This report discusses the formulation of a business strategy for IKEA, a multinational business that sells ready-to-assemble furniture and home appliances. It includes an analysis of the impact of macro environment on IKEA, analysis of internal capabilities using SWOT and VRIO analysis, and the development of a strategic plan for the company.
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BUSINESS STRATEGY
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Table of Contents INTRODUCTION3 TASK 13 P1 Impact of Macro Environment on IKEA3 TASK 25 P2 Analysis of all the internal capabilities as well as environment of IKEA5 TASK 39 P3 Porterâs five force model applied on IKEA9 TASK 411 P4 Strategic Plan for IKEA11 CONCLUSION12 REFERENCES12
INTRODUCTION Business strategy refers to a number of steps as well as actions which are undertaken by an organisation in order to increase their revenues as well as profitability. There are many other motives for formulation of a business strategy which includes attracting customers, achieving customers satisfaction, increasing competition in the market and achieving all its business objectives as well as aims. Business strategy is responsible for guiding a business(Bai, C.And et. al., 2020). They provide a roadmap to business and explain which next step is to be taken by business. It is essential in order to maintain a sustainable growth of business. It is necessary that business strategy is formed for a long period of time. In the following report, a business strategy for IKEA is formed. It is a multinational business which sells all the ready to assemble goods which are furniture, kitchen as well as home appliances. It was founded in Sweden in 1943 by Ingvar Kampard. It is present in 433 locations around the world. There are a number of analyses performed on IKEA in order to derive its business strategy. It includes VRIO, PESTLE, SWOT, Porter's five forces analysis and a number of other analyses to form business strategies for IKEA. In the end of the report a business strategy for IKEA is also prepared. TASK 1 Vision:It refrers to short term objectives of business.Vision of Ikea is to create an everyday better for a number of people. Their business idea is to offer a number of well-designed, functional homes as well as furniture at the lowest possible price. Mission:Missions are long term goals of an organisation. Their business supports the idea of developing a sustainable environment and creating better living conditions for people around them. They believe towards giving them a better standard of lives throughout(CHENG, T.Y. and et. al., 2020). Objectives:Objective refers to major aims towards which a business is working. Major aim of business is to create a better every day for people investing in their company in any possible manner. P1 Impact of Macro Environment on IKEA There are a number of factors present in the macro environment which can affect a business up to certain extent. When taken into consideration the concept of macro environment is very large and a lot of factors can be included in it(Balon and et. al.,2019). The best way to learn about
these factors is conducting a PESTLE analysis on business. Following is PESTLE analysis conducted on business- Pestle analysis PESTLE stands for political, economic, legal, social, technological and environmental. All these factors together have negative as well as positive impact on functioning of a business. In order to create a strategy for IKEA so that it may earn profits and stay in the market for the long run all these factors related to the company are needed to be analysed well. Following are all those factors affecting IKEA: PESTLE analysis refers to analysing all the external factors present in a business environment which may directly order indirectly have an effect positive as well as negative on functioning of a business. PESTLE analysis generally stands for political, legal, social, technological, environmental and economic factors. Below mentioned is Western analysis conducted on IKEA in order to understand all the external factors affecting business: Political factors: IKEA has opened its doors in more than 41 countries. This makes it important for IKEA to abide by rules and regulations of all these countries. There are many countries which have similar kinds of political influences. But many times, these may differ for different countries around the world(Elias Mota and et. al., 2020). However, political stability will always benefit the company. Without political stability economic stability for a country is not possible. So, it is important for IKEA to look into all the political matters before venturing into a new country. Positive impact:Good relation with government might help in proper functioning in different nations. Negative impact:Small changes in policies might adversely affect such as change in political party. Social factors: Social factors refer to all the values, beliefs of a society a company is running its business in. It is important for business to follow the culture. It is important that the company does not offend any social values. This makes it essential for IKEA to make sure that the marketing material they are using to advertise their brand does not hurt feelings of any social culture. IKEA have faced many incidents in the past where the advertising campaigns used by companies have been criticised in the market by different communities. Profits for the company could suffer due
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to this ignorance of cultural norms. Therefore, it is required by the company to look into all the aspects which may have a negative effect on the functioning of the company overseas. Positive impact:It will help company to know how to behave in market and how to deal with customers. Negative impact:it can negatively affect company if the culture and belief is ignored by company. Economic factors: There are a lot of international laws which have affected the economy worldwide leading to a negative effect on IKEA as well. Recession in the year 2007 can be said to be one of such examples. Due to loss of work for a number of employees the buying decisions of customers changed a lot over a period. Before venturing into any new market company needs to focus on GDP, foreign exchange rates, taxation, interest-rate and all other economic factors present in the nation which might affect the working of IKEA. Companies must make flexible strategies in order to deal with any upcoming changes in the economic factors. Economic factors are those factors which directly influence profit earning capacity of the firm. Positive impact:Company can take benefits from foreign exchange rates. They can also go for long term agreements such as calls and options. Negative impact:Changes in tax rates can negatively affect companiesâ profits leading it to losses. Technological factors: Technology can be seen changing over a period of time. Every day new innovation and techniques are launched in the market(Elias Mota, B. A., and et. al., 2020). Using the latest technologies can help the company to increase customer satisfaction, as well as support employees with their work. IKEA took care of technological developments and they offered their products on the internet. They also provide realistic experiences to their customers in order to attract them. These steps taken by companies towards changing the technological environment have been benefiting companies throughout. This also helps companies to stay competitive in the market and deal with their competitors. Positive impact:It might help company to improve quality of products. Negative impact:the new technologies may cost a lot to company as they require huge investments.
Environmental factors: It is very important for every company to take care of the environment they are operating into. Exploiting natural resources can lead to harm for the company and its working in future. IKEA took care of this matter and invested in its eco-friendliness. IKEA has invested more than $1 billion in order to provide renewable energy to nations who cannot afford it. They did it by installing solar as well as window panels at a number of locations. They have also moved towards using materials like cotton and would be sustainable sources. These steps taken by the company have proved to be helpful. So, in the future the company needs to take care of its environment in order to sustain for a longer period of time. Positive impact:Companies may enhance their brand image through completing their responsibility towards environment. Negative impact:Companies can face problems if they not look over the wastes released by them in the environment. Legal factors: Every company needs to be sure they do not bend any laws while operating in the market. If any law is ignored by the company it may lead to specific legal proceedings against the company which might affect brand image as well as profits for the firm(Leonidou and et. al., 2017). IKEA have faced a number of legal proceedings due to harm and death of citizens from itsproducts.Companyalsoneedstoabidebyallthelabourlaws,advertisementlaws, compensation laws et cetera while functioning in the market. Ignoring any of this law may lead to lawsuits against the company due to which company might suffer heavy losses. Positive impact:Company can increase its revenues and sales by fulfilling all the required laws applicable on them such as employee benefit. Negative impact:If the companies do not follow all the laws and policies they may have to face legal proceedings against them which might lead to losses for them. TASK 2 P2 Analysis of all the internal capabilities as well as environment of IKEA Internal factors of a business are highly responsible for running a business smoothly. It is necessary for organisations to keep a regular check on internal factors. Internal factors are those
which have maximum impact on a business. All the resources as well as stakeholders are included in it. The best ways to analyse internal capabilities of business are SWOT as well as VRIO Analysis. SWOT Analysis SWOT analysis stands for strengths, weaknesses, opportunities and threats(Peng, M. W and et. al., 2017). This helps a business to know about all the internal factors which might directly have an effect on its profitability and revenues. Following is SWOT conducted in IKEA: Strengths Market research:IKEA has a full idea about their customers. They know their customers in and out. Their market research is very strong so that they can provide customers with whatever they want. It becomes easy to make a strategy and sell their products if a company has full knowledge of their customers and needs of their customers. Countless designs: IKEA provides a number of designs, range and collection. This is the true strength of the brand. Companies go beyond physical decoration and make their products easy to transport as well as assemble. One can find finished products in the store where they provide products that can be assembled at home. Affordability:IKEA provides its product at very affordable prices to its consumers. This is another strength of the company. They maintain cost-effectiveness for their clients throughout. Weaknesses Bad Press:IKEA has faced some bad press in its past. Employees have been complaining about poor treatment given to them in their workplace. Also, their products have many times led to injuries. Advertising techniques they have used were ridiculed by non-western companies as well. Due to this bad press it has led to distrust of customers in the company(PuchetaâMartĂnez and et. al., 2019). Low Quality:It has been noticed that due to cheap prices quality offered by companies is low. It is very difficult to provide high quality prices at affordable prices by any company these days. The same problem is faced by IKEA. There is a lot of criticism faced by companies on social media as well. It provides opportunities to other competitors to do better. Opportunities Few countries:IKEA had Stores in around 38 countries worldwide. Diversification and market development are great opportunities for companies. It can set up its store in a number of places in
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order to expand their business. There are various other countries like Mexico, Brazil, Pakistan etc where companies can set up their business and grow. Online Shopping:Online shopping is in trend these days. Company has a website which sells its products online. Especially when selling around holidays. They can sell a variety of products online by increasing the products theyâre offering on their sites. Grocery Stores:Company can push its sales by venturing into grocery stores. It is a way of product development. They can grow with the help of selling products including food products in their own grocery stores. Threats Fast competition: Companies are facing a lot of competition in the marketplace. This competition for company has led to a threat for it. There are a number of brands like Walmart who offer similar inexpensive products. However, they do not provide so much variety as IKEA. Lawsuits:Companies have faced a lot of bad press in the past. This has led to a threat for the company. IKEA has chances to face lawsuits from customers who have faced losses and have been injured due to the company's products. There is also a number of bad influences and criticism faced by companies on social media. IKEA needs to take care of this factor. They need to counter their criticisms and make sure that they have to maintain a good image in public. They need to work towards their brand image in the market(Tardieu and et. al., 2020). Increased income:it has been noticed that income of people in the market is increasing. When consumers have more income to spend, they do not want to buy inexpensive products. They believe in buying good quality products even though they are of high prices. This is the basic nature of any consumer. IKEA products can be said to be such goods which have a high-income effect on them. As the income of consumers increases, they will look for better options in the market. VRIO Analysis With the help of VRIO analysis all the important resources in a business and its importance in business is seen. The set of resources used for this analysis can be different for different businesses. The value, rarity, imitability and organisation of these resources in business is analysed through this analysis. Below mentioned is VRIO analysis performed on IKEA: Valuable
âIt has been seen that financial resources present with IKEA are highly valuable as they help in investing in a number of external opportunities that arise for the business. It is also helpful for companies to face external threats.(Weng, W., 2020) âIthas beenseen that all theemployeesof IKEA are valuableresourcesto them. Major employees working in the company are highly trained and experienced. They provide productive output for the organisation. They are very loyal to the company and retention of employeesin the companyis also very high. âOther than this the distribution network set up by IKEA throughout its life in the market is also a valuable resource for the company. It helps IKEA to reach far customers. It helps in the increasing revenue of the company. This has also helped the company in promotional activities directly relating to increase in companiesâ sales. âThe research and development team of IKEA is still not a very valuable resource for the company. This is because research and development require a lot of input in terms of finance. Evenso,after so much financialinvestment, companies arefacing competitivethreatswhich they are unable to overcome. Which provesthat the researchand development teamneedsto improve and cut their cost. Rare âIt can be said that financial resourcesof a companyare very rare. This can be saidbecause the companyis in astrong financial position in the market which is only present with a few other competitors in this industry. âEmployees of IKEA are also a rare resource for the company. The employees are trained as well as skills according to the need of the company which is not present with every competitor. They provide good compensationand a healthyworking environment to their employeesin order to reduce employee turnover rate of the company. âDistribution network formulated by the company over years of its existence is also a rare resource for the company. It can be said because in order to obtain such distribution network competitors of IKEA would require a lot of investment. Only a few other firms except IKEA
have a similar distribution network which can compete with the company(Duquette, C.E. and Williams, N., 2020). Imitable âIn order to copy the financial resources, present with IKEA its competitor will have to invest a lot.Companieshave used profits earned by them over years in order to develop this resource. So, the competitorsof a companyrequire a similaramount of profits accumulated over a period of timein the longrun in order to create this resource. âAny competitor of IKEA could easily imitate its human resources. They need to train their employeesas IKEA did which is not a difficult process. âDistribution network which has been developed by IKEA over a period of time is not easy to copy. In order to develop similar network competitors of IKEA would require a lot of investment. âResearch and development team of IKEA could easily be copied. It is not such a strong resource for the company so no competitor would like to copy this(Dhanuka, A. and Sharma, V., 2020). Organisation âFinancial resources of IKEA are organised enough in order to identify any great opportunity presentwith the companyand capture it.Companieshave great financial advisorswho strategicallyinvest the fundsof the companyin the right places improving earnings of the company. This resource presentwith the companyhasled to sustained competitive advantage for the company in the marketplace. âDistributionnetwork isalso very well organised. They have been created in such a way so that they reach a huge number of customers. They are of good valueto the companyand they provide an advantageto the companyas well. âWhen lookingat the othertwo resourcesof the company, our employees as well as research and developmentof the companyare not organised as well as other resources. Company
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needs to focus on them in order to make them better and organised so that they can provide competitive advantage to company as the other resources do TASK 3 P3 Porterâs five force model applied on IKEA PORTERâS FIVE FORCE MODEL Porter's five forces model can be conducted on every industry in order to know the effectiveness and attractiveness of a business in the competitive industry. It helps business managers to formulate a strategic plan for the business. It contains five forces which can affect competitiveness of the business. Below mentioned is this analysis performed on IKEA: Bargaining power of suppliers Bargaining power of suppliers for IKEA is low. This is because companies have a number of suppliers who provide products to the company. It is very easy for a company to switch from one supplier to another resulting in loss of business for the suppliers. Company has made a code of conduct which is to be followed by its suppliers(Valenti, A. and Horner, S.V., 2020). This code of conduct contains rules regarding discrimination, minimum wages, safe working environment and child labour. The suppliers of IKEA need to abide by this code of conduct in order to deal with IKEA also this provides IKEA an upper hand. Bargaining power of customers Bargaining power of customers in IKEA is very high. It has been seen in every industry that customers incur a lot of power as there are a number of options available to them in the market. Companies focusing on promotion, pricing strategy, digital marketing and e-commerce in order to overcome this. However, in some cases bargaining power of buyers for IKEA is moderate as the company is providing moderate quality goods at low prices. So, the low-income level customers of IKEA do not have much bargaining power Threat of substitute: Company says no threat from its substitute because of the brand image it has created over the period of time. The loyalty of customers towards the company is very high leading to high brand image. The most important factor present with the company is that they provide a variety of
products under a single roof. There is no such competitor providing products like IKEA leading to low threat from substitute for the company. Threat from new entrants: The threat from new entrants in this industry and taking market share of IKEA is moderate or low. There are a number of brands which run on a small scale but this brand could not affect the business of IKEA. This is because the company has built a large brand image and captured a large portion of the market share. Companies have developed human resources, innovation, financial resources, and infrastructure which is not easy to develop and requires a lot of investment. All these factors reduce the threat companies can face from new entrants(Payne, A. and et. al., 2020). Competitive rivalry in market: The level of competition companies face in this industry can be moderate or high. Company has some competitors which also occupied a large number of market share as IKEA. IKEA is directly competing with some supermarket stores which also provide for furnishing products. However, IKEA's strategy of providing affordable prices of furniture in moderate quality has helped it to gain a huge customer base. These factors help to lower the trade company faces from its competition. Ansoffâs Matrix Ansoffâs matrix consists of four strategies which businesses use in order to grow their business. All these strategies help a business to expand and grab market shares in foreign as well as domestic market. Every company can choose one or more than one strategy from these four strategies.These four strategies have helps IKEA from a long period so that they can effectively expand their business beyond their geographical margins throughout their existence.Four growth strategies are used by IKEA at its various locations: Market penetration:Market penetration refers to strategy in which company focuses on the similar market they are already serving with the similar products. They usually use price penetration policies in order to gain more market share and customers as compares to their competitors.This is an effective strategy used by companies when they do not have much capital to investment. It is a risk-free way to expand business and its share in the market.IKEA is aggressively use market penetration aggressively. The catalogue of IKEA plays an essential role in it. It also further increases the market penetration of IKEA.
Product development:Under this strategy companies launch new products in similar markets. It helps companies as the customers are already known with brand and company. This makes probability of success for companies higher.Proper market analysis is required by managers to study the needs and requirements of the market in order to take care of the demands and requirements of all the customers. It is necessary that the new product introduced have some hidden needs or requirements fulfilling customers need.IKEA have more than 9000 types of product increasing its product range. it launches around 2500 products every year to use product development effectively. Market development:Under market development organisations deal with the already available product range in a new market. This is a risky move for company. But it is essential is a company wants to expand its business in foreign markets.This requires a deep and proper analysis of the market area. Market analysis requires the study of culture and belief of people in the new market in which the company is venturing into. Although the company will sell the already existing product but the promotional strategies required by company needs to be according to the market conditions.IKEA have engaged in market development immensely. They have more than 400 stores in around 50 countries throughout the world. Diversification:In diversification strategy companies aim at new markets with a totally new product range. It is the riskiest strategy of all. It also requires huge investment for product development as well as setting up business in new markets.This is the risky policy for any company. It requires huge funds for new innovations, research and development as well as a new promotional strategy for the company to launch their new product in a new market.IKEA restaurants which they have setup in their stores can be an example of diversification by the company. TASK 4 P4 Strategic Plan for IKEA A strategic business plan is that which creates a path for business regarding their future step. It is a basic fundamental describing all the ways in which a business can achieve its goals as well as objectives. It is important for a business to provide their business strategy to managers so that they can effectively communicate it to all the employees well(CuervoâCazurra, A., Doz, Y. and Gaur, A., 2020).
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STRATEGIC BUSINESS PLANS There are a number of ways in which IKEA can effectively develop a flexible and effective strategy to promote its business and grow in the market.A proper strategic business plan will help IKEA to focus on its long-term objective along with dealing with all the changes taking place in its external environment.Below mentioned is strategic plan for IKEA which contains aims, objectives, mission, vision, values, strategies, tactics and the market research way which will be followed by company in order to achieve all those aims mentioned- Aim-Major aim of business is to create a better every day for people investing in their company in any possible manner. Vision Statement-Vision of Ikea is to create an everyday better for a number of people. Their business idea is to offer a number of well-designed, functional homes as well as furniture at the lowest possible price. Mission Statement-Their business supports the idea of developing a sustainable environment and creating better living conditions for people around them. They believe towards giving them a better standard of lives throughout(CHENG, T.Y. and et. al., 2020). Values-They believe that every individual has a different aspect to offer. They thrive to have values in the way they work. Major values they focus on are togetherness, care for the planet as wellaspeople,simplicity,cost-consciousness,renewalandimprovement,giveandtake responsibility etc. Strategies and Tactics-Company is looking for market development. They are trying to expand worldwide. For this they use their already available product and open stores into new countries around the world. Market Research-Company believes in collecting first hand data for themselves. This helps them in getting true results from the market(Mazzarol, T. and Rebound, S., 2020). They use feedback, questionnaires, interviews etc for this process of collecting data and conducting primary research. Only second hand data they trust is their past records. PORTERâs GENERIC STRATEGIES: IKEA have developed itself as a largest and successful retailer for furniture throughout the world. They help to provide customers with self-assembled home dĂŠcor and furnitureâs. Company is an old company started in 1943 in Sweden. The Porterâs generic model was developed by Michael Porter which helps an organisation in developing its core competencies
through various different strategies in order to stay in the competent market place for a longer period of timeBased on Porterâs generic strategies below mentioned strategies are followed by IKEA: Cost leadership strategy:They seek product from a number of suppliers to provide goods at a lower price to their customers. They focus on low cost.Cost strategy is important for IKEA so that they can efficiently focus on cost in order to attain maximum customers. They have also turned cost strategy to be their major focus because they are gaining market leadership with the help of this strategy. Focus strategy:The major focus of IKEA is on providing its customer with the products they require at low prices and effective quality.They follow this strategy in order to stay in competition through competitive pricing method and gain the major shares in market. Differentiation strategy:Up to some extent company uses this strategy. It provides with various fashionable designs to provide easeful homelike environment.The product range which is provided by the by IKEA to its customers is vast they keep on increasing their product range and increasing their product line width as well as breadth. They have a lot of options present for their customers from which they can choose from. It provides a differentiation strategy to IKEA in favour of its customers. In this way IKEA is stuck in the middle of both of these strategies. It focuses on cost leadership as well as product differentiation. CONCLUSION The above report helps in creating a strategic plan for IKEA. There are a number of analyses done throughout the report in order to identify a perfect plan for the company. These analyses consistofidentifyingmacroenvironmentalfactorsaffectingbusinesses.Alltheinternal capabilities and the factors which have an effect on business practises have also been studied in this report. The market conditions taking into account all the stakeholders of the company have been studied with the help of Porter's five force model. At the end of this report a strategic plan for the company is developed. This plan will help the company to move forward towards their goals and achieve it in a given time frame. In this way market strategy provides a roadmap or acts as a guide for a business organization. While creating a strategy it is necessary for a business to look into all the aspects which might affect business directly or indirectly in future. While completing this report all the factors which have a direct or indirect impact on the functioning
and operations of IKEA are being discussed and special measures to deal with them in future are also kept in mind while preparing strategic plans. In this way companies can draft such a plan which will help it grow and prosper in the coming future. REFERENCES Books and Journals- Akter, S., Wamba, and et. al., 2016. How to improve firm performance using big data analytics capabilityandbusinessstrategyalignment?.InternationalJournalofProduction Economics,182, pp.113-131. Bai, C.Andet. al., 2020. Blockchain technology: Business, strategy, the environment, and sustainability.Business Strategy and the Environment.29(1), pp.321-322. Balon and et. al.,2019. BUSINESS STRATEGY & DEVELOPMENT.Navigation.2(3). Elias Mota and et. al., 2020. Business strategy for sustainable development: Impact of life cycle inventoryandlifecycleimpactassessmentstepsinsupplychaindesignand planning.Business Strategy and the Environment. 29(1). pp.87-117. Elias Mota, B. A., and et. al., 2020. Business strategy for sustainable development: Impact of life cycle inventory and life cycle impact assessment steps in supply chain design and planning.Business Strategy and the Environment,29(1), pp.87-117. Leonidou and et. al., 2017. Internal drivers and performance consequences of small firm green business strategy: The moderating role of external forces.Journal of business ethics. 140(3). pp.585-606. Peng,M.Wandet.al.,2017.Cultures,institutions,andstrategicchoices:Towardan institutional perspective on business strategy.The Blackwell handbook of crossâcultural management, pp.52-66.
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