IKEAs Resources and Competences in Developing Competitive Advantage - Essay Example

IKEA’S RESOURCES AND COMPETENCES IN DEVELOPING COMPETITIVE ADVANTAGE TABLE OF CONTENT Introduction ………………………………………………………………………. 2 Background information of IKEA ……………………………………………….. 2 IKEA’S resources and competences ……………..……………………………….. 4 Determining IKEA’s competitive advantage using VRIO ……………………….. 4 Question of Value ………………………………………………………………. 5 Question of Rarity ……………………………………………………………….. 5 Question of Imitability ………………………………………………………… 6 Question of Organization ……………………………………………………….. 7 Application of VRIO Framework to IKEA…………………………………………… 7 Conclusion …………………………………………………………………………... 8 References ……………………………………………………………………………….. 9 IKEA’S Resources and Competences in Developing Competitive Advantage Introduction Background information of IKEA A resource is a supply or distribution from which benefit is produced or yielded. In more sensible manner, resources are assets or materials that are transformed to yield benefit and in the process may be used or made unavailable. On the other hand, competences are identified skills, actions or behaviours, and abilities that positively and directly influence the success of employees and the organization. Further, competences can be measured objectively, improved and enhanced via training and learning opportunities. IKEA is a privately owned multinational furniture company. It specializes in furniture appliances and home accessories. In the recent international ratings, the company is the world’s largest furniture retailer. Historically, IKEA was founded in 1943 by Mr. Ingvar Kampard in Sweden. Initially it sold pens, wallets, watches, jewellery, picture frames, table runners and nylon stockings. By 1947, IKEA had begun stocking furniture mainly produced by local manufactures. Its first furniture catalogue was officially launched in 1950 and evidenced much success in the furniture enterprise. This prompted the IKEA group to launch the first furniture warehouse in 1953. By the year 1958, the first large scale IKEA store was launched in Almhult in Sweden. IKEA began expanding internationally from 1973 when it launched various branches in Europe and other parts of the world. It has over 1350 suppliers in over 50 different countries globally. The company currently owns over 332 stores in thirty eight different countries across word wide. It continued to expand even further stretching its presence in new markets year in year out. This paper evaluates IKEA’s organisational resources and competences with view of analysing its possible sources of competitive advantage. IKEA’s resources and competences With specific references to its competences, it is apparent that since its inception, IKEA has always shown a great concern for people and the environment. This is based on its vision which is to create a better everyday life for many people. Indeed, its concern for people and the environment enhances its proper use of resources. Thus, it endeavours to keep its cost as minimum as possible. The IKEA entrepreneurial culture is enduring. For instance, its founder Ingvar Kamprad exhibited elements of entrepreneurship early in his childhood. As a fact, entrepreneurs are usually born and/or made. This way, the environment in which IKEA’s founder was raised up in nurtured his entrepreneurial skills. The Smalanders for instance, are famed for their informality and entrepreneurial spirit. For instance, His aunt would send him large quantities of matches which he would sell in small quantities at a lucrative price. Thus, he was exposed to an entrepreneurial culture early in his life. The leadership and organisational structure of IKEA is also ideal. Peter Hogsted, the CEO is subscribed to the idea of cost-cutting, and promotes informal structure within the organization. Through the Hawthorne experiments, Elton Mayo, a renowned behavioural theorist was able to affirm that work satisfaction and performance among workers is basically not economic (Hill & McShane 2006, p. 70-83). It is rather more contingent on working conditions and attitudes. This includes proper communication, positive management response and encouraging employees to work hard by motivating them. The informal leadership embraced by Peter Hogsted is likely to perpetuate such a working environment among the ten thousand workers under him. IKEA has set a reputable rapport among its employees. More than often, managers from all over the world visit Almhulit to learn the essential of the successful IKEA story. With regards to social responsibility, IKEA has employed a large portion of the population in Almuhults. Unity among the workers is exemplary which is in line with some of the Fayol’s fourteen principles of administrations which prescribe unity of direction, order and spirit de corps (Robbins & Judge 2010, p. 55-56). In addition, IKEA is credited for its efforts in developing employees’ skills. They have for instance employed a bunch of youthful managers such as Olivia Szdjnaa, 24, Tania Hamilton, 20 and Melissa Hurrinf, 25. IKEA also carries out internal training to its employees to acquaint them with the prevalent trends in the changing market. The above mentioned women have described IKEA’s organizational structure and leadership as incredible. It is characterised with incentives including Christmas gifts, social outings, opportunities to switch job and lack of hierarchy. This too, is in line with the ideas of the Behavioural theories of management. Determining IKEA’s competitive advantage using VRIO With the aim of determining IKEA’s competitive advantage, it is important to carry out a critical analysis of its resources. In this regards, VRIO Framework could be used. VRIO Framework is an excellent tool of examining the internal environment of an organization. VRIO is an acronym representing the four essential questions which a firm should ask with regard to a resource or capacity to determine its competitive potential. These are: the question of Value, the question of Rarity, the question of Imitability and the question of Organization (Robbins & De Cenzo 2010, p. 66). Question of Value The first question is that of Value. It is important to determine whether a resource can enable a firm to exploit an environment opportunity or neutralize environmental threat. Usually, the definition of value is whether or not the resource works to exploit an opportunity or mitigate a threat in the market. The common examples of opportunities which firms could attempt to exploit are technological, demographic, specific international events, cultural, legal and political change as well as economic climate change. In the case of IKEA, such an opportunity includes internet shopping. IKEA could utilise this service and enhance internet shopping to its competitive advantage. On the other hand, the common threats that a resource could mitigate are threats of buyers, entry, substitute, rivalry and suppliers. A proper exploitation of such opportunities or mitigation of such threats could lead to an increase in revenues and a decrease in costs or both. Question of Rarity The question of Rarity regards as to whether a firm has a valuable resource that is unique among a set of existing and potential competitors. It involves an instance where such a resource is currently controlled by only a small number of competing firms. Here, it is important to determine whether the resources used to make the product or the products themselves are rare. For a resource to be rare, it has to be short in supply and has to persist over time. This way, the resource could be regarded as a source of sustained competitive. Apparently, if a resource lacks the two elements, then perfect competitive dynamics are likely to prevail thus eliminating competitive advantage (Smith & Flanagan 2006, p. 61-64). Question of Imitability The third question is that of Imitability. This concern as to whether firms lacking the resource face a cost disadvantage in obtaining or developing it in comparison with those that already possess it. It is apparent that firms which possess valuable and rare resources which are not easy to imitate have higher chances of gaining competitive advantage as opposed to those who don’t. Innovative companies which implement strategies using resources that are costly to imitate have the tendency of gaining long term competitive advantage (Hackman & Oldham 1980, p. 63-65). Thus, besides striving to have valuable and rare resources, IKEA should also strive to have inimitable resources. This guarantees inexorable competitive advantage against its major competitors both locally and internationally. How to enhance imitation depends on various factors. This may include unique historical conditions which enhance a firm’s access to rare resources in a particular time and space. For instance, during its inception in Britain, the Managing Director of the IKEA UK notes that the furniture retailing was traditionally not great (Oldham 1980, p. 46-47). However, IKEA undertook the challenge and changed it. It established fashion in the products and ensured that the Scandinavian design was accessible to many people in Britain. This could be used as a competitive advantage as at least for some period of time, it would not be easier for IKEA’s competitors to easily imitate the Scandinavian design (Smith & Flanagan 2006, p. 89-91). Another factor facilitating difficulty in imitation is Casual ambiguity. In this regards, an imitating firm may not tell the factors that contributed to the competitive advantage of an innovative firm. Patents are also other source of long term competitive advantage. This way, registering of patents for some of its unique properties could bolster IKEA’s competitive advantage to large extents (Porter 1998, p.77-79). Question of Organization Burrow et al (2007) states that the question of Organization as regards to whether a firm’s other policies and procedures in place are organized in a manner likely to support the exploitation of its valuable, rare and costly-to-imitate resources. Once the organization has identified the value, rarity and imitability of its resources, then it has to organize a way that facilitates the exploitation of these resources (Oldham 1980, p. 48). This may include but not inclined to the company’s formal structure, managing control systems as well as compensation policies. In this regard, with the aim of enhancing proper organisation of its valuable, rare and costly-to-imitate resources, IKEA should provide incentive to employees with the aim of encouraging them as this bolsters their motivation, commitment and consequently, their productivity. This could be through bonuses, salary increases and various non-monetary incentives. It is apparent that lack of proper organization could make a firm with valuable, rare and costly to imitate resources vulnerable to competitive disadvantage (Oldham 1980, 61). Application of VRIO Framework to IKEA With regards to applying the VRIO Framework, it is an effective tool by which IKEA can evaluate its future success of the current resources and assessing the success of any potential changes. In this regards, after going through the four questions, it is important for IKEA to determine the competitive implications of the firm. Therefore, IKEA should first determine whether the resource is valuable or not. If the resource is not valuable, it should abandon the whole process or rather stop using the resource as it could end up having adverse effects on it (Hackman & Oldham 1980, p. 88-91). However, if the resource is valuable but not rare, IKEA may mot be hurt by the resource hence, it may possess competitive parity. This implies that it would neither it would be on the same level as its competitors. But, if the resource is valuable and rare, but not costly to imitate, IKEA could achieve a competitive advantage over its competitors. In this case, it will temporarily experience economic returns that are above normal. With time, other companies will copy the resources and ultimately become a source of competitive parity. All in all, the best scenario in the VRIO framework involves if a resource meets all the prerequisites for competitive advantage. That is if the resource is valuable, rare, costly to imitate as well as easy to organize (Hames 2007, p. 133-136). Conclusion In conclusion, IKEA, being a successful international furniture company already established in the market, possess a variety of competences. These competences coupled with various identified resources through the VRIO Framework, could foster IKEA’s competitive advantage against its major competitors to large extents thus ensuring its success. References “About the IKEA Group”,(n.d) retrieved on 24 Feb 2012 from http://www.ikea.com/ms/en_US/about_ikea/facts_and_figures/about_ikea_group/inde x.html# Burrow, L, Everard, K, Kleindl, B 2007, Business principles and management, South- Western Educational Pub, Boston. Hackman, J. R., & Oldham, G. R 1980, Work redesign. Addison-Wesley Publishing Company, Reading. Hames, I, 2007, Peer Review and Manuscript Management in Scientific Journals: Journal for Good Practice, 41(12), 123-168. Hill, L. C, McShane, S 2006, Principles of management, McGraw Hill, New York. Johns, G., Xie, J. L, Fang, Y1992, Mediating and moderating effects in job design,  Journal of Management, 18, 657-676. Porter, M 1998, Competitive advantage: Creating and sustaining superior performance, Free Press, New York. Robbins, P, De Cenzo, D, Coulter, M 2010, Fundamentals of management, Prentice Hall, New Jersey. Robbins, S, Judge, A 2010, Organizational behaviour, Prentice Hall, New Jersey. 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