating the top management, span of control and authority. Human resource department also involve in organizational changing, they need provide the training, selecting and empowering the employees. Ensure the human resource department selects the right person to hold the position with the reasonable salaries. Doing the survey to discover the employee’s salary is under paying or over paying.
Besides that, the management teams also need hire the external programmer to develop the new system or upgrade the existing system. With the advances technology, IKEA will provide the faster services to customers compare with other competitors. This might spend a lot of money in developing, but it will improve the profitability in the future.
The size and scale of IKEA’s global business so IKEA implementing the technologies.
Consumer spending less in IKEA stores so IKEA try to satisfy with customers expectation
IKEA is finding way to reduce costs by setting up websites.
The problem encountered by IKEA is the size and scale of its global business. Thus, this could make it extremely hard to control in terms of its standards and quality. For example, some countries where IKEA products are made do not implement the legislation to control working conditions. This could represent a weak link in IKEA's supply chain which also affecting consumer views of IKEA's products. Nowadays, the global competitive is the major challenge for all corporation, they compete both international and domestic, organization need to be aware with all the strategies they used to compete with each others.
So IKEA used technological strategy to change the organization’s structure which implementing the technologies in term of the Total Quality Management. They need the standard quality control over the whole corporation in the world. Besides that, they implemented the Total Quality Management system to check the quality of their products to ensure their products are best in quality and safe to use. IKEA products are designed to meet exacting international quality control standards. Product testing is based on real life situations.
The next problem encountered by IKEA is people are spending less in IKEA stores, so IKEA is using the technological strategy to handle this problem. People spending less in IKEA stores because some of the consumers do not have any transportation to carry their items and them facing problems when come to assembly the part. However, IKEA provide a reasonable rate for delivery and also assembly services. Besides, IKEA also conduct safety checks on their products for example, they always put their furniture through rigorous testing to make sure it can stand up to just about anything.
Other than that, IKEA always ensure the products and impact on the health of the customers and the environment for example, the wood as raw material is renewable, recyclable and biodegradable. Besides, IKEA decided to ban the chemical usage in 1992 for example ChloroFluoroCarbons (CFC) so they look for other methods to produce polyether. PVC (PolyVinylChloride) the PVC only in the isolating plastic of electric cables products. azo-dyes. This is because all of these chemicals are harmful to people and environment. Furthermore IKEA design the furniture available in flat-pack, it solves numerous problems ranging from storage space, delivery cost, transport damages, labor cost and easy for the customers to take home and assemble it by themselves.
The next problem faced by the IKEA is that it needs to find ways in terms of reducing costs. IKEA use technological strategy for example, setting up IKEA’s website to pass the information to its customers. Nowadays, most of people are computer literate; IKEA could save their cost by printing the catalogue which in large volume annually. It also will help IKEA to the postage cost. With the technology devices, the customers could first research on which item they want to consume and to know further information about the price, function and so on. Then, IKEA’s website features hundred of products as a way of demonstrating the width and depth of our product range so it is user friendly. However, IKEA do encourages its customer to visit their stores for full selection of products and also detail information.
IKEA also can reduce costs by the way saving electricity using. For example, store can save a lot of electricity by having saving energy light just lit only during opening hours. Besides that, IKEA using solar panel and extra roof insulation make heating and cooling buildings more energy efficient. Furthermore, IKEA control the air conditions temperature so that the air condition not set too cool, this also help the electricity reduce using.
The challenging time trading conditions in the home furnishing sectors in 2008 so IKEA downsizes the company.
The need and demand for low-cost products, IKEA focuses on supply chain activities.
A market force which is more competitors from the same industry is entering so IKEA come out with decentralization.
The problem facing by IKEA is when the challenging time trading conditions in the home furnishing sectors in 2008. When come to this problem, IKEA had decided to use structure strategy which downsizes the company by cutting hundred of managerial positions at that time. The reason why IKEA choose to do so is because they wanted the operations to become "more productive, efficient, and flexible”. By downsizing the company, IKEA could rather save their costs and also build on strengths which are more focusing on certain aspect that will improve effectiveness and efficiency. However, the affected staff could apply for replacement job which is different in position. To be more productive, efficient, and flexible, IKEA have to restructure the company which relies more on productive department or position rather than just holding the position that did not come with any outcome.
The following problem faced by the company is the need and demand for low-cost products. So IKEA used the structure strategy to solve the problem which more focuses on supply chain activities. IKEA always find the suppliers who will provide the good quality and lower price raw materials or products to them for the product development. Raw material is a prime cost which is the primary part to production, so it is very important to ensure their company gets the good quality while cheaper in cost raw material to produce low cost products. IKEA do not go through any agent or intermediate to buy raw material, they go through by themselves as a part of effort in cost saving.
The last problem faced by IKEA is in terms of market forces, which is there are more and more competitors from the same industry is entering the low price household and furnishing markets. IKEA need use the structure strategy to overcome the problem. IKEA can come out with the idea of decentralization by giving the lower level employees the opportunities to involve in products design. As we know, IKEA has a unique company culture which consists of strong value and standards. They offer every co- worker as a part of the company which means there are a lot of involvements from all positions.
By the way, there are no barriers between management and co-workers which always consider about leadership or span of control. All workers in IKEA are given initiative to question and to try new things. Once they practicing decentralize, IKEA could rather save their cost by occupied external expertise and also discover the skills or knowledge that possessed by its own worker that will help IKEA to compete with its competitors.
Based on the research, there are several problems that we have discovered for example size and scale of its global business, slowdown in first time buyers entering the housing market, the need and demand for low –cost products, competitors from the same industry is entering the low price household and furnishing markets, customers spending less in IKEA stores, and cost reduction concept. So based on these problems, we also found some of the intervention strategies that used by IKEA to resolve problems and enable change programs.
For the first problem which is the size and scale of its global business. As we know IKEA is the world largest furniture retailer, they distribute the various kinds of products and services all over the world so it is extremely hard to control their quality management. For this problem, IKEA has used the technical strategy which in term of total quality management. They have gone through a concept which is founded in a low price offer in home furnishings. Besides that, they also set a vision which is “to create a better everyday life for the many people”. Other than that, IKEA also concern about the products and services quality which they try to have a good relationship with the supplier to purchase good quality raw material but developing products by themselves which mean in close co-operation with the supplier. This will make them easier to take all aspects of a product’s life into consideration, from the choice of raw material through production and distribution to end of use. By implementing this strategy, they could come out with the standard policy for all store and providing the equal services in different countries. On my opinion, if IKEA keep playing role within their policy which mean develop the products by themselves, this will bring them a limited idea of product design. However, setting a standard policy for the whole organization will be more beneficial for them because they could easily tracking the quality of their products and services which could bring organization up to the state of art and this is why IKEA earning the market share while enjoying the competitive advantage as the world largest furniture and growing larger in the future.
For the second problem that faced by IKEA is the challenging time trading conditions in the home furnishing sectors in 2008. Because of the economic downturn, most of the organization whether international or domestic having hard time to stay in the industry. In fact, IKEA had downsized their structure which cutting large amount of managerial positions at that time. However, downsizing the structure may directly cut the cost and reached what IKEA expected to for example, to be more productive, efficient and flexible. But they did not think about the consequences of the change. The action may cause their entire employees concern of job security and the commitment through organization. It is better for IKEA to think wisely before adding department or position that is not necessary and comes to abandon at the end.
For the third problem which is the need and demand for low-cost products. However, IKEA has chosen Structure strategy to resolve the problem. IKEA try to strengthen its supply chain by practicing good relationship with current suppliers to purchase good quality and lower price raw materials or products to them for the product development. Besides, IKEA is seeking for new supplier all the time which offers a better condition for them. To fulfill the need and demand for low-cost products, they have to always figure out any idea that could help them save their cost. Finding a suitable supplier would be an ideal choice because raw material is an important part to develop a product. Since IKEA has realized how important the supplier is playing its role so they should maintain the structure strategy which is using now. To retain the position of IKEA in this industry, they must always maintain the relationship between suppliers to make sure long term commitment which will benefit IKEA in the future.
Next problem is competitors from the same industry is entering the low price household and furnishing markets. So IKEA use the structure strategy to deal with the problem. The structure strategy applied in this problem is IKEA try to practice decentralized structure which mean IKEA encourages lower level or any level of employees to give ideas for the product design. For example, IKEA offer an environment where everyone is part of team and there are no barriers between management and co-workers. Besides, IKEA also encouraged employees to use their initiative for example to question and to try new ways to achieve efficiency n effectiveness. IKEA takes every co-worker as an important individual to organization. They also provide individual training needs that allow employees to grow in both their personal and professional capacities. Once IKEA practice decentralized structure, they could save a lot of costs rather than appointing external expertise or outsourcing company to help them in production. If IKEA could produce something which is cheaper then the competitors would not be a threat for them. IKEA have to maintain this strategy because decentralization will increase employees’ commitment to support IKEA business objectives for long-term purposes.
The fifth problem is people are spending less in IKEA stores now. IKEA used technical strategy which is providing a reasonable rate for delivery and also assembly services. Besides, IKEA also put their furniture through rigorous testing to make sure it is durable and reliable. Another way to solve the problem is IKEA putting effort to ban the chemical usage for their production. The strategy chosen by IKEA is reasonable and they must maintain it because by taking care of their customers and practicing public responsibility, the organization will just achieve the state of art with profitability outcomes.
For the last problem, IKEA used the technical strategy which they tried to put all the products information into the company’s website whereby cutting down the cost of distributing product catalogue. This would be an ideal way to do so because currently most of the things have been computerized. Most of the people feel it is freer and convenience to search for information through internet. IKEA should continue improving the development of the company’s website in the future which is more effective and efficient.
Two intervention strategies which are structure strategy and technical strategy that being used by IKEA to resolve problems and enable change programs. However, there is still another intervention strategy could be used in the change which is behavioral strategy. Behavioral strategy emphasizes better utilization of human resources by improving morale, motivation and commitment of members. IKEA have to go through this strategy seen all of the strategies are interdependence and in fact it is really an effective way to solve the problems.
In conclusion, we know IKEA is the world largest furniture retailer which is a privately held. IKEA was founded in 1943 by Ingvar Kamprad in Sweden.
However, IKEA is enjoying competitive advantages but they also facing a lot of problems from the aspect of organization development that requires change to be taken. For example, size and scale, challenging time during economic downturn, demand for low price products, existing competitors in the same industry, consumer purchasing power and also cost reduction. All of these problems are very common in the business world whereby the organization have to aware all of the aspects to achieve organization objectives.
Other than that, to resolve the problems, IKEA had figured out the solution or what we called strategy to implement the change. The two intervention strategies that have been chosen are technical strategy and structure strategy. Technical strategy is mainly about the implement new technologies which will bring an organization up to the state of art. It is focusing on machinery, methods, automation and job design. For structure strategy, it attempts to change an organization’s design by modifying lines of authority, span of control and arrangement of work functions, for example, downsizing and decentralization.
Besides, there is another strategy which is behavioral strategy also can be considered in implementing change. However, IKEA putting a lot of efforts in solving those problems, they also realized the importance of dealing with these intervention strategies.
To achieve the organization’s goals, they have to keep strengthen their strength and improve the weaknesses. By the way, IKEA has to be aware with the threat in the existing industry and take the opportunities to expand their business. Despite of short term planning, they also must concern about long term strategy to uphold their organization in the future.
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