The External And Internal Analysis Of The Organization Marketing Essay

The main intent of the IKEA case is to evaluate the key objectives and strategies of the company and analyze the external and internal environments of the home products industry globally. Further it is very important to suggest key business elements that the organization needs to improve in the long run and recommend the ways that the organization can reduce their operational costs and maximize their profits.

According to the case, IKEA currently functions in the home products industry and their primary objective is to offer inexpensive but modern furniture which suit the middle class globally. In order to keep their costs as low as possible the top management has taken many steps such as maximizing the employment productivity and conducting research and development in order to produce low cost but durable and modern products. The SWOT analysis is used to identify the organizational strengths and opportunities in the organization as well as the industry. It further helps to identify the organizational weaknesses which arise when business is functioning and the threats that can arise from the home products industry. By conducting the PESTEL analysis IKEA can identify key elements that influence their business dealings. Next we move on to the industry analysis in order to evaluate the competitiveness of the home products or the furniture industry. As a supportive model mainly Porter’s five forces model is used.

After conducting the external and internal analysis of the organization, IKEA several recommendations are provided for the critical issues that are identified in the case study.

1. Introduction

With the fast development of the global economy, customer necessities and satisfaction levels have speedily raised and they have more independence to procure what they really like. Modern trade industries have become more dynamic, complicated, competitive and volatile as a result of the vast amount of customer needs and wants, sudden changes of the customer preferences; and technological advancements. Therefore in order to survive in the highly competitive market and to gain completive advantages, all the firms should have better understanding about their core competencies, changes and the features of their business environment, buyer behavior and the competitor behavior.

So this report has given more priority to the above mentioned main elements and it has further discussed the competencies of IKEA, challenges that the whole home products industry face, critical issues that the IKEA has faced during last few years and the issues that they have to cope with, how they performed when they were conducting the business and what they currently use as their main business strategies and what they need to improve in the long run and IKEA’s plans on returning to Japan.

IKEA was founded in 1943 by 17-year-old Ingvar Kamprad in Sweden. Currently, the company is owned by a Dutch-registered foundation that is believed to be controlled by the Kamprad family. IKEA is a privately held, international home products retailer that sells flat pack furniture, accessories, and bathroom and kitchen items in their retail stores around the world. The company, which pioneered flat-pack design furniture at affordable prices, is now the world’s largest furniture retailer. The case study provides a detailed description of IKEA’s business proceedings in the year 2005 (general overview, wiki.

Ryan air has increased their profits unbelievable way and they have captured considerable market share particularly because of the precise procedures which were taken by the missionary man, Ingvar Kamprad, the 76 year old currently retired founder of IKEA. Kramprad is a leader who has great ability to climb up the ladder of success by adjusting to the situation and he is rich of valuable business ideas also he is a true entrepreneur by tendency. As a positive impact of his commitments company has gained stunning growth and profitability in the very competitive and volatile home furnishing industry.

In order to evaluate the given case fundamental models, theories, paradigms and analysis methods are to be used. PESTLE analysis is to be used to find out the issues in the external environment to measure the industry and Macro environment which influence future industry growth and development beneath the organization. Double Loop learning model is applied to find out the gaps which involved in this particular situation. Finally spotlighted on the resources, capabilities of IKEA to identify strategic capabilities within the organization.

The value chain will be used to analyze the organization’s strategic capability. Moreover, porter’s five forces model, strategic groups and competitor analysis will be used in the industry analysis. Then the gap analysis, the cultural web, SWOT analysis will be used to identify the strategic intend of the company. Finally, limitations, Recommendation and conclusion will be evaluated throughout the analysis of the overall report and information gathered from external sources.

2. Company Review

IKEA was founded in 1943 is currently owned by a Dutch-registered foundation that is believed to be controlled by the Kamprad family. IKEA is an acronym comprising the initials of the founder’s name (Ingvar Kamprad), the farm where he grew up (Elmtaryd), and his home parish (Agunnaryd, in Småland, South Sweden).

INGKA Holding B.V. is the parent company for all IKEA Group companies, including the industrial group Swedwood, which commissions the manufacturing of IKEA furniture coming from any manufacturer worldwide (outsourcing), the sales companies that run IKEA stores, as well as purchasing and supply functions, and IKEA of Sweden, which is responsible for the design and development of products in the IKEA range. INGKA Holding B.V. is wholly owned by Stitching INGKA Foundation, which is a non-profit foundation registered in Leiden, Netherlands. The logistics centre Europe is located in Dortmund, Germany.

Inter IKEA Systems B.V. in Delft, also in the Netherlands, owns the IKEA concept and trademark, and there is a franchising agreement with every IKEA store in the world. The IKEA Group is the biggest franchisee of Inter IKEA Systems B.V. Inter IKEA Systems B.V. is not owned by INGKA Holding B.V., but by Inter IKEA Holding S.A. registered in Luxembourg, which in turn is part of Inter IKEA Holding registered in the Netherlands Antilles. The ownership of the holding companies has not been disclosed.

The company which was originated in Småland, Sweden, distributes its products through its retail outlets. As of May 2010, the chain has 313 stores in 37 countries, most of them in Europe, North America, Asia and Australia. The IKEA Group itself owns 276 stores in 25 countries and the other 37 stores are owned and run by franchisees outside the IKEA Group in 16 countries/territories. 2006 saw the opening of 16 new stores. A total of at least 15 openings or relocations are planned for 2010. The IKEA Website contains about 12,000 products and is the closest representation of the entire IKEA range. There were over 470 million visitors to the IKEA websites in the year from Sep. 2007-Sep. 2008

3. Identifying Critical Issues

The main critical issue faced by IKEA is the challenge faced by any organization as it becomes larger and more diverse is how to keep the core founding values alive. The company has grown in to a global cult brand over the past thirty years and has been the most successful retailer of home products globally. The issue remains with the fact that IKEA is still run by the managers trained and groomed by Kamprad himself and they are personally devoted to the founder. But the problem starts emerging direct links with Kamprad disappear and the culture of the organization may start to fade.

The company’s strategy to keep thriving as a cult brand is another critical situation. For example, IKEA’s attempt to gear up for a return to Japan in 2006 could be critical since IKEA stumbled badly before when there was a foray thirty years ago which was a complete failure. There was a gap between what Japanese wanted and what IKEA offered. The Japanese wanted high quality and great materials, not low price and particle board.

With the historical average of its sales growing IKEA will need to source twice as much material as today. This is going to be a problem in the future. Since there will be a shortage or probably a ‘bottleneck’ of supply IKEA cannot increase the amount of stores it currently has by more than twenty stores.

The competitors such as Target Corp. (TGT) in the U.S., Kmart, Fly in France and Nitori Co. in Japan who have started to imitate the low price differentiation strategy as IKEA will be great challenges to IKEA in the future since they are all going to imitate the strategy used by IKEA which has so far been its Sustainable Competitive Advantage it had over the competitors.

To identify the objectives and strategies of IKEA it is would be highly advisable to identify vision, mission and core- values of the company.

Company Vision, mission statement and company objectives further illustrated on (Appendix_1).

4. Analysis

External environment and the internal environment are the best two ways of defining the environment with regard to an organisation.

Source: www.publicsafety.gc.ca

4.1. External Environmental Analysis

The reason for taking effort to conduct this external environmental analysis is to identify the environmental strain towards the organizational activities and develop the opportunities which are considered as benefits to the organization and avoid the threats. The precise rationale behind the external environment analysis is to detect the problems that are external to the organization. Organizational resources and capabilities should be identifies in order to adopt to the situation; since external environmental aspects such as politics, economy, socio-cultural issues and technology directly impacts on the organizational functions. Environmental Analysis again divided in to two components as macro environment and industry analysis.

4.1.1. Macro Environmental Analysis

Most important external environmental uncontrollable issues such as political-legal,economical,socio cultural, technological and also some other factors which affect the organizational decision making are considered as macro environment. The Macro Environment Analysis is traditionally the first step of a strategic analysis; it is sometimes referred to as an external analysis, a pest analysis or a pestle analysis.

The purpose of the Macro Environment Analysis is to identify possible opportunities and threats to the industry as a whole and which are most of the time cannot be controlled by the organization.

http://www.whatmakesagoodleader.com/macro-environment-analysis.html

PESTLE Analysis

“PESTLE” could be called a convenient acronym which stands for Political, Economical, socio-cultural, technological, and legal and environment. This tool could be used to identify the environmental factors that have a direct impact on the organization as well as the industry. To identify the analyzed factors and in order to get the complete idea about the Ryan air refer (Appendix _2)

4.1.2. Industry Analysis

Industry analysis could be invariably called as determining the market profitability. Porter’s Five Forces Model is the main tool used when conducting an industry analysis. Industry consists of local governments, public, vendors, customers, employees, competitors, creditors, unions, Inland Revenue, Banks and many other stake holders.

Porters’ Five Forces Model

Porter’s Five Forces Model could be used as an analytical method to understand about the external environment of the industry and to determine the market profitability. The five forces determined by this model are:

Intensity of current competition

threat of potential competitors

threat of substitute products

Bargaining power of customers

Bargaining power of suppliers

An analysis on IKEA has been conducted using Porter’s Five Forces Model in (Appendix_3)

Competitor Analysis

At present everything has a tendency to change in a dynamic manner. The world has become one city or more like one village with the concept of globalization. A few decades ago there was most of the time one product in one type in the market and the consumers were not given a chance to choose from a range of products as they can today. The competition indefinitely offers a chance for the consumers to demand for the best quality and the best value of any product. Competitor analysis is an analytical method used to evaluate the competitors in the market and identify the best strategy to be used. Therefore IKEA needs to identify their competitors by conducting a competitor analysis.

Industry Perspective: When conducting the competitor analysis from the industry perspective the existing and emerging low cost furnishing companies could be considered as the competitors of IKEA

Ex: Target Corp. (TGT)

Kmart

Fly

Nitori Co.

Customer Perspective: when the competitor analysis is viewed through the customers perspective the direct competitors as well as the indirect competitors should be taken in to consideration.

Ex: Euromarket Designs Inc.

Galiform plc

Wal-Mart Stores, Inc.

4.2. Internal Environmental Analysis

After the evaluation of the external environment it is essential to identify internal environmental resources and competencies which could be the organizational strengths and weaknesses in the case of IKEA.

In order to analyze the internal environment of IKEA competencies and Critical Success Factors of the organization could be identified. In addition to this VRIO/VRINE model could be used to identify the organization’s capability of competing with its competitors. Gap analysis could be conducted to identify the gaps between the organization’s current performance and the potential performance. A Value Chain Analysis could also be used to identify the value adding process to the business.

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Competency Check

A competency describes the work related skills and behavior needed to effectively perform in a role. Core competencies are required for all role profiles. Specific competencies are required for some role profiles. www.mcgill.ca/hr/mcompensation/terms/

(A competency check for IKEA is provided in Appendix­­­­_4)

Critical Success Factors

Critical Success Factors are assets and competencies that are needed to compete (Aaker, 2008, p.144)

Critical Success Factors are those aspects of a strategy that must be achieved to successfully meet objectives and, if possible, to secure the competitive advantage of the organization. Therefore it is important to identify the Critical Success Factors of an organization when conducting an Internal Environment Analysis. (An evaluation of the Critical Success Factors is given in Appendix_5)

wps.prenhall.com/wps/media/objects/213/218150/glossary.html

VRIO/VRINE Model

VRIO/VRINE is another model which could be used to analyze the internal environment in the organization. This model detects the organization’s ability to compete with different kind of potential and existing competitors.

The acronym VRINE stands for Valuable, Rare, Inimitable, Non-substitutable, Organized and Exploitable. The capabilities should involve managing knowledge, learning and innovation.

In the case of IKEA, it provides its customers with low cost, modern and durable home products and thus maintains to retain the largest retailer of home products in the world. Though home products could not be called a rare business in the particular industry, the company’s assets and competencies make it valuable in the perspective of customers. Another important factor is though it is easy to imitate the assets of IKEA such as offering the customers products at low cost, it is highly impossible to imitate the knowledge skills and values shared by the employees of IKEA who are capable of producing a better product every time someone imitates their innovations. During the three decades in which IKEA has been in business the perception and the brand awareness they have created make them stand off among their competitors. CEO of IKEA, Anders Dahlvig says “awareness of our brand is much bigger than the size of the company.”

The model of the VRIO/VRINE is in (Appendix_4)

Value Chain Analysis

A Value Chain Analysis is used to value the adding process to a business. Managers identify the internal negative and positive internal aspects of the organization internal issues such as strengths and weaknesses by using this tool. It could also be identified as. A method to identify all the elements in the linkage of activities a firm relies on to secure the necessary materials and services, starting from their point of origin, too manufacture, and to distribute their products and services to an end user.

www.leanmean-manufacturing.com/Glossary/Glossary_MFG_TERMS6.htmlValue chain analysis of IKEA is in (Appendix _5).

5. Gap Analysis

A gap analysis is used to assist the organization with its strategy development process and in simple terms it is design to illustrate “where are we now” and ‘where do we want to be”. (Bermish, Ashford, 2007-2008). An analysis of the gap between requirements that are met and not met; a deficiency assessment. A gap analysis is beneficial for organizations to determine their current position and their actual capacity.

www.jiludwig.com/Definitions.html

The Performance Gap

Time

Sales

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6. SWOT Analysis

SWOT analysis explains about the Strengths, weaknesses, opportunities and threats of an organization. Internal environment influences on strengths and weaknesses. Opportunities and threats are discussed under External environment. By understanding the strength and opportunities; it is easy for us to grasp opportunities and increase the profits in the organization by using its strengths. And also by identifying weaknesses and threats we can formulate better strategies to overcome weaknesses of the organization and eliminate the threats. It will be helpful to forecast whether this intended strategy is valid or not.

How the SWOT analysis applies to the Ryan air is fully illustrated in (Appendix_7)

7. Recommendations

“If it was not for IKEA most people would not have access to affordable contemporary design” says the British Design Magazine. The organization remains the way it is today, being the largest retailer of home products in the industry because of its affordable products which target the massive middle class all around the world. The current strategies adopted by IKEA such as low-cost leader, broad differentiation,

focused differentiation and focused Low-cost could inevitably lead IKEA to a situation of getting ‘”stuck in the middle”. Therefore it is highly essential to recommend the IKEA management to be careful when adopting the ‘hybrid strategy’ and to keep a keen eye on the external environment.

Another recommendation for IKEA would be to train its staff which are being recruited currently in a manner that they gain a complete understanding of the core values and the culture of the company. This way IKEA would be able to retain its culture established by the IKEA’s founder Kamprad.

The inadequate supply of raw material which is incompatible with the pace of growth in IKEA is a problem which is difficult to address. The recommendation I give the management of IKEA as a consultant is to use backward integration as a growth strategy and make an attempt to provide its own supply as much as possible.

When returning back to Japan which was a failure in the past, it is must for IKEA to look for the points where they made mistakes. Its mainly that the Japanese did not want to have low cost home products. IKEA should do a market analysis as well as a customer analysis before returning to Japan again. Also a change in perception of the brand IKEA will be essential. May be a strategy to convince them of the package IKEA comes in where they are low priced but good quality would be more appropriate.

8. Conclusion

Main purpose of this case analysis was to accomplish the complete analysis of the home products industry in a global scale which is relevant to IKEA and to detect IKEA’s core business strategies, management styles, current objectives and future objectives and finally present suitable recommendations to IKEA in order to reduce their recent failures and drawbacks and to maximize their productivity, efficiency and gain maximum profits in the long run.

When the analysis was being conducted it was identified that the success behind IKEA remains in the fact that they produce low cost but high quality home products which would be otherwise unaffordable for the worldwide middle class who are currently the target market of IKEA.

The case has given detailed description about IKEA and it consists of current and expected future business objectives and goals. This case has provided the analyst with an opportunity to learn about models, theories and strategies which can applied when given a real world scenario to be evaluated. A complete environmental analysis was conducted with regard to the home products industry and which I am certain could be used as a model for any other industry evaluation.