Task 1.1: Strategic Context
Strategy is identified as a plan used for collecting data and information in order to achieve objectives in the growth of a business (Robson, 1997).
Johnson and Whittington et al (2012), suggests that, the aim of a business strategy is to plan for the future in regards to the issues that are relevant to the business.
Ikea’s aim is to maintain a low price range for their products by involving the customer in the design process, thus exemplifying their strategy of a democratic design. Ikea dose this by having the majority of large items flat packed, therefore reducing the cost of production and transportation (IKEA /GB/EN, 2014).
A mission statement is defined as a core aspect of an organisation, and an identification of the purpose of its existence. It also distinguishes primary customers targeted, products and services, in which they offer and geographical areas covered. The fact that it is a written statement means that, it acts as a reference point for the business itself during strategic planning (Media, 2010). Ikea has identified in their mission statement that their mission is to work towards ensuring there is a constant low price range on the products that are sold, thus ensuring numerous members of the public from various demographics can afford the products (IKEA /GB/EN, 2014).
According to Johnson, Scholes and Whittington (2009), a vision statement helps the company to understand their future goals and objectives and how they aim to meet these over a period of time. It is identified on the IKEA business website (IKEA /GB/EN, 2014), that their future aspirations are to have have a sustainable method of accessing resources for their products which do not negatively affect people and the environment.
At Ikea, their vision is to target people’s well being according to their routine lifestyle. More so, IKEA pursues an identity of providing a wide range of products to suit the desire of many people. These products are well designed and are manufactured to be functional with democratic assembling features.
Core competencies are defined as companies’ activities that are unique to them and are very difficult for competitors to copy. These give the company an advantage over their competitors (Johnson, Scholes and Whittington, 2009). To reiterate, IKEA’s core competencies mainly focuses in on products they produce such as flat pack items which is convenient for customers to transport and easy to self-assemble. IKEA is one of the only organizations that have this special feature in this particular market.
In business strategy, an objective is similar to a goal, however it is different in that the goal is specific and is done in a particular time with a pre determined amount of resource (Business Dictionary.com, objective, 2014). Ikea’s objectives are to provide functional well-designed furniture at a low cost.
A goal is an end result set out by a business that is measurable whilst having more than one objective (BusinessDictionary.com, (2014). Ikea’s goals are to be sustainable and to ensure their products are available to many people, this being done through providing affordable furniture.
Task 1.2: Strategic Planning Issues
In strategic planning the types of issues that a business may come across are.
Economical changes: this being changes in government regulations, in taxes, building, pollution, and sustainability. For instance, if IKEA wanted to expand its storage, warehouse or car parking, it will become an issue for them to get the permission due to regulations set around the commercial business constraints.
Leadership and team working: In every area of planning in terms of the organisational strategy, leadership is always an issue. The success of the strategy will depend on the way the leader communicates their ideas to his or her team. Consequently, poor leadership is displayed through poor and ineffective planning, not following through with the plans, or not planning properly to begin with. Equally, poor management could be shown by managers not identifying and taking serious the possible threats to the company, such as changes in the market place that may affect the business in the future.
An additional example of poor management is not executing the SMART technique in the planning process, for example setting unrealistic goals for the company (Forbes, 2011). An example of this being, not acquiring relevant research data in the beginning stages of the planning of the strategy, thus making unrealistic profit targets based on corporate executives assumptions and desire and not based on past profit figures.
Ikea faces threats in the changes in social trend such as a reduction in first time homebuyers due to rising inflation and house prices. Thus to combat this, Ikea have provided on their product website guides for home owners and potential first time buyers on how they can make home improvements at a low cost, thus helping to combat the issues that home owners may face of how to carry out home improvements at a low cost (Businesscasestudies.co.uk. (2014).
In addition, there are certain planning issues that Ikea might encounter such as scrutiny from the public or the local council. An example of this is that Ikea had planned to open a new store in Reading, which is supposed to have three floors. However, IKEA had to change their plans and suggest making the store smaller with only two floors due to the public fearing that the store would have drawn too much traffic in that particular area (BBC News, 2014). In a situation as this, the managers would be affected because they would have to draw-up another plan and submit it to the local council, which would delay the store being opened on time, and having an uncertain finish date for the potential customer.
Task 1.3: Planning Techniques
Boston Consulting Group invented the BCG matrix to assess the strategic position of the business brand and its potential. Its main purpose is to divide business portfolio into four classifications that focuses on industry attractiveness such as, growth rate of that industry and competitive position relative market share. The overall aim of the examination is to know the brand, in which they should invest in and the brand that they should not invest in (Strategicmanagementinsight.com, 2014).
This method of business analysis is of importance to any business when there is a requirement to make strategic business and sales plans regarding business units. For example, if Ikea wanted to analyse the financial viability of items of home furnishings, a BCG growth matrix would be essential to identify whether or not a product is worth continuing with to maintain or increase profits, or should that item be recalled because it is not making any profit.
The directional policy matrices is a system used to classify the functioning of a business in terms of its strengths, capabilities or market and its perception of its markets attractiveness (Meldrum and McDonald 2007). Dibb and Simkin (2009), identify that the use of the directional policy matrices is a strategic policy that is developed from the SWOT analysis, whereby the identified opportunities are analysed closely with key managerial decision makers within the company. These opportunities are analyzed and their merits are weighted, therefore a decision can be made as to which market segments corporate managers can focus on that would be most profitable.
Through extensive research on the Internet of available information regarding Ikea’s management methods, there are no clear indications of the methods used regarding the planning techniques adopted by Ikea. Nonetheless, by observing the reports made by Ikea, regarding their aim to be a more sustainable, people and planet friendly conscious company (Inter Ikea Systems 2012), a decision has been drawn that they have made this their directional focus on being sustainable. It can be surmised that although this is an ethical and moral remit that the company is functioning in, they also have a revenue generating aim in being sustainable, and this is demonstrated by the company building car charging ports in there store parking lots (Inter IKEA Systems B.V (2012).
Task 2.1: Organisational Audit
Simoneaux and Stroud, (2011, pp. 75—78), identifies a SWOT analysis as an important organizational analysis that all businesses should carryout when starting up a business and planning. However, to maintain good business health, it should also be carried out yearly. SWOT identifies, the companies, Strengths, Weaknesses, Opportunities and Threats.
This is the type of analysis that was used by Ikea in the identified case study. The first two identified aspects of the analysis (Strengths and Weaknesses) are self explanatory, in that these are identified and analyzed plans are made using this information.
Identifying the opportunities and threats are more complex and from a subjective outlook the most important aspect of the analysis.
Identifying the opportunities according to Simoneaux and Stroud, (2011, pp. 75—78) allows a company to identify possible areas for profitable growth, equally in identification of threats, a company can take relevant measures in protecting the business from untoward effects of these threats, such as a possible change in government business regulations or the economic environment. (See appendix 1 for SWOT analysis).
Task 2.2: Environmental Audit
To carry out a thorough and systematic environmental audit, a PEST analysis could be used, which identifies Political, Economical, Social, Technological and Legal factors, which would impede on the businesses functioning. PEST analysis identifies macro environmental factors that would affect the company, which may be uncontrollable (Sloman and Jones, 2011). The identified factors in the PESTAL analysis are the factors that Ikea would consider. It can be said that it is a more in depth analysis of the identified threats in the SWOT analysis, therefore giving the company the foresight to plan against any of these factors that may affect the company for either the good or the bad. See appendix 1 for a full PEST analysis of IKEA Ltd.
The increase in government taxation on business is a political factor that is affecting IKEA. An increase in VAT from 17% to 20% due to inflation will have an affect on how Ikea prices its products, due to an overall rise in government business taxations. Additionally, one of the social factors affecting Ikea‘s profits is a reduction in household income due to the increase of government taxations. This change may lead to a reduction in overall customer expenditure, which Ikea needs to consider how to increase customers buying in spite of the reduced household expendable income.
Likewise, another factor from the PEST analysis that can affect Ikea’s business activity is the international functioning of the business. Since Ikea is operating worldwide, the change in taxation in various countries will change or affect the operating profit. Moreover, it will also affect the pricing strategy, whereby the selling price of the product will become more expensive .
Task 2.3: Significance of Stakeholders
Stakeholders are defined by Bizmanualz (2008), as either a group of people or an organisation that may have an interest in, or can affect the business directly or indirectly. These include, local community or those living in the local area of any IKEA stores. Business, both large and small that are affected by the presence of an Ikea store; they too are stakeholders and have either a competitive or symbiotic relationship with the company. Additionally others include employees, shareholder and pressure groups. Johnson, Scholes and Whittington (2009), identifies that when planning, there are two questions that need to be asked when considering the stakeholders. Firstly, who are the stakeholders that are adamant on making an impression on the company to meet their expectations and do they have the power to do so?
Ikea.com (2014) identifies a list of welfare organizations as their main stakeholders. They state that they work alongside these organizations in meeting the expectations that they have on the way Ikea affects the global community. This supports the idea Johnson and Scholes and Whittington (2009), highlighted that in strategic business planning their needs to be an identification, of which stakeholders have the power to influence the plans of a company. An example of one of the organizations is the Clean Cargo Working Group (CCWG), whom promotes the sustainability of product transportation. Ikea identifies itself as a subscribed member, therefore in their planning at corporate level regarding how they will transport cargo and goods, they need to ensure that they are meeting the expectations of the CCWG, ultimately maintaining a good relationship with the organization and avoiding pressure in various forms placed on them by the CCWG (See Appendix 1 for detailed Stakeholder matrix)
Task 3.1: Analysis of IKEA’s alternative strategy
Retrenchment Strategy is aimed to reduce the cost of running a business. It includes the action of a business reducing its size or it diversity in aim to become more financially stable. In addition, other actions in this strategy could include withdrawing from some markets or to stop selling a particular item (BusinessDictionary.com, 2014). Volberda (2011) explains that in its attempt to cut costs, the AA bank moved from an international market to the market of personal fund. In this, it is suggested that this cost cutting strategy distinguishes itself from its international competitors such as Morgan and Stanley and Golman Sachs.
Ikea in many ways have made various strategic movements to ensure the business is robust and can endure throughout time. Examples of how they did this includes, the breaking up of Ikea into different companies to ensure the longevity of the company, i.e., INGKA, Ikea group, and Inter Ikea group. This in itself is a Retrenchment strategy as it involved the reduction in the size functioning and thus responsibility of the company that it can be focussed solely on the manufacture and selling of furniture, thus leaving the Inter Ikea group responsible for shepherding the many franchises (Inter Ikea Group 2014). This however has occurred longer than five years ago; nonetheless it is a major strategic movement in the life of Ikea that it is worth of mentioning.
Diversification occurs when organization procures other companies in the aim to increase it size, they sometimes buy companies that are different from their core business in the aim to increase profitability and it chances of survival in the economic environment (Parnell, 2014).
According to the IMT Media (2014), Ikea has now entered in to the property market and has plans to build throughout Europe a series of low cost hotels. These hotels will hold the focus on the same mission of the company of affordable living. This strategic move is a demonstration of diversification, in that a company begins trading in an area of business different from its core products.
In the same line, Ikea could always do the same in United Kingdom, where they could tap into property business. Since ikea already have furniture as their core product, they already secured the base line to develop or move into this market.
Horizontal integration is where a business is developing itself; this is done by taking on a similar strategy as its own. An example, being a company merging or taking over a similar vendor.
Limited growth strategy incorporates market penetration, market development innovation and product development. According to Johnson, Scholes and Whittington (2009), market penetration is when an organisation gains a percentage in the market. Innovation is the development of existing products or knowledge into a new product all together.
A “do nothing” strategy is exactly what it implies, doing nothing. An organisation does not make any strategic decisions, in the hope to maintain its position. This can be costly as there is a chance that there needs to be some strategic changes to keep up with changes in the market. On the other hand, making strategic decisions to get ahead of competitors could result in losses, thus doing nothing may be an option to take (Businesscasestudies 2014)
Vertical integration involves the company moving to take over the production supply, distribution and processing of the businesses (Morden, 1993)
The Ikea group is the corporate organisation that owns Ikea stores. They identify that they are completely involved in all aspects of the furniture range; this is from strategizing their up and coming ranges, to development, production, distribution and retail (Ikea, About the Ikea group, 1 2014). By doing this, it can be suggested that the Ikea group took on the vertical integration strategy, an aspect of substantive growth strategy (Morden 1993).
In terms of Innovation, IKEA is installing car-charging points in all stores. This is a direct product of the factors identified in the PEST analysis, whereby the impact of the company on the environment and the sustainability of the company need to be addressed. IKEA has an environmental responsibility as does all companies to ensuring they operate sustainable companies. By doing this they meet that issue that arises concerning analysis of environmental factors in the pest analysis. This strategic move can additionally provide an increase in customers. This is because of the provision of electric car charging ports may raise the profile and the reputation of IKEA as an environmentally responsible company, thus bringing in more customers (Inter Ikea Group 2012). It can thus be said that this is the most recent strategic move of IKEA, using the importance of maintaining a sustainable business production whilst providing sustainable and environmentally friendly products in their range. As identified in the SWOT analysis, the sheer size of the business may impede the ability of the company to communicate their advances in meeting the environmentally friendly requirements of the business. How they have addressed this is by releasing regular publications online and in print to keep customers and stakeholders aware of their actions.
Task 3.2: IKEA’s future strategy
As there are different options are explored above, the most suitable and feasible strategy will be new product development by branching off into designing more high-end designer products at an affordable price. This would be a strategic movement of horizontal integration, whereby the company moves into a similar market to its core market but there is some difference.
The current Ikea product range is low cost and well designed. However the addition of designer products at low cost exclusive to Ikea could add a different dimension onto the company as not just a company that provides low cost furnishings for everyday people, but also for those that see themselves as not everyday individuals, but individuals that desire flair and maybe extravagance, once again at an affordable price. This proposed strategy would be equally effective, this is identified by considering other markets that have branched off into providing exclusive pieces, such as New Look clothing line that has now added a “label lounge in store and online, similarly home base has now started to sell habitat furniture, a designer furniture range. This trend is seen in various different sectors of retail. This basic data analysis of the market sector shows that this strategy can be highly effective and profitable.
Task 4.1: Roles and Responsibilities of strategy implementation
Barnat (2014) identifies that in implementing a strategy there is the need to allocate appropriately the correct resources to ensure the success of the plan. The suggested chosen strategy, of producing a new designer and one off range in the Ikea furniture line will require similar individuals that are responsible for similar operations, such as, suppliers, warehouse staff and manufacturers. There will also require designers and individuals who carry out market research into the areas of designer furniture to determine if there is a viable market. These roles are all similar to that of those already implementing the strategy of a sustainable IKEA, however the individuals involved in the market research, design and advertising of this product will need to be experienced in this market, to know and understand how best to operate in this market to gain a profit from this strategy. Thus resources may need to be allocated in recruiting individuals with this type of design background. The leaders role in this is firstly the identification of the specific job to be done, thus ensuring an accurate job description to match the specific role. The leader through the recruitment process would then ensure the appropriate individuals is selected, and trained to complete the job effectively thus improving on the functioning the profit of IKEA (Snell and Bohlander 2012).
Task 4.2: Resource Implication
Human resourses management is an important resource allocation in the business functioning. It ensures that the correct individual is selected for a specific role. Human recourses management needs to ensure that staffs are trained, engaged and motivated, thus ensuring the best chances of maximum business functioning, therefore increased profit (Armstrong 2012).
Ikea, being an already established organisation with ownership of many warehouses and stores, fortunately would not have to acquire new property to produce this designer furniture. A benefit of horizontal integration is that a company doesn’t have to spend on large resources, such as raw materials and land, due to the company having the assets already.
Task 4.3: Strategy Monitoring
Ikea’s democratic business design and concept for the many people can be said to be successful. Through making long-term partnerships with suppliers of raw materials, they have not only reduced the cost of the end product substantially, but they have also reduced the environmental cost of their transportation from differing points as they are involved in the entire manufacturing of their products. The goals of IKEA of becoming more sustainable and socially responsible (Ikea Group 2011) are an on-going process, exemplified by their continuous demonstration on their websites.
In terms of how Ikea can develop and evolve, it would be best to reflect back on the SWOT analysis that identified that the size of the company is a weakness. It was identified as a weakness because to keep up with the communication of its large customer base would be challenging. In addition, the fact that IKEA is now a worldwide company brings challenges, such as the countries in which their stores are located may not have the laws that uphold the standards of the company (Businesscasestudies.co.uk. 2014). It is identified that, to address that deficit, IKEA had started training inspectors of their companies and warehouses into what the acceptable standards and policies are to ensure they are aware of it and are able to spot and implement changes. To continuously stay in contact with the various customers and stakeholders available, IKEA should upgrade its family membership cards whereby getting up to date information about the customers’ buying behaviour.
IKEA should also set timescales and targets for the proposed strategy (new product development) to be implemented. A Gantt chart could also be used to guide the process of the strategy implementation