A Hybrid Strategy of IKEA - Case Study Example

A Hybrid Strategy of IKEA Question 1 A. IKEA is widely known to have a hybrid strategy. Explain what a hybrid strategy is? Hybrid strategy is a successful mix of two strategies which some organizations adopt. IKEA is widely known for its hybrid strategy which is a mix of low cost and differentiation strategies. Many other companies like Toyota and Honda has successfully used hybrid strategies. The most relevant mix of strategies in hybrid is a low cost/best cost and focused differentiation strategy. Best cost provider strategy includes providing an upscale product at a comparatively lower cost, whereas Low cost provider strategy focuses on tapping a competitive advantage by providing a product and service at a lower price than that of competitors. Best cost strategy combines strategic emphasis on low cost as well as focused differentiation. It focuses on giving its customers more value for money. For E.g. Kingfisher Red Airlines is an example of best cost airlines providing luxury of Kingfisher Airlines but at comparatively lower price than that of competitors in luxury segment. The product line of company employing best cost strategy has products with appealing attributes and assorted upscale features. The aim of focused differentiation strategy is to secure a competitive advantage through offering customers of niche market with a product that they perceive as vary well suited to their needs, tastes and preferences. The strategic target of focused differentiation strategy is a narrow market in which needs and preferences of the buyers are distinctively different. Attributes appealing specifically towards niche members forms the basis of competitive advantage in focused differentiation strategy. B. Explain in detail, IKEA’s hybrid strategy? IKEA used a mix of low cost and differentiation strategies as a part of its hybrid strategy. They used innovative means for attracting customers and people who can become there prospective customers in near future. The company tried to create differentiation in the retailing industry it operated in. It could be taken instance from the fact that the company allowed its customers to relax in its western style stores in a view that they could be aspiring customers of IKEA in near future. The production emphasis of products in focused differentiation strategy depends on customization meeting the tastes and requirements of targeted customers. The marketing emphasis of this strategy is towards communicating that how the product offers all the requirements in meeting buyers’ expectation in target market. Commitment in serving to niche markets better than rivals remains the key of sustaining the strategy. C. Why is IKEA’s hybrid strategy is difficult for competitors to imitate? Hybrid strategy is difficult for imitate and lend IKEA to outsmart competition. This is because through hybrid strategy IKEA is created a mix of two competitive strategies i.e. low cost and differentiation and the mix of these two strategies becomes difficult to imitate. D. Explain 3 business risks that IKEA faces in its hybrid strategy? The three business risks related to hybrid strategy are: These strategies could lack flexibility for IKEA in the scenario of changing external environment. These strategies could lack specificity in a long run for IKEA. Hybrid strategies help a company majorly when the organization has resources and capabilities of employing the strategy and serving an attractive niche market. Question 2 Provide the explanation with two examples in each of the 5 macro environmental influences that IKEA face from operating internationally? Macro-Economic Forces This includes forces at national and regional level that affects the company. IKEA is retail chain build on a global platform where factors like inflation rates, interest rate and current exchange rates in bear some impact, but such impact can’t be considered influential. As the interest rates are slashed as a result of recession in the economy, the company could borrow money at a cheaper interest rate. Same is the case with changes in current exchange rates. Global Forces Barriers of trade and information sharing impact the company’s business in a primary way. Removal of such barriers helps the company to expand its operations in other countries. These also help in raising funds globally thereby giving advantage of cheaper funds. Growth in countries like India and China are posing increased opportunities of doing business in these countries. Technological Forces Being a social network company, technological forces impacts the company in a big way. Technologies like RFID and e-Commerce are giving advantages to the company to create an edge in the market. RFID tags were attached to manufactured products. The tags emit signals that were read using transmitters. These transmitters were connected to the Enterprise resource planning systems on the company. When the product with the RFID tag passed through an electro-magnetic zone, the tag responded to the reader’s signal and transmitted the information back to its reader. “RFID provided the benefits to both retailers and suppliers by tracking the movement of a product from the time of production stage, to the point of stocking stage, to the point where the end-customers purchases it”. Demographic Forces When the company was incorporated, its primary target was young generation which wanted to connect to each other in spite of differences in physical boundaries. With the growing aging populating, the company has also shifted its focus to people of senior age groups. Socio-Cultural Forces Being a social networking company, socio-cultural forces impact the company’s operations as IKEA network spans across various countries and continents. Information display, privacy issues and information sharing across people in different countries depends upon the socio-cultural forces operating in that country. It can be argued that if IKEA spans in network to the country like India (For e.g.) it has to keep in mind the culture of people there and whether the current configuration of the company is best suited for operating in that country. Political and Legal and Governmental Forces Legality has a role to play in operations of any company that intends to span globally. IKEA has expanded its business across continents and political and legal policies of the countries can well decide on the fate on how the company can operate within a country. As discussed earlier factors like informational display, privacy issues and information sharing are impacted by political, legal and governmental forces of that country. Information rights are stringent in case of countries like US, India and UK. Results from political and legal developments have a significant effect on the operations of IKEA. Environmental Forces The environmental forces do not have a significant role to play in the operations of the company. Question 3 Explain Porter’s 5 forces analysis. Analyze all the 5 forces in the furniture retailing industry. Provide the conclusion of attractiveness of the industry. The above diagram represents Porter’s five forces model. The components of the model are: Bargaining Power of Suppliers: This explains how the organization has impacted the bargaining power of its suppliers. This can decide upon how the organization controls its supply chain. IKEA’s patronage of British suppliers had always made them reliant on them which have given extra power to IKEA over its suppliers. Also the bulk purchasing power that IKEA enjoys gives it extra edge over its suppliers. Bargaining Power of customers: This explains how the products of the organization have impacted the bargaining power of its customers. This decides upon at what price the customers are willing to buy company’s products. IKEA has always showed and practiced preference in using suppliers globally. Also the company is being operating in many countries globally. Also the company loses bargaining power over its customers due to threats of growing competition. M&S became dependent on its suppliers. It experienced less power to negotiate because of few alternatives. Threat of new entrants: This explains how the company is dealing with the risk factor of new competitors entering the industry. This decided the competitive position of the organization. “The threat of new entrants looks out in terms of differentiation for IKEA to the customers’ loyalty that can discourage potential entrants” Wendy (2003). The company from a very long time had developed a focused that has served as a potential entry barrier. Therefore, new entrant is not a potential threat for the company as IKEA is an expert within the retailing industry. Threat of substitute products: This explains how the products of the company are better than that of its substitutes so that this threat could be mitigated. “The alternatives and substitutes came from Tesco and Sensbury as they acted on providing added value products. These alternatives provided threats to IKEA” Wendy (2003). Competitive Rivalry within the Industry: All the above factors when combined decide on the competitive rivalry of the organization within the industry. “Under competitive rivalry, IKEA has really faced threat from the other companies entering the industry with the same quality goods but with affordable price and up-to-date fashion” Wendy (2003). The company is unable in fighting the prevailing competition in current markets. Question 4 As a multinational company, it is important for IKEA to have a good corporate social responsibility. A. Explain the concept of corporate social responsibility Yes the company must practice social behavior to be successful in the long-run. In the current scenario, corporate social responsibility becomes the part of any company’s corporate governance policies. A separate budget is made by the companies these days towards their social and environment responsibilities. It has also been observed by the marketers that the company that is more socially responsible is preferred over the company that is not so socially responsible by its customers. The companies attributing some part of their earning to the society and environment are likely to get more goodwill in the long run. Also, being socially responsible through environment friendly products of through sacrificing a very small portion of product profit towards society helps the organization in getting positive marketing from its target customers. This type of company is likely to obtain more of market share in the near term. They are also more preferred companies to work for. For e.g. Tata Group and Infosys in India is one of the most socially responsible companies. Also, to exist in the society companies need to give back to this society. Therefore, social and environmental responsibilities help companies be successful. B. Provide examples of corporate social responsibility practiced in IKEA. It could be taken instance from the fact that the company allowed its customers to relax in its western style stores in a view that they could be aspiring customers of IKEA in near future. Ethics, values and social responsibility are very necessary in marketing. The companies attributing some part of their earning to the society and environment are likely to get more goodwill in the long run. For e.g. Go Green logo by many companies like IKEA has helped them attain more goodwill. For running any successful operation of marketing, ethics and social responsibility are required. This is because every company is selling its product to some end customer, either retail customer of B2B. This entails the company to be socially responsible towards the society of people which are a part of their value chain. The company is also contributing portion of its revenue towards the welfare of children. Also, being socially responsible through environment friendly products of through sacrificing a very small portion of product profit towards society helps the organization in getting positive marketing from its target customers. This type of company is likely to obtain more of market share in the near term. They are also more preferred companies to work for. Also, to exist in the society companies need to give back to this society. Therefore, social and environmental responsibilities help companies be successful. C. Explain benefits which IKEA could have by corporate social benefits. Ethics, values and social responsibility are very necessary for IKEA. For running any successful operation of marketing, ethics and social responsibility are required. This is because every company is selling its product to some end customer, either retail customer of B2B. This entails the company to be socially responsible towards the society of people which are a part of their value chain. Companies as a part of business ethics and corporate governance also practices social responsibility which benefits them in the long run. In the current scenario, corporate social responsibility becomes the part of any company’s corporate governance policies. A separate budget is made by the companies these days towards their social and environment responsibilities. It has also been observed by the marketers that the company that is more socially responsible is preferred over the company that is not so socially responsible by its customers. IKEA is attributing some part of their earning to the society and environment is likely to get more goodwill in the long run. This type of company is likely to obtain more of market share in the near term. They are also more preferred companies to work for. Also, to exist in the society companies need to give back to this society. Therefore, social and environmental responsibilities help companies be successful. Question 5 Mikael Ohisson, a lifelong employee of IKEA, is now the CEO of IKEA Group. A. Mikael Ohlsson should work towards motivating employees. In today’s world, employee satisfaction and retention have become issues of high importance. Employees who are satisfied are more productive, innovative and show high levels of enthusiasm and commitment to their organization. A high staff attrition rate and absenteeism levels can affect the financial performance of the company because outsourcing, recruitment and retraining may give rise to heavy costs for the organization. However, only a handful or organizations understand the true implications of keeping their employees satisfied. Applying Fredrick Herzberg’s theory of motivation to real life is not an easy task. First hygiene factors have to be considered in order to create an environment in which the employee satisfaction and motivation are possible. The most important factors that Mikael Ohlosson should work toward are: Administrative policies of the organization Presence of able supervisors Fair Pay Good Interpersonal relations Conducive working conditions The important motivators for IKEA are: The work itself Clear achievable goals Giving adequate responsibility to employees Career Growth Appreciation of good work The company should follow the model of organizational transition for increasing the commitment among its employees. The model of organizational change described below consists mainly of three stages. This model was initially given by Tushman and O’Reilly. Stage no. 1 highlights an organization as the system of inputs containing business requirements and outputs containing business results. The gap created between the 6 areas that are listed on both the right as well as left presents the primary existence of the problem. An organizational strategy is primarily based on various business requirements considering the prevailing business environment. The strategy employed by the organization should include elements defining the firm’s reason for existence. This strategy should also include the steps that are necessary for clarifying the organizational values, its vision and mission. Next Stage is stage 3, in which comes the design of different components in the system. The components include both human as well as business elements, which when combined, gives rise to “socio technical” systems. These systems include selection and development of the employees which can perform their jobs as well as an information system that that provides those employees with the information required performing their jobs well. Strategy and system elements in an organization help in creating and influencing organizational culture. Culture is a backbone of every organization including philosophies, ideologies, expectations, values and attitudes in which the organization is build upon. References Allen, David. (2002). Getting things done: The art of stress- free productivity-Volume 2001. Part 2. London: Penguin. Alonso, G., Dadam P. and Rosemann, M. (2007). Business process management: 5th international conference. BPM 2007, Brisbane. Australia. September 24-28, 2007 : proceedings. New York: Springer. Alston, Margaret and Bowles, Wendy. (2003). Research for social workers: an introduction to methods. London:Routledge. Alvesson M. and Sveningsson, S. (2007). Changing organizational culture: cultural change work in progress. London: Routledge. 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