Business Strategy of IKEA Group - Case Study Example

A Study to Evaluate Business Strategies of IKEA Introduction IKEA group has been founded by Ingvar Kamprad who has successfully led the company to become a profitable global venture (Nattrass and Altomare, 1999). The company opened its first furniture showroom in 1953 and is now present in thirty one countries across five continents (Rothacher, 2004). This home furnishings retailer owes its success to its low priced and wide product range, smart purchasing and distribution activities and retail function (Nattrass and Altomare, 1999). Based on the history of IKEA given in the Appendices section, this report aims to evaluate the business strategies of IKEA. Using secondary research this report will present the emergent and direct strategies of this company and will also explain the reasons for IKEA to follow them. The report will then explain the importance of written strategic plan and cite the approach companies must take to deal with emergent events. This report also presents the future strategies for IKEA by using Ansoff's matrix. Business Strategies Used by IKEA The history of IKEA in the Appendices section shows its steady growth over the years. This report now gives examples of emergent strategies and direct strategies of IKEA and the reasons for following them. Direct Strategies (i) The company generally works through a network of worldwide suppliers and doesn't manufacture its own products. But, the company has few factories that set benchmarks for their suppliers on production economy, and quality (Nattrass and Altomare, 1999). The company focuses on achieving efficiency at low cost without compromising on the quality (Rosenhauer, 2008). By setting an example in front of the suppliers, the company can get better products from them and deliver more customer satisfaction. (ii) IKEA is also the joint owner or financer in a number of countries to secure supplies and help suppliers develop (Nattrass and Altomare, 1999). This may increase IKEA's competitiveness as companies can increase their competitive positioning by undertaking key activities in the value chain. The company also makes efforts to form close relationship with the suppliers and helps them develop, and innovate through training programs (Rosenhauer, 2008). This ensures better cooperation with the suppliers who strive to give quality products at a very low price. Relevant and timely training can provide the valuable guidance that can help suppliers produce the right product for the customers. (iii) The global furniture giant is characterized by lesser hierarchical structure and absence of bureaucracy. This helps the company to have centralized control over key functional activities. The Chairman of the company believes that strategic decisions of an organization should be reached in a simple manner (Rosenhauer, 2008). IKEA also delegates important strategy decisions to their store managers (Nesbitt, 2004). Apparently, this freedom to take decisions will make the managers feel more responsible towards their jobs and they will become more loyal to the organization. Emerging Strategies (i) The company has begun to focus on inviting the customers to be involved in the design and production of the products. IKEA is focussed on redefining roles of their stakeholders in the furniture business so that it can effectively beat the competition (Rosenhauer, 2008). The company has also begun to target young people who have a liking for stylish designs available at affordable price (Winfield et al, 2004). By involving the stakeholders in the design the company can provide customers with products that they really want and this will give them a competitive edge. The company will no longer waste its energies in unproductive work and focus on making only those designs that click. (ii) IKEA was driven to change its strategy and pay more attention to taking care of the environment. The company was criticized for the huge packaging waste, using excess of PVC plastic and cutting trees to make its catalogues. This global home furnishings retailer has now become more sensitized towards the needs of the environment and is using their resources in an economical and careful way. They now aim to have environmental friendly strategies that can contribute to a better environment (Schwerin, 2005). Designing Strategic Plans This section will now explain the importance of having written strategic plans. This report will also discuss the approach companies must take to deal with emergent events. Companies must have a written strategic business plan to know where they are headed over next five to ten years. That is crucial for the company's success, but is not an easy task to accomplish. Companies must identify how they will operate, the regions they want to enter into, the kind of products they intend to launch. They also must write down the probable structure of the management and need of any employee training. Research indicates that the successful companies always have well written formal plans. These plans should be very detailed so that the managers can implement them easily and compare the performance of the employees with the planned performance (Upton et al, 2001). The external environment of businesses is continually changing. People with more risk taking abilities are always in search of new opportunities, and do not hesitate from experimenting with emerging business trends. Companies that are willing to tap the emerging opportunities must be ready for change and improve their efficiency. These companies must also have diverse product lines, multiple technologies, and competent research & development department ( Raghuram and Arvey, 1994). The companies must also change their existing strategies to address the changing needs of the customers. For instance, Heinz a global US-based food company changed its strategy to attract more customers in Egypt. The company decided to focus on a narrower product line and strengthened its global operations within this region (Milnikiewicz, 2006). IKEA can also decide to have well written business plans and also not hesitate to change them when required. Suggested Business Strategies for IKEA The report will now use Ansoff's matrix to explain strategies which could be available to IKEA in the future. Ansoff's matrix helps the marketers who want to grow by offering strategic choices to achieve their goals. This matrix has four sections: - (Moreno and Casillas, 2008) See Figure 1 in the Appendices section. Market Penetration- Companies make the strategic decision to market their existing products to their existing customers. This strategy presents the lowest risk and is very popular amongst companies. Market Development- Companies decide to promote their existing products in a new geographical market. Product Development- Managers make the strategic decision to promote a new product to their existing customers. Diversification- This strategy is the most risky as companies decide to promote Completely new products to new customers (Moreno and Casillas, 2008) Until now IKEA has focussed on Market Penetration strategy. The company has developed in to a global company by staying in the furniture business. The only continue opening more number of stores in more countries (Williams et al, 2004) Conclusion and Recommendations Ingvar Kamprad has led the IKEA group to success and the company is now a profitable global venture (Nattrass and Altomare, 1999). It has made steady progress since the day it was established and is now present in five continents (Rothacher, 2004). Evidently, this home furnishings retailer has been successful due to offering very affordable products to customers who appreciate the variety present in its stores. The company is using a number of direct and emergent strategies to sustain and survive in the competitive market. It must continue providing support to its suppliers that strive to produce quality goods at a very low price. They will definitely maintain their global position if they can continue delivering quality products at low prices (Rosenhauer, 2008). A flatter organizational structure helps IKEA better control the business processes. The company also empowers the store managers to take important strategic decisions (Nesbitt, 2004). These strategic decisions will help IKEA earn more loyalty from its employees and make them more responsible towards the company. The company must also increase its focus on adopting environmental friendly technology to protect our planet (Schwerin, 2005). The market segmentation also helps them attract more customers and increase revenues (Winfield et al, 2004). The report also indicates the importance of written strategic plans and IKEA must ensure they have a well structured strategic business plan. This will clearly inform them their current position and will also give them an idea about where they are headed over next five to ten years (Upton et al, 2001). The company must also be ready to change its strategy according to the new and emerging business trends. IKEA must change its products and services according to the new business environment (Milnikiewicz, 2006). IKEA can use the Ansoff's matrix to identify the strategies they can use to grow and sustain in the industry (Moreno and Casillas, 2008). Clearly the company has tasted success with market penetration strategy and thus it must continue using it (Williams et al, 2004). But the company should keep an eye on the emerging market trends and change its strategy according to the new needs of the customer. If need arise it can decide to use other strategies presented in the Ansoff's matrix. All these steps will ensure the success of IKEA in present market scenario and also improve its business prospects for the future. References Nattrass, B and Altomare, M (1999): Ikea: "Nothing Is Impossible": Journal of Business Administration and Policy Analysis: p,429 Nesbitt, L (2004): Sales Surge Sees Ikea Go Past Pounds 1bn Mark: Western Mail: p, 32. Moreno, A. M and Casillas, J. C (2008): Entrepreneurial Orientation and Growth of SMEs: A Causal Model: Entrepreneurship: Theory and Practice: 32 (3): p, 507 Milnikiewicz, C.S ( 2006): Investment Strategies in Emerging Markets: Comparative Economic Studies: 48 (2): p, 387 Raghuram, S and Arvey, R.D (1994): Business Strategy Links with Staffing and Training Practices: Human Resource Planning: 17 (3): p, 55 Rosenhauer, S (2008): Profit is a Wonderful Word": IKEA's Strategy Behind the Profit: GRIN Verlag: p, 6 Rothacher, A (2004): Corporate cultures and global brands: World Scientific: p, 103 Schwerin, D.A (2005): Conscious Globalism: What's Wrong with the World and How to Fix It: Digital Junction Press: p, 83 Williams, K and Leech, C and Chartered Management Institute (Great Britain) (2004): Creating a customer focus: Elsevier: p, 51 Winfield, P.W., Bishop, R and Porter, K (2004): Core management for HR students and practitioners: Elsevier: p, 335 Upton, N., Teal, E.J., Felan, J.T (2001): Strategic and Business Planning Practices of Fast Growth Family Firms: Journal of Small Business Management: 39 (1) Figure-1 http://www.marketingteacher.com/Lessons/lesson_ansoff.htm (Accessed on 5th April 2009) Appendices ' HISTORY OF IKEA 1943- IKEA was founded ' 1945-early distribution ' 1953-Almhult showroom ' 1955-flat packaging ' 1965-stockholm store ' 1963- MTP bookcase ' 1973-first store in Switzerland ' 1974-SKOPA chair ' 1985- First American store ' 1985-moment sofa ' 1997-childrens IKEA ' 1994-KUBIST storage ' 2001- IKEA rail ' 2002- third PS collection launches Figure 1 Ansoff's Product/Market Matrix Figure 1 taken from:- http://www.marketingteacher.com/Lessons/lesson_ansoff.htm Read More