Evaluate the strategic planning of IKEA

The aim of this assignment is to evaluate the strategic planning of IKEA in order to achieve strategic goals, which will help the organization to become a global prominent furniture retailer. The strategic planning tool which is used to identify the key business issues are analyzed by SWOT and PESTEL analysis which will help IKEA in achieving strategic goals of sustainability and environmental design.

INTRODUCTION: –

IKEA is one of the world’s largest and most prominent furniture retailer, which was founded by Ingvar Kamprad in 1943, which is recognized for its Scandinavian style. Ingvar established his business, using his initials, Ingvar Kamprad, Elmtaryd the name of the farm on which he was born and Agunnaryd the village nearby. Ikea’s vision is ‘to create a better everyday life for many people’.

The company operates in more than 35 countries and is well known for its stylish and innovative designs. It carries a range of nearly 10,000 products .It was the pioneer of furniture to facilitate the dismantled and packed flat, to allow relieve of transportation. IKEA has developed into a 301-store franchisor, with over 660 million visitors The IKEA concept is experienced by the people of more than 35 countries, which is the combination of functionality, design and low prices.

Initially, the company use to sell the household goods at discount prices later it began selling home furnishings and then IKEA began to design its own low-priced furniture.

The first IKEA store is inaugurated in Almhult, Sweden in 1958 and then IKEA had become the preferential furniture-shopping purpose for price-conscious Swedes. The prototype for all of IKEA’s retail outlets is the 45,800-square -meter flagship. Ikea’s in-house restaurants were the 15th-largest food chain in America.

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SWOT ANALYSIS: –

SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats. By definition, Strengths (S) and Weaknesses (W) are considering to be internal factor. This means that they are within the control of the business. They may refer to aspects of marketing, finance, manufacturing or organization. Moreover, by definition, Opportunities (O) and Threats (T) are considered to be external factors.

This means that they are outside the control of the business. These may include the environment, the economic situation, social changes or technological advances, such as the Internet.

SWOT Analysis is the mainly notorious tool for audit and analysis of the whole strategic position of the company and its situation. Its key role is to discover the strategic environment of a firm definite business form that wills paramount aligns an organization’s possessions and potential to the requirements of the environment in which the firm operate. In other words, it views every single positive and negative factor inside and outside the business that affect the success. A constant vision of the environment in which the firm operates which helps in forecasting the varying trends and also helps in the decision-making process of the business.

Strengths- strength is the qualities that facilitate us to achieve the organization’s operation. These are the starting point on which constant accomplishment can be made. Strengths can be tangible or intangible. These are in which you are well versed in or in which you have skills, Strengths are the valuable aspects of the business or the capability of the business, which include individual competencies, procedure capabilities, financial possessions, goods and services, customer goodwill and brand loyalty.

Weaknesses- Weaknesses are the qualities that stop us from accomplishing our operation and attain our full latent. Weaknesses become worse influences on the business success and development. Weaknesses are the factors, which do not meet up the values we feel they should achieve. In an association this may be depreciating machinery, inadequate research and improvement facilities, narrow product range, poor decision-making, etc. Weaknesses are handy; they must be minimized and eliminated.

Opportunities- Opportunities are accessible by the environment in which our organization operates. These arise when a business can take advantage of circumstances in its environment to plan and implement strategies that facilitate it to become more beneficial. Organization can gain competitive lead by making use of opportunities. Organization must be careful and identify the opportunities and snatch them whenever they arise. Select the targets that will provide the clients while getting best-desired results is a difficult task. Opportunities may occur from market, industry/government and technology.

Threats- Threats occur when circumstances in external environment jeopardize the consistency and profitability of the organization’s company. They compound the weakness when they relate to the weaknesses. Threats are uncontrollable. When a threat comes, the stability and continued existence can be at risk. Examples of threats are – conflict among employees; everyday changing technology etc.

Advantages of SWOT Analysis:

SWOT Analysis helps in strategic planning in following manner-

It is a basis of information for strategic planning.

Builds business strengths.

Reverse its weaknesses.

Capitalize on its response to opportunities.

Triumph over organization’s threats.

It helps in identifying core competencies of the business.

It helps in situation of objectives for strategic planning.

PEST ANALYSIS: –

A PEST analysis is simply a structure that classifies environmental influences as political, economic, social and technological forces. From time to time two additional factors, environmental and legal, will be added to make a PESTEL analysis, but these themes can easily be subsumed in the others. The analysis examines the impact of each of these factors on the business. The results can then be used to take benefit of opportunities and to make possibility plans for threats when preparing business and strategic plans [1].

Kotler [2] claims that PEST analysis is a important strategic means for understanding market development or decline, business point, potential and direction for operations. The headings of PEST are a structure for reviewing a situation, and in addition to SWOT and Porter’s Five Forces companies to evaluate a strategic directions, as well as marketing proposition apply models.

Political: Elections, employment law, environmental regulations, competitive regulations, consumer protection, inter-country relationships/attitudes, industry-specific regulations, political trends, war, terrorism, governmental leadership, taxes, and government structures.

Economic: Economic growth trends, taxation, government spending levels, disposable income, tariffs, inflation, consumer confidence index, job growth/unemployment, exchange rates, import/export ratios, and production levels.

Social: Demographics, lifestyle changes, fads, diversity, immigration/emigration, health, living standards, leisure activities, occupations, housing trends, population shifts, education, trends, fashion, attitudes to work, and earning capacity.

Technological: Inventions, new discoveries, research, energy uses/sources/fuels, communications, rates of obsolescence, transportation, bio-tech, genetics, agri-tech, health, manufacturing advances, information technology, internet, waste removal/recycling, and so on.

Environmental factors: Environmental issues including the weather and climate amend. Changes in temperature can demolish on many industries including farming, tourism and insurance. With major climate changes occurring due to global warming and with improve environmental awareness this external factor is becoming a significant issue for business to think about. The growing need to safeguard the environment is having an wedge on several industries such as the travel and transportation industries.

Legal factors: These are related to the legal environment in which company operate. In recent times in the UK there have been numerous significant legal changes that have affected firms’ performance. The admittance of age discrimination and disability discrimination legislation, an increase in the minimum wage and greater requirements for firms to recycle are examples of relatively recent laws that make belive an organization’s actions. Legal changes can influence an organization’s costs.

IKEA’S SWOT ANALYSIS: –

STRENGTHS: –

Ikea’s was committed to workforce, which was the source of the company’s innovative concepts.

It has strong international brand recognition.

The “showroom-warehouse” concept, which reduced retailing costs.

Waste was considered a deadly sin at IKEA as employees were constantly reminded to save on electricity that helps in reducing the cost of production.

It focuses always on cost efficiency.

As IKEA has maintained long-term partnerships with its suppliers. This ensures that the company has access to high-quality materials at reasonable prices.

Design and purchase products that entail low production and transportation costs.

IKEA ‘s vision is to create a better everyday life for many people.

As IKEA promises the same quality and range worldwide it became a strong global brand, which attracts key consumer groups.

WEAKNESSES: –

It is very much reliable in Europe, 82% of stores located in the Europe, and it has difficulty in fulfilling customer prospects of service as well as cost.

The company discovered that Americans did not like its products especially its beds and kitchen cabinets, sheets and appliances etc.

The style selection at IKEA was limited.

Consumers were expected to assemble the furniture on their own.

It was difficult to differentiate its product from competitors’ in terms of good quality and low product.

IKEA wants to keep good communication with its customers and shareholders about its environmental issues.

IKEA has worldwide business, so product standards may be complicated to sustain.

IKEA must recognize any prospective weaknesses in order to get better and manage them. For example

The size and scale of its global business could make it hard to control standards.

Low-cost need to be maintained against quality.

Factors – with customers having a smaller amount of disposable earnings due to recession.

Market forces – as more competitors offer similar products.

OPPORTUNITIES: –

Increase of sales can be done via the growth of e-commerce sites in every country, which improves the customer service, and reduces the demand on existing stores.

IKEA would circulate a description of the proposed product’s specifications and target cost to its suppliers and encourage them to compete for the production package.

By plotting the company’s current product offerings on the grid and looking for empty spaces, product managers could readily identify market opportunities.

There is growing demand for greener products and low priced products.

IKEA can further make the most of the “green” movement and Ikea’s customers’ aspiration to have less of a collision on the environment.

THREATS: –

The additional developments are driving the threat of a possible more than saturation of the market, increased as a result the fact that competitors are following suit, by launching similar product ranges at low cost.

New competitor’s incoming up with low cost household and furnishings markets IKEA needs to emphasize its exclusive qualities to compete.

Recession slows down consumer spending pattern and disposable income reduces.

The regulatory environments all over the globe differ and can affect how IKEA does business and its product expenses, especially by usage of natural resources.

IKEA’S PESTLE ANALYSIS: –

POLITICAL: –

IKEA has changed some of its global strategy as it was forced in the culturally diverse Chinese market.

The needs of local markets highlight the interrelationship between Ikea’s culture, structure and strategy and its responsiveness.

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 (2003). The Swedish furniture retailer has found the Scandinavian style of furniture that was combined with “do-it-yourself” flat packaging became popular and set a global cult brand (2008).

ECONOMIC: –

A chair (OGLA) was produced which was made from 100% post-consumer plastic waste.

Using wood from responsibly managed forests that replant and maintain biological diversity.

For the flat packaging and “pure” materials packaging IKEA uses only recyclable materials to assist in recycling.

IKEA introduces a series of air-inflatable furniture products into the product line, which reduce the use of raw materials for framing and stuffing and reduce transportation weight and volume to about 15% of that of conventional furniture.

SOCIOLOGICAL: –

IKEA supported UNICEF community educational project.

IKEA contribute much in the society as they provide the opportunities in the people and the employees are entitled in different benefits such as insurance and pensions.

IKEA committed to promote the rights of every child to a healthy, secure childhood and access to quality education, which is its social initiative.

IKEA focus on the promotion of the economic and social empowerment of women and children’s rights to education, survival, development, protection and participation in the carpet belt region.

TECHNOLOGICAL: –

Adequate product functionality, Low costs, appealing designs and reasonable quality are major goals for IKEA. These goals induce the company to promote a constant product and technical development.

The IKEA aims to be more productive and establish employee preferences by using the quality technology and systems to promote the shorter queues, proper scheduling, tracking and trading patterns, and staffing.

LEGAL:-

Companies need to look at corruption more as a situational problem and not so much cultural.

Usually disorderly online marketers trying to earn income by generating Web traffic — have overcome Facebook with these fake gift card pages over the past months.

ENVIRONMENTAL: –

While developing the product it should be taken into consideration that while offering low prices should never compromise the quality or safety of IKEA product

Company definitely uses the wood from intact forests.

CONCLUSION: –

A stable improvement of the Ikea retail industry come into view to be the focused for the business in the near prospect, the strategies not likely to include aggressive expansion into new areas, than rather building and emerging in old market. However, several alter may be seen with the improvement of e-commerce, which in the long run, this may have unfavorable effects on the profits of bricks and mortar Ikea stores, but optimistic effects on income of the company as a whole, and thus it the most important example of how the company is line up itself to deal with the key risk to its conventional stores. Consumers may find Internet shopping favorable, as the Ikea reputation means that they are already assured of the quality and craftsmanship of Ikea products, which is conflicting to the present principle of Ikea that customers must be able to feel and check the quality of products before purchase.

Ikea has also adopted a destructive expansion-based approach over the last few years, even though the weakness of the external consumer market means that sales growth more than the next few years must remain reasonably modest.

The growth of e-commerce, making shopping at Ikea more easily reached, may also have a positive impact on sales, even though no progress has been noticeable on this front of late, and as such Ikea has been very protected over its profit levels. However, profit margins may go down in the short term as result of the development into existing and new promising markets, with the company facing high set up costs and low spending power, as well as quite a lot of other external issues in developing markets

REFERENCES:

The introduction of IKEA is referred from the site http://www.managementstudyguide.com/swot-analysis.htm and http://www.ikea.com/ms/en_GB/about_ikea/the_ikea_way/history, which was accessed on 3/20/2011

The PEST analysis explanation is reviewed from the site http://www.coursework4you.co.uk/essays-and-dissertations/pest-analysis.php and http://www.oup.com/uk/orc/bin/9780199296378/01student/additional/page_12.htm, which was accessed on 3/20/2011.

Byars, L. (1991) Strategic Management, Formulation and Implementation – Concepts and Cases, New York: HarperCollins.

Cooper, L. (2000) Strategic marketing planning for radically new products, Journal of Marketing, Vol. 64 Issue 1, pp.1-15.

Kotler, P. (1998) Marketing Management – Analysis, Planning, Implementation, and Control, 9th Edition, Englewood Cliffs: Prentice-Hall.

The Ikea’s SWOT analysis is reviewed from the article “The Times 100” edition 14,which is published by the Times Newspaper Limited and MBA publishing Ltd 2009.

IKEA SWOT analysis is reviewed from the article “IKEA Group:SWOT Analysis and Company Profile” which was publish by World Market intelligence Ltd on march 2010