The strategic position of the Ikea company

Position Analysis of IKEA

IKEA, has been the market leader in the Swedish furniture industry, as a result of their implementation of competitive strategies for a global market place. All aspects of the company’s value chain are focused on the production of high quality ‘knock-down’ furniture at low and affordable prices.

IKEA’s Strategic Position

Johnson et al. (2008, p13) stated that:

“The strategic position is concerned with the impact on strategy of the external environment, an organisation’s strategic capability (resources and competencies) and the expectations and influence of stakeholders.”

PESTEL ANALYSIS

The under-mentioned is an assessment of the environment in which IKEA operates, which has allowed them to use their core competencies to gain competitive advantage in a global recessionary market.

Politically as a direct consequence of the global recession many countries in an attempt to protect their economy and local industries impose trade embargoes and tariffs in an attempt to prevent or make it more difficult for the import of IKEA products into their country.

The double-dip recession has resulted in a decrease in sales of IKEA’s furniture as many persons are unemployed due to many companies inability to financially meet their overhead cost. As a result many of IKEA’s customers have chosen to hold on to their savings due to the economic uncertainty. The recession impact IKEA’s operations as countries in which IKEA operate in, may deglobalise their markets and try to promote buying-in to their local products and services instead of products from the international market. Therefore, this would reduce IKEA’s earning potential based on a decrease in customer spending.

Socially, IKEA has been able to provide employment to persons in 35 countries improving the standard of living of these employees. IKEA has been gaining strategic advantage over their competitor since they have been outsourcing the primary level of their value chain activities. This strategy is used to increase employment levels in developing countries as they grapple with the social effects of the global recession, such as increased unemployment and criminal activities.

IKEA’s technological concepts have added value to their core competencies which would allow them to be more competitive. Technology at IKEA supports the development of new products, research and development systems and methods to improve on the production process. Their technology has resulted in an efficient distribution chain to ensure that their goods reach their consumers as and when they are needed, making them always available. IKEA’s information technology offers countless opportunities to simplify, streamline, and improve every aspect of operational activity.

Ethically, IKEA has set admirable standards for achieving improved competitiveness in the household furnishings industry. Through its clear definition of their roles and their relationship with their customers, IKEA is able to increasingly develop strategies and systems to ensure that products reaches the customer on time and is of the highest marketable quality available at affordable prices.

IKEA’s corporate policies basically are regarding their impact on the natural environment it is the motivator for their relationship with suppliers. IKEA is positioning itself to supply energy saving electrical bulbs to consumers. Through its social programs IKEA has donated thousands of the most basic requirements to underprivileged children.

PESTEL ANALYSIS

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There are also legislations to control the ethical and lawful management organisations including IKEA. IKEA must conduct their operations according to the rule of law as it pertains to the countries in which they operate especially regarding the human rights act, the protection of workers and the proper implementation of the Occupation Health and Safety Act. These laws are enacted to protect worker from exploitation, abuse, discrimination and violation. If workers feel that their rights, while employed have been violated by the company they have a course of action which they are obligated to take against their employer. The violation of workers’ rights can be very damaging to the image, brand and reputation of the organisation. Therefore, it is of crucial importance that the proper investigation and standards are implemented when outsourcing activities to ensure that workers’ rights in developing countries are not exploited and abused.

STRATEGIC CAPABILITIES

IKEA’s strategic capabilities are their strengths, such as their skilled human resources and their efficient value chain and distribution channels. The company developed strategies to overcome weaknesses and convert them into strengths which the organisation can capitalise on to gain competitive advantage. The standisation of the production process in the manufacture of their furniture allows IKEA to increase its production output with increased accuracy and efficiency, thereby enjoying economies of scale.

Strengths, Weakness, Opportunities, Threats (SWOT) Analysis identify the challenges and issues.

IKEA has outsourced to a number of global manufacturers to produce their furniture at a cheaper cost added to the easily availability of raw material and skilled labour. This however, can be a challenge for IKEA as governments wish to protect their local industries. Therefore, they may impose trade tariffs and embargoes on the company’s products thus making them more expensive for import.

The affordability of IKEA’s furniture is a source of strength for the furniture giant as a result of which they are able to enjoy increased sales. However, IKEA has felt the challenges of the double-dip global recession from 2008. The recession has left many unemployed and other cautiously monitoring and controlling their level of spending. This can account for the marginal increase in sales from 2008 to 2009.

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Through the standisdiation of their production processes and furniture design IKEA has been able to increase production, with minimum wastage and increased efficiency and speed. However, the standardization of their furniture does present a challenge for IKEA since it is a global company and the cultural difference in countries exist. Therefore, their global customers may require a variety and they may need to adapt their furniture to adequately satisfy the different tastes, needs and styles.

The organisation has adopted a flat organisation structure for greater efficiency in the management and control of staff to ensure that the corporate and business objectives of IKEA are achieved at the operational level of the organisation. However, IKEA’s management strategy which empowers staff to make decision may lead to the development of a lassire-faire attitude among staff. Management may loss control as staff conduct may become unethical and irresponsible.

IKEA’s policy of deploying management from their Swedish store to train staff at their global branches is used as a strategy to ensure that IKEA’s concepts, vision and mission is standarised throughout the company’s 300 branches. This policy may leave many employees feeling de-motivated as they may feel that the Swedish branch is centralising their power, authority and control over them.

IKEA’s glossy catalogue is an ideal promotional tool as it is distributed in 35 countries, in 25 languages in excess of 190 million. The cost attached to publish these catalogues would impact the company’s profit margin especially in a market experiencing slow sales. The impact on the destruction of the natural habitat as a result of the high number of catalogues circulated on a yearly basis; there is cause for environmentalist to be concerned.

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IKEA’s main strength however is the speed and efficiency with which the company ensures that their furniture reaches their customers though however, in trying to make the furniture more affordable IKEA has failed to add to the appeal of their customer base through their lack of style and choices.

IKEA has been able to open 35 stores however, the negative impact of the global recession poses a challenge as the value of countries currency may be devalued as countries seek to deal with the economic effects of the recession. Many governments in an attempt to protect their local industries from the impact of globalisation are deglobalising their economies to allow their local businesses to survive as many persons exercise greater control with regards to their spending.

EXPECTATION & PURPOSE

At this level business operations must be conducted ethically to the benefit of its stakeholders (employees, environment, customers, shareholders, suppliers, competitors). IKEA has a responsibility to society and its interaction with its stakeholders must reflect and represent the organisation’s best interest.

The business level of IKEA’s operations strategies are implemented which allows for the hiring of the best skilled, qualified and trained employees who are able to work efficiently with minimum supervision. Employees are empowered to be a part of the company’s decision making processes of the company. This has allowed the company to be increasingly innovative in fullfilling the vision, missions and values of the organisation. The proper implementation of IKEA’s business strategy would result in IKEA realising competitive advantage.

EXPECTATION AND PURPOSES

STRATEGIC CHOICES

Johnson et al. (2008, p217) stated that:

“Strategic choices are concerned with decisions about an organisation’s future and the way in which it needs to the many pressures and influences…”

BUSINESS LEVEL

IKEA’s mission is to provide low-cost furniture, of high quality which would satisfy the needs and expectations of their customer base. Their workforce is highly trained and empowered with the authority to make decision and to take responsibility for their decisions. IKEA can also implement procedures and policies to ensure that their core production and manufacturing concepts are standardised on a global scale at all of the 300 stores in the 35 countries which they operate.

CORPORATE & INTERNATIONAL LEVEL

However, at IKEA’s corporate and international strategic level they ensure that the production and manufacturing processes of their furniture are standardised to ensure that efficiency and quality control are maintained. The furniture are easily made available packed in boxes where the customer do not have to pay added costs to have the product delivered, they can self transport and assemble themselves.

DEVELOPMENT DIRECTIONS & METHODS

IKEA’s strategic direction and methods of development has allowed them to invest in research and development. Their new concept in “knock-down” furniture has positioned them become a market leader in this sector.

STRATEGIC CHOICES

STRATEGY IN ACTION

IKEA have been able to implement planned and unplanned strategies which has enabled the company to gain competitive advantage through technological leadership, producing superior furniture in comparison to competitors.

Suggest a range of options to deal with the challenges of IKEA’s position analysis issues.

For a global organisation such as IKEA operating in a highly competitive recessionary market plagued by challenges and issues there are number of successful strategies which IKEA should implement. The successful implementation would place IKEA in a position to revitalise their declining market and boost their product offerings which would allow them to maintain competitive advantage. IKEA must use strategies to drive the market through innovative concepts and not let the market drive it.

FOCUS DIFFERENTIATION

IKEA can adapt its marketing strategy to attract a wider and diverse segment of the market. Strategies such as a focus differentiation strategy should also be used along with IKEA’s low-cost “no frills” strategy which would place IKEA at a strategic advantage to provide furniture at a substantial price to a selected niche market demanding furniture of an exquisite quality and detail. This strategy would allow IKEA to target consumers from the upper and upper middle class which they did not target before.

PROMOTION

It is also advisable that IKEA invest heavily into promotion and branding of their products to attract a wider demographic and enter new market segments. This strategy attempts to convince customers that they are paying higher prices for an item of higher quality and unique to the needs and wants of the consumer.

OUTSOURCING/OFFSHORING

Through the implementation of a differentiation strategy IKEA can provide goods and services different and of a wider variety from their competitors. To gain strategic advantage in a global recessionary market and highly competitive market IKEA can further outsource and also offshore their support and primary activities of its value chain to India for example where the cost of labour is much cheaper than it would be than for example, the USA and Europe. Here they would be able to benefit from time arbitrage. IKEA can enjoy the benefits of time changes by putting the change in time from one geographic location to another to productive use therefore the manufacturing process is doubled.

This strategy would enable IKEA to enter and capture new segments of the market that they were not able to enter before. As a result, the cost of production decreases making price more affordable to the masses. Resulting increase sales and strengthening the market potential of the IKEA brand on a global scale.

IKEA can focus on improving the quality of their existing products thus staying competitive reducing the risk of losing market share to competitors.

MAINTAINING CUSTOMER LIFETIME VALUE

By focusing on maintaining lifetime customer value IKEA should not only focus on a single transaction with the customer but developing and maintaining a lifelong relationship with their customers. IKEA can achieve this by maintaining a level of constant contact with customers, keeping informed of their needs and providing them with a superior level of customer service which their competitors are unable to imitate or they would find it difficult to do so. This strategy works of building customer loyalty which can last a lifetime.

PROVIDE VALUE

IKEA should continue to provide added value to their customers, since their customers do care about the benefits which they get from their IKEA furniture, they must get value for money. IKEA must continue to offer an extra level of service to further improve the value of their furniture to their customer base, IKEA has already done this by providing a low-cost product, assisting in reducing the cost by allowing customers to deliver and assemble their own furniture. Additional, IKEA can offer more benefits to their consumers such as promotional gifts with purchases.

MERGERS/ACQUISITIONS

Through mergers and acquisitions IKEA can partner with another organisation which can enable them to enter new markets which they have been unable to successful penetrate. This strategy fosters an atmosphere of expansion since the tangible and intangible resources of both companies are merged which increase the opportunity for further growth potential.

As result of this growth IKEA can benefit from horizontal integration which can allow IKEA to offer to new markets its existing furniture line or they can introduce a new range of products to their current. This strategy can allow IKEA to experience further growth and increased benefits from economies of scale, as there is an increase in the number of units produced this results in a lower cost per unit.

IKEA supply chain which includes in adequate supply of raw material to manufacture their furniture being able to satisfy the needs and wants of their customers. As a consequence, IKEA would be poised to exercise greater control of their operational systems resulting in improved quality, quantity and price which would impact the company’s profit margins in a positive way. IKEA can also experience growth by diversifying into a new range of products and new product development allowing IKEA to enjoy synergic growth and development.

SHORTENING THE PRODUCT LIFE CYCLE

By developing products with a shorter product life cycle IKEA can continue to anticipate and successfully satisfy the changing needs of their customer base, meeting and fulfilling the needs of new customers as well the existing. Through innovation and research IKEA would be able to keep-up with changes in trends in the market. Giving the customer what they want before the customer even know, what they want.

PROCESS RE-ENGINEERING

IKEA can re-engineer its systems by critically examining its operations to develop strategies to allow it to increase the company’s efficiency by making it more simple or removing them from the company’s operational systems.

TALK TO YOUR CUSTOMERS

IKEA can improve its existing product, packaging and supply their furniture offering in a new way an excellent marketing strategy which can allow IKEA to maintain competitive advantage. This strategy would be used to impress IKEA’s customers with the new improved product offering. IKEA’s marketing manager can develop strategies through effective market research into geographic and demographic segments of IKEA’s furniture market. With the information gathered IKEA can generate new ideas to improve their product offerings benefiting customers as they are able to satisfy their market potential through customer satisfaction.

Though market research IKEA was able to provide stores in the geographical locations where there has been a high demand for the IKEA brand.

RESTRUCTURIING

This may involve including or removing levels of control in KEA’s organisational structure which would promote a more efficient culture leading to increasing productivity.

TRAINING & DEVELOPMENT

IKEA should target training and development programs which would allow staff to develop and harness their capabilities to be more innovative and creative giving IKEA competitive advantage.

CONCLUSION

For the continued survival of the IKEA brand, it is critical that a comprehensive environmental analysis is conducted which can determine what is the best strategies to be implemented to meet the changing needs and taste of the new market and the existing market. In a rapidly evolving world in a market where consumers needs are constantly changing at a rapid rate, coupled with the economic challenges of a global recession, IKEA must diligently evaluate their products and their ability to satisfy the future needs of their consumers. By developing and enhancing the skills and abilities of the human resources IKEA would be poised to maximise the capabilities of their core competencies. IKEA can reinvent itself as they strive to maximise the level of competitive advantage it has over its closest rival.