Management Strategy of IKEA - Case Study Example

Management Strategy IKEA Section A Introduction IKEA, a leading furniture distributor, have attained success over last 25 years by occupying more than 20% of the entire market. At present IKEA delivers low priced quality furniture through out the world. Today, it has stores in almost all Middle East and European countries.. Ikea’s successful development and its organizational capabilities, and the bold and inspired leadership of the Entrepreneur are the basis of its overall development. . IKEA has occupied an outstanding position, which is far away from its rivalries; due to the balanced focus it has maintained on its product range, mass marketing, cost leadership and a distinctive image. When they introduce new products, they have a clear idea about the volume of production, and stores layouts. IKEA follow the management style of informal organization structure. No hierarchical structure has been evolved in IKEA; only Employer-Employee relationship is focusing on here. The co-workers are relying on the policy of “Learning by Doing”. IKEA has been following the democratic style of leadership, which helps IKEA to reach out towards its margin of profit making. It is possible through continuous motivation and inspirations are being given by its managers to its co-workers for involving any areas of the business by sharing their own ideas and making suggestions. . LEADERSHIP STYLE and LEADERSHIP THEORIES:- Leadership style influence the level of motivation, it is the aggregate of limited supervision and worker with decision making responsibilities. Organizational culture and norms encourage some styles and discourage others. Various leadership styles are depicted below: 1. Charismatic Leadership. 2. Participative Leadership. 3. Situational Leadership. 4. Transactional Leadership. 5. Transformational Leadership. The focus strategy, is a mix of two generic strategies, it focuses on Cost leadership and Product differentiation simultaneously in one particular market segment as a ‘niche’. “The Ikea concept is unique and over twenty years of international operations have not triggered any direct international rivalry. The recommendations in this section are designed as to explore possible avenues of further developing Ikeas competitive base and prepare the firm for possible demographic shifts that may reduce the size of its target market segment.” (IKEA of Sweden. 4-0 Recommendations. 1996). Leadership Theories - Earlier it is based on distribution of qualities between leaders and followers, but subsequent theories stress on situational factors and skill level. Major leadership theories are: Trait Theories - People inherit certain qualities and traits that make them better suited to leadership. “Great man” Theories- Great leaders are born, and not made. Contingency Theories- It focuses on particular variables related to the environment that might determine which particular style of leadership is best suited for situation. Situational Theories- Here the leaders choose the best course of action based upon situational variables. It is appropriate for decision making. Behavioral Theories- based on the action/ behavior of leaders and not the mental or internal qualities. Participative Theories- The ideal leadership style which takes the input of others in to account. Management theories/ Transactional theories- Focus on supervision, organization and group performance. Relationship theories/ Transformational theories- It is a link between the leaders and followers. Blake and Mouton’s “Managerial Grid”- It is providing importance on two areas, “concern for people” and “concern for task”. The type of management style based on-Authoritarian, Team Leader, Country club and impoverished. The real identity of good leadership is honorable character and selfless service to the organization. Hershey Blanchard’s Situational Leadership Model- It is based on two areas-Supervision-is determined by the employee’s skills and knowledge level, it may/ may not be under/over supervision. Fiedler’s Leadership Contingency Theory- It is based on Leadership style and situational favorableness. The Least Preferred Co-worker (LPC) scale, an instrument is using for measuring an individual’s leadership orientation. Contingency theory allows for predicting the characteristics of appropriate situation for effectiveness. House’s Path-Goal Theory - The Path-Goal Theory of Leadership was developed to describe the way that leaders encourage and support their followers in achieving the goals they have been set by making the path that they should take clear and easy. In particular, leaders: 1) Clarify the path so subordinates know which way to go. 2) Remove roadblocks that are stopping them going there. 3) Increasing the rewards along the route. Vroom and Yetton’s Normative Decision Model- According to this model, the effective decision procedures depends on- the importance of the decision and quality acceptance, the amount of relevant information possessed by leader and the followers and the amount of disagreement among subordinates. Substitute for Leadership:- There is no substitute for effective leadership. There can be no long term success in today’s business environment without a clear and well communicated strategic plan for achieving the goal. To achieve quality, there is no substitute for leadership; leadership fuels the transformation, creates expectation for performance excellence. By evaluating various leadership theories, it is clear that the IKEA may adopt ‘Participative’ leadership style as its leadership theory. Participative leaders may encourage participation and contribution from group members and they feel more relevant and more committed to decision making process. IKEA which is functioning on democratic style of management, they used to follow the participative theories. The managers and the co-workers are interacting in a friendly way in various decision making and operational activities. It will lead to attain more profit in a speedy way with lower risks. So, the leadership pattern of IKEA is mainly on a group interactive manner to carry on its business functions smoothly rather than on a ‘One man show ‘basis. As Ikea continues to expand overseas, the significance of centralized strategic direction will increase. Centralized control and product standardization are two necessary components of the firms long-term strategy. In addition, Ikea has improved its value-chain by a co-operative focus on suppliers and customers. SECTION B Introduction:- Ingvar Kamprad, the founder of IKEA, who began as a trader, and accidentally he got entered in to the furniture business. From the very beginning, he demonstrated a combination of strong salesmanship, practical business thrift and identity with ordinary people. Kamprad, he who is more close to his customers and reluctance to own manufacturing furniture plants gave him freedom to focus and innovate on all the facts of distribution. He put his attention on the area of keeping the price as low as possible. This concept becomes a driving force of his business development. Ikea’s business strategy did not evolve from ‘Strategic Planning’, but their outstanding success relies on the trait of ‘Learning by doing. As the time passes, IKEA through its large sales volume, able to make a high profit margin. Organizational Status of IKEA:- IKEA has developed its business with certain unique characteristics; they are distinguishable far away from its rivalries. IKEA is considering their manufacturers as their key stake holders and providing some technical assistance to them for improving productivity. Marketing mix of IKEA is that of providing quality goods at reasonable prices. IKEA is following informal organizational style with no hierarchical structuring. It is clear that to get ahead in IKEA; the usage of informal internal network plays a vital role. It is necessary to adopt certain changes in to the pattern of management of IKEA through the implementation of Strategic business policies and issues. Strategic Management is an on-going process, which assess the business and industry in which the company is involved. Strategic implementation are done through- 1. The allocation of sufficient resources. 2. Establishing a chain of command. 3. Applying approaches towards industrial organization, sociology etc. A thorough evaluation is necessary to bring certain changes in to the management pattern of IKEA. Implementation of a new strategy is required for making some changes in to the organization’s functioning. Application of strategic plan is a multi step process covering mission, objectives, values, strategies, goals and operations. It is focusing on what business does with the primary products or services, key processes and technologies, market segments, competitive advantage etc.. Using SWOT Analysis to identify the possible strategy is a major concept. Independent adviser plays a valuable role in this process because they can readily adopt the external knowledge and expertise. New strategy shall be implemented by –Assessing the existing business SWOT areas, vision of business in three or four years time., mission of business in three or four years time. Development of New Strategy for IKEA:- The existing functioning style of IKEA is needed to be changed. It is necessary to modify the value chain by using primary and secondary activities. Primary activities include production, marketing and after sale services. Secondary activities are support process to primaries. In order to furnish customer with good quality products at a low cost, organization must be able to find suppliers that can deliver high quality products at low cost per units. So for making changes in to the management pattern of IKEA, it is necessary to step in various strategic business policies. A cost leadership strategy involves placing great emphasis on efficiency in all organizational activities in order to reduce the overall costs of products delivered to customers. A differentiation strategy is aimed at delivering products and/or services that are different from the product mix of the competition. The focus strategy is a mix of the two aforesaid generic strategies. It focuses on cost leadership and product differentiation simultaneously in one particular market segment. For the adequate functioning of IKEA the development of a new business strategy is a must. It may be either SWOT Analysis or PESTEL Model. By considering the running style of IKEA, SWOT Analysis is a sufficient managerial strategy .It is a strategic planning tool used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business. SWOT means, Strengths: attributes of the organization those are helpful to achieving the objective. Weaknesses: attributes of the organization those are harmful to achieving the objective. Opportunities: external conditions those are helpful to achieving the objective. Threats: external conditions those are harmful to achieving the objective. SWOT can be used in conjunction with other tools for audit and analysis, such as PEST Analysis and Porter’s Five-Forces Analysis. As a result of its key benefits, SWOT is flexible in nature. SWOT Analysis is a simple but powerful framework for analyzing the companys Strengths and Weaknesses, and the Opportunities and Threats may faces. This helps to focus on strengths, minimize threats, and take the greatest possible advantage of opportunities available to the organization. Internal analysis is a comprehensive evaluation of Strength and Weakness. Factors to be evaluated are: 1) Company culture. 2) Company image. 3) Operational efficiency. 4) Market share. 5) Patents and trade marks. External analysis include various Opportunities and Threats. The changes in the external environment are related to customers, suppliers, economic environment and technological changes. When formulating strategy, SWOT profile becomes important. It is generated and used as the basis of goal setting, strategy formulation and implementation. From the above Case Study of IKEA, it is very clear that the application of strategic business policy plays an active role in its successful development. IKEA is in a position to follow the strategic plans being developed through SWOT model strictly for attaining its ever lasting success. Works Cited IKEA of Sweden. 4-0 Recommendations. (1996). Turbo Charged. Retrieved April 5, 2007, from http://www.geocities.com/TimesSquare/1848/ikea.html . . I Read More