IKEA Strategies and controls of

Introduction

The two most common strategy typologies in strategic management are the two above mentioned, presented by Porter and Miles & Snow. One criticism towards these two typologies are that they were developed several years ago. According to some current researches these typologies haven’t got a realistic description of today’s situation. Some important components in many of companies’ business strategies today are time, quality and product adaptation. These components had no or little importance in typologies developed in the 1970’s and 1980’s. According to these scholars this criticism is mainly focused on Miles & Snow’s typology, because this typology is more complete, detailed and has little space to be adapted to the current situation. Porter’s typology is more flexible and it has space for adaptation. Several researchers propose different types of adaptation of Porter’s strategies.

Choice of strategy typology

Mintzberg suggests that Porter’s Differentiation strategy should be more specified and hence be developed, since differentiation may be accomplished in several ways. He suggests differentiation strategies like quality, design, image and support. There are also other scholars suggesting that Porter’s Differentiation strategy should be more specified. Greve have developed Porter’s Cost leadership- and Differentiation strategy further to suit current situations for Swedish manufacturing companies. Greve’s division of Porter’s differentiation strategy is based on earlier scholars studies were Porter’ typology was used, including Mintzberg’s study. There are many similarities among Greve’s and Mintzberg’s suggested development of Porter’s Differentiation strategy e.g. Mintzberg’s Support strategy is similar to Greve’s Marketing strategy, described in the paragraph below.

Porter’s Focus strategy isn’t included in Greve’s further developed typology. (Porter’s Focus strategy implies that a company concentrates on one segment of the market and is reached either through Cost leadership or Differentiation. The reason for this is according to Greve, that this type of strategy would not affect the design of the MCS radically. Including this type of strategy would also increase the number of strategies, which demands more studied companies in order for the significance level not to decrease Greve develops Porter’s two generic strategies by making a distinction between standardised products and the need of flexibility in production. By this division, five strategies are reached; Mass production, Lean production, Product developing, Marketing and Customisation strategy. However, neither Greve nor Gyllberg & Svensson found any companies with a pure Cost leadership strategy among Swedish manufacturing companies. This made both Greve and Gyllberg & Svensson exclude the Mass production and Lean production strategies only focusing on the three developed Differentiation strategies.

Since only one company can be a Cost leader in each branch, we may expect to find few companies with this strategy. We don’t believe we will find enough companies to classify them in accordance with Greve’s two Cost leadership strategies. If we would find only one company in each type of strategy, the significance level would be too low. We hence, view Cost leader as one strategy that isn’t divided between standardised products and the need of flexibility in production. Porter’s Differentiation strategy is divided into three Differentiation strategies just like Greve’s development of Porter’s Differentiation strategy. The characteristic of each strategy is described below:

Cost Leadership strategy

Cost leader strategy: Here the company’s products are similar to the competitor’s products. The Cost leader company however produces its products to a lower cost and sell them at a lower price. The products are often standard products. Other characteristics for this strategy are that the company invests little recourses in R&D, marketing and service.

Product developing strategy: This strategy is characterised by the large investments of resources in R&D. Miles & Snow call this strategy Prospectors.

Marketing strategy: The physical products sold by the company don’t differ in a decisive manner from the competitor’s products. By marketing actions (advertising, service etc.) the company aims to differentiate themselves from the competitors. This strategy shares some characteristics with Miles & Snow’s Defender and Analyzer Strategies.

Customisation strategy: Companies with a Customisation strategy are very customer oriented. By a very flexible production they reach a high level of adaptation to each individual customer or a small group of customers.

Management Control

Management control exists in all companies and almost every employee is affected by its activities. The MCS can be more or less formal, e.g. in small companies the MCS is often informal, however when the company grows the MCS tends to become more formal. Management control frequently occurs in this thesis; we will therefore break it down into smaller components and give our definition of these terms.

Means of Control

To manage a company towards financial goals, the company needs tools to facilitate the control of the company, these tools are means of control. The term Means of Control is synonymous with the term Control Devices; both terms occur frequently in the business administration literature. Several scholars have suggested different classifications of means of control. One classification divides means of control into formal (e.g. budgets, performance measurement systems) and less formal (e.g. company culture, leadership style) means of control. We will here present Ewing & Samuelson’s means of control model. In this model the concept of control consists of four important means of control: Control system, Vision and Strategy, Leadership style and Culture, and Organisation structure and Reward systems. Besides these four main means of control there are other factors that effect the construction of the control. The control is also influenced by the market and the society in which the company operates; different owners can have different requirements; and control should ultimately lead to goal fulfilment for the business as such. The fact that information technology plays an increasingly important part for the orientation and shaping of the business is also noted. It is important to have a suitable balance between these means of control, because the means of control should lead to goal fulfilment and reflect the demand on the market.

Management Control

Management Control is defined in several different ways in the literature. A common difference between the definitions of Management Control is that they have different starting points in what control means. The starting point in some definitions is that the control affects the individuals in the organisation, whilst other definitions assume that control is about control of activities in companies.

Frenckner defines management control as planning and follow-up of the operational activities in relation to the financial goals. Frenckner further means that to accomplish these goals it is important to use means such as budgeting, accounting and calculating. This definition is a traditional way of looking at management control and focuses more on the operational effectiveness than on the influence on behavioural aspects. The primary role of management control is to ensure that the chosen strategy is implemented. However, management control is only one of several tools for implementing strategies. Strategies may also e.g. be implemented through organisation structure and culture. Management control may also be seen as a helping device in developing new strategies. In companies, especially those that meet a rapid environmental change; management control information may also provide a base for considering new strategies. Simons calls this an interactive control that indicates a potential need for new strategy development.

We consider the primary role of management control is strategy implementation. In an ongoing business the interactive control may be a part of the MCS, it is however not its primary role. According to us, the main objective of interactive control is to facilitate the creation of a learning organisation, which is important in a rapidly changing environment.

Tightness or Looseness

Different constructions of MCS will more or less affect the co-workers performance. The use of tight or loose MCS depends on various factors, among others: organisation’s culture, strategy, structure, co-workers and their educational background, environment. Merchant & Van der Stede have a negative view upon loose MCS. They consider that a loose MCS increases the risk for manipulative behaviour and wrongfully conducted actions. We partly share their views, thus, we believe that a loose MCS can contain the necessary control needed to avoid these risks. Loose MCS may even increase the employees’ creativity; the feeling of responsibility and in this way increases the employees’ performance.

Performance Measurement Systems (PMS)

The goal with Performance Measurement Systems (PMS) is strategy implementation. A PMS consists of a selected series of measures, which best reflects the companies’ strategies. These measures may be seen as critical success factors and if these measures are reached the strategy is implemented. A PMS can be seen as a mechanism for improving the likelihood of a successful implementation of a strategy in an organisation. Whilst a PMS reflects a company’s strategy there exists no series of measures that are optimal for each company. An example of a PMS is the Balanced Scorecard (BSC).

PMS creates a broader understanding for how short-term activities fit with the long-term plans and how it contributes to goal fulfilment. The measures should communicate the critical factors for a company’s success and on which factors the company should focus. The measures will also signal deviations from plans and expectations.

The Balanced Scorecard (BSC)

Kaplan and Norton developed the Balanced Scorecard in 1992. The BSC is a method for balancing strategic measures in an effort to achieve goal congruence, thus ensuring employees to act in the best interest of the organisation. Besides this function a BSC is a tool for improving communication, setting organisational objectives, focusing the organisation and providing feedback on strategy.

According to Kaplan & Norton, business units should be assigned goals and then measured from four different perspectives:

Financial – financial measures are used because they summarises consequences of actions already taken. These measures show how the consequences of actions taken, affect important financial measures like profit margins and return on assets.

Customer – this perspective and its measures is used to summarise how the companies’ customers sees them. Examples of important measures may be customer satisfaction, on-time delivery, lost customers, new customers and percent of sale in different market areas or customer area.

Internal business – each company have different processes in purpose of creating value for its customers. This perspective focus on what the company must excel in, to be able to create a higher value for its customers. Examples of measures in this category are employee retention, cycle time and efficiency.

Innovation and learning – the fourth perspective in Kaplan & Norton’s BSC focuses on the infrastructure needed to reach long-term growth. These measures should reflect the future and hence be long-term focused. Product innovations, patent, staff training, knowledge may be examples of measures in the innovation and learning perspective.

Based on the discussion concerning the similarities between MBO and BSC in the literature, it seems like the BSC is based on the same thoughts as the MBO. That is, in order to improve performance, organisations need a system that creates goal congruence. The best way to obtain this is through a process, which combines goal setting and review. There are scholars stating that the MBO is a failure in practice. This failure may partly be explained by two factors: the system has been implemented as an individual system instead of an overall goal congruence system as intended; and a problem adapting the model from theoretical approach to practice. Due to these similarities these scholars have investigated if the BSC will work in practise or if it will meet the same destiny as MBO. They conclude that the BSC should function if the organisations manage to keep the system up to date with the rapid external changes. In Swedish companies that have implemented the BSC, researchers have found some issues related to the control system: establishing measures critical for the companies’ success; difficulty in finding measures that can be measured; getting managers at all levels to use the measures critical for success.

Besides Kaplan & Norton’s BSC there are several other PMS based on the same thoughts as the BSC (tableau de bord, performance pyramid etc.). We have chosen to structure the measures used in the study after the model used in the BSC. This choice was made because we believe that the BSC is the most commonly used PMS and it most lightly includes all management control measures that may occur in medium sized manufacturing companies. The BSC is probably the most recognised PMS in the business administration literature, thus we believe the interviews are facilitated if a model that the respondents recognise, is used.

IKEA

IKEA’s Global Expansion Strategy Originally established in the 1940s in Sweden by Ingvar Kamprad, IKEA has grown rapidly in recent years to become one of the world’s largest retailers of home furnishing. In its initial push to expand globally, IKEA largely ignored the retailing rule that international success involves tailoring product lines closely to national tastes and preferences. Instead, IKEA stuck with the vision, articulated by founder Kamprad, that the company should sell a basic product range that is “typically Swedish” wherever it ventures in the world.

Company strategy

The company also remained primarily production oriented; that is, the Swedish management and design group decided what it was going to sell and then presented it to the worldwide public–often with very little research as to what the public actually wanted. Moreover, the company emphasized its Swedish roots in its international advertising, even going as far to insist on a “Swedish” blue and while colour scheme for its stores.

The top purchasing country of IKEA is China. It is the new big potential market for IKEA expanding globally.

National Competitive Advantage of IKEA China Factor Conditions in Developing China As living standards improve in China and the government opens up the property market so interior decoration, design and DIY are becoming popular pastimes in certain key markets. In line with the interest in home decoration and improvement has come a desire for better quality materials.

In the 1990s with the emergence of better public housing, improved incomes and raised expectations of households, the market has moved beyond the provision of shelter to the quest to provide pleasant homes tailored to the households needs.

The result of this trend has been for the Chinese government to begin to sell-off state housing and create a class of homeowners, primarily in the larger cities but gradually throughout the country. With the future development of a secondary housing market, eventually it is envisaged that the Chinese housing market will come to resemble that seen in mature private property markets.

Home ownership has been the catalyst behind the home improvements market and has encouraged consumers to engage in DIY and home improvement/ decorating activities. Additionally, this growth in private housing is attracting domestic and foreign retailers such as B&Q and IKEA to China.

The market had grown by 106.4% since 1994, with the opening up of the housing market, continuing rapid increases in average salaries and consumer spending power and the improved retail supply of goods all contributing to the strong growth.

As the market opens, so China is becoming increasingly ‘house-proud’ while the home improvements industry is becoming an increasingly established part of the Chinese retailing and consumer is landscape.

Relating and Supporting Industries in China The Chinese translation of IKEA pronounces “Yijia”, which literally means “suits home.” IKEA has a 4 prong strategy for China: setting up commercial offices, opening stores, establishing procurement centres and investing in setting up factories. It is reported that IKEA has invested US$60 million to build Asia’s biggest furniture market in Shanghai (area 36 000 square metres). The company president is on record as saying the company also plans to set up 2 new stores every year in China. The coastal cities and developed inland cities will be its main focus. Currently the company’s commercial office in Chengdu City, Sichuan Province plans to procure furniture valued at.

The company also invested US$180 million to build an industrial area in Shanghai’s Song Jiang and establish IKEA’s production base in China. Today furniture companies in China have become IKEA’s biggest trading partners and 30% of IKEA’s products are made in China. Most of the raw materials also come from China so that product prices are competitive.

Demand Conditions of IKEA China The Growing Demand and Strong Sales for IKEA China IKEA has sold US$86 million in products through its own retail outlets by August 26, 2003 in China. This is a new record for the company, and represents 24 percent growth over the same period last year. IKEA has been expanding its retail network, and sourcing more production in China.

IKEA won the hearts of Chinese consumers, and the government, by announcing its expansion plans for China in May, during the SARS crisis, when many international businesses were re-examining what they would do. Just as China Business Strategy predicted at the time, China’s economy and consumers have quickly bounced back from the SARS crisis.

These furnishing stores are always good design and function, or low prices. For the most of middle class, they trend to choose the reasonable price and good quality. ChengWaiChen’s business idea is honest and has the low price meanwhile have good quality.

Our low price strategy is also a result of a survey conducted among local residents,” said Jerome Deloix, IKEA China sales manager. “After the survey, we decided we should aim at local families with monthly income of 3,350 yuan (US$405) instead of people in higher income brackets.” IKEA will also maintain its aggressive growth strategy in the new financial year.

Linda Xu, public relations manager of IKEA China, said this could lead to a 50 per cent growth in the company’s customer base. “Our targeted consumers are those with lower incomes.” IKEA China Expanding Strategy —- open 10 new stores by 2010 IKEA said it plans to spend $600 million to open 10 new stores in China by 2010, a six fold increase of its China investments. It will expand beyond its current two outlets in Beijing and Shanghai, with a new store in the southeast, most likely in Guangdong, and a second store in the capital to open this year.

The expansion is driven by its robust growth in its mainland operations. IKEA’s sales in China between September 1, 2002 and August 26, 2003 were 713 million yuan (US$86.2 million), 24 per cent more than the previous year. The opening of the firm’s Shanghai store, its biggest in Asia, attracted a record 80,000 visitors within one day. Ikea China manager Ian Duffy said that the company had achieved double-digit growth in sales every year since opening in China in 1999.

At the same time, the average price of Ikea’s products will be reduced by 10 percent starting Wednesday as the company continues its aggressive strategy of targeting families with 3,350 yuan (408 dollars) income per month. And the number of people who visited IKEA’s two stores over the last fiscal year grew by 1.8 million to 6.5 million.

ST. JOHN AMBULANCE

St John Ambulance, branded as St John in some territories, is a common name used by a number of affiliated organizations in different countries dedicated to the teaching and practice of medical first aid and the provision of ambulance services, all of which derive their origins from the St John Ambulance Association founded in 1877 in the United Kingdom. Each national group falls within the charge of a Priory or National Council of the Venerable Order of Saint John in which each Priory ranks alongside the others.

STRATEGY

Their vision is:

Everyone who needs it should receive first aid from those around them. No one should suffer for the lack of trained first aiders.

Their mission is:

To provide an effective and efficient charitable first aid service to local communities

To provide training and products to satisfy first aid and related health and safety needs for all of society

To encourage personal development for people of all ages, through training and by membership of our organisation.

St John Ambulance people:

provide care to those who need it

put the needs of others first

show commitment to those around them through the depth and range of their skills

welcome and value those who offer their talents and time for the service of others

work for, with and in the community

respect the trust placed upon them

encourage and bring out the best in each other

deliver what they promise

This charity adopts a cost leadership strategy. According to this strategy, A firm pursuing a cost-leadership strategy attempts to gain a competitive advantage primarily by reducing its economic costs below its competitors.

If cost-leadership strategies can be implemented by numerous firms in an industry, or if no firms face a cost disadvantage in imitating a cost-leadership strategy, then being a cost leader does not generate a sustained competitive advantage for a firm. The ability of a valuable cost-leadership competitive strategy to generate a sustained competitive advantage depends on that strategy being rare and costly to imitate.

St. John’s Ambulance has persued this strategy through:

Economies of scale

Differential low cost production

Technological advantages

Conclusion

In conclusion, the world’s largest home-furnishing retailer, Sweden’s IKEA has been expanding sales all over the world by they national competitive advantage, especial in the increasingly wealthy China. IKEA China main to attract sales as the proportion of China’s middle class grows. In the not so distant future the size of China’s domestic furniture market will be as big as the whole Europe’s.