Internal and External process in IKEA Essay
Internal and External process in IKEA
IKEA is a privately-owned, international retailer of home products. The company sells flat pack furniture, accessories, and bathroom and kitchen items in their retail stores globally. The company is the market leader in the flat-pack design furniture and sells at affordable prices. IKEA is now the world’s largest furniture manufacturer.
IKEA was started in 1943 by Ingvar Kamprad in Sweden and it is owned by a Dutch-based foundation and controlled by the Kamprad family. IKEA is an acronym representing the initials of the founder’s name, Ingvar Kamprad, then ‘E’ comes from Elmtaryd, which is the farm in which Kamprad grew up and finally his native place, Agunnaryd, located in Smaland in the South part of Sweden.
The parent company is INGKA Holding B.V. and it is the head for all IKEA Group companies. The company is also the parent company for the industrial group Swedwood, which commissions the manufacturing of IKEA furniture sourced from the entire manufacturer all over the world. Inter IKEA Systems B.V. in Delft, is also in the Netherlands, is the authority for the IKEA concept and trademark. The company has a franchising agreement with each IKEA store in the world.
The IKEA Group is the leading franchisee of Inter IKEA Systems B.V. Inter IKEA Systems B.V. but not owned by INGKA Holding B.V. Inter IKEA Holding S.A. registered in Luxemburg, which in turn is part of Inter IKEA Holding registered in the Netherlands Antilles own the other portfolios. (Wikipedia.org, 2009). The other details of ownership of the holding companies are kept confidential by the company.
In August 2008, IKEA started IKEA Genentech, a 50 million venture capital fund. This company is planning to invest in 8-10 companies spanning a period of five years.. the company is planning to venture in the areas like solar panels, alternative light sources, product materials, energy efficiency, and water saving and purification.
This has a huge business potential once it is commercialized, as the world is going crazy about green technology these days. The company distributes its products through its retail outlets. The company says a total number of 296 stores in 36 countries, mostly in Europe, the United States, Canada, and Asia and in Australia. In the year 2006 the company opened 16 new stores. Further the company has plans of opening 12 more outlets and also planned to relocate some as per the demand prospects. This is one of the exceptional companies to have branches even in places like Israel and the Middle East nations. The company is smart in preventing its competitors who try to infringe its trademark rights.
Business and their strategy
It is important to appreciate the company IKEA is successful because of its business strategy. The lead business process is distribution and retailing. The proximity to the Customer is of paramount importance. The approach is built on dual plan and lucrative Distributions processes. There is also a stiff pressure on suppliers to be cost-effective in their Operations.
The company achieved phenomenal success in its expansion plans, by establishing a number of new stores. The company steadily increased the number of stores overseas all through the last decade. Though the company expands to various other international markets Europe still remain as its top priority.
The company believes in a flexible policy as far as the relocation, opening and closing of its stores. The company feels that they should have a store where customers are there. Hence the company is a transnational in operations it looks for the potential market and select cost effective country or market. Decisions regarding opening or closing of a branch purely depend on the holding company which is in Netherlands. Since the company is on an expansion mode there have been no closures in the recent past.
The company follows the joint concept strategy i.e. in design in the store lay out and in internal procedures. The company also takes some of it decisions at the central level. The company internally lays emphasis on quality and positions its product on a high platform with its customers. The company’s culture is to reach the pinnacle of success by process efficiency both internally and externally.
If we take the internal environment of the company, aspects like the structure of the organization, the culture of the organization i.e. the basic values, beliefs and expectations have to be considered along with the resource analysis like the assets, skills, competencies and knowledge etc. Organizations need to evaluate their internal strategic factors and deploy them for better business in the market place. This can be done by comparing the companies’ resources with its past performance a) companies key competitors, and b) the growth and performance of the industry on the whole.
If we look at IKEA’s resources it is very evident that they have been able to convert firm’s resources in to specific capabilities. Their competencies are superior than that of competitors. IKEA has also been able to convert their potential in to profits. Just because the company was able to use its resource potential to its advantage it is not successful. Its success is also because of the fact, that the company has the durability i.e. the rate at which the companies resources and capabilities deprecate or become non competitive. New concept or technology can make the company’s core competency obsolete. But, in case of IKEA its core competency’s durability needs appreciation.
Another factor is imitability, it is the rate at which a firms resources and capabilities can be copied any others in the industry. IKEA’s business model and the magnitude of its business is something that has helped them to keep competition at bay successfully so far. IKEA is also a case of excellent management of its financials and has impeccable accounting procedure.” Few tasks are more exasperating than trying to assemble flat-pack furniture from IKEA. But even that is simple compared with piecing together the accounts of the world’s largest home-furnishing retailer”. (economist.com, 2006)
Value chain analysis
A good way to start an organizational analysis is by understanding the position of a firm’s products in the overall value chain. A value chain is a linked set of creating activities that create value. It involves all the activities from sourcing the materials from the suppliers, moving on to a series of value added activities like producing and making a product or a service and ending with distributor selling it to the final consumer. IKEA’s value chain is one of its biggest success factors. It has a good supplier base which is reliable. IKEA’s bargaining power with its suppliers makes them cost effective and sell at an affordable price to its customers.
IKEA’s functional resources
One of the common ways of analyzing the internal analysis is to evaluate the company’s functional resources. Functional resource includes financial, physical, human assets in each area and the ability of the company in formulating and implementing the necessary functional objectives, strategies and policies. The resources also include the analytical knowledge and procedural techniques common to each area and the ability of the people in the respective areas to use them effectively. IKEA has its functional resources in place.
The magnitude of the company and its stellar success would not have been possible if the company was mediocre in its functional resources. The company apart from having financial and physical capabilities it also has been able to implement its strategies to clinical perfection. Other factors that are equally important are the R&D, operations, human resources, and the information systems. IKEA has all of them to which is unparallel to that of any other in the business.
IKEA’s internal problems
The company faces some problems occasionally from the unions. The unions are not happy with the management as they are not allowed or consulted in any decision making. This has created some problems for the company in its smooth operations. The company also faces some problems when they relocate their stores to a new place. The employees fell that the risk of losing jobs at times of relocation is very high. Rumors about closure of under performing store also created some flutter amongst the employees.
The company knows the importance of satisfying its internal customers. It gives due importance to any issues to matters concerning the internal aspects of the company. The company makes sure that the interaction between different levels of people takes place regularly. The company arranges for plenary meetings. Plenary meetings are basically for interactions. In the meetings, issues relating to financial to human relations depending upon the agenda.
IKEA’S External Process
If we look at the external process then several variables needs consideration. Let us discuss the major external areas like the marketing process. IKEA marketing directly relates to its business idea i.e. “We shall offer a wide range of home furnishing items of good design and function, at prices so low, that the majority of people can afford to buy them”. (qtd. in geocities.com, 1998). This is the unique selling proposition of IKEA. The company’s target customers are those, who look for value and who are ready to do self service i.e., transporting the items home and assembling the furniture for a better price. The IKEA consumers are low and middle income family.
The IKEA Concept is based on the following points: a wide range of IKEA home furnishing products, the IKEA catalogue and the IKEA trademarks. IKEA has more than 12,000 products in the total IKEA product series. The core range is the identical in the global market. Large shops carry all these range, and each store sells a selection of these 12,000 products depending on the store size. The rest products are offered by a catalogue.
IKEA’s triumph is supported on the relatively uncomplicated idea of keeping cost connecting manufacturers and customers down. According to the Ingvar Kamprad, the founder of IKEA: “To design a deck which may cost $1,000 is easy for the furniture designer, but to design a functional and good deck which shall cost $50 can only be done by the very best. Expensive solutions to all kinds of problem are often signs of mediocrity.” (qtd. in geocities.com, 1998).
Overheads are kept under control right from the design level of the value-added chain. IKEA also concentrates on packing to keep its cost down. In fact, the packing is done is a flat standardized cartons and they stack to the optimum to reduce the storage space in their distribution and also in their logistics process.
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 27 September 2016
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