IKEA Analysis

Brief Company Background

In 1943, IKEA was founded by Ingvar Kamprad and in 1954, the company managed an asset of 15 co-workers and it bid the start of expansion including a number of furnishing for home, stores and companies. The success of the IKEA is explained through the relationship of the three ideas that are involved in the business – the entrepreneur, the business idea, and the company culture.

From a small furnishing shop in 1943 to more than 140 stores around the world today, Kamprad at the age of 43 makes him one of the world’s greatest entrepreneurs. The business idea is focused on the concept of “help create a better everyday life”. The idea of offering a wide range of home furnishings that combine good design, good function, and good quality at the low prices made it possible for the people to buy them. Their company culture which is guided by the organizational objectives enables their strategy to make customers keep coming back. The company believes in providing people with quality home furnishing at low prices, while weakening the competitor’s market share (Borvander, 1999).

PESTLE

Political – As part of the national or global trends and changes, IKEA is just one example of firms that are successful in both domestic and international business (Fitzpatrick, 2003). The Swedish furniture retailer has found the Scandinavian style of furniture that was combined with “do-it-youself” flat packaging became popular and set a global cult brand (Peng and Thomson, 2008).

Economic – The Company, due to the economic changes and trends are adopting different kind of strategies that will take an appeal on their customers and aiming to own the customer loyalty (Fitzpatrick, 2003). The strength of IKEA grew from the ownership transfer of the business to the Stitching Ingka. It made the company adopt other furniture style such as dinnerware, lightings and even rugs. Yet, the economic conditions affected the company’s market performance and declared a slowdown because of lacking the strategic direction. In order to generate the high performance of the business, IKEA should be careful in analyzing and considering the key issues that involved in any aspects of the business and act accordingly (Chen, et al., 2006).

Social – The IKEA contributed much in the society as they provide opportunities in people and the employees are entitled in different benefits such as insurance and pensions (IKEA, 2005). Moreover, the company promises to provide more high quality furniture that sticks to their original concept – stylish furniture at low prices.

Technological – The IKEA used quality technology and systems to promote the shorter queues, proper scheduling, tracking and trading patterns, and staffing. It aims to be more productive and establish employee preferences. The system made the IKEA in a position to ensure the right number of staff in a right place and in a right time to match the unique trading pattern s at each stores of IKEA. The company view in optimizing everything from the supply chain is also optimizing and managing the workforce to create an efficient store environment and keep customers happy (Statham, 2008).

Legal – The legal compliance of IKEA is strictly implemented with the relevant and applicable laws and regulations that pertain to the environment, social and working conditions. The company also scheduled the most demanding requirements to be specific in maintaining the list of laws and regulations and with the procedures (Statham, 2008).

Environmental – With regards to the environmental factors such as the air, noise, and water, inspections are implemented to ensure the company provides corrective actions within the stipulated time. The environmental inspection is part of the legal documentation and environmental authorities as the business operations are on-goings and maintains the competence (Statham, 2008).

Porter’s Five Forces Analysis

Power of the Buyers - There is a little power because of the exiting low-price options. Furniture and other small items have an alternative and consumers have limited alternative choices that make the IKEA unique among its competitors. In addition, the low price strategy is another way of the company to response in buyer’s needs.

Power of Supplier - IKEA has its thousands of suppliers that set standards in delivering the materials. Once in a while, for some products, the IKEA bids for the contracts with multiple companies to craft the same products. Most of the suppliers work in IKEA and compete with other suppliers, and they have a little bargaining power. Because of the low-pricing, IKEA’s profit margin also affects the prices in raw materials than by prices in labor.

Rivalry - The IKEA’s furniture competitors’ offers different styles and functionality. Conrin targets a new low cost in terms of furniture line; Cratel & Barrel offers a furniture in a box which is subject in higher prices; Ethan Allen aimed at a more upscale market; Wal-Mart is equipped in a big box furniture that is categorized under the general store must-have-items, but don’t have much of a style. IKEA is the most successful in delivering the complete package for the customers that reflects on weak rivalries.

Substitutes - There is no specific product that can be a substitute for the furniture but IKEA at least, have to keep up with the latest trends, to avoid becoming out of style. Another advantage is that, through their cutting and leading technology, IKEA could copy any new style fairly and move each the product into its stores.

New Entrants - Another furniture company is rolling on a low-cost strategy and should compete with the IKEA as the excellent company in delivering the furniture and house wares. IKEA stores do not reach many small towns and this is an opportunity for the new competitors to move into small and midsize cities with smaller stores and less selection. But not easier in city because new entrants have to establish a vast supply chain and create a unique brand name.

Resource Based View Analysis

The IKEA picks the most advantageous position and ends as the items are set for delivery. The warehouse is divided into different zones and properly located to have a better control. With this strategy, the IKEA can analyze the processing time, resource utilization, and queue times and lengths for the various functions. The resources are applied and detailed in applicable working schedules, sorted and simulated at a higher-level. The resource and staff moved in order to complete the customer orders from each picking area, and later merged orders.

Conclusion

The IKEA group is one of the world’s largest home furnishings companies. The company considered various values in the incorporation of their supply chain as part of their process in learning. The group managed to work closely with their suppliers to ensure that all are set to produce a quality and strong environmental and social standards of products. The group also wants to create a strategic and systematic approach to responsible supply and resource management by developing internationally recognized working conditions. Still, the company is pushing to raise the profit margin, but IKEA maintains that it is better to make money on low prices and high volumes.

References:

Borvander, A., et al., 1999. Leadership Changes in Family Businesses. A Case Study of IKEA. Jonkoping International Business School, Jonkoping University, p. 8.

Chen, B., et al., 2006. IKEA: Expanding into College Towns. [Online] Available at: http://www.mcafee.cc/Classes/BEM106/Papers/2006/Ikea.pdf. [Accessed 04 Jan 2010].

Fitzpatrick, P., 2003. Pestle Analysis. Renewal Associates. [Online] Available at: www.renewal.eu.com. [Accessed 04 Jan 2010].

IKEA, 2005. IKEA Trading and Design AG IKEA Holding B.V., Minimum Requirements for Environment, Social & Working Conditions and Wooden Merchandise when Purchasing Home Furnishing Products Ed. 2. [Online] Available at: http://www.ikea.com/ms/en_CA/about_ikea/pdf/IWAY_standard.pdf. [Accessed 04 Jan 2010].

Peng, M., & Thomson, W., 2008. Leveraging Resources and Capabilities. Global Business. [Online] Available at: https://www.utdallas.edu/~mxp059000/pdf/PDFB4Ch4-0706FINAL.pdf. [Accessed 04 Jan 2010].

Statham, K., 2008. Staff Scheduling at IKEA Becomes More of an Exact Science Following Rollout of Kronos Scheduling System, Case Study IKEA, Ed. 2. [Online] Available at: http://www.kronos.com/uk/Archive/IKEA-CaseStudy.pdf. [Accessed 04 Jan 2010].