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Companys Overview

IKEA is an international home products company. It has developed quickly since it was founded in 1943 by Ingvar Kamprad. At present, it is one of the worlds leading furniture and textile retailers. IKEA offers more than 9,500 products, including a complete range of home and office furnishings, equipment, lighting, and accessories. This extensive range is available in all IKEA outlets, and consumers can order a variety of items online on IKEAs official website. At this point, there are 18 outlets in the UK, with the first one launched in Warrington in 1987. In July 2009, IKEA introduced its products in Ireland and opened an outlet in Dublin (IKEA SWOT analysis, 2010). Over the previous 60 years, IKEA has grown from a simple enterprise into a cluster of companies with 76,000 associates. At the same time, an exceptional corporate culture with its own set of principles has been developed. The achievements of IKEA have been built upon zeal and eagerness, a steady aspiration to renew and progress, cost-consciousness and readiness to provide a hand and take accountability (Our values, n.d.). The paper will make an internal and external analysis of the company to reveal its strength, weaknesses, opportunities, and threats as well as its place in the global market.

IKEA is a one-stop store satisfying the diverse needs of potential consumers and offering a variety of household and office products. These items have been carefully selected for the customers to be able to make their homes more attractive and comfortable. The consumers have an access to all kinds of products under one roof, and this is intended to improve their buying experiences. A wide variety of goods and their design attract millions of customers from all over the world every year. The key goal of IKEA is to assist its clients in implementing their own ideas and improving their surroundings. That is mainly done by offering them an extensive range of premade furniture, textile, and utensils for their homes and offices at reasonable prices. Sweden is IKEAs country of origin, while its product designs come from different parts of the world, making it one of the most progressive companies in the market. In IKEA, customers have opportunities to choose from a wide range of products and get professional assistance from the IKEA staff.

Characteristics of IKEA

For both the companys customers and employees, IKEA is a unique company. Simplicity, which is one of IKEAs main features, is the key to the companys success. This principle is applied to everything, from the way the management operates to the relationships between managers, employees, and customers. For example, managers and subordinates work on the same tasks, share the same car parking facilities, and eat side by side in the same cafeterias (Our values, n.d.). The companys personnel is an immensely valuable asset at IKEA, which is perpetually trying to enlarge the assortment base and improve the quality of its products and services (Our values, n.d.). The creative approach and original designs along with reasonable pricing policy contribute to the companys competitive advantage and explain its success in going through the crisis periods.

IKEA is also famous for offering identical items in all countries. The number of the company`s products offered at one store ranges from 8,000 to 10,000 goods, depending on the outlets size. At the same time, the international strategy adopted by the company is in adjusting to the specific atmosphere and national traditions of the country in which an outlet is operating. For instance, in China, the store layouts imitate the design of traditional Chinese apartments. In particular, the outlets contain a balcony sector because many Chinese apartments have balconies (Miller, 2004). Thus, the store locations, design, and display are usually adjusted to the overall market requirements and consumer behavior.

IKEA exhibits its massive range of more than 10,000 items in cheap out-of-town outlets. Most of its products, especially furniture, are sold as knock-down kits, for customers to take the products to their homes and collect them on their own. The combination of corporate traditions and flexibility in preserving similar assortment in different locations and at the same time adapting them to the needs of various countries explain the popularity of IKEA all over the world. This enables the company to compete with business rivals on quality, undercutting them by up to 30% on prices (IKEA: SWOT analysis, 2010). IKEA introduced a new manufacturing cycle, in which customers are also suppliers (of time, labor, information and transportation), suppliers are also customers (of IKEAS business and technical services), and IKEA itself is not so much a retailer as the central star in a constellation of services (IKEA: SWOT analysis, 2010). An IKEA store, with its mouth-watering crèche and Scandinavian coffee, is believed to be an ultimate shopping destination for value aware, car-borne customers. IKEA changed the suppliers and customers views on the traditional buying experience. Among the numerous exceptional characteristics attributed to IKEA, the one that makes it immensely attractive to consumers is the names given to every stock-keeping unit (SKU). Diaconis, the marketing manager of IKEA, admitted: Instead of simply calling a product 123456, we name a bookcase Billy or a fabric Anna. Sofa names are usually cities or rivers in Scandinavia, fabrics are steaks names, and the wall units are boys names. The reason is that IKEA wants to project the feeling that the products are a part of the family (IKEA: SWOT analysis, 2010). This approach as well contributes to unique image of the store.

Operations at IKEA

IKEA is highly concerned with the companys internal operations. It has always determined a target price of a product before creating it. This method was in contrast to the traditional practice of initially developing the product and then pricing it according to its actual cost and the prices in competitors stores. The designers of IKEA had to take into account all the costs, including raw material, manufacturing, and distribution for making appropriate choices and reaching the initial price targets (IKEA: SWOT analysis, 2010). IKEA has 202 retail outlets all around the world, which welcome more than a million consumers a day, throughout the year (IKEA: SWOT analysis, 2010). Thus, supply chain management plays a vital role in decision-making process at IKEA. The company carries 3.5 million stock units and provides 10, 000 different types of products. Almost 10% of them are new every year (IKEA brings picture to life, 2005). Supply chain planning sometimes gets complicated because the outlets are spread across 32 countries. Furthermore, the company has 1600 suppliers in numerous regions and they are divided more or less evenly between Europe and Asia. IKEA consists of 27 central distribution centers in 16 different countries (IKEA: SWOT analysis, 2010). As a rule, an IKEA retail store opening is a public event and some customers travel hundreds of kilometers to shop there.

Internal Factors Analysis

The aim of the internal analysis is to identify strategically important strengths and weaknesses of the company for improving its strategy if necessary. This goal can be achieved, first of all, by identifying key internal factors, such as distribution channels, cash flows, locations, technology, and organizational structure, and, secondly, by evaluating these factors. The internal factors analysis is neither linear nor simple. The steps tend to overlap, and the managers in different positions and levels approach the internal analysis in different ways. Therefore, it is essential for the company to pay proper attention to the internal factors analysis. IKEA has recently launched a strategic plan regarding sustainability and the companys targets up to the year 2015 (IKEA SWOT analysis, 2010). IKEAs business strategy is mainly focused on the company`s aims related to sustainability and environmental concerns.

Strengths

The following aspects can be regarded as IKEAs strengths:

  • A recognizable brand name and strong positioning in the global market give company a solid advantage over its competitors.
  • Perfect match between quality and pricing along with effective cost reducing strategies is referred to as Democratic Design (meaning good quality at lower prices).
  • Responsible approach towards market research helps the company to be pro-active about entering new markets.
  • IKEA enjoys economies of scale because of its bulk purchasing.
  • Wherever IKEA goes, it develops an excellent infrastructure around its location which makes this company an immediate favorite for the locals (IKEA SWOT analysis, 2010).
  • One of IKEAs major strengths is delivery of products directly from the supplier to IKEA retail outlets. This cuts down the handling costs, lessens the number of road miles, and decreases the carbon footprint.
  • The product development and differentiation are considered to give it a competitive advantage over the others while keeping its operation costs low. The following diagram illustrates the correlation between costs and quality.
Correlation between costs and quality

Weaknesses

Problems which any firm may face internally can have a significant impact on its performance. IKEA acts appropriately to eliminate such issues (IKEA SWOT analysis, 2010). The most notable weaknesses of IKEA are the following:

  • It manufactures products in many countries, and its management can experience difficulties in adapting to the local specifics and meeting all the requirements of social policies.
  • Although IKEA spends a lot of funds on research and development, it has problems meeting one of its primary goals  providing quality products at low prices. Economies of scale help the company to reduce the prices but maintaining a balance between price and quality can be a tough task.
  • IKEA continuously introduces differentiated products, but its business rivals are catching up with the copies as well as with their own products (IKEA SWOT analysis, 2010).
  • Communication barriers are a major concern as well. IKEAs management needs to maintain strong channels of communication within the organization as well as with their consumers.
  • IKEA has limited advertising and promotional strategies.

External Factors Analysis

The external factors generally refer to the external environment of business and, therefore, can be divided into two categories. The first group of factors includes the opportunities that should become a basis for the companys strategies. The second group includes external threats that display the difficulties, which a company can potentially experience, and which require taking appropriate preventative measures.

Opportunities

IKEA considers that its environmentally friendly manufacturing operations contribute to its positive branding. IKEA is working on recycling strategies, which would allow using the same materials repeatedly (IKEA SWOT analysis, 2010). From the analysis of the situation in the market sector, it can be stated that IKEA can take advantage of the following opportunities: