Case Study IKEA
Case Study IKEA
Case Study IKEA
uk
GLOSSARY Franchisees: persons licensed to trade using a particular well known name in a particular area in return for a fee or share of revenues made. Retail sector: organisations selling in relatively small units to the final consumer. Sustainability: practices which do not adversely affect the future use of resources.
Economy
IKEA
Society Environment
This case study will show why IKEA believes a strong environmental stance is good business practice.
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SWOT analysis
www.thetimes100.co.uk IKEA's goals of sustainability and environmental design are central to its business strategy. It has launched a new sustainability plan to take the company through to 2015. This will combine social, environmental and economic issues. IKEA uses SWOT analysis to help it reach its objectives. This is a strategic planning tool. It helps the business to focus on key issues. SWOT is the first stage of planning and looks at the Strengths, Weaknesses, Opportunities and Threats involved in a project or business venture. Strengths and weaknesses are internal aspects. This means that they are within the control of the business. They may refer to aspects of marketing, finance, manufacturing or organisation. Opportunities and threats are external factors. This means that they are outside the control of the business. These may include the environment, the economic situation, social changes or technological advances, such as the internet. Help + Hinder -
GLOSSARY Strategy: long-term business plan of an organisation. SWOT analysis: Identification and evaluation of the strengths and weaknesses inside a firm and the opportunities and threats in its external environment. Brand: a name, symbol or design used to identify a specific product and to differentiate it from its competitors. Key Performance Indicators (KPI): financial and non-financial measures to monitor performance across a range of activities within a function, department or role.
Strengths
Internal External
Weaknesses
Opportunities
Threats
A business can create opportunities and counter threats by making the most of its strengths and addressing its weaknesses. For example, one of IKEAs key strengths is its strategic aim to use no more material than necessary in the production of each item. In addition, it develops its product plans to increase its use of waste or recycled materials. One particular table, the NORDEN table, uses knotty birch wood. The knots in this wood usually mean it is rejected by other retailers and manufacturers as unsuitable for use. However, IKEA has made the knots part of its design feature. OGLA chairs are made using wood waste from saw mills and LACK tables use a sandwich of stiff card between wood sheets to reduce the amount of solid wood needed. Strengths Strengths could include a companys specialist marketing expertise or its location. They are any aspect of the business that adds value to its product or service. IKEAs strengths include: a strong global brand which attracts key consumer groups. It promises the same quality and range worldwide its vision to create a better everyday life for many people a strong concept based on offering a wide range of well designed, functional products at low prices a democratic design reaching an ideal balance between function, quality, design and price. IKEAs Cost Consciousness means that low prices are taken into account when each product is designed from the outset. These strengths contribute to IKEA being able to attract and retain its customers. One way IKEA measures its strengths is the use of Key Performance Indicators (KPI). KPIs help IKEA to assess the progress of its vision and long-term goals by setting targets and monitoring progress towards these. An example of one of IKEAs KPIs is the percentage of suppliers that are currently IWAY approved. The IWAY is the IKEA Way of Purchasing Home Furnishing Products. This guideline defines the social and environmental requirements IKEA expects of its suppliers. IKEA has strengths right through its production processes: Increasing use of renewable materials IKEA improved its overall use from 71% in 2007 to 75% in 2009. Smarter use of raw materials IKEA increased the use of recycled or reclaimed waste products in energy production across all stores from 84% in 2007 to 90% in 2009.
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Volume commitments IKEA believes in creating long-term partnerships with its suppliers in order to achieve this. By committing to buying large volumes over a number of years IKEA can negotiate lower prices. This also benefits the suppliers because they enjoy the greater security of having guaranteed orders. Economies of scale for instance, bulk buying at cheaper unit costs. Sourcing materials close to the supply chain to reduce transport costs. Delivering products directly from the supplier to IKEA stores. This slashes handling costs, reduces road miles and lowers the carbon footprint. Using new technologies for example, IKEAs OGLA chair has been in its range since 1980. The chair has changed through the years to reduce the amount of raw materials needed.
www.thetimes100.co.uk
GLOSSARY Economies of scale: reductions in average costs that stem from operating on a large scale. Carbon footprint: a measure of the amount of CO2 produced by individuals, businesses or countries as a result of their activities. Price sensitive: describes a product whose sales are influenced by price rather than quality. Stakeholders: individuals and groups with an interest in an organisation and the decisions it makes.
Opportunities
A business uses its strengths to take advantage of the opportunities that arise. IKEA believes that its environmentally focused business conduct will result in good returns even in a price sensitive market. As the company states: There is a true business potential for IKEA in providing solutions that enable customers to live a more sustainable life at home. IKEA is developing effective solutions for customers in order to support them recycling or reusing used products, aiming at no products ending up at landfill and the recycled materials used in producing new IKEA products. Some of the opportunities that IKEA takes advantage of through its sustainability agenda are: a growing demand for greener products a growing demand for low priced products. Trends in the current financial climate may result in consumers trading down from more expensive stores demand for reduced water usage and lower carbon footprints. IKEA has a number of areas of focus to its work with sustainability, each of which it supports in various ways: 1. Solutions for a sustainable life at home IKEA gives online tips and ideas for this. 2. Sustainable use of resources. IKEA aims for zero waste to landfill, wastewater treatment and programmes to reduce its use of water. 3. Reducing carbon footprint. IKEA aims to reduce energy use, use more renewable energy, cut its use of air transport and reduce packaging. Its green transport initiative includes an aim to reduce business flights by 20% in 2010 and 60% by 2015. 4. Developing social responsibility. IKEAs policy includes support for charities such as the World Wildlife Fund, UNICEF and Save the Children. 5. Being open with all its stakeholders. This involves building trust through good communication with consumers, co-workers, key opinion formers and the press. Being sustainable is a central part of IKEAs image.
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www.thetimes100.co.uk
GLOSSARY Disposable income: income left to spend after essentials have been paid for. Barriers to entry: those features that prevent businesses entering a particular market. Examples include strong brands and limited supply of raw materials
Threats If a company is aware of possible external threats, it can plan to counteract them. By generating new ideas, IKEA can use a particular strength to defend against threats in the market. Threats to IKEA may stem from: social trends such as the slowdown in first time buyers entering the housing market. This is a core market segment for IKEA products market forces more competitors entering the low price household and furnishings markets. IKEA needs to reinforce its unique qualities to compete with these economic factors the recession slows down consumer spending and disposable income reduces. IKEA addresses these issues in many ways. It manages weaknesses and threats to create a positive outcome. Social trends: IKEA is building online help to guide customers to a more sustainable life. Here it can focus on home improvement in the slowing housing market. It supports customers with tips and ideas on its website to reduce their impact on the environment. This will also save them money. Staff are trained on sustainability, both on what IKEA is doing and how they can take responsibility to become sustainable for themselves. Market forces: IKEA is large enough to enjoy economies of scale. This lowers average costs in the long run through, for example, better use of technology or employing specialized managers. Economies of scale also give a business a competitive edge if cost savings are then passed on to customers in the form of lower prices. This puts up high barriers to entry for smaller companies entering the market. Economic factors: IKEAs low prices create appeal amongst its customers in tough financial times. It is vital to keep prices as low as possible when the retail sector is depressed. IKEAs pricing strategy targets consumers with limited financial resources. Its products will also appeal to those with higher budgets through good quality and design. The company must ensure that it is always recognised as having the lowest prices on the market in the future. Communication plays an important role here.
Conclusion
IKEA is a well-known global brand with hundreds of stores across the world. In order to improve performance, it must assess its external and competitive environment. This will reveal the key opportunities it can take advantage of and the threats it must deal with. IKEA responds to both internal and external issues in a proactive and dynamic manner by using its strengths and reducing its weaknesses. Through this, IKEA is able to generate the strong growth it needs to retain a strong identity in the market. IKEAs passion combines design, low prices, economical use of resources, and responsibility for people and the environment. The companys products, processes and systems all demonstrate its environmental stance. For example, clever use of packaging and design means more items can fit into a crate, which means fewer delivery journeys. This in turn reduces IKEAs carbon footprint. IKEA believes that there is no compromise between doing good business and being a good business. It aims to go beyond profitability and reputation. IKEA is intent on becoming a leading example in developing a sustainable business. This will create a better everyday life for its customers. IKEA has discovered a business truth being sustainable and responsible is not just good for customers and the planet, it is also good for business!
The Times Newspaper Limited and MBA Publishing Ltd 2009. Whilst every effort has been made to ensure accuracy of information, neither the publisher nor the client can be held responsible for errors of omission or commission.
Questions
1. Describe what is meant by a SWOT analysis. 2. Explain the difference between internal and external factors. 3. Analyse ways in which IKEA has managed to minimise threats to its business.
www.IKEA.co.uk
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