Business Strategy

Business Strategy

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nInstitution

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nTask 1

n1(a) IKEA: Companys Profile

nAt IKEA Company, the mission, vision, objectives, goals and core competencies determines the strategic planning of the company. For instance, the vision of IKEA highlights the business objectives it desires to accomplish. A vision is an inspirational and aspirational perspective where a company targets to be, hence; it assists to position the firm. In addition, it plays a critical part in directing the business in the future. The vision of IKEA is based on its development strategy. The vision states, “The Company intends to ensure that its business is accessible, in order to facilitate creation of a good life at home for many persons (IKEA 2016). IKEA mission explain the operations of the business, how and why it engages in it. The mission normally communicates the objectives and goals of the business to all its employees, customers and other stakeholders. Both the mission statement and the vision connect to the general business objectives. IKEAs objectives are to develop products that are accessible to everyone, well-designed, low prices and efficient home furnishings (Tarnovskaya and de Chernatony 2011). Moreover, the goal is to persistently do everything “a little simpler, a little better more effectively and constantly cost-effectively.” On the other hand, the core competencies of IKEA Company are based on its major strengths, which is to provide unique value. The firm uses efficient strategies as it provide products that utilize mass production (IKEA 2016). The values for this company guide its operations. They are also founded on the idea that every person has something important to offer. In addition, IKEAs values assist in formulation of its corporate culture, which is formed on the basis on the need of togetherness.

n1(b)

nVarious factors determine the strategic plans of a company such as IKEA. For instance, customers and competitors play a significant role in the formulation of companys plans for strategic positioning. IKEA develops plans based on the weaknesses and strengths of its potential and current competitors (Burt, Johansson and Thelander 2011). Therefore, these plans help the firm to have strategic plans that counter threats posed by its competitors. IKEA establishes plans depending on the customers needs, purchasing power and loyalty. In the contemporary market, most customers demand customized goods such as furniture (IKEA 2016). Therefore, IKEA must formulate the plans that seeks to determine the type and needs of the customers and their benefit to the firm. There are also strategic plans that attempts to maintain customers loyalty.

nAnsoff Matrix

nIKEA uses strategic planning that help in development of their direction in the future. Ansoff Matrix is an instrument that assists firms to make decisions on the growth of their market and product. It helps IKEA to decide on the future direction and business strategies. In addition, it may assist the company to determine the existing options in the market aiming to utilize their strategic competences (Norton, Mochon and Ariely 2011). The matrix suggests that a firm such as IKEA considers different ways of growth through new products and new markets, as well as existing products and existing markets (Burt, Johansson and Thelander 2011). Therefore, it must pay attention of four factors on diversification, market development, production development and market penetration.

nIn market penetration, IKEA chooses to realize growth with existing products in their comparative niches in the market. This aims to boost the market share of the company. Secondly, IKEA market development aims to acquire progress by designing its existing products to emerging niches in the market. Thirdly, in the IKEAs product development the business decides to generate new products directed towards its existing market niches (Ford, Edvardsson, Dickson and Enquist 2012). Finally, in diversification, IKEA plans to accomplish growth in the market via expansion of the business through production of new products for emerging market.

nTask 2: Environmental and Internal Audit

nPESTLE analysis

nPESTLE analysis considers factors such as environmental, legal, technological, social, economic and political factors that are likely to influence the business of a company such as IKEA. Political factors encompass factors such as policies of governments in terms of trade restrictions, tariffs and taxation as well as political stability. It also involves legislations on employment and engagement with trade unions (Schirone and Torkan 2012). The political environment of IKEA is encouraging. In American and European market, the political structures have matured hence there is required stability. The company does not have businesses in instable nations especially in Africa (Dahlvig 2011).

nEconomic factors involve various issues in the global and domestic market. Some of these include wage rates, interest rates and inflation rate. More recently, IKEA was adversely affected in its American and European market due to global economic crisis. Various countries were affected leading to slower rate of growth. The firm must also deal with other typical economic issues such as wage laws in every nation. Furthermore, IKEA has to pay close attention on the changing social issues (Burt, Johansson and Thelander 2011). For instance, there is lower number of housing market buyers, which has been caused by weakening global economy. Reports also indicate that may customers relate IKEA with healthy lifestyle of people in its home country (Sweden) (Hultman, Johnsen, Johnsen and Hertz 2012). The lifestyle of the Swedish is mirrored in the product range of the company. The company has also established a corporate social responsibility, which offers humanitarian assistances to various vulnerable groups such as children.

nThe firm has adopted technology as an important tool for business. It has developed a website, which assist customers to check catalogues online, view the availability of stock and even order products online. The firm continuous to upgrade and updates its technology to respond to the changing international networks (Norton, Mochon and Ariely 2011). Legal factors are very crucial to IKEA business globally. Different countries have diverse legislations and laws, which affect business. Consequently, this affect successful business plans. Some laws affect the kind of standards adopted by the firm in particular jurisdictions (Ford, Edvardsson, Dickson and Enquist 2012). Finally, environmental factors demands efficient utilization of energy and raw materials.

nPorters Five Forces

nPorters five forces are used to determine the internal environment of IKEA Company. It encompasses five major dimensions, which are competitors rivalry, threat of product substitution, buyers bargaining power, and threat of emerging entrants. A market that has no or few barriers of entry makes it easier for competing companies to enter (Schirone and Torkan 2012). Similarly, in case, low capital is required and economies of scale, more potential companies are likely to establish businesses. In this regard, to compete efficiently with IKEA, the new entrant must have huge amount of capital, establish strong client-firm relationship and choose competitive and appropriate locations, which requires more capital and patience. It is harder for new company to establish a strong reputation in major cities in Europe and America, which can compete efficiently with IKEA (Dahlvig 2011). However, there is high risk of new entrants because there are less laws and regulation in the industry.

nSecondly, the bargaining power in this industry is relatively low. IKEA has successfully managed its business and establishing a strong relationship with different suppliers. It has over 1350 supplies in about 50 countries. Therefore, it has more bargaining power than its suppliers hence do it compel them to meet the requirements instead of vice versa. Thirdly, it has to consider the buyers bargaining power (Norton, Mochon and Ariely 2011). In this respect, there are several retailers where completion for buyers occurs. In addition, there are numerous institutions that imports from China hence offering stiff competition to IKEA. Consumers have many alternatives and choices hence they have more bargaining power. Therefore, customers have significant control over the product line of IKEA (Burt, Johansson and Thelander 2011). For instance, the company introduced flat packaging to enhance the convenience and suggestions of its buyers.

nFourthly, threats of substitution are also important for business. Although no other products that can substitute the demand for furniture, the firm should be careful not to lose their reputation due to upcoming trends (Jonsson and Foss 2011). Through easiness of innovative and design technology, IKEA should adhere to new styles quickly and fairly. For a long time the need for functional and basic furniture has persisted hence, there is low threat of product substitution (Hultman, Johnsen, Johnsen and Hertz 2012). Finally, in terms of rivalry, IKEA operates in highly competitive sector. There are competitors who sell furniture at low prices such as US, Wal-Mart and England Galiform as well as local dealers.

nStakeholders analysis

nStakeholders Name Level of influence Analysis of Significance

nCustomers They play a crucial role in the attainment of organizational objectives and goals. Secondly, customers loyalty has highly helped the company in retaining its competitive edge and market share When IKEAs consumers have acquired satisfaction, after acquiring value of money, they maintain their loyalty, which consequently develop the value chain of the company (Hultman, Johnsen, Johnsen and Hertz 2012).

nEmployees They work tirelessly hence ensure that the firm meets the demands of its clients They facilitates in building the capacity of the company

nTask 3

nAlternative strategies

nMarket entry

nThere are various ways in which a business can enter an international market. Different organizations use diverse strategies in market entry in foreign countries. Some of the strategies for market entry include direct exporting, licensing, franchising, joint ventures, partnering and purchasing a firm as well as turnkey projects (Burt, Johansson and Thelander 2011). However, various factors affect the selection of the market entry, including, cost of transportation and marketing, the level of products adaptation and tariff rates.

nDirect exporting is the practice of retailing products directly into a selected country utilizing the companys resources. In most cases, after companies have developed sales structures it establishes distributors or agents to act as its representative in the market. Distributors and agents collaborate in representing a firms interests. For instance, has used this strategy in a number of countries such as in Scandinavian countries (IKEA 2016). They hired distributors and agents who carried the brand image of the firm. The firm was very careful in choosing these people as they played a significant role in realizing the expected goals of the company (Jonsson and Foss 2011).

nLicensing is a better option of entry into an international market since it offers lower level of risk. The foreign licensing company provides the licensees copyrights, trademark rights, patent rights or skills on processes and products (Ford, Edvardsson, Dickson and Enquist 2012). In response, the licensee will develop the products of the licensor. In addition, the licensee will be tasked with the responsibility of marketing the products in a given market and pay royalties and fees to the licensor normally associated to volume of sales (Schirone and Torkan 2012). IKEA has used this type of market entry in China since it was favoured by host authorities because it introduces new technology.

nFranchising is another entry strategy used in international business. It is comparable to licensing but the franchising company is normally engaged in the control and development of the marketing structure, it characterized by the existence of franchisees who are semi-independent entrepreneurs (Dahlvig 2011). They are required to pay royalties and fees to a franchiser company in exchange of the right to sell its products and normally utilize its business systems and format. In this kind of market entry, the franchisor provides a wide range of resources and rights, which normally include initial trainings, operational manual, managerial structures and equipment as well as support required to operate a business. IKEA has used this strategy in entry in different parts of the world especially in American and European market. The advantages of this strategy are that it permits the firm to expand simultaneously in various regions of the globe. Moreover, the firm has benefited from low risk due to political issues and costs (Norton, Mochon and Ariely 2011). Similarly, selected businesses provide managerial capabilities and financial investment to the business operations.

nJoint ventures are also important strategies of entering a foreign market. In this case, the global company has a managerial role and an equity position in the foreign organization. Therefore, they form a partnership between the home- and host-country companies, leading to establishment of a third firm. This form of arrangement provides the international company such as IKEA a chance to control its business activities and acquire important knowledge in the market (Burt, Johansson and Thelander 2011). Furthermore, the existence of local companies promotes the incorporation of the foreign companies in a global environment.

nSubstantive Growth

nAny business targets to achieve substantive growth. Accomplishing substantive growth in business is very beneficial for international companies such as IKEA. On the other hand, when organizations fail to attain growth they are unable to meet the objectives for profitability and revenue. Therefore, to realize substantive growth such organization, the management should reinforce the implementation infrastructure by using the chief performance indicators and drivers that link to the strategies (Schirone and Torkan 2012). In addition, IKEA should seek to grow the key business, by paying attention on opportunities. Through implementation of these strategies, the firm would benefit from gaining competitive edge, exponential growth, and wealth creation. The greatest benefits of accomplishing substantive growth in IKEA are that it would facilitate more business growth in the future. The capital also increases exponentially. Moreover, accomplishing substantive growth is a good way of ensuring victory over competitors (Tarnovskaya and de Chernatony 2011). Therefore, IKEA should strive to ensure that there is a transformative growth in the future.

nLimited growth

nA business should adopt a strategy for growth based on the intended growth with minimum level of risk. Faster growth in business is characterized by higher levels of risks associated to financial challenges and problems of sustaining high quality. Therefore, limited growth is the best option because it provides a lower level of risk in the business. IKEA should embrace limited growth in the business in order to acquire market share and reduce cost of operations (Dahlvig 2011). For instance, limited growth does not require huge amount of capital as compared to rapid growth. Therefore, a business such as IKEA should grow its business by utilizing its resources in hiring adequate staff and purchasing inventories as well as opening more supplies (Ford, Edvardsson, Dickson and Enquist 2012). It also gives an opportunity for businesses to acquire competent staff and train new employees in the company. Therefore, limited growth is beneficial to business because it offers low level of risk as opposed to rapid growth.

nRetrenchment

nRetrenchment refers to the reduction in the business activities, which normally leads to a decrease in the labour force. In addition, the firm also sells some of its assets related to conclude product lines. Some of the strategies of retrenchment include debt restructuring via liquidation of the firm or via bankruptcy (Jonsson and Foss 2011). Retrenchment encompasses decline of the expenditures of the business to improve the economic perspective. IKEA can use retrenchment in different ways such as human, organizational and financial ways. Retrenchment of this company produces many financial advantages via direct growth in shareholders value (Burt, Johansson and Thelander 2011). Downsizing strategies also promotes effective communication and reduction of overheads. Furthermore, it improves the process of decision-making and reduces bureaucracy. Therefore, IKEA should consider initiating retrenchment strategies in areas of the business where there is no economic growth.

nTask 4

nResponsibilities and roles of personnel in Implementation of Business Strategy

nAn effective managerial stewardship determines successful implementation of strategies in businesses. One of the business strategies is joint ventures. The Chief Executive Officer of the company should provide strategic stewardship and execute change. In doing so, the CEO should describe the strategic plan to the other personnel. The strategic plan explains the future goal and objectives of the company (Norton, Mochon and Ariely 2011). In this regard, the CEO must establish a clear vision to the team. Furthermore, organizational management must be conscious of the expectations of the shareholders while explaining the strategic plan.

nResponsibility charting is used to ensure that personnel are aware about their roles and responsibility. It also assists in reduction of misunderstanding and confusion in the process of implementation. Moreover, it is important as it eliminates gaps in roles and instances a lot of employees are allocated responsibilities for same task (Schirone and Torkan 2012). The management would also be tasked with the responsibility of facilitating effective communication. In addition, the business leadership must completely appreciate the companys expectations, procedures and standards.

nHowever, implementation of business strategy requires appropriate utilization of resources. In addition, sound combination of resources can generate capabilities and competencies as well as attainment of competitive advantage (Tarnovskaya and de Chernatony 2011). In this case, IKEA needs resources such as physical, information, human and financial resources. For instance, physical resources are important for this company because it needs stores across the globe in Europe, Asia and America (Ford, Edvardsson, Dickson and Enquist 2012). Similarly, physical resources are crucial to IKEA as they offer competitive edge over its competitors. The company is also seeking to hire talents (human resource) that facilitate implementation of the business strategy. The workers create the greatest assets in terms of implementation of the strategy. Therefore, they are tasked with the responsibility of marketing and conducting various business operations. More importantly, IKEA Company also needs financial resources, which deals with the ability of the firm to fund its joint venture (Schirone and Torkan 2012). Information resources are also crucial to the success of business as they store all data about their customers, which helps to develop approaches of meeting their expectations. Information resource also plays a crucial role in reporting, billing, ordering and performance perspectives, which control cost, and enhances efficiencies (Dahlvig 2011).

nVariety of new Products offered at IKEA to maintain customers loyalty, Source (Norton, Mochon and Ariely 2011)

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nSmart Targets and Timescales

nWhen dealing with the timescales and targets for accomplishment of IKEA to assess a certain approach is it crucial to consider the mission statement. In this case, IKEA Company has both long-term targets and short-term targets. In most cases, their short-term targets would be affected their long-term targets or timescales (Dahlvig 2011). The short-term target of IKEA Company is to implement its business strategy in various departments and monitor several ways to prosper in it. IKEA targets to increase its market share in the future while enhancing the loyalty of its customers. IKEA plans to achieve this by offering quality products to its existing customers. The strategy is to improve the loyalty of the current customer, which will help in attracting new customers (Norton, Mochon and Ariely 2011). IKEA offers products to its clients at cheaper prices relative to those of its business rivals. The timescale of this strategy would run for several years aiming to entice new clients. Additionally, the company planned to increase loyalty of its customers by enhancing the quality of its products by increasing the features of the new product (Hultman, Johnsen, Johnsen and Hertz 2012).

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nReferences

nBurt, S., Johansson, U. and Thelander, Å., 2011. Standardized marketing strategies in retailing? IKEAs marketing strategies in Sweden, the UK and China. Journal of Retailing and Consumer Services, 18(3), pp.183-193.

nDahlvig, A., 2011. The IKEA edge: Building global growth and social good at the world’s most iconic home store. McGraw Hill Professional.

nFord, R.C., Edvardsson, B., Dickson, D. and Enquist, B., 2012. Managing the innovation co-creation challenge: Lessons from service exemplars Disney and IKEA. Organizational Dynamics, 41(4), pp.281-290.

nHultman, J., Johnsen, T., Johnsen, R. and Hertz, S., 2012. An interaction approach to global sourcing: A case study of IKEA. Journal of purchasing and supply management, 18(1), pp.9-21.

nIKEA, 2016. Company Information – IKEA. [online] IKEA /JP/EN. Available from: http://www.IKEA.com/ms/en_JP/about-the-IKEA-group/company-information/ [Accessed 27 Dec. 2016].

nJonsson, A. and Foss, N.J., 2011. International expansion through flexible replication: Learning from the internationalization experience of IKEA. Journal of International Business Studies, 42(9), pp.1079-1102.

nLoeb, W., 2016. Forbes Welcome. [online] Forbes.com. Available from: http://www.forbes.com/sites/walterloeb/2012/12/05/IKEA-is-a-world-wide-wonder/#430ccd6636f4 [Accessed 27 Dec. 2016].

nNorton, M.I., Mochon, D. and Ariely, D., 2011. The’IKEA effect’: When labor leads to love. Harvard Business School Marketing Unit Working Paper, (11-091).

nSchirone, D.A. and Torkan, G., 2012. New transport organization by IKEA. An example of social responsibility in corporate strategy. Advances in Management and Applied Economics, 2(3), p.181.

nTarnovskaya, V.V. and de Chernatony, L., 2011. Internalising a brand across cultures: the case of IKEA. International Journal of Retail & Distribution Management, 39(8), pp.598-618.