This is a solution of St Patrick college business strategy assignment, part of HND business course, it answers the questions of role of business environment in business strategy.
In this assignment a discussion would be carried out on IKEA case study as well as various example of companies such as Apple would be given in order to explain the various business strategies, growth perspectives, way an organization sets it mission, vision and core competencies. These would be explained with the help of various theories and models of business management like: BCG Growth Matrix, Directional Policy Matrix and PIMS etc. We will understand the importance of Auditing, Stakeholders and the factors that affect the working of the auditing and the stakeholder’s management. Suggestions and recommendations would be given to IKEA for following certain strategies whereby it can perform efficiently and effectively. All these concepts would be explained under four main tasks that are discussed below. Task 1 would be taking on how the business environment is an important factor of consideration for the formulation of the business strategy. In this task, a discussion would be carried out on the strategy, core competencies, vision, mission and the objectives of the company. A study on the various business models like BCG Matrix, SPACE, Directional Policy and PIMS would be done. Task 2 would comprise of understanding the strategic planning process, importance of the audits and how important are the stakeholders for the success of an organization. Task 3 involves evaluation of the implemented strategy and its selection for the right time. Task 4 would be entirely based on the achievement or the realization of the implemented strategy. It would be discussed as what can IKEA as a company do in order to realize its core competencies and the strengths to convert them into successful business implementation and action plan. These four tasks will study the entire case study of IKEA (Edvardsson & Enquist, 2002).
L1 Analyse how business environment is considered in strategy formulation
AC1.1 in context to IKEA, explain with examples what you understand by strategy, mission, vision, goals, objectives and core competencies
IKEA has been an internationally known retailer in home furnishing. It has been quite popular in the market because of a strong image development. In context of IKEA, Strategy refers to the plan or the way by which a company achieves its goals and various business targets. For example IKEA had developed the low price strategy for its various products so that it can attract maximum number of customers in the market. Mission statement describes the reasons for the formation or the existence of an organization. It defines the purpose and the role that an organization will meet up for its stakeholders. Mission of IKEA is to serve to its stakeholders by giving them effective business and sales of its home furnishing products. Mission helps a company to remain committed and consistent in its strategy business and marketing planning. Vision refers to the long-term visualization of the company. This means that in future where IKEA will be seeing itself to fulfill and meet best interests of its company. Vision of IKEA is “to create a better everyday life for the many people' puts this concern at the heart of the business”. Vision gives a company a particular directional plan which it can adopt for the future (Dess & Miller, 1995). IKEA has developed LOW price strategy in order to meet its vision. Goals and objectives are the targets, plans and the various statements that the company establishes in order to meet in future for its vision by means of the strategies for achieving these goals and objectives. The goals and objectives of the company are sustainability and environmental design. Core competencies refer to the skills and the expertise in the business or the area that IKEA is working on. IKEA core competencies are its creating customized products for all its customers. It has sustained in the business of home furnishing through its sustainability factor only. Goals, objectives, targets, core competencies, vision, mission and strategy all are interrelated. This is because in order to be developing successful strategy, competencies should be mapped with the goals and objectives and even the mission and vision should also move accordingly.
AC1.2 Identify and review the issues usually involved in strategic planning. What are the planning issues IKEA have had that you can identify
The various issues that are involved in the strategic planning are:
- Developing of strategic plan – Deciding on the strategic plan is a big challenge.
- Understanding of the environment along with the plan – companies have to understand the strategy and develop it as per the environment and in connection with the external and internal factors that control the business activities.
- Commitment to the organization, management, employees, customers and clients collectively.
- Involving the right skill and expertise people – While developing strategies, it is essential that the team should have knowledge and technical know-how on the business of the company.
- Final presentation and consensus for the strategic plan – The plan should be approved by all for its successful implementation (Rothaermel, 2013).
- Changing the plan as per the changing market needs – It sometimes happen that although company devises the strategies but they may have to change it in case the market demands.
- Involvement of the leaders and persuading them for the developed strategic plan – The leaders of the company should be persuaded on the strategy or the plan of action of the company.
The various planning issues identified in IKEA are: the size and scale of the global business operated by IKEA, maintaining the balance between the low and high cost products in the market as per customer requirements and maintaining effective communication among the stakeholders, leaders, customers and the clients of the company (Tarnovskaya et al, 2007).
AC1.3 Describe any planning techniques you know that IKEA may have adopted. Strategic Planning Techniques: BCG Growth share matrix, directional policy matrix, SPACE and PIMS.
In order to develop any strategy for the success of the company, every company has to adopt certain strategies whereby it can grow and expand its business. IKEA has been following several strategic planning techniques and has been successful in promoting and sale of its products. BCG Growth share matrix is mapped by the company as it has classified its products fewer than two categories like: potential cash generators and requirements for the expenditures in cash. It has also followed Strategic Position and Action Evaluation (SPACE) and based on its current position, it has been suggested for planning that it has to develop, stability that it has to bring in the environment, strength that it has to develop as an industry and the advantage that it has to gain in order to fight the competition in the market. In terms of the growth in the market and share, IKEA would be placed in the Stars of the BCG Matrix. It has high growth as well as market share. In terms of the various dimensions of financial position, competitive advantage, external and internal environment, IKEA has been rated aggressive growth company (Radder & Louw, 1998).
Under directional policy matrix the company would be placed in the first quadrant as IKEA’s products have high market attractiveness and even it has core competencies and strengths in achieving them. PIMS refers to profit impact of the marketing strategy. PIMS adopted by IKEA has a string impact on the market. It has been attracting the customers through its Low price marketing strategy. This is because it has to attract maximum clients, customers and remain as a star performer in terms of the BCG matrix. It has various strengths like: it brings quality, low cost and varied products in the market. Above all the company has a global presence as it is an international brand. Hence the marketing strategy adopted by the company has been minting money due to attraction of several customers and clients. Directional Matrix decides on the movement of the company as attractiveness in the market with the help of exploiting all the business strengths that the company possesses. When these models are adopted and studied definitely company will bring about improvisations in its processes and practices in order to expand in the market.
L2 Understand the process of strategic planning
AC2.1 Identify and describe any suitable organizational analysis which IKEA carried out to fulfil their internal audits.
Internal Audits are very important to be carried out in an organization. It helps in mapping the company’s opportunities with the plans that it has achieved. IKEA has been carrying out its SWOT analysis from time to time. It has been inspecting itself in terms of its strengths so that they are maintained in consistency. Weaknesses are also mapped so that they could be improved and work upon to be converted into the strengths. It keeps on studying the PESTLE Analysis and Porter’s Five Forces Model along with the SWOT analysis. This helps in converting the opportunities into the strengths for the company. It evaluates its performance and the factors that contribute as a threat factors are studied well for right action and implementation.
AC2.2 what are the factors that IKEA would consider in their environment audit of the company?
IKEA should consider the following factors in order to do its environmental audit:
- Availability of physical, financial, human, tangible and intangible resources with the company.
- Political Factors.
- Economic Factors.
- Socio-Cultural Factors.
- Technological factors.
- Legal Factors.
- Environmental Factors.
Besides the PESTLE analysis it has to examine the factors based on the Porter’s Five Force Model:
- Threat from Suppliers.
- Threats from Buyers.
- Threat from the entry of the substitute products.
- Threat from the competitive Rivalry.
- Threat from the new entrants into the market.
AC2.3 who are the stakeholders of IKEA and how does the stakeholders influence the strategies of the company?
Stakeholders are the individuals or the groups that are involved directly or indirectly and get affected with the positive or the negatives of the company. The major stakeholders of IKEA are: its customers, shareholders, employees, and clients. Stakeholders are directly linked with the way the organization performs. IKEA may perform well or run into losses. In either case, it would be affected. In case IKEA performs well top management, employees, shareholder and the customers all would be benefitted. On the other hand in case the company does not perform well and run into losses then it will encounter losses for its employees, shareholder and the customers. This could be explained by saying that customers will not like its products and stop buying them. Shareholders will run into losses as they will not be able to gain money and profits from the company. When IKEA would run into losses then it will surely do not do appraisals and benefits for its employees. These employees would not remain satisfied in the company and quit it. Hence stakeholders are the people who are directly linked with the strategy formulation. It is the stakeholders that will determine on how the strategy, plan or the policy should be adopted by the company.
L3 Examine approaches to strategy evaluation and selection
AC3.1 Define and explain what you understand by substantive growth, limited growth and retrenchment strategies.
Substantive Growth refers to the level of growth in the present that would lead to the growth in the future as well. Limited Growth refers to the growth factor which is limited and not increasing as required. Retrenchment Strategies are the strategies whereby when a company is not performing well then it starts retrenching its employees. This means it makes the employees to quit their profiles. This is being done so that the company could save upon the costs that it is incurring in its retarded or the time of limited growth (Hillman & Hitt, 1999).
AC3.2 In the case of IKEA, critically analyse any growth strategy the company might have formulated in the past 5 years and explain their rationale behind their choice. Mention any realistic improvements made which have yielded success or issues which might have impeded success.
IKEA has adopted the growth strategy whereby it uses the techniques, styles and the ways of production that are beneficial for the environment, organization as well as the customers they have been serving. Not on instant basis but as per the opportunity encountered, company has been opening its retail chains and the outlets that will spread across the entire globe and serve the customers will the diversified and variety of products in its stores. Not only this they have been spreading the awareness and promoting their brands in the market by fulfilling the corporate social responsibility towards the government if the country and the environment. They have even been growing with the help of giving away their franchises to various people. In this process, they are dictating their policies, rules and regulations and the practices that the franchisee store needs to adopt in order to tap the customers and markets as a whole for the business purpose (Zheng et al, 2011).
They have made a lot of improvements in their stores and grown a lot in the last 5 years. They have opened many stores in last five years. As per the requirements, feedback and the customization processes, they have even maintained in the franchisee stores.
AC3.3 Suggest an alternative strategy which, in your opinion, would yield better success and eliminate issues identified in LO1 above.
Franchisees are basically giving your brand name to the other people and they run your business at a profit sharing basis. In this process, the original core values, mission and vision statement of the company cannot be fully controlled. This is because the ownership lies with some other group of individuals who are running the franchisee stores. It is pertinent that wherever and in which every country IKEA is expanding it should be known to the environment and the market. The alterative strategy that IKEA can adopt in order to yield better success and eliminate issues identified in the franchisees is doing a joint venture with the local companies. This means that wherever IKEA wants to establish its business, it should tie its knots with the local player in that market or the country. This would help IKEA to grow and expand as it will take out benefit of the local player, its image and gain knowledge easily in the market where local player exists. It will help IKEA in sharing of various costs as well as the risks in the business with the local player. There would be reduction in any kind of political risks that IKEA may encounter in that country. It will get a well-developed and organized set up, expertise, market presence, and brand awareness that exists already due to the presence of the local player. Unlike Franchisees, IKEA would be able to keep a tap on the movement of the business, yielding of the revenues and the profits that are generated with the mutual effort of IKEA and the local player in that market whose done joint venture (Leelapanyalert & Ghauri, 2006).
L4 Analyse how strategy implementation is realized
AC4.1 Compare IKEA’s existing strategy and the alternative strategy proposed in Task 3 in terms of the roles and responsibilities for strategy formulation.
IKEA when would do the joint venture with the local player in the market where it has to expand, it should develop a strong strategy that will yield gains and profits for IKEA as well as for the local player. The roles and responsibilities would have to be played collectively in this case. The local player would not take any decision without the consent of IKEA. It will have to follow and abide by the norms of the company as a whole. The decision making irrespective of its types has to be done with the collaborative efforts and initiatives of both the companies whereas in the existing model the roles and responsibilities lie in the direct hands of the Franchisees. In Franchisees the sharing of profit is the only criteria. The entire model is developed for sale as per the owner who has taken the franchisee of IKEA. There exists no control over the quality. The strategic roles and responsibilities lie in the hands of the franchisee owner who has taken it from main IKEA Company. He decides on what actions, decisions and the plans he has to adopt in his retail store.
AC4.2 Evaluate the effectiveness of IKEA’s strategies in light of its current financial and market performance and how IKEA is likely to evolve and develop in the future.
In terms of IKEA’s current financial resources and market performance it could be said that with the development of joint ventures it would be able to tap the entire globe as a single market. It would easily be able to make its position and place in the market and among the customers. This is because, it will join hands with the local players and they have the technical expertise skills and the competencies whereby they will tap the market. This strategy that would be adopted will help the company in sharing of the risks as well as the costs. This eliminates the direct and heavy losses that the company may encounter in future. We can say that the company will be able to get knowledge and information on each and every market by expanding through the model of Joint Venture with the local player that exists in the market. Current financial and market position would be far lesser when it will do the joint venture. It will be able to open up more stores and expand in the market easily. It would actually be the joint effort of the local player and IKEA in developing their products as brands in the local and international market (Ireland et al, 1987).
AC4.3 in your opinion, has IKEA been successful in meeting timescale and target objectives of the implemented strategy (or strategies)?
IKEA has been quite successful in meeting its timescale and target objectives. This is because it has implemented changes in its organization from time to time. It has launched various initiatives. It used the effective marketing low price strategy whereby it gave tuff competition to its competitors. It sold various products at the price which was always lower than the other players which existed in the market. This helped it to tap more business, customers and the profits. It has produced the customized products as per the requirements and needs of the markets. It has been auditing and studying its internal as well as the external environment to map the processes and practices that it has been adopting. Based on the social trends, demands and the expectations of the customers, company has been selling the products. Time to time as per the demand of the market, it has taken out the strategies so that it could strategy and plans for making the company profitable (Hunger & Wheelen, 2003).
IKEA has been specialist in the market for the global presence of its brands. It has been producing quality products and services that are recognized in the market. It sells designed and well performing products for its customers so that they remain satisfied. It has been fulfilling its goals and objectives as per demands and requirements of the market and its customers. It has developed the low price business strategy whereby it is able to attract maximum customer loyalty and attention. Not only this the company has set up its specific, measurable, achievable, and realistic and time bound targets. These targets and objectives set by the company helps it to achieve the plans as per the timelines. The company has been following various models of sustainability and assessment of the external environment. These are studying the SWOT, Pestle Analysis and even the Porter’s Five Force Models. These models predict the current situation and position of the company. When the company gets to know the areas where they have to work in order to improve then it becomes easier for the improvisation strategy to be implemented within the company. Hence in the nutshell we may say that IKEA has been working as per the plan but the only strategy that it can adopt in order to succeed further and gain competitive advantage is adoption of Joint venture model. When IKEA will follow the plan and model of Joint Venture then it will easily be able to partner with the local player in the market and gain advantage on the market leadership in that region or the market. The various risks as well as the costs would also be divided leading to the overall success, growth and opportunity. IKEA has to be consistent in its growth plan and tie up with the local players in the country or the region it plans to expand. This will give the company an edge over its competitors and it would be able to prove its worth in the market. It is only required that company keeps on doing its SWOT, environmental analysis and competitive benchmarking in order to expand and grow in this competitive environment. It has to do overall analysis and the study for keeping a consistency in its products and the customization so that customers remain intact with the company (Rumelt, 2011).