IKEA's Challenges for Growth and Development

FUNDAMENTALS OF MANAGEMENT

Individual Report on Challenge

ikea

Challenge of Growth

1. Introduction

Report focuses on the challenges faced by the organization due to several factors governing its internal and external environment. To meeting such challenges certain managerial changes performed by the mangers of the origination will come to be known.

Studies focuses the challenges faced by IKEA in the path of growth and development along with its impacts in the dynamic market. To fulfill organizational objectives of the company it is essential to overcome the challenges faced. The major objective for which IKEA is working is to overcome the challenge occurring in the path of growth. The main objective of the report is to identify and analyze the challenges along with the associated theories.

2. Company Background

IKEA is a multinational organization selling furniture and related accessories regularly be used in homes. IKEA was established in 1943, in Sweden by Ingvar Kamprad. Since 2008, IKEA is one of the largest company selling furniture in the retail market across the globe. Furniture sold are often ready to be assembled with effective designs, home accessories, kitchen appliances are other useful good for meeting the day to day needs to its customers (Ericsson, 2018). To brings the diversity in the designs and to bring life to its products IKEA uses wide range of aspects including sparkled alphabets and letters, traditional signs, striking colors, bold patterns, diverse textures and material with an optimistic spirit in manufacturing to gain customer satisfaction. Currently IKEA is operating in approximately 41 countries, abiding the rules and regulations of each operational countries concerning the vulnerability towards the change in global climate.

To be the largest furniture company in the retail market and keeps on progressing at a rapid pace is one of the primary objective every company focus. IKEA, is not an exception due to which organization faces several challenges on a periodical bases which trend to be as a hurdle in the path of growth and development. Climate change is one such factors hampering the growth of almost every organizations causing threat to our environment. Furniture being a primary business of the company, which is mostly made up of wood obtained from the tress which are quite less these days. Maintaining the balance between the expectations of the masses and the vulnerable climatic change is one of the biggest challenge for the company.

CVF (Competing Value Framework)

Computing Value Framework is a theoretical model developed by Quinn and Cameron as a means of organizational culture followed. It helps in determining whether the company is taking due care of external and internal focus of the organization. This framework is used to construction organization profile depending on organizational culture. Here the types of culture are 4 namely market, clan, adhocracy and hierarchy. The framework being a major indicator for making the performance of the organization more effectively. Along with the indicators it also provides, illustration signifying types of leadership styles, value drives, key values, effective theories and the associated approaches to the prevailing changes. This framework has widely been use for organizing leadership approach of managing the development policies of the organization. The framework also suggests the techniques and tools focusing on creative and innovative articulated vision to address entrepreneurship and transformational change.

PESTLE Analysis

It describes, monitors and analyze the environmental factors and its impact on the overall performance of the organization. It can be used as a tool or analytical framework, especially used while entering a new foreign market or starting business. Besides monitoring it is also used to access identified opportunities of business ventures capable to succeed along with the threats occurring to business. Mostly it keeps a tract over the dynamic business environment which is changing at a rapid pace.

Political Factors: Political influences and policies varies from nation to nation depending on the extent of stability in the region. The profits of the IKEA is quite lose and varies, depending on the political charge in a specific location. For instance exporting and importing of goods will become a hustle if the political relations between the nations are unfriendly. As far as possible IKEA tries to make good and stable relations (Fragouli and Nikolaidou, 2019). IKEA has experienced a positive swing in the Asian market as some of the Asian countries are open to the foreign companies. As a means of its practical implication to this, the overall revenue of the organization has increased globally. Through expansion IKEA shows more presence globally.

Economic Factors: Nowadays purchased has become a need instead of luxury as customers are taking buying decisions consciously. Keeping this in mind IKEA has also changed its pricing policies and manufacturing inexpensive furniture. This gradually increases the sales, serving more revenue to the company which lastly creates more job opportunities. Economic factors has a significant impacts on the challenges faced in the path of growth. Besides the internal and external economic factor of the organization several other factors also helps in overcoming the challenges such as legal framework of the organization, available growth opportunity and cost mechanism policies.

Social Factors: To get rid of the international complaints and related controversies IKEA, try to know more about the local traditions and culture before entering the market. This not only helps in tailoring the products as per customer’s demand but also evades upsetting social values and customs.

Technological Factors: Technically IKEA is capable to accomplish more with alphanumeric catalogues, although paper catalogues were still been used. In the world of internet people prefers to check the offered products online, by the means of websites, apps etc. Also people prefers to buy the products online without going manually to the store (Kurnianto et al, 2019). IKEA offers, realistic buying experience to its customers through the efficient use of technology. Customers can also set the specific criteria based on their budget, needs and category of their choice.

Legal Factors: IKEA needs to follow a certain set of laws, rules and regulations before and during the process of operations. Specific quality of the products, labor laws etc. are some of the rules considered by IKEA. Sometimes IKEA is also been accused of harm and death of labors in the manufacturing units due to unhealthy working conditions (Hamalainen, 2019). In recent time it has been seen that the cases for injuries to the workers working in IKEA are quite high especially in Pakistan and Bangladesh. This issue unsafe working environment is not only limited in specific countries but also in many developed nations as well. This adversely affects the goodwill of the company not only within the regional community but also in the international market.

Environmental Factors:

With the motive to protect environment, IKEA is focusing on being green by using non-renewable source of energy. Even the suppliers of IKEA are planning to frame the production process without harming the environment.

Five Force Analysis

This models helps in analyzing and finding competitive forces which are capable of shaping industry and determines the weakness and strengths of an industry as a whole. It is often be used in identifying structure so that corporate strategies for the organization be determined and implemented well. It is used by analyzing the following five factors of the model. Due to universal applicability and relative benefits for the organization as a whole this model is widely been used.

Bargaining power of Supplier: As the number of suppliers are quite larger in the retail furniture market, so the power to bargain is quite low. Also their financial positions is weak and size is quite smaller which won’t allow them to form clout. IKEA switches the suppliers easily while on the other hand it is difficult for suppliers by the means of losing business. IKEA frames rules governing the suppliers by the way of setting conducts which are further been followed by their sub-suppliers. IKEA also conducts several audits, annually to keep a check on the violations if any. The regulations are usually about discrimination, safer working environment, child labor and minimum wages suppliers violating such compliances be removed.

In other words it is said that, in this factors several suppliers of the company have the power to manipulate the prices prevailing in the market which further impacts the revenue of the company. For instance some of the suppliers formed a union and increases the price this hampers the profit margin of the company along with other stakeholders of the company. Besides internet had reduced the cost of distribution to zero allowing Facebook and google to grab customers’ attention.

Bargaining power of the buyer: Buyers as a whole have a significant power in terms of bargaining and creating clout. Besides that as an individual buyers power is quite insignificant in comparison. Due to this IKEA tries to place due focus on retaining and attracting customers as far as possible. In the 21^st century customers are quite empowered across all trades. Retail industry is nowadays inclined toward the customers due to increased competition and the rapid technological growth. This forces IKEA to be more focused about the promotion and marketing of its products. Focusing on the ecommerce and digital marketing to provide best shopping experience to the customers also IKEA has restructures the pricing strategies in view of the customer’s budget. As a whole the bargaining power is moderate due to good quality and low process of the products marketed by the IKEA.

Competitive rivalry: In the retail market for furnishing industry the level of completion is moderate to high as huge competitors’ exits (Roberts, 2019). Apart from the specialized brand for home furnishing, several brand stores and super markets also exists selling similar products, which tends to be a threat for the IKEA. IKEA has built a stronger customer based due to its reliable and popular image in terms of affordable pricing, marketing strategies and several other related factors. Such factors also moderates the viable risk from other brands. As an example to competitive rivalry and gain advantage, IKEA has successfully maximizes its success rate by introducing hybrid strategy.

Threat from the Substitutes: Although the risk is quite low still some factors moderating such risk also exits, brand image is one such risk. Since years a reliable image of the brand is made by IKEA through building trust among the customers. Risk from substitute products is quite moderate due to the customer services and pricing strategies which are quite affordable. Also a larger rage of diversified products is available beneath one roof is another significant factor. Based on these factors, only few rivals offers such wider product range this further minimizes the risk form the supplementary products. Substitute goods can take the place of products manufactured by IKEA this causes risk of revenue. The overall magnitude of substitute goods available in the market is moderate due to which company needs to suffer sometimes as a means of losses or decreased revenue. As the operational size of IKEA is very larges making it hard to substituted goods by availing alternatives.

Threat of new entrant: New-entrant may steal the share of the audience in the market, although the risk is quite low as the scale of new brand is quite smaller due to which it won’t exert major effect on IKEA’s business. As the new-entrants are quite smaller is requires investment, efforts and some time to become a recognized brand by grabbing larger audience. As the new business or organization enters in the new market, sometimes causes threat to the existing rivals. It means that most of the new entrants are unable to cause threat to IKEA, due to its goodwill and brand value. Also the company is operating at a vast scale making new entrants hard to compete with IKEA. Besides human resource and infrastructure, effective strategy and innovations are time consuming process and requires major investment. Moreover besides operations marketing is also incurs a higher cost. Although the barriers are less in terms of numbers but are quite major for becoming a well-known and larger brand.

SWOT Analysis

Strengths: The vision is IKEA is quite clear for adding value to the products satisfying the needs to the customers. The concept to translate the products by the means of assembling is also very clear (Krenkova, 2020). Matrix used to means its strengths through KPIs (Key Performance Indicators) including enhanced renewable materials. Value addition to its products is one of the biggest strengths of IKEA which can further be measured well, with predefined criteria. IKEA is working with the objective to satisfy its customers so that profitability will be enhanced in long-run.

Weakness: As IKEA is operating in several countries it is hard to control and maintain the similar standard at different locations. IKEA also faces several environmental concerns, related to its operation. Articulating and communicating the environmental policies of IKEA’s shareholders, customers etc. Maintaining similar standard across the word seems to be a significant weakness of IKEA. For the overall benefit of the society company prefers to uses resources which won’t cause harm to the environment but founds it difficult to implement.

Opportunities: Concerning IKEA’s green model for its business, there existing great opportunity which makes IKEA ahead in the cut throat competition (Magnusson, 2019). Cost leadership among the rival is the biggest opportunity where company can focus well, by delivering best quality product at lowest cost. By the means of Expansion company can prosper well in the evolving market. By being a leader in the competitive market IKEA can gain new opportunities for its organizational growth. IKEA is quite renown for its strategies which are quite diversified and traditional in nature. Also there exists good opportunity technically by means of e-commerce.

Threat: Low cost model of IKEA’s business may be copied and imitated by competitors which may cause threat to its innovative policies. Due to the increasing trend of online shopping, IKEA’s USP is widely been affected especially towards its online retailers, as they can avail the products at the cheapest possible cost. Cost mechanism adopted by IKEA to counter online sales of goods is considered as a threat to IKEA. The low cost model while operating business may be copier the competitors present in the market which will harm IKEA drastically. Hence to become a leader in cost it needs to innovate constantly which also helps in staying ahead in the competitive market.

3. Challenges for Growth

3.1 Description of the challenge

By the means of growth IKEA, faces several challenges for expanding in the international market. IKEA needs to make the people of different countries aware about its products. To meet the targeted demand this is one of the major challenge (Etukudoh and Joe, 2019).

3.2 Impact of challenge on company

IKEA needs to ensure that there won’t be any loss from its new customers at new locations. Some of the competitors are quite big in the local market making it hard for IKEA to enter and operate in the new market. Moreover besides suffering loss it is also taken into consideration that the overall growth prospects of the company won’t be hampered. This is one of the biggest challenges as each and every company want’s to grow at a rapid pace by overcoming all the challenges.

Recommendations

IKEA needs to analyze the prevailing situations in the market, well in advance and needs to plan accordingly by avoiding unnecessary expenses (Alrubah, 2020). To get rid of the local rivals IKEA needs to frame strong strategies especially in terms of management and adverting.

Conclusion

For the growth and development in the international market IKEA faces several challenges during its expansion phase. Especially in terms of management several improvement needs to be done although IKEA is on the process of doing so. In several countries especially in Japan and some other Asian countries IKEA has failed to expand. Hence company needs to learn from them before framing its expansion policies.

References

Alrubah, S.A., Alsubaie, L.K., Quttainah, M.A., Pal, M., Pandey, R., Kee, D.M.H., Ling, L.K., Nadirah, N.A. and Aishan, N., (2020). ‘Factors Affecting Environmental Performance: A Study of IKEA. International journal of Tourism and hospitality in Asia Pasific’, 3(3), pp. 79-89.

Buhr, B., Volz, U., Donovan, C., Kling, G., Lo, Y., Murinde, V. and Pullin, N., (2018). ‘Climate change and the cost of Capital in Developing Countries’.

Ericsson, A., (2018). ‘Organizational Culture and Employee Loyalty: The Case of IKEA’.

Etukudoh, B. and Joe, E.J.D., (2019). IKEA's Challenges and Opportunities In Asia. Authorea Preprints.

Fragouli, E. and Nikolaidou, Z., (2019). ‘A Case Study Approach for Managing Risks & Challenges When Expanding to Emerging Markets. Risk and Financial Management’, 1(1), pp. 44-63.

Hämäläinen, J., (2019). ‘Market research on the Swedish textile and fashion market for a Finnish headwear manufacturer: Case company: Tella Oy’.

K?enková, M., (2020). ‘IKEA founder Ingvar Kamprad as one of the leading entrepreneurs of the 20th century’.

Kurnianto, A.M., Syah, T.Y.R., Pusaka, S. and Ramdhani, D., (2019). ‘Marketing Strategy on the Project Planning of Retail Business for Garage Shop. International Journal of Multicultural and Multireligious Understanding’, 6(1), pp. 217-228.

Magnusson, A., (2019). ‘A new window solution: A design project in collaboration with IKEA of Sweden’ (Master's thesis).

Roberts, S., (2019). ‘The internationalisation of supermarkets, the nature of competitive rivalry between grocery retailers and the implications for local suppliers in Southern Africa.’