Case+Study+Ikea

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Table of Contents1.0 Executive summary ..................................................................................................................... 2

2.0 Introduction ................................................................................................................................ 4

3.0 Environment analysis ........................................................................................................................ 7

3.1 Adapting to the environment ....................................................................................................... 7

3.2 Influencing the Environment ........................................................................................................ 7

4.0 Strategic planning at IKEA ................................................................................................................. 8

5.0 Ikeas Concept of cost efficiency....................................................................................................... 9

6.0 Ikeas situation analysis.................................................................................................................. 10

7.0 Macro environment /external environment Analysis .................................................................... 11

7.1 Pestle analysis ................................................................................................................................. 11

7.2 industry analysis .......................................................................................................................... 12

7.3 Globalisation Drivers Analysis ..................................................................................................... 12

7.4 Porters Diamond Analysis .......................................................................................................... 13

7.5 Porters competitive forces and strategies ...................................................................................... 13

7.6 strategic Group analyses ............................................................................................................. 14

7.7 Perceived Value analysis ............................................................................................................. 14

7.8 identify related external factors. ................................................................................................ 14

8.0 internal Environment analyses ....................................................................................................... 16

8.1 Resources Audit .......................................................................................................................... 16

8.2 Competencies Check: .................................................................................................................. 16

8.3 ValueChain Analysis ................................................................................................................. 17

8.5 Critical Success Factors ............................................................................................................... 17

9.0 SWOT Analysis ................................................................................................................................. 18

10.0 Conclusion ..................................................................................................................................... 19

References ............................................................................................................................................ 20

Appendix ............................................................................................................................................... 21


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1.0 Executive summary

IKEA of sweden,home furnishing retail stores was founded by Ingvar Kamprad(ofBmtaryal

Agunnaryd,sweden)in 1943 has thrived well and grown into a successful ,global network

spanning over 36 countries with its 265 shopping centares,hosting 410 million shoppers a

year. IKEA with its retailing concept sells a lifestyle and make contemporary design on

affordable luxury to the global middle class consumers around the world enjoy its good

taste and recograre value.

Ikeas sales are growing approximately 15%yearly and maintain operating margins of 10%

which are among the best in home furnishing. IKEA maintains these profits even while it

cuts prices steadily Ikeas culture, promulgated by kampard,includes egalitarianism, steely

competitiveness, relation cost cutting frugality and design culture. IKEA is well known for

its cut pries and it goes deeper when it wants to hit rivals in certain segments. It helps that

frugality is deeply untrained in the corporate Dna as the obsession with design. The cost

obsession fuses with the design culture. Design is accepted if they can be made affordable.

Ikea 12 full time designers along with so freelances work hand in hand with its production

teams to identify the appropriate materials and least costly supplies. With a network of

1300 suppliers in 53 countries Ikea works overtime to find the right manufacture for the

right product. Simplicity, a tenet of Swedish design, helps keep cost down. They look to find

innovative use for discarded and unusual materials.

IKEA will need to source twice as much maternal as today in 2010, if sales keep growing at

their historical average. They cant increase by more than 20 stores a year because supply is

the bottle week. Since Russia is a source of timber, IKEA aims to turn it into a major supplier

of furnished products, thus, IKEA would be able to overcome the supply contain

(bottleweek) and envisage on keeping the pace of sales growth intact. Adding to the

challenge, the suppliers and designers have to customize some IKEA product to make them

sell better in local markets. Line manager unitspeoples houses in the U.S and Europe to

peek into their closets. The American market poses special challenge for IKEA because of the

huge differences inside U.S Americans what more comfortable sofas, higher quantity

textiles, more spacious entertainment units, now U.Smanagers are paying more attention tothe tiniest details.


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IKEA has stumbles before. Foray into Japan 30years ago was a disaster. Japanese wants high

quality and great material and not low price and particleboard. If IKEA would have realised

this market needs, it would have averted disaster. Adoptability to market needs is just as

important as culture, cost obsession and competiveness. IKEA does not, currently have

conspicuous competitors.

Store visit to any IKEA will provide with an enthralling experience the world over-spacious

slow. Rooms, sheer number of items, gentle coercion fully accessorized displays,

restaurant playrooms and ect.Ikea can extended its product ranges(diversification)such as

rags,carpets,and other interior decorating item.They can diversify home furnishing to

offices, factories, steel furniture and target affluent and lower income groups. Because

competition may increase and ikea is also seeing more competition than ever,for instance,in

Japan nations has a lock on low cost furniture. The great challenge of IKEA as it become

larger and more diverse is how to keep the core founding values alive. IKEA is still run

manager who were trained by kamprad himself and personal devoted to the founder.Asthe

direct link with Kampar disapper,the culture may start to fade. IKEA they fore should plans

for successive, succeeding leadership reviewed mission, vision and goals. Product

densification, novel marketing strategies market penetration and well planned short keaand long-term strategis .Ikeas culture should evolve with time.


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2.0Introduction

Ikea began in 1943 as a retail home furnishing store and it has grown into successful global

net work stores with its unique retailing concept and enthralling millions of shopping around

the world with good taste and recognize value. IKEA paves way to access to affordable

contemporary design. Ingvar Kampard the founder of ikea is considered as the most

influential tastemaker in the world today is still the cheer leader for the practise that defines

IKEA culture. IKEA is still run by managers who were trained and groomed by Kamprad

himselfand who are personally devoted to the founder. What man market-retailer has had

more success globally? Let us see it in the analysis what factors have contributed to its

immense success. IKEA has stumbled badly before and is just now gaining up for a return to

Japan.

Our analysis of Ikea is based on informations available in 2005- for the fiscal year ended

31th august 2005.place heisinburg, Sweden. The Swedish society is comparatively more

affluent and a noteworthy tenet Swedish design is simplicity which helps cost down.

Situation

Ikea, since its inception in 1943, has strived penetrate the market with its distinguished

designs and affordable prices. IKEA has had its slip-ups too. But right now its 226vstores in

Europe,asia ,Australia and the U.S.A are thriving hosting 410million shoppers year .Ikea s

sales are growing at a healthy rate of 15% annually and its operating margins of 10% are

among the best in home furnishing .

To keep growing at that pace, IKEA is accelerating store rollouts. If sale keep growing at their

historical average ,by 2010 IKEA will need twice much materials asset needs today. Due to

supply constrain, it cant increase by more than 20 stores a year, though it may alum to

Russias source of timber in to a major supplier of furnished products

Ikeas chain of stores enthrals shopped with a similar experience the world over-identical

buildings huge space, sheer number of items baby rooms, fully accessioned displays

seducing the shopper, unexpected items you never knew you needed. Gentle Coercion


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making you believe nothing in expensive restaurant finality to keep going, flat packed items

easily to haul are all characteristic of ikeas charm and attractiveness .

Ikeas culture of steely competiveness, cut prices relentless cost-cutting, going deeper when

it wants to hit rivals in certain segments, deeply ingrained frugality coupled with obsession

of design, all stand to benefit the customers by way of affordable prices and contemporary

designs. IKEA has a net work of 1300 suppliers in 53 countries working overtime to find the

right manufacture for the right product simplicity helps keep cost down. Designers struggle

to find innovative uses for discarded and unusual materials.

Critical issues

Ikeas line manager visited peoples houses In the U.S.A and Europe to peek into their

closets. The American market poses speual challenges for IKEA because of the hug

differences inside the U.S.A American want more comfortable sofus ,higher quality textiles

,more spacious entertainment units.thus IKEA has to distinguish the varied needs of the

customers and have to design their furnitures accordingly there is no single design/style

that is acceptable by all .customers do not low price and particle board .Sensing the pulse of

customers is important.

The question is whether IKEA can thrive well like this?

Ikea has stumbled before a foray into japan 30 years ago was a disaster. Probably IKEA was

not sensitive enough to local Japanese needs. They do not look for shoddy gearing up for a

return to japan next year (2006).now the managers are and should be paying close attention

to the tiniest details.

Referring to the market competition, the retailer (IKEA) accounts for just 5-10% of the

furniture market in each country in which it operates. The awareness of our brand is much

bigger than the sige of the company says CEO; Andhes Dahivig.this shows the complacency

of the management. Sales revenue rises by 15% while profit margin by 10% .IKEA would not

be able to increase by more than 20 stores a year because of the constraint imposed by

material suppliers. IKEA is seeing more competition than ever; for instance, in Japan nitori

Co has a look on low cost furniture how can IKEA face these challenges


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Ikea faces the problem of the Hybrid strategy. Ingvar Kampar founded IKEA in 1943 with the

credo of creating a better life for many and Kamprad, through officially retired, is still the

cheerleader for the practises that define Ikea culture-namely egalitarianism, steely

competitiveness, relentless cost cutting and frugality. The cost obsession fuses with the

design culture.Ikea is still run by managers who were trained and growled by kampard

himself-and who are personally developed to the founder. As the direct links with Kampard

disappear the culture may start to fade. Then there would be an emerging culture that

would be more suited the changing environment.

Another aspect that intrigues us is how to keep the core founding values alive. One way to

overcome the issue is by keeping the core values intact and making adaptable changes to

suit the changing environments. These are discussed under the environment analysis.


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3.0 Environment analysis

The organisation environment relationship is Important for the reason that the environment

creates uncertainty for organisation managers, who must respond by designing the

organisation to adapt to the environment or influence the environment. Organisation must

manage environmental uncertainty to be effective .uncertainty means that managers donot

have sufficient information about environmental factors to understand and predict

environmental needs and changes(Duncan 1972;Daft 1994.1995)

Two basic strategies for coping with high environmental uncertainty are to adapt the

organisation to change in the environment and to influence the environment to make it

more compatible with organisation needs. Refer (appendix 1 the external environment and

uncertainty)

3.1 Adapting to the environment

If the organisation, IKEA faces increased uncertainty with respect to competition,

customers, suppliers or government regulation managers can use several strategies to adapt

to these changes including boundary-spanning roles, increased planning and forecasting a

flexible structure and merges or joint ventures.

3.2 Influencing the Environment

The other major strategy for handling environmental uncertainty is to reach out and

changing these elements causing problem. Widely used techniques for changing the

environment include advertising and public relatives and political activity.

Refer: Appendix 11: organisational responses to environmental change


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4.0 Strategic planning at IKEA

Strategic planning in for profit business organisation, like IKEA typically relates to

competitive actions in the market place. Strategic thinking means to take the long term view

and see the big picture, including IKEA and the competitive environment and to consider

how they fit together. Understanding implication is an important start towards strategy

thinking.

Within the overall grand strategy of IKEA, executive define an explicit strategy-the plan of

action that describes resources allocation and activities for dealing with the environment

and attaining the organisational to execute activities differently from its competitors

(Porter, 1996).

Refer: Appendix ii the strategic management process of ikea

The strategic management process began when executives at IKEA evaluate their current

position with respect to ikeas mission goals and objectives. They then scan the

organisations internal and external events may include a need to redefine the mission or

goals or the formulate a new strategy at the corporate business or functional level and the

finally is the implication of the new strategy.its is important to review ileas mission, vision

and goals.

Ikeas vision statement paving way for most people to have access to affordable

contemporary design. The company objective is to provide home furnishing at the lowest

cost possible the cost obsession fuses with the design culture. Awareness of our brand is

much higher than the size of our company Anders Dahiv ig (CEo)indicates that the company

is not much interested in expanding futher-currently the retailer accounts for just 5-10% of

the furniture market in each country in which it operates.

Refer: Appendix iv factors shaping the change of Iekas Strategy


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5.0 Ikeas Concept of cost efficiency

IKEA, as a basic concept what to keep it costs as low as possible .that is why it is able to

provide to many people an access to affordable contemporary design. At the same time it

provides them with good taste and recognizes value. It tells a life style Kamprads credo of

creating a better life for many is almost evangelical. Ikeas culture includes steely

competitiveness, relation cost-cutting. It goes deeper even it wants to hit rivals in certain

segments. It helps that frugality is ingrained in the corporate DNA as the obsession with

design. No matter how impaired and appreciated finds its way into the obsession with

design. The cost obsession fuses with the design culture-both are inseparable, no design, no

matter how empires and appreciated finds its way into the showrooms if it cannot be made

affordable.Designess and in house production teams work hard or identify the appropriate

materials and least costly supplers.Ikea work hard to find the right manufacture for the right

product .Simplicity helps keep costs down. Nearly all the big items are flat. Packed which

saves shipping costs and enables shoppers to have their own staff home. I keas designers

are looking for innovative use for discarded and unusual materials. This low cost philosophy

may be target to global middle class but not the affluent society like the japans and

Americans.


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6.0 Ikeas situation analysis

Situation analysis typically includes a search for strength, weakness, opportunities, and

threats(SWOT)that affect Ikeas performance. It is important to all organisations, but in

crucial to that consideration because of the varied and diverse environment in which they

will operate or to an organisation like IKEA which is in the global market over six decades.

External (information about opportunities and threats may be obtained from a verity of

sources including customers, suppliers banks, friends in other organisation, consultants or

association meetings.

Executive at IKEA acquire information about internal strengths and weakness from a variety

of reports including budgets, financial ratios, profit and loss statements and survey of

employees attitude, and satisfaction. Though frequent face to face discussing and meetings

with people at all levels of the hierarchy executives build an understanding of the Ikeas

internal strengths and weakness.

Refer-Appendix-iii


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7.0 Macro environment /external environment Analysis

Ikeas managers need to understand how the environment strongly influences their

companys strategies and operations. A firms environment represents all of the internal and

external forces factors or conditions that extent some degree of impact on the strategies,

decisions, and actions taken by the firm(PITTS and LEI,1996).The purpose of an external

environment analysis is to identify/develop a finite list of opportunities that could benefit

Ikea and threats that could also be avoided. IKEA should be able to respond either

offensively or defensively to the factors by formulating strategies that take advantage of

external opportunities or that minimise the impact of potential threats. External analysis can

be divided in macroenvironment and industry analysis.

The purpose of studying the external environment analysis is to identify the factors which

have significant impact on Impact on IKEA. In analysis the external environment, we delve

into PESTEL analysis, industry analysis, globalisation diverse analysis, porters diamond

analysis, Strategic group analysis, perceived value analysis and identifying related external

factor s.

Refer: appendix vexternal Environment, appendix VI internal environment

7.1 Pestle analysis

Lying around an organisation as layers is the environmental influences and trends. The most

general layer is the macro environment when understanding of political, economic, social

technological, environmental and legal influences(PESTEL)can provide an overall picture of

the variety of forces at work around our retailer, IKEA this can also cost light on the keydivers of change and provide the basis for examining the fustic impact of environmental

force on Ikea and the home furniture industry. Every firm in every industry is exposed to

the rising globalisation wave and its does present some exciting opportunities to ikea .

Refer: Appendix vii pestel analysis


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7.2 industry analysis

Industry is a organisation or business units producing close substitutes (Hubbard, 2000) The

aim of this analysis is to assess the industry environment and answer the following question.

What are the forces within the industry which are determining the profitability of the

industry?

How are the forces changing, and expected change over time?

How will those changes affect future profitability?

Most organisations will be competition within their industry. It is imperative that managers

do understand the competitive force acting in the sector and the attractiveness of the

sector. ikeas sales account for just 5-10% of the future market in each country in which it

operates. According to Anders Dahiving (CEo) awareness of our brand is much bigger than

the site of our company. If is said that IKEA is for more than a furniture merchant. It sells a

lifestyle that makes the customers to have good taste and recognize value and the aim of

IKEA is to provide affordable contemporary design to the global middle class. IKEA operating

margins of about 10% are among the best in home furnishing.

Within the industry IKEA maintains some form of attractiveness towards customers, Gentle

coerciona way of making you feel that nothing is expensive and with the credo of creating

a better life for many IKEAs culture of steely competitiveness, relation cost cutting and

cost obsession fused with the deep style culture make the retail store stand out in the

industry. IKEA is feeling competition now. Thus industry analysis becomes all the more

important.

7.3 Globalisation Drivers Analysis

IKEA started in 1943 in Sweden and gradually expanded its retail stores across the globe

with it unique character tics of enthralling customers with good taste and recognize value.

Business in the global arena involves special risks, uncertainties and difficulties because of

complicated economic, legal political and socio cultural forces. Futher, the Global

environment changes rapidly. Such an the formation of Eu ASEAN,Etc, there arises a need

for market globalisation since customer needs and performances are becoming almost


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similar and consumer tastes are becoming streamlined. In the home furniture sector,

though there may be some degree of homogeneity among buyers, variation in design, style,

quality and value may occur. For instance the needs of Americans and Japanese are

different from others.

ReferViii Appendix on Drives of globalisation.

7.4 Porters Diamond Analysis

Porter suggests that the national home base of an organisation plays an important role

increasing an advantage on a global scale. Porters Diamond suggests that there are inherent

reasons why some nations are more competitive than other and why some industries within

nations are more competitive than others. For example, Japanese technology iscomparatively advanced and hence their electronic items and automobiles are famous

worldwide-consumers trust their technology, quality and performance this is another

example of how the impact of micro environment factors on the competitive environment

can be understood strategically.

Refer to appendix: ix on Porters Diamand analysis.

7.5 Porters competitive forces and strategies

Michal E.Porter studied a number of business organisation and proposed that business level

strategies are the result of five competitive forces in the companys environment (Porter ,

1987)

Five competitive forces are

Potential new entrances Bargaining Power of buyers Bargaining power of buyers Threat of substitute Products Rivalry among competitors

These five forces help determine an organisations position when compared with its

competitors in the industry environment

Refer: appendixX


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7.6 strategic Group analyses

The term strategic group is used or capture competitive patens that are visible across a set

of firms competing against each other on an industry issue basis or within a segment.

Strategic group are popular for analysing an industrys competitive structure. Strategic

group analysis is a basic frame work that should be used in diagnosing competition,

positioning and the profitability of the firm within an industry.

Since the firms within a group are selling similar products to the same customers, the

competitive rivalry, the rivalry, the greater is the threat to each firms profitability. Second,

the strong this of the five forces (competitive) differ among strategic group. Strategic group

analysis helps to understand who are the most direct competitors of any organisation and

how likely or possible it is for an organisation to more form one strategic group to another.

Refer: appendix Xi

7.7 Perceived Value analysis

Critical success factor (CSFs) is those product features that are particularly valued by a group

of customers and therefore, where the organisation must excel to outperform competition.

The extent to which the offering of different providers addresses the factors valued by

customers can be visualized by creating a strategy canvas. It is simple but useful way of

comparing differences between customers9market segments) with differences between

providers/strategic group.

Refer: appendix xii

7.8 identify related external factors.

The external environment of a business consists of two interrelated sets of variable that play

a principal role in determines the opportunities and threats, and constraints a firm faces.

Variable originating beyond and usually irrespective of any single firms operating situation

(political, economic social and technological forest) from the remote environment .Variable

influencing a firms immediate constitute the operating environment .these two sets of

forces provide many of the challenges faced by 9a particular firm) IKEA attempting to attract

or acquire needed resources and striving to profitability market its goods and services.


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The retailer, IKEA, responds to changes in the external environment .IKEA is competitive

uses resources frugally and eliminates waste of natural resources frugally and eliminates

waste of natural resources in any form, uses cheep, economical technologies including

recoiled materials. IKEA is also seeing more completion than ever. Thus IKEA should gauge

these changes in the external environments.


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8.0 internal Environment analyses

All organisation have strengths and weaknesses in the functional areas of business .No

enterprise is equally strong or weak in all areas (Daind, 1999).The internal environment

within managers work includes corporate culture ,production technology organisation

structure and physical facilities. Of all these corporate culture has surfaced as extremely

important to competitive advantage. The internal culture must fit the needs of the external

environment and organisation strategy. When this fit occurs, committed employees create a

high performance organisation that is hard to beat (Wiener, 1998; meek 1988,

sherwood1988).The internal analysis /audit requires finance, production/operations, and

research and development .Key factors should be prioritises so that firms most important

strengths and weakness can be determined collectively.

Refer: appendix: xiii

8.1 Resources Audit

Resources come in many firms from common factor inputs that are widely available and

easily purchased to highly differentiated resources .like brand names that are developed

over many years and are very difficult to relocate (collies and montzomery,1998).Resources

can be calcified into two categories: tangible and intangible, tangible resources are the

easiest to value and often are the only resources that appear in Ikeas balance sheet. They

include company reputation, brand name culture and technical.

Refer appendix: xiv

8.2 Competencies Check:

An organisations core competency is something the organisation especially well in

comparison to its competition. A core competency represents a competitive advantage

because the organisation acquires expertise that competitors do not have. A core

competency may be in the area of superior R&D mastery of a technology, manufacturing

efficiency or customer service(Thompson & Strickland,1992).Firm like IKEA will enjoy a

sustained competitive advantage only if their capabilities are valuable ,rare, lack substitutes

and are difficult imitate.


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8.3 Value Chain Analysis

Value is the difference between what is paid or incurred in costs and what is received in

benefits from the performance of a product obtained from involvement in the organisation

(Hubbard,2000 P61)A company can create more value for its customers either by lowering

the costs or by making the product more attractive through superior design, functionality

quality and the like ,so that customers place a great value on it and consequently are willing

to pay a high price .IKEAs product are more attractive. it sells a lifestyle to its numerous

customers they have good taste and recons value . They target global middle class .they

have good taste and recognize value. They target global middle class. The cost obsession

fuses with the design culture. They make their products affordable. In order to understand

how IKEA builds up its capabilities to compete, one must identify the specific types of

activities that make up Ikeas competitive posture.

Refer to appendix: XIII value Chan analysis

8.5 Critical Success Factors

Ikeas critical success factors are numerous. IKEA sells a life style that customers around the

world embrace as a signal that theyve arrived, that they have good taste and recognize

value. Stores visit to IKEA enthrals shoppers and shoppers and scholars alike-a similarexpenence world over its credo of creating a better life for many is enshrined and its

culture reflects equalitarianism, steely competitiveness, relentless, costcutting.


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9.0 SWOT Analysis

Method of analysing an organisations competitive situation involving assessing

organisational strengths and weaknesses, opportunities and threats. Internal strengths and

weaknesses-strengths are positive internal characteristics that the organisation can exploit

to achieve its strategic performance.

External opportunities and threats opportunities are charctertics of the external

environment that have the potential to help IKEA achieve or exceed its strategic goals.

Refer: Appendix III


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10.0 Conclusion

Accounting to the analysis (situation analysis) carried out on IKEA it is found that IKEA has a

strong brand recognition, a well known name over sixty years ,a clearly define marketing

strategy, inherent philosophy of maintaining low cost and a wide range of products with

affordable contemporary designs. IKEA targets global middle class with low cost materials,

and nearly standardised products. IKEA has a low market shares (5-10%) best operating

margin (10%) and no single well-defined competitor. now it has started to feel the existence

of competition. It has the bad experience of a foray 30 years ago in Japan .IKEA is therefore,

compelled to look into diversified needs of the markets and extend its market segments.

11.0 Recommendation

IKEA should strive increase its market share and not to be complacent. It must try to

accommodate its sales growth (historical) by opening more branches and the resource

material constraint (bottle neck) many are overcome by exploiting the positionality of

manufacturing in Russia, which has plentiful resource of timber. Target market should be

extended, visa toward the affluent society, too IKEA should be flexible and sensitive to

varying market needs, like satisfying heterogenic American market and high quality

demanding Japanese. Competition is cropping up and IKEA should be armed to the teeth to

face competitors market analysis would help. Plan a more diversified strategy like

diversified products (carpets and other interior decoration) and market penetration-from

home furnishing to hotels furnishing and industry furnishing.


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References

David, R.D.(2005). Strategic management: concepts and cases. (10 th edition):Prentice Hall of India

Hubbard, G. Rice, J. & Beamish,P. (2005). Strategic management thinkinganalysis action. (3

rdedition). Pearson education Australia

Daft, Richard L. (1995). Organizational Theory: Cases & Applications. (4thedition.) : West Publishing Company

Philip Bromiley.(2005). The Behavioral Foundations of Strategic Management(10

thedition) Blackwell Publishing, Malden

L.J. Bourgeois. (1980) Strategy and Environment: A Conceptual Integration,Academy of Management Review. (Volume 5): University of Pittsburgh

Collins, D.J., Montgomery, C.A. (1998), "Competing on resources: strategy inthe 1990s"(Volume 73), Harvard Business Review,

About IKEA. (2010). Retrieved July 29, 2010 from:http://www.ikea.com/ms/en_GB/about_ikea/the_ikea_way/history/index.html

Ctinkota,M.R ,Rankainen J.A (1995)strategic management ,St.paul west

Ferguson.A(2001);Strategy;SoverignStuff;Business Reviewweekly no38

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Holt D.H(1998).intertional management text and cases;Fort worthdrydenpress.
http://www.jstor.org/stable/257802http://www.ikea.com/ms/en_GB/about_ikea/the_ikea_way/history/index.htmlhttp://www.ikea.com/ms/en_GB/about_ikea/the_ikea_way/history/index.htmlhttp://www.ikea.com/ms/en_GB/about_ikea/the_ikea_way/history/index.htmlhttp://www.jstor.org/stable/257802


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Appendix

Appendix

Exhibit: The external environment and uncertainty

If IKEA faces increased uncertainty with respect to competitions, customers, supplies or government

regulations, managers can use several strategies to adapt to these changes including boundary

spanning roles, increased planning or forecasting structure and mergers/ joint ventures.

Appendix

Exhibit: (Organizational) IKEAs responses to environment changes

Low

uncertainty

High

uncertainty

Rate of

change of

factors inenvironment

Adapt to and

influence

Environment

Number of factors in organization

environment

LOW HIGH

IKEAs structures for adapting to the

boundary spanning roles forecasting/

planning flexible structure merger, political

activity

Advertising

Public relations

Trade association

Techniques for influencing the environment


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Appendix

Exhibits: The strategic management process

We can now turn to strategy formulation within the strategic business units in which the

concern is how to compete. In our case it is mainly the home furnishings and related

product. The same three generic strategic growths, stability and retrenchment apply at thebusiness level but they are accomplished thought competitive action s rather than the

acquisition or divestment of business. One model for formulating strategy in PORTERS

competitive forces and strategic, which provide a framework for business unit competitive

action (given later in the analysis)

SCAN EXTERNAL

ENVIRONMENT

National Global

SCAN INTERNAL

ENVIRONMENT

Core competence Synergy Value creation

INDENTIFY STRATEGIC

FACTORS

Strengths Weakness

INDENTIFY STRATEGIC

TABLES

Opportunities Threats

SWOT

Evaluate current

Mission Vision Goals Grand

strategy

Define new

Mission Vision Goals Grand

strategy


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Appendix V

Exhibit: Factors shaping the choice IKEAs company strategy.

STRATEGY SHAPING FACTORS: EXTERNAL TO THE COMPANY, IKEA

Source: Thompson A.A. Strickland A.J (2001, p. 60) Strategic management, McGraw Hill, NY

Traditional in conventional business strategy the first phases comprises of analyzing trends

in the industry and then scrutinizing enterprise business process to identify gaps between

the form and best practice leaders. The third phase culminating in the implementations of

the business plans to bring about the necessary organizational changes. In environment

business design, core competencies are analyzed. Fairly rigid infrastructure and process are

than created in order to produce their products. Designed ends with the delivery of the

product through relevant channels to customers

Economic

societal

Political

Regulatory and

community

Considerations

Competitive

Conditions and

overall industry

attractiveness

Company

opportunities

and treats to the

companys well

being

Conclusions

concerning how

internal and

external factors

stack up that

implication for

strategy

Identification

and

evaluation or

strategy

alternatives

Creating a

strategy

that fits

the

overall

situation

THE MIX OF CONSIDERATION THAT

Company

resources

strength,

weakness,

competences and

competitive

capabilities

Personal

attributions,

business

philosophies and

ethical principles

of key executions

Shared values

and company

culture


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THINK STRATEGILALLY ABOUT THE

INDUSTRY COMPETITIVE

CONDITIONS

The key questions

What are the industrydominant economic

features?

What is the competitive likeand how strong are

competitive forces?

What is causing theindustrys competitive

structure?

Which company is thestrangest and weakest

osition?

THINKING STRATEGICALLY ABOUT

IKEAS OWN SITUATION

Key question

How is IKEAs presentstrategy working?

What are IKEAs strength,weakness, opportunities

and threats? How strong is IKEAs

competitive position?

WHAT STRATEGIC OPTIONS

DOES IKEA REALLISTICALLY

HAVE?

Is it looked to improving the

present strategy or is there

room to make strategic

changes for IKEA ?

WHAT IS THE BEST

STRATEGY FOR IKEA

The key criteria

Does it have good fitwith the companys

situation?

Will it help build acompetitive

strategy?

Will it help toimprove IKEA;s

performance?


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Appendix V

Location of the organization general task and internal environments

The external environment of an organization includes all elements existing outside the

boundary of the organization that have the potential to effect the organization (Daft, 1980).

The environments include competitors, resources, technology and environment and

economic conditions that influence the organization (Bourgeois, 1980). The external

environment of IKEA can be further considered as having two layers that is dispersed widely

and indirectly affects the organizations and includes social, economic and demographic facts

that influence all organization in the furniture sector equally. Though they do not affect

IKEAs daily activities but will have profound effects in the long run.

The task environment of IKEA includes sectors that conduct transaction with the retailer on

a daily bias and directly influence its basic operation and performance. When we look at the

General Environment

SUPPLIER

Technological

EconomicLegal/ Political

Sociocultural

COMPETITORS

LABOUR

MARKET

I

i

l

Management

Internal

Environment

CultureEmployees

CUSTOMER

Task Env


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internal environment of IKEA, it includes these elements within the boundaries and

comprises current employees behavior and determines how well IKEA will be able to adapt

to the external environment.

Ingvar Kamprad, who founded IKEA is described as the most influenced tastemaker in the

world because of his contribution to customers good taste and recognize value. Kamprad is

still the cheer leader for the practices that define IKEAs culture. IKEA culture includes

egalitarianism steely competitiveness, frugality which is deeply ingrained in the corporate

DNA as the obsession with design IKEA is still run by managers who were trained and

groomed by Kamprad himself and who are personally devoted to the founder. Thus they

have and exhibit a culture change overtime as the influence of their leader diminished an

emergent culture may surface out.


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Appendix V: CORPORATE CULTURE OF IKEA

When we analyze the internal environment of IKEA, we are practically looking at the

strength and weakness. We have to indentify and clarify IKEAs resources in terms of

strength and weakness. We have to addition few question including

What are the core competencies of IKEA?

Does IKEA have any sustainable advantage?

What foes the VALUE CHAIN of IKEA look like?

What does the organization structure of IKEA look like?

What are the values of IKEA? Research and development , operation, human resources,

information systems and financial issues

Exhibit: Level of Coporate culture at IKEA

InvisibleExpected values

Underlying assumptions, and deep

beliefs , propagated by leader/

founder

visibleArtifacts, such as dress, office

layout, symbols, slogans

Culture that

can be seen atthe surface

level of IKEA


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Appendix V

PESTEL analysis aim to find out what environment factors are affecting the organization and

which of the profound effect at the present time and which will have impact in the next few

years.

POLITICAL

Government stability Taxation Foreign Trade organizations Social welfare policies

ECONOMIC FACTORS

Business cycles GND trends Interest rates Money supply Inflation Unemployment Disposable income

SOCIO CULTURAL FATORS

Population demographics Income distribution Social mobility Lifestyle changes Attitudes to work and

leisure

Consumerisms Level of education

TECHNOLOGICAL

Government spending onresearch

Government and Industryfocus on technological effort

New discoveries /Development

Rates of obsolescence

ENVIRONMENT

Environment protectionlaws

Waste disposal Energy consumption

LEGAL

Competition law Employment law Health and safety Product safety

The organization

(AKEA OF SWEDEN)


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1. Political / Legal EnvironmentIKEA was founded in 1943, since then it has undergone o much political/ legal influence. In

2005 (more precisely) operates its 226 stores in Europe, Asia, Australia and US and hosting

around 410 millions shoppers a year. As it operates in countries with diverse political

situations, it has to need to taxation polices, social welfare polices and to the influence of

foreign trade organization. Such as EU, WTO, who regulate the flow of goods and services.

Anti monopoly and anti merger laws are intended to increase competition than ever. IKEA

could evaluation to increase its activities to countries which have relative stable political

environment and favorable legal environment.

2. Environment factorsEconomic factors prevailing in a country influences the aggregate demand for durable

goods, such as house furnishing. Which the stage of the business cycle is in the upsizing

growth or peak (crest) the demand for furniture increases within the improvement

purchasing power as consequences of greater earning power. Currently most developed

countries are facing economic recession which may result in plummeting of sales of home

furnishing. Similarly are the effects GNP trends, interest rates, money supply, inflation

unemployment and disposable incomes. For instance, if the governments adapt an

expansionary (fiscal) or monitory policy by lowering interest rates this can cause ripple

effects in the economy as results of consumers spending is more on durable goods

3. Social Cultural Factors

These factors have profound influence on consumers purchasing pattern, population

demographic indicate the age wise, distributions of population, an increase in the number

of young married people and who intends to settle in permanent houses of their own would

cause an increase in department if domestic furniture social mobility, life cycle changes,

attribute to work and leisure consumerism and levels of education all extent significant

influence on the demand for furniture and hence the sale of IKEA. IKEA sells al lifestyle and

enthralls shoppers with good taste and recognized value. IKEA targets global middle class

and their buying habits. The taste and preference of Americans and Japanese are different


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from those of other though within America choices vary widely. IKEA should take notice

these variations when formulation strategic.

4. Technologic Changes

This includes government spending on research, government and rates of obsolescence and

these exert profound affection IKEA is activities IKEA is more particular about costs, the

material used, the technology or production and assembling, IKEA save cost by making used

the technological development IKEA is engaged in relentless cost cutting and the cost

obsession is fused with the design culture. IKEA is very particular on finding the right

manufacture for the right product through improved modern technology. IKEA looks for

innovative uses of discarded and unusual materials. Simplicity in design and manufacture

helps to keep it cost down

5. Environment factors

Furniture industry has a great impact environment, since it depend largely natural raw

material (resource)for their production is why IKEA is unable to keep pace of its growth

(historical) rate for want of supplier (constrain) and limit the number of new retail stores

opened annually. However it was looking for Russia as a supplier of timer environment

factors includes environment protection laws, waste disposal energy consumption. IKEA

adopt a policy of funding with the design structure. According designing attractive products

which are inexpensive and functional is a challenge to IKEA. No design no matter how

inspired finds it way into the show room. If cannot be made more affordable. IKEA Is

challenging its designers to find innovative uses for discarded and unused materials thereby

converging resources IKEA feels that wasting resources is moral sin frugality is as deeply

ingrained in the corporate DNA as the obsession with design. Hence IKEA to the

environment polices of most counties.

6. LEGAL Aspect

This include competition law, employment laws health and safety laws, IKEAS has its stores

in numerous counties over the global with differing legal systems and has to follow the


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respective laws and regulations. Therefore IKEA would have to adapt to their employment

and safety laws, competition laws etc. when IKEA contemplates to enter a new market, the

managers should first lean the trade practices


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Appendix V

Exhibit: GLOBALISATION DRIVERS ANALYSIS

As we have seen above key drivers of change that are increase the globalization of some

markets are

Market Globalization Cost globalization Globalization of competition and Globalization of government policies

Market Globalization

When an organization likes IKEA choose a strategy of GLOBALISATION, its product design

and advertising strategy are standardized throughout the worlds (Ohmae, 1990). This

MARKET GLOBALISATION

o Similar customers needso Global customerso Transferrable marketing

COST

GLOBALISATION

Scaleeconomies

Sourcingefficiencies

COUNTRY-specific costs

High productdevelopment

cost

GLOBALISATION

OF GOVERNMENT

TradePolicies

Technicalpolicies

Hostgovernment

polices

GLOBALISATION COMPETITION

o Intended Indeneo Competitors globalo High exports/ imports

GLOBAL STATEGIES

OF IKEA

Source: based on G.YIP

Total Global strategy

Prentice Hall, 2003


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approach is based on the assumption that a single global market exist for most consumer

product like home furnishing.

Market globalization takes various reasons. There is an increasing

HOMOGENEITY of consumer taste in certain goods like soft drinks, KFC. With home

furnishing there exists some diversity in their choices, because tastes, fashion and style

differ from region to region. Even within America, there exist the huge difference inside the

U.S and hence the American Market poses special challenges for IKEA. Unlike the global

middle clan which IKEA targets mainly, Americans want more comfortable sofas, higher

quality textiles and more to market demands made IKEA a foray into Japan 30 years ago

which was a disaster.

Cost globalization

Since some organization will have greater access to and or be more aware of the

competitive advantages. Cost globalization many give potential for competitive advantages.

For IKEA to reap the benefits of economies of scale, standardized production is required.

IKEA looks for ways to provide customers with affordable contemporary designs IKEAS

relentless cost cutting is well known. It goes deeper when it wants to hi rivals in certain

segment. The cost obsession fuses with the design culture. Designing beautiful products

that are in expensive and functional is a greater challenge. This is what IKEA is undertaking.

They accept on design only when it is affordable. A team of designers and freelancers work

tirelessly to fund the appropriate materials and least costly suppliers. IKEA work overtime to

fund the right manufacturer for the right product. SIMIPLICITY helps to keep the cost downs.

IKEA tries to make use of discarded and unused materials to make innovative use of them.


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GLOBALISATION OF COMPETITION

Changes in the Macro environment are increasing globalization, which in turn, encourage

further globalization. If the level of exports and imports between countries are high, it

increases interaction between competitors on a more global scale. IKEA is carrying on

business on a global scale; hence it is competing globally and thus places globalization

pressures on competitors. IKEAs culture is egalitarianism, steely competitiveness, relentless

cost cutting, and deeply ingrained frugality in the cooperate DNA as the obsession with

design all these tend to place IKEA in a competitive position. IKEA is also seeing more

competition than ever. This IKEA should plan and is doing to bravely have global

competition. In Japan NITORI Co has a look on low cost furniture


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Appendix X

Exhibit: Porters diamond analysis: The determinates of national advantages

Porter suggests that the national home base of an organization plays an important role in

creating advantage on a global scale. This home base provides factors within which

organizations are able to build on and extend to provide such advantages.

There may be FACTORS CONDITIONS that help explain the basic of advantage on a nationallevel. These provide initial advantages that are subsequently built upon to yield more

advanced factors of competition. For example, In Japan, where IKEA is gearing up for a

return this year and in Sweden where IKEA originated from, legislations on labour

(employment) are strictly adhered to and difficult to lay off labour these IKEA would be

compelled to make greater impetus towards automation wherever possible home DEMAND

CONDITIONS provide the basis upon which the character tics Swedish, known for their

IKEAs Strategy Structure and

rivalry

Factor

CONDITIONS

DEMAND CONDITIONS

RELATED and SUPPORTING

INDUSTRIES

E.g Timiber Supplier supplier,

designed, manufactures


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SIMPLICITY and thereby lowest cost have provided the necessary impetus for IKEA to

further global dominance of these factors.

One successful industry may lead to advantage in related and supporting Industries. For

example If IKEA is to keep its pace of growth and increase its number of stores, it needs

more resources materials and can look for Russians to provide manufacturer goods

(furniture) as the company is enclosed with timber. Otherwise IKEA would face a bottle neck

in supply.

From counties to counties the character tics of form strategy, industry structure and rivalry

and this can help explain base of advantage. Domestic rivalry and the search for competitive

advantage between suppliers and buyers, leading to innovation IKEA is always on the

lookout for innovative product, process and designs with a view of keeping costs down and

to make product affordable.

The characteristics for identifying strategic groups are different from those in other strategic

group in the same industry, as for example with home furnishing sector. The scope of

activities and resources commitment may be different from industry to industry, sector to

sector.

When we look at the scope of activities, extent of product diversity exists in furnishing

sector. Home furnishing includes product with varying designs styles, appearance and

purpose. But basically each group tends to serve the same purpose. E.g. Sofas, IKEA covers a

number of countries over the global and is ever expanding hence the extent of geographic

coverage. IKEA mainly target global middle class and hence has a main single segment hence

differ in the number of market segment saved. As for the distributor channels used IKEA

deals mainly directly worth the customers and doubt makes use of intermediaries. Hence

sells its product through its own outlets.

Extent of branding IKEAs is a well known name in the furnishing industry. Marketing effort

is well directed to meet customers needs. Yet more has to be done with respect to other

segment such as more effluent societies and other furnishing buyers such as hoteliers,

hospital and industry. Extent of vertical in IKEA as it exenterates with cost cutting and more


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efficient was of production. Size of the organization, IKEA is highly appreciable permeated in

numerous countries over the last few decades.


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THREAT OF

SUBSTITUTE

PRODUCTS

THREAT OF POWER

OF BUYERS

Appendix X

Exhibit: Porters competitive forces and strategies

POTENTIAL NEW ENTRANTS

The potential barriers to entry into a sector/ industry are the capital requirements and

economies of scale. Its costly to enter into oil refinery or car manufacturer than to start a

retail trade. IKEA was founded in 1943 and since they it has grown bigger market and bigger

by expanding its number of stores and entering the global market and its sales are growing

at a healthy clip. New entrants are difficult to enter, since IKEAs steady competitive and is

engaged in relentless cost cutting. It goes deeper when it wants to hit rivals in certain

segments. IKEA has a market share of 5-10% in each country and does not have single major

POTENTAIL NEW ENTRANTS

IKEAs rivalry

versus Industry

competitors

BUYERS

SUBSTITUTE PRODUCTS

FROM OTHERS INDUSTRY

SUPPLIERS

THREAT OF NEW

ENTRANTS

BARGANING POWER OF

SUPPLIERS


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competitor. Yet IKEA is seeing more competition than every as for instance, NITOTI co in

Japan has look on low cost furniture

Bargaining power of buyers

In formal customers become empowered customers. As advertising and buyer information

educates customers about the full range of price and product options available in the

market place, their influence on an organization increase. IKEA provide its customers with

good taste and recognize value compiled with affordable contemporary designs and its

targets global middle clan. It maintains its customers by enthralling worth attractive stores,

huge collection of items, lowest possible prices. Buyers of IKEA furniture are numerous and

nearly 410 million shoppers visit their stores annually and the buyer are numerous and

come from different social levels making their bargaining power at a minimum level

Bargaining power of supplier

The concentration of suppliers and the availability of substitute suppliers are significant

factors is determining suppliers power. A sole supplier (MONOPOLIST) will heave and can

exert great power. Other factors include whether a supplier can survive without a particular

purchases or whether the purchaser can threaten to self. Manufacturer the needed

supplier. IKEA always intends to keep it costs down by relentless cost cutting devices.

Frugality is as deeply ingrained in the corporate DNA as the obsession with design. The cost

obsession fuses with the design culture.

With a net work of 1200 suppliers in 53 counties IKEA works overtime to fund the

right manufacturer for the right product. Hence IKEAs demand for both material resources

and manufactured goods. Hence the bargaining power of suppliers is minimal and not

coordinated since suppliers are geographically, widely scattered over the globe.


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Threats of substitute product

The power of alternatives and substitutes for an organizations product may be affected by

cost change or trends. IKEA is keenly and steely competitive and looks for affordable

designs, products and manufacturer. It exhibits retention by cost, cutting, frugality,

simplicity and cost saving in all the ways possible down to earth economizing on recourses.

Home furniture does not have a PERFECT substitute, through can be replaced with plastic or

steel items. But the materials needed for wooden furnishing can be substitution to a certain

extent but they wont amount to perfect substitution. Hence the threat of substitute

product in have furnishing is again minimal. IKEA in always on the lookout for innovative

materials such as discarded and unused materials.

Rivalry among competitors

The scrambling and jockeying for position often exemplified by what Porter called the

advertisement slugfest. These rivalries are influenced by the preceding four forces as well

as by cost and product differentiation. IKEAs sales in each country which means the

remaining sales are accounted by other competitors yet there is no single major competitor

to name. IKEA is keenly competitive, keep its prices affordable, eliminates waste in any form

and targets middle clam consumers. Since it focus on this segments such as the affluent

sector is not targeted and they may be aimed by the competition. IKEA should be sensitive

to theses variation on customers need and demands.


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Appendix X

Exhibit: Some characteristic for identifying strategic groups

STRATEGIC GROUP ANAYLSIS

The characteristics for identifying strategic groups are different from those in other strategic

group in the same industry, as for example with home furnishing sector. The scope of

activities and resources commitment may be different from industry to industry, sector to

sector.

When we look at the scope of activities, extent of product diversity exists in furnishing

sector. Home furnishing includes product with varying designs styles, appearance and

purpose. But basically each group tends to serve the same purpose. E.g. Sofas, IKEA covers a

number of countries over the global and is ever expanding hence the extent of geographic

coverage. IKEA mainly target global middle class and hence has a main single segment hence

It is useful to consider the extent to which organization differ in terms of characteristics such

as

SCOPE OF ACTIVITIES

Extent of product diversity Extent of geographic coverage Numbers of market segment served Distributor channels used

RESOURCE COMMITMENT

Extent of branding Marketing effort Extent of vertical integration Product or services quality Technological leadership Size of organization

Source: Based on M.E. Porters competitive strategy 1980


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differ in the number of market segment saved. As for the distributor channels used IKEA

deals mainly directly worth the customers and doubt makes use of intermediaries. Hence

sells its product through its own outlets.

Extent of branding IKEAs is a well known name in the furnishing industry. Marketing effort

is well directed to meet customers needs. Yet more has to be done with respect to other

segment such as more effluent societies and other furnishing buyers such as hoteliers,

hospital and industry. Extent of vertical in IKEA as it exenterates with cost cutting and more

efficient was of production. Size of the organization, IKEA is highly appreciable permeated in

numerous countries over the last few decades.


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Appendix X

STRATEGIC VALUE ANAYSIS

It is imperative to see value through the eye of the customer. Although this might be a self

evident statement, it may be hard to achieve for various reason.

IKEA may not be able to make sense of the complex and varied behaviors theyexperience with markets.

IKEA may be unclear about who is the strategic customer Value of the product/ service is often concerned and conceived internally by

groups of people worship under IKEA such as designers, manufacturer, etc and not

tested with customers

IKEA;s concept of value changes over time either because they become moreexperienced or because offerings by IKEAs competition become available which may

offer better value.

Appendix XIII

Case+Study+Ikea

Documents