IKEA and the Challenge of Growth: A Business Report

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INDIVIDUAL REPORT
IKEA AND THE CHALLENGE OF GROWTH
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Table of Contents
1.0 INTRODUCTION.....................................................................................................................3
2.0 OVERVIEW OF COMPANY...................................................................................................4
2.1 PROFILE: ACTIVTIES, SIZE, FINANCES ANALYSIS....................................................4
2.2 MANAGEMENT APPROACH AND REASONS WHY.....................................................5
3.0 BUSINESS CHALLENGE.......................................................................................................7
3.1 DESCRIPTION OF CHALLENGE......................................................................................7
3.2 IMPACT OF CHALLENGE ON COMPANY.....................................................................8
4.0 RECOMMENDATIONS...........................................................................................................9
5.0 CONCLUSION........................................................................................................................10
6.0 REFERENCES........................................................................................................................11
7.0 APPENDICES.........................................................................................................................12
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1.0 INTRODUCTION
According to Boddy (2017), the competing values framework (CVF) can provide the staff of
IKEA with the clear set of opportunities that can direct on the perspectives of the management
within IKEA. The culture of IKEA is resonating for many and are building easy pathway for the
business to interact above all. The IKEA stores regularly keep up the range of the values and
prioritize the influence of the community’s culture on the business while focusing on the three
factors such as controlling, internally focusing and means. However, the Quinn identified the
main organizational approach for IKEA in managing the theories of the organizational
effectiveness that directs on the leadership competencies, organizational design, financial
strategy and information processing and brain functioning (Fuoli, 2012).
The study will focus on the framework of the CVF that directs on focused innovation and
creativity within the business of IKEA. This can articulate the future vision and transformational
change in the business of the IKEA. Further, the key challenge the IKEA faced is assessing and
measuring, the control of the efficiency improvement or quality enhancement within the
organization. The working structure of the IKEA faces challenges while finding the space for the
large stores (Rothaermel, 2013). Therefore, the land acquisition is rarely straightforward though
with the buyers in the other countries. This can jump through bureaucratic hoops and facing on
the long delays.
It has been foreseen that IKEA has small store in the other countries and less committed
employees like China and India. Therefore, they need to adjust to what they sell. The innovative
products can direct on the brand image of the IKEA with least growing steers. It has been found
that the local furniture makers has gained the trust of the customer and has boosted its sell in the
market. This has made way too difficult for the IKEA to attract the customer towards the specific
furniture needs within the society (Johansson et al., 2012). The accountability to the low cost
furniture with fresh designs can direct on high demand in the UK and USA but has adapted some
specific standards that matters with the practical range of the furniture.
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2.0 OVERVIEW OF COMPANY
Ikea is a Swedish multinational company which sells and designs the furniture and assembles
other home based appliances and accessories since 1943. The products offered by the
organization are useful in different occasions and home services that are being Simple and eco-
friendly (Torrington et al., 2017). The firm is known for the attention to cost control and
continuous improvement in the operational details and product development. The corporate
attribute that allows the IKEA to lower prices by an average can hold the complex corporate
structure. This can set the alleged designs to avoid the tax payment over the period to around €1
billion.
2.1 PROFILE: ACTIVTIES, SIZE, FINANCES ANALYSIS
The IKEA ranks 46th in the market across world for its brand value to around $11.9 billion. This
can subtle the performance of the organization in the retail sector where it ranks 6th position. The
financial strength of the organization can direct their share in the market in billions. This can
help in staggering their sales to around 69% in the Europe (Torrington et al., 2017).
The company has been successfully expanded in the year 1980 by opening their stores in the
region. Further, they have emerged more than 53 stores in the other parts of the world. The
product and services that are offered by the organization are pre-assembled furniture and home
ware, smart home, houses and flats, solar PV systems and other ventures. The company has
expanded globally while assessing the employees to around 2, 08,000 by the year 2018
(Torrington et al., 2017). The net revenue for the business is around $40,906 billion in the year
2018. However, the net total assets and equity has reached to $62,933 billion and 45,371 billion
by the year 2018.
The company has been formally criticized for its tax avoidance strategies. However, the IKEA
has collected to €631 million in their Inter IKEA systems and reported to hold the registered
groups and pre-tax profit to around €590 million and €225 million respectively (Latest financial,
market & economic news and analysis). The products of the IKEA are offered to the customer at
high ROI on the money. The portfolio can direct on the marketing measures adapted by the
organization. The negative image of the IKEA in many countries has led to many problems in
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the regions. This has mock on the ultra-orthodox of the community’s resident in the region.
Therefore, it is necessary for the IKEA to keep the space and provide good quality services and
high products in every possible way. Further, the furniture needs the wood stocks which are
usually under the check of the environmental authorities that needs to be improved. The
standards and fundamental rules for the products and services offered by the IKEA directs on the
purchasing factors that induce the decision of the customer (Cameron & Quinn, 2011). The low
cost cornerstone can direct on efficiency of the business model which can handle the cost in the
newest way of packaging, handling and transporting materials. The key threat to IKEA is that
counterfeit. It can constantly keep updating the innovative and copycats and down trade revenues
for the business. The change in the government laws and tax policies has affected the prices of
the IKEA products. This might affect the preferred choices of the customer. Further, the growth
of the disposable incomes in the countries would lead to the higher market chain and consumers
to trade.
IKEA is well known brand that direct on the cost leadership and quality product services across
the world. The bargaining power of the suppliers is low as the company hold weak in the size
and financial position (Cameron & Quinn, 2011). There are certain range of the suppliers
through which the communication and code of conduct to their sub suppliers may formulate the
rules related discrimination, minimum wages and other.
The bargaining power of the buyers may have insignificant importance as it would hold much
focus on attracting the customer across the world with the titled favor of the customer. They
must hold the pricing strategy through which the digital marketing and e-commerce for a better
shopping experiences the moderate range of the buyers at the low prices and at very good
quality. The threat from the substitute for IKEA is comparatively low than other wholesalers
(Cameron & Quinn, 2011). This can range their brand image with the reliable level of the trust
and moderate range of the services which are comprehensible with the targeted audience. The
level of the competitive rivalry in the home furnishing industry may lead to moderate range of
the market share for IKEA. This can be reached to high level by gaining the large customer base
and reliable image in the market.
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2.2 MANAGEMENT APPROACH AND REASONS WHY
The analysis to the current dominant model in the IKEA at the moment is the Rational Goal
Model. This management approach is directed in the study due to its control on the external
functioning of the organization (Clegg et al., 2016). The productivity and efficiency of the
business is dependent on the planning and goals setting of the organization. The furniture from
Sweden is sold in the USA at relatively higher rates and are also shipped from Europe and
expenses to manage the cost of the customize product and packaging can come up with the
standardized fails in the economy of the business. The rising level of the disposable income and
their impact on the performance of the IKEA business has however raise the level of competition
of the IKEA in the market.
The range of the IKEA business may subject to the challenges in the different markets such as
Chinese and Indian Market (Rothaermel, 2013). The sales portion in the Chinese market is less
than 10% of its outlets that have been encountered in the developing countries. Therefore, the
rational goal model turns out to be extensive model for the business to hold strong position in the
competitive market.
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3.0 BUSINESS CHALLENGE
The key challenges faced by the IKEA in the external environment have come up with the
standardization and economy concern. The depleting disposable income has help in the
increasing the competition but on the other has brought significant drop in the Chinese market
other developing countries (Johansson et al., 2012).
The other challenge that IKEA faces is the less committed employees in the other stores of the
IKEA across the world. The IKEA is trying its level build up a good relationship with the
customer. But the human resource is not well committed to applaud the desired goals for the
organization. Therefore, the company came up with the good product in a low price strategic
concept (Fuoli, 2012).
3.1 DESCRIPTION OF CHALLENGE
The furniture which is sold by the IKEA is cost expensive as the countries like Japan have to
customize the product while the Chinese markets has sold the product to less than 10% of the
actual cost for the product (Boddy, 2017). Further, the similar issue has been faced by the
company while entering into the market especially developing countries. The products
satisfaction is somewhat leading to attract the customer. However, the IKEA has not directed
their product to any differentiated range that can boost up their sales in the international markets
(Boddy, 2017). Further, the catalogues in the different countries were almost similar in the
designing and products manner. One the thing different was the French catalogue offered
cupboards and variety of sizes comparative to other catalogue in region. Further, the IKEA can
surface the product line with the situation through which the European Union that can maintain
the quality standards for the products and services.
The loyalty among the employees that are hired overseas is comparatively low as the IKEA’s
policy of the trading and directly delivery to home is free of cost which is highly productive but
on the other hand can lead up to lots of challenges for the company (Clegg et al., 2016). The
prices and different elements to the cost production directs on the techniques which are
necessarily based on the situation with the economic conditions in the better way.
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3.2 IMPACT OF CHALLENGE ON COMPANY
Long term orientation has influenced the pricing strategy of the IKEA. This has affected to the
profit margin and probable pricing responses of the organization with the competitive region.
The issues that include the discounts, financing and others is way too important with the
processing the ideas, manufacturing the products and designing and so forth. The culture
influence on the pricing is weak for the organization (Torrington et al., 2017). This can effect on
the cost orientation as well as customer orientation value for the IKEA. The prices that are
learned from the different markets can affect the promotional sale of the IKEA in the other
markets such as Europe, China and India. Thus, the market share of IKEA is highly affected
along with the flat packages (Johansson et al., 2012).
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4.0 RECOMMENDATIONS
It is necessary for the IKEA to be pre-planned and must be aware of the market situation. This
can help them in managing the unnecessary cost and extra tax paying issues. The strong strategic
actions can be adapted in order to beat up the competitors in the market and present good brand
image. The IKEA must not be reveal their strategy in the predictive manner. This will only lead
to consequences they face eventually now or then (Rothaermel, 2013). Therefore, the IKEA must
look forward for the lots of sponsors of charity and other attractive measures in the organization
in order to attract the customer and gain the trust of the employees to become competitive in the
market. It is better to distribute the flyers and articles regarding the products and services how
good the quality of the product they offer is accountable (Fuoli, 2012).
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5.0 CONCLUSION
IKEA must franchise their market and meet the succinct demand of the productivity in the
market. They need to come up with the strategy to gain loyalty for the products and services that
are offered to the customer. This can set the face of failure with the development of the strong
network with others. This can eventually provide the products and services to the people by
keeping in mind the political and cultural factors which would result in the international product
and services.
The market survey of the IKEA has provided the quality of the product with the worth of buying
it with the broad classification of the packaging and standardization in different countries. The
CVF concept has provided the knowledge of the challenges that are subtle by the IKEA while
expanding their business in the other countries such as Europe, china and India. The entire study
comprises of the challenges that are frequently being faced by the IKEA while expanding in the
regions.
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6.0 REFERENCES
 Boddy, D. (2017) Management: an introduction. 7th ed. Harlow, England: Pearson.
(Online Available at: http://www.dawsonera.com/guard/protected/dawson.jsp?
name=London%20Metropolitan%20University&dest=http://www.dawsonera.com/depp/
reader/protected/external/AbstractView/S9781292088624., last accessed on 25th
February, 2019)
 Cameron, K. S., & Quinn, R. E. (2011). Diagnosing and changing organizational culture:
Based on the competing values framework. John Wiley & Sons.
 Clegg, S., Kornberger, M. and Pitsis, T. (2016) Managing & organizations: an
introduction to
 Fuoli, M. (2012). Assessing social responsibility: A quantitative analysis of Appraisal in
BP’s and IKEA’s social reports. Discourse & Communication, 6(1), 55-81.
 Guardian. Available at: https://www.theguardian.com/uk/business.
 Harlow: Pearson. (Online available at Available at:
https://ebookcentral.proquest.com/lib/londonmet/detail.action?docID=5185688, last
accessed on 25th February, 2019)
 Johansson, J. K., Dimofte, C. V., & Mazvancheryl, S. K. (2012). The performance of
global brands in the 2008 financial crisis: A test of two brand value measures.
International Journal of Research in Marketing, 29(3), 235-245.
 Latest financial, market & economic news and analysis | Business | The Guardian (no
date)
 Rothaermel, F. T. (2013). Strategic management: concepts. New York, NY: McGraw-
Hill Irwin.
 theory and practice. 4th edition. London: SAGE.
 Torrington, D., Hall, L. and Taylor, S. (2017) Human resource management. 10th edition.
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7.0 APPENDICES
Figure 1: Competing Value Framework
Source: Boddy, 2017
Figure 1: Financial value of IKEA
Source: Johansson et al., 2012
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