Case Study: IKEA

Executive Summary

IKEA is a multinational company founded by Mr Kamprad. IKEA stands for Ingvar Kamprad Elmtaryd Agunnaryd. The acronym represents the founder’s names and origins. Initially, the organization dealt with selling small items, such as Christmas magazines and fish. IKEA grew slowly to become the corporate giant it is today. The organization has achieved many awards because of its brilliant strategic planning and management. In the year 2008, IKEA was considered the largest furniture store in the world (Lindqvist, 2009). The gradual growth of IKEA has occurred over a span of many years. It is now famous for its exceptional architectural items that surround the fields of interior design and furniture making. Additionally, the company has been famous for creating products that go a long way in advancing the interests of environmental sustainability. The corporate structure of IKEA is complex. This makes it favorably disposed to many strategies. Nevertheless, the company faces some challenges in strategic planning.

Environmental Scan

Environmental Scan Summary

IKEA has established its brand image and corporate presence in the market. According to financial analysts, IKEA is one of the most valued brands globally, with a value that runs into billions of dollars (Johansson, Dimofte, & Mazvancheryl, 2012). The organization owns and operates hundreds of stores in more than 30 countries around the world. Additionally, the fact that IKEA occupies the major global markets is a factor to consider. The company boasts of a customer base that spans in its millions. The fact that the corporation has established bases in world markets insulates IKEA from its competitive environment.

SWOT Analysis

In order to succeed, an organization must master its strengths and weaknesses. IKEA displays a good understanding of its strengths. The company attempts to influence its external environment positively. IKEA has a thorough knowledge of particular needs of its target market. This advances the organization’s competitive edge, which reflects on the sale of its products. The company has an excellent grip on concepts that surround consumer-buying behavior. The range of its products is used to manipulate such market factors to its advantage. A strategy, employed by IKEA, is its pricing frameworks. Considering the quality offered by the organization’s products, prices are considerably low. Furniture designs are created using modern technologies that are consistent with changing customer tastes. This important element is the ease of handling that typifies IKEA’s products. It concerns the aspects of transportation and assembly. Another factor is the creation of a conducive environment to augment the interests of customer satisfaction. The shopping experience in most IKEA stores is phenomenal and quite memorable. The outcome of these strategic tunings promotes growth in sales and IKEA’s value. The company applies an excellent combination of strategies to maintain its relevance in the consumer market. Innovative designs are identifiable with the organization. Effective pricing strategies are used to promote consumer loyalty. Additionally, it allows the company to maintain its relevance in the consumer market.

IKEA applies effective strategies to always stay afloat in the consumer market. The business model of the company is solely based on the ability to produce quality at a low cost. The company uses innovative methods to ensure good quality of its product range. Additionally, the application of technological concepts ensures that the firm produces goods at low costs. This gives the company an opportunity to implement competitive pricing strategies that differentiate the company’s products from the rest in the market. The part of this function is met through the goal of producing items that comply with global environmental standards. This approach allows the company to establish frameworks that preserve consumers’ health and wellness.

IKEA has a diversified product line. This aspect gives the company a competitive advantage over its competitors. Additionally, this factor greatly contributes to its overall value and corporate wellness. Apart from furniture sales, the company operates businesses that occur outside of the scope of home interior design. This includes real estate investment and participation in hotels industry. Although the company specializes in the design, its diverse product range assures the company’s financial strength and freedom.

One more strength of IKEA is the company’s management style. The organization’s supply chain is highly integrated to promote performance consistency across its outlets. This ensures the integrity of its quality and advancement of the IKEA brand. Solid relationships with its suppliers are created. This strategy allows the organization to have a real bargaining power, concerning the acquisition of goods and services from its global suppliers. Another upside to this relationship is the cost-cutting aspect of corporate relationships. A good understanding relationship with its suppliers enables IKEA to satisfy the consumer market at substantial profits.

IKEA has some weaknesses, like any other company. First, the company suffers a long history of negative publicity. This concerns the manner in which the company manages its human resources. Additionally, some marketing strategies used by IKEA have been criticized before. This problem affects organization’s brand image and is deleterious to the interest of promoting consumer loyalty. Additionally, the cost-cutting production strategy compromises the company’s product quality in some instances. IKEA is unable to balance between its pricing policies and quality effectively. Some reports have shown decreased customer satisfaction when the company is compared to other competing brands in the market. This factor has led to many product recalls and customer complaints in recent years. Another setback in IKEA’s strategy concerns standardization of goods. The company is reputable for its low-cost products. The maintenance of this image promotes monotony and restricts the company to limited customer segments. IKEA’s competitors have the allowance to capitalize on market niches that are ignored by the furniture giant.

IKEA has some opportunities to exploit. First, the company may consider a decision to expand its business scope. This concerns the spread of its products and services to developing economies around the globe. Financial reports indicate a significant growth in retail markets in the developing world. IKEA can grasp this opportunity and exploit the chance to advance its sales and revenues. IKEA has established itself in first world countries but has little presence in the developing countries. It has only developed a market in China. IKEA can consider moving to other frontiers, like Malaysia and South Africa as a step in ensuring the sustainability of its future.

Another opportunity lies with the grocery market. Modern trends advocate for the maintenance of healthy lifestyles, as an integral step in preservation of future generations. Lobby groups have launched active campaigns in the developed world to champion for this cause. The current trend to gravitate towards vegetarianism has led to a higher demand for grocery products worldwide. IKEA can tap into this gap and expand its grocery product lines to respond to market demands. This can be approached through the creation of additional grocery stores in its target markets. Such an expansion will advance organization’s interest while meeting consumer demands adequately.

Nevertheless, some threats are imminent. First, corporate markets have diversified significantly. Additionally, the retail market has grown over time. Many organizations, such as Walmart, have entered markets that were dominated by IKEA for quite a while. These companies provide products that complement those created by IKEA. Additionally, the organizations apply competitive strategies that may affect the future of IKEA’s stability. This includes the application of innovative approaches to advance the interests of cutting production costs. Additionally, the companies have good management techniques that used to operate their vast supply chains. The fact that these enterprises may gain considerable market share is inevitable. Another threat concerns the changing nature of IKEA’s external business environment. The average income of most consumers all over the world has grown substantially. This factor affects the stability of consumer tastes. Buying decisions are shifting from the preference of low costs goods to the insistence of high-quality products. Premium pricing strategies attract some consumers. High prices are considered a corresponding attribute that reflects high-quality products. If IKEA does not handle this threat, the organization is bound to lose a high proportion of its market share to other corporate giants, like Walmart.

Porter’s Five Forces Analysis

Porter’s five forces framework is used to access the company’s competitive environment. It creates a model that evaluates five forces, attributable to competitive outcomes of industry. These variables are integral in determination of an organization’s financial health and its grip on its target markets.

In case of IKEA, Porter’s Forces can be used to analyze the organization’s environment. First, the bargaining strength of IKEA’s customers is considerably high. This is attributable to the stiff competition that exists in the company’s market scope. Many other industry players that share targets with this company provide IKEA’s products. Concerning this, customers have a broad range of options to choose from. This factor increases the sensitivity of IKEA’s customers to pricing. Any unfavorable adjustments motivate their migration to other industry players, offering the desired products. The fact that switching costs are manageable increases the ease of customer defection from IKEA.

The bargaining power of IKEA’s suppliers is insignificant. This is attributable to the industry’s diversity. IKEA enjoys a broad range of options from which to outsource products needed for its operations. Increased globalization has improved accessibility to raw materials by the company. IKEA may obtain expertise through agreements and partnerships forged across international borders. Nevertheless, IKEA focuses on its long-term goals. It attempts to concentrate on the establishment of stable relationships with other organizations worldwide.

For IKEA, the threat of new entrants is very little. The expertise involved in the development of architectural designs limits the entry of new industry players. The fact that this knowledge is hard to copy protects the integrity of the industry. Additionally, the initial cost of entering IKEA’s business scope is high. This discourages the investment by new companies. Another factor to consider is the influence wielded by the industry players in existence. IKEA’s position is hardly threatened by the emergence of new competitors in the market of household goods.

According to the Porter’s Five Forces, the threat of substitution may affect the future of an organization. Regarding IKEA, this force does not pose considerable danger to the company’s operations. The target market may not completely switch to higher end furniture, offered by other entities. Few alternatives to IKEA’s products exist.

IKEA faces stiff competition from other businesses in the market. This is due to the availability of discount furniture chains, some of which are Home Depot and Ashley Furniture Stores. Nevertheless, IKEA has established its niche in the market: it is renowned as a global leader.

PESTEL Analysis

PESTEL is an analytical framework used in the evaluation of a company’s external environment. A tool, PESTEL can be used by managers to establish the responsiveness of an organization to external pressures. PESTEL surrounds the aspects of sociopolitical conditions, economic systems, technological advancements, corporate environments and the influence of regulatory bodies on a company’s welfare. It is notable that organizations vary from one market to another. Concerning this, different company strategies allow enterprises to survive their competitive environments adequately. However, most organizations may not have a hands-on grip on factors occurring within the PESTEL framework. The manipulation of these determinants can be done through the creation of innovative strategies that would circumvent any imminent threats and capitalize on the opportunities created by the forces. Additionally, many approaches can be applied in the mitigation of factors that are deleterious to organizational growth and development.

Concerning political factors, IKEA’s revenues are affected by determinants that reach into governmental attitudes. The political atmosphere in markets affects the manner in which goods flow from one level to another. This aspect concerns political stability of markets and IKEA’s reputation in governmental spheres. IKEA has been engrossed in numerous political controversies before. In 2012, the company admitted to allegations, involving corporate misconduct. Concerning this, IKEA was involved in a scandal that implicated the company in the employment of prison labor in the 70s and 80s (Busse, Kach, & Bode, 2015). The event affected the credibility of the organization in eyes of the public and influenced the health of IKEA consumer loyalty. IKEA made public apologies for its actions in an attempt to appease the families and individuals affected. Even though this was received well, the company’s image was tainted by the political controversy that is fueled by debates globally. Another controversy involved the founder of IKEA. Ingvar Kamprad has been accused of facilitating Nazi operations that led to the deaths of millions of Jews. This affected IKEA’s image negatively.

Another political factor, affecting IKEA is the circumstances surrounding its product called Lufsig. In the Swedish language, the work means “clumsy.” However, the Cantonese tongue associates Lufsig with an abusive term used in Chinese cultures. In 2013, a situation arose that implicated the abuse of a Hong Kong leader. The toy was thrown at the chief executive as a sign of gross disrespect. The Lufsig toy has become symbolic among people who resent the government of Hong Kong.

Economic factors can be used to analyze IKEA’s case. The macroeconomic environment of this company influences the strategies created to maintain a healthy competitive edge in the industry. Additionally, consumer buying behaviors play a significant role in influencing IKEA’s business decisions. Looking at economic histories, the financial crisis that ended in 2009 affected the welfare of many global organizations. In IKEA, the aftermath of this economic era inflicted minimal damage to the company, compared to other industries. About this, IKEA sailed on its successful strategy of cost leadership that saw the sustenance of its operations within the enterprise’s goals. Specifically, IKEA sales have dropped insignificantly, even after the retrenchment of numerous workers in the company’s outlets worldwide. Another consideration is the influence of currency exchange rates on IKEA’s business operations. The organization’s revenues have suffered the adverse effects of fluctuating currencies that occur between the major units of the world’s financial market. Tax and unemployment rates are also important factors to consider. Additionally, the acquisition of raw materials by IKEA is affected by the unstable commodity prices.

Many social factors affect the welfare of IKEA. These determinants have both direct and indirect implications for the profitability of organization’s operations. This concerns the achievement of company’s revenues through its product range. Additionally, new product development is affected by social factors significantly. An example of such factors surrounds the aspect of global environmental sustainability. About this, there is a growing concern for the creation of products that promote environmental conservation. The society is responsible for lobbying this cause. Additionally, the media plays a significant role in influencing public opinion concerning this factor. Specifically, society has become sensitive to production goals that contribute to the depletion of natural resources. Water depletion and global warming are some of the underlying issues. Additionally, deforestation has become a subject of debates in many social forums around the world. Environmental reports have implicated IKEA as one of the largest consumers of wood in the world. This negative association may affect the integrity of the brand’s image, as the world heads towards an era of environmental sustainability.

Other social factors are attributable to changing demographics and consumer tastes. Currently, people are shifting to the consumption of products available through the Internet. Many programs and resources are found online. This includes books and publications that were initially marketed on bookshelves. This substitution affects the demand for bookshelves, offered by IKEA. Social changes may lead to a marginal drop in IKEA’s sales and revenues over time.

Technology is another factor considered under the PESTEL analytical framework. IKEA has attempted to respond to changing times. About this, it has embraced modern technology in the execution of its operations and the implementation of its business models. The organization establishes an informative website that satisfies the needs of consumers. Regarding this, people may access any desired information from the comfort of their locations. Frequent updates and improvements on the company’s online store will advance the operations substantially. This concerns the aspect of communicating with suppliers to the trading of goods through online portals.

On the aspect of environment, IKEA applies the strategies that mitigate environmental degradation. Attempts have been made to ensure the sustainability of production goals. About this, raw materials may be exploited with minimal damage to the environment.

Legally, IKEA operates on a global scale. This means that the legal situations of its outlets affect the organization. This poses the problem of standardizing operations and adhering to administrative provisions. It is hard for IKEA to integrate operations happening across foreign jurisdictions.

The Current Strategic Challenge

IKEA has maintained its corporate image for a long time. This is attributable to its continuous product lines and management style. While this may be a positive thing, rigidity exposes the organization to stiff competition from other industry players. IKEA has a limited ability to face competition in future. Critically speaking, questions have been raised about the need to maintain the company’s core values and traditions. This is because most IKEA executives are individuals, trained by the corporation’s founder. The current strategies, applied by the company, may predispose it to a situation, where it would be “stuck in the middle”. A severe setback is the ability to maintain the quality of its products, considering its current pricing strategies. The company has grown significantly through diverse economic situations. Supporting this trend is important. However, the company must create the means for combating the ever-growing competition from other industry players.

Recommendations

IKEA should think about rebranding. This would create a new business image. This strategy must be approached carefully. Rebranding should aim at improving a company’s profitability through the development of plans, caused by particular tools. Changes may be made concerning the enterprise’s human resources base. Additionally, the company’s research and development team may apply innovative means of creating designs that portray a new image. However, the company must retain its original values and traditions. An understanding of organization’s external environment is critical. Such an assessment will expose opportunities that IKEA may exploit. Additionally, threats would be eliminated when they are studied critically.

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