And so, below will be a brief intro to what Strategic management is about. Strategic Management is a dynamic process that requires a long term perspective and flexibility. Top executives are usually responsible for strategic management. It also includes analysis of the internal and external environment of the firm, definition of the company's mission, formulation and implementation of strategies to create or continue a competitive advantage. Gomez-Mejia ; Balkan, 2011)
The Strategic Management process involves 5 steps: Analyze internal and external environments Define strategic intent and mission Formulate strategies Implement strategies Assess strategic outcomes (Gomez-Mejia ; Balkan, 2011)
Introduction of IKEA
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IKEA was started by Angina Kampala in SMS?land in southern Sweden. He single handedly sees the development I KEA into a turner retailer. His ideas see the exploration of furniture design, self assembly, advertising, the use of a catalogue and a showroom to reach his potential customers.
IKEA originally sells pens, wallets, picture frames, table runners, watches, Jewelry and nylon stockings, meeting the increased needs with products at cheaper prices and still earning a sizeable profit. It has since expanded into 40 countries/territories around the world, including Singapore in 1978 which I will be focusing mainly on throughout this case study. Mission To offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them. Vision To create a better everyday life for the many people.
Values Humbleness ; Willpower - Respect whoever we meet be it customers or fellow workers and by using willpower, it means getting things done Leadership by example - All the leaders in KEA try and set a good example and fellow co workers are expected to do the same Daring to be different - We eliminate old solutions if we have better idea Togetherness ; enthusiasm - Together, we have the ability to solve seemingly unsolvable problem Cost consciousness - We achieve good results with small resources Constant desire for renewal - Adapting to customer demands with innovative solutions saves money and contributes to a better everyday life at home Accept and delegate responsibility - We promote staffs with potential and drive them to surpass their expectation and being encouraged to learn from mistakes (KEA, N. D)
The SOOT analysis (Strengths, Weaknesses, Opportunities ; Threats) is a commonly used strategic tool. The SOOT analysis allows the firm to analyze the internal and external factors that can influence the organization's success. Gomez- Mejia & Balkan, 2011) Strengths Threats I Weaknesses I Opportunities I I Owns their own restaurant and I Not durable as compared to other I Growing demand of CEO friendly I More competitors I home furnishing company I products I Market hall Affordable I Economy recession products I Not appealing to the older I Growing demand of lower priced I generations I I CEO friendly products I Younger generations looking for I I more unique and innovative I I I Encourages innovative and unique I ideas In this case, by owning their own restaurant and market hall, KEA already has an edge over its competitors as foods and snacks hailing all the way from Sweden can be found.
By living up to their value of cost consciousness, IKEA are able to attract customers through the affordable prices by ordering through bulk at a cheaper rate & saving handling fees by delivering products directly from suppliers to IKEA stores worldwide. IKEA has always been an ambassador for CEO friendly products through TTS increased and smarter use of renewable or reclaimed waste materials. In order to keep improving and also be CEO friendly, feedbacks from customers are taken seriously and workers from various departments contribute ideas to one another so more unique and innovative ideas can be generated within IKEA itself. Weakness Firstly, as they are using cost conscious approach to produce their products. There's only a certain limit the quality to the product can be. So, most to their products aren't as durable as of those of other furniture company.
The designs of Kike's home runtime are quite very modern and therefore, won't be as appealing to the older generation as it is to the younger ones.
Opportunities The future looks bright for IKEA due to the fact they are able to increase the variety of green products and it only helps because of the environment's current condition while also meeting the demand of greener products. As IKEA are producing more green products, the production cost will be cheaper as recycled and waste materials are used instead. Thus, sales price won't be as expensive, meeting the demand of lower priced products. The cost of production of furniture are pretty low at the moment and so, new impetigo will surface and it don't take as much money as it did in the past to set up a furniture company.
Economy recession is another factor that will threaten IKEA status as lesser people will be spending their money to replace their existing furniture.
There will be 2 parts to external analysis; it will be done based on general environment and competitive environment. External analysis is basically analyzing the factors that are not within the control of an organization for the general environment part. As for the competitive environment part, the strength of an organization's current competitive position, and the strength of a position it is considering moving into will be identified to help prepare itself for every possible happenings in the near future.
General Environment External analysis of general environment will be done using PESTLE which refers to how the political, economic, social, technological, environmental and legal environment affects an organization. Below will be a diagram of PESTLE, followed by a brief explanation of each factor and their examples. Monsoon, Gerry, Schools, Whittling, 2006) [pick] Political Factors - basically to what extent the government intervenes in the economy. It includes areas such as tax policy, labor law, environmental law, trade restrictions and political stability. (Gomez-Mejia & Balkan, 2011) Furthermore, governments have great influence on the health, education, and infrastructure of a nation.
An example will be the political stability in Singapore, even though it is such a tiny country, it is home to 2 IKEA outlets including 1 which is the biggest in SEA.
- How doctors such as unemployment rate, disposable income levels, income per household, interest rate and inflation can affect an organization. Gomez-Mejia & Balkan, 2011) An example will be if the unemployment rate is high, IKEA will naturally generate lesser profit as lesser people will go shopping for furniture when they are unemployed.
- The population, demographics distribution of wealth, changes in lifestyles and trends and education levels in the country the organization is in can also affect them. Gomez-Mejia & Balkan, 2011) An example will be comparing the profit generated in Singapore and Thailand. Singapore has a higher educational level and their citizens more well off than those in Thailand.
- New innovations and discoveries, pace of technological innovations and advances and new technological platforms in this modern world can also greatly affect an organization. Furthermore, technological shifts can affect costs, quality, and lead to innovation. (Gomez-Mejia & Balkan, 2011) An example will be KEA having an online catalogue, they cut a lot of cost on printing
- An organization can also be affected by a country's it. Environmental protection law, waste disposal laws, energy consumption regulation and even climate's change. (Gomez-Mejia & Balkan, 2011) For example, KEA who has en a go green ambassador, having increase production of green products over the Legal Factors - Influence the company's operation, cost and the demand for years. Its product. They include consumer law, antitrust law, employment law, discrimination law and health and safety law. (Pander, 2011) For example, in Singapore, all workers working in the kitchen must go for health and safety course before they start working. Therefore, there is no exception for workers in IKEA restaurant.
External analysis of competitive environment will be done using Porter's Five Forces Model which refers to how the threat of new entrants, threat of substitutes, suppliers, customers and intensity of rivalry affects an organization.
Below will be a diagram of Porter's Five Forces Model. It will be followed by a brief explanation of each factor and their examples. (Pander, 2011) The intensity of rivalry among competitor increases with the number of competitors, when industry growth is slow, when there is unused capacity, and when there are high exit barriers. (Gomez-Mejia ; Balkan, 2011)
In this case, the threat of rivalry is medium to the Golden Village.
This is because various large equally balanced imitators such as Fragrance, Courts and local furniture stores do sell furniture, but they aren't as complete as IKEA is as they even have their own restaurant which gives them the edge. Therefore, IKEA has generally medium rivalry because there are few organizations competing in the same industry but none are as accomplished and complete as KEA is. The threat of new entrants Barriers to entry such as high capital requirements, government regulations, and strong brand identification can minimize the threat that new competitors will enter market (Gomez-Mejia & Balkan, 2011) With the strong brand identification and high UAPITA required to penetrate in the industry, the threat of new entrants in the home furnishing industry is low.
People tend to go for the established ones as it can be trusted and they already have knowledge of the quality and durability of the furniture. The threat of substitute Technological advances can lead to the development of new products that supplant existing ones. (Gomez-Mejia & Balkan, 2011)
The power of substitute is low for the home furnishing industry, which has slight risk to the market. The accessibility to green products in the home furnishing industry is little and KEA has made a roughhouse by being able to increase the usage of recyclable and disposal waste materials to produce its products. This gather gather more supporters for them and their rivals in Singapore have yet to implement the go green rule as well as KEA had, or I would say nowhere near 'IKEA.
Suppliers The power of supplier increases when there are few other sources of supply, when the supplier has many other buyers, when there are no satisfactory substitutes, and when the cost of switching suppliers is high. (Gomez-Mejia ; Balkan, 2011) The power of suppliers is medium for home furnishing industry. As IKEA adopt a save cost on livery cost and by ordering in bulk which enables them to cut the cost price in which their products are being sold, not a lot of suppliers will be willing to deliver directly to KEA but a lot of suppliers will welcome the idea of ordering in bulk. Therefore, I can conclude that the leverage suppliers can use on all the home furnishing companies is that they can increase the price if they provide direct delivery.
Customers The bargaining power of customer increases when they purchase a large share of the firm's output, the product is important to them, close substitutes are readily available, ND the product is relatively standardized. (Gomez-Mejia & Balkan, 2011) The threat of losing customers is somewhere near medium. IKEA is known for their affordable furniture and their restaurant also serve food of reasonable price as well. But, they will have to look into some of their product durability if they want to reduce the threat of losing current customers to a lower level. Internal Environment Analysis An analysis that examines the internal environment to identity internal resources, capabilities, and knowledge that can help the firm capitalize on opportunities and minimize threats. (Gomez-Mejia & Balkan, 2011)
There are two types of internal analysis, resources types and firm capabilities. Resources types Tangible are resources that can be quantified and observed. (Gomez-Mejia & Balkan, 2011) The company's profits, high-tech equipment and assets are the tangible resources. In this case, KEA Singapore tangible resources are its steady growth of profit due to its 2 stores and its low turnover of staffs Intangible are resources that are difficult to quantify and include on a balance sheet, but can provide the firm with the strongest competitive advantage (Gomez-Mejia, L ; Balkan, D. 011) The Company's reputation and relationship with customers, staff and employee skills and commitments are the intangible resources.
In this case, IKEA Singapore has a fairly good reputation, other than customers complaining about the durability of some of their products, the staffs have a very good relationship with one another, very qualified as they are often sent for courses to upgrade themselves and respectable inter-relation skills. This upholds the reputation of IKEA Singapore as the top home furnishings organization locally. Firm capabilities There are three ways to analyze a firm's capabilities. They are functional analysis, value chain analysis and benchmarking. Functional analysis: establishes organizational capabilities for each of the major functional areas of business. Gomez-Mejia ; Balkan, 2011) The company's major functional areas are their own restaurant and market hall, customer service and marketing strategies which includes advertisements in a lot of areas and the creation of catalogue every few months.
Value chain analysis:
breaks the firm down into sequential series of activities and attempts to identify the value added of each activity. (Gomez-Mejia & Balkan, 011)
IKEA Singapore are known as the market leader in home furnishing, this credits goes to their staffs from every departments as they show great capabilities working as team.
assesses capabilities by comparing the firm's activities or functions with those of other firms. (Gomez-Mejia ; Balkan, 2011) KEA Singapore has good marketing strategies.
However, there are areas for improvement such as some of its products quality and the delivery prices for customers Conclusion To conclude, IKEA Singapore has managed to maintain its status to being the market leader in home furnishing industry. Based on analysis, KEA Singapore focus a lot on advertising and the fact they own their own restaurant and market hall to have the edge over its competitors. There have not been any signs that it will be changing any time soon as it has grown from strength to strength, never taking a step back and constantly looking forward. I would say the boss of IKEA Singapore has done a very good Job in managing it so well. I have also learnt that from the help of SWOT analysis, managers will be able to identify their strengths, weakness, opportunities and threats which will give a clearer picture on which areas the company should coco and improve on.
External analysis (General Environment) helps the firm to analyze the 6 important factors before making any decision as every single factor will affect the organization in various manner
External analysis (Competitive Environment) enables the firm to have a clearer picture of their competitors, customers and suppliers through the use of Porter's Five Forces Model which will in turn help them in making future decisions. Internal environment analysis enables the company to have a better understanding on the places for improvement within he company itself as nobody will ever be considered too good to continue improving.
My recommendations for KEA Singapore are to look into some of their product quality and revise the delivery charges. Yes, it's good to go green, but that does not mean lowering the standard of a product. I would suggest the use of global strategy. This will help them to improve despite being the market leader.
In doing so, the price of its products can be further revised and the quality of its products can be higher too. This will not only help them stay competitive but it can be also regarded as a wreath to its competitors. For achieving its goal, I suggest to use the concentric diversification strategy. This is because with lesser competitors and more branches, there will be lesser threats and more opportunities. If they are able to acquire both of it, the chances of them to control or even further penetrate the market are very high. Lastly, I really do hope KEA Singapore will expand the size of their restaurant. Everyone will be surprised by how much the restaurant contributes to the total profit of KEA Singapore.
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