Business

IKEA is an international furniture production and distribution company based in Sweden. The company was founded in 1940s by Ingvar Kamprad and has since asserted its presence all over the world. IKEA provides direct retail services to customers and furniture distributors. The case study provides a critical analysis of the implications of the key organizational inputs in IKEA namely the internal environment, external environment resources and strategy.        

Analysis of the External Environment
The macro-environment consists of the key aspects of organizations which are most affected and determined by the status and direction of the political forces, economic forces, social forces and technological forces legal factors and environmental factors (PESTLE) (Johnson, Scholes  Whittington, 2009). As such, the macro environment forces are the main determinants that influence the operations of business organizations in a particular country or region. Proper evaluation and analysis of the macro environmental forces in the organizations external environment goes along way in determining the success or failure of the marketing strategies adopted by an organization (Wilson, 1982). The analysis of the implications of the macro-environmental forces on the operations of IKEA involves comprehensive insight into the PESTLE factors.
The political situation in Sweden and IKEAs international markets poses major significance to the regulatory aspects of business activities as well as the spending power of consumers in the countries. The furniture market in Sweden enjoys a stable political environment founded on the principles of democracy and free market economy. The stable democratic political environment means that the furniture industry does not experience uncertainties experienced in politically unstable states. Emphasis of analyses are always placed on the stability of the political environment both in the domestic and international markets, government policies and how they influence business laws and regulations, and governments position on marketing ethics (Hunger  Wheelan, 2003). The macro environmental analysis identifies natural changes, radical changes, gradual changes, policy changes, and changes in foreign governments to be the key political factors that influence marketing and business planning in organizations. Much as the furniture industry in Sweden may enjoy peaceful political environment, there can be no ruling out myriads of challenges and business uncertainties that are associated to insecurity such as terrorism, drug trafficking and illegal immigration.

As for the economic forces, the execution of production and distribution plans in IKEA should always take into account the elements that characterize a trading economy with focus short-term based and long-term-based interests (Johnson, Scholes  Whittington, 2009). This is especially significant when planning for international marketing. The key points of interest when determining economic factors of target markets include levels of inflation, rates of employment, levels of interest rates, long-term aspects of the economic growth (Wilson  Gilligan, 1999). During periods of economic decline, consumers spend less and less on luxury or comfort items than they used before the onset of the global economic crisis, a situation that is likely to persist for a few more years before the full global economic recovery.    

Socio-cultural factors are considered to be very important determinants of the external market environment of IKEA. According to Kotler  Keller (2009), the influence exerted by the socio-cultural factors on the external marketing environment of business organizations varies in different countries. The major elements which constitute social and cultural factors of an organization are religious beliefs, attitudes to product orientations, and the importance of language in the penetration of products or services in the target markets. These factors definitely portend wide reaching implications in the marketing strategies of the key players in IKEAs domestic and international markets. There are several social and cultural dimensions that impact directly on the marketing strategies of the furniture industry in Sweden and international markets. For example, the existence of obvious differences in socio-cultural and religious orientations in Islamic societies, Christian societies, Buddhist societies or mixed religion societies would require IKEA to initiate appropriate analyses of the target markets with the objective of ensuring that the companys products are designed within recommended guidelines of the socio-cultural affiliations prevalent in the target markets.

The main technological aspects of macro-environmental marketing aspects in IKEA include infrastructure, information communication, innovation, research and development, production equipment and transportation. The product life cycles has seen the relatively pragmatic furniture industry in Sweden and internationally undergo constant technological innovations and advancements. The market capitalization of the furniture industry has grown tremendously in the 21st century. Indeed, technology plays an important role of creating competitive advantage and driving globalization objectives in IKEA. Some of the challenges that IKEA is facing in the pursuit of technological advantages include provision of advanced furniture products and services at affordable rates and standard qualities creation of new channels of distribution methods such as online selling and e-commerce and instant communication and feedback channels between the company and its stakeholders. According to Johnson, Scholes  Whittington (2009), successful implementations of technological innovations lead to decreased barriers to entry and provide great stimulus for increased research and innovations in business organizations.

The legal aspect in IKEA relate to the laws and regulations that govern different aspects of the business relative to the prescribed benchmarks in Sweden. Such aspects include environmental laws, employment laws, taxation laws and licensing of business activities. The environmental aspect covers issues that govern the conservation of the environment with respect to the operations of IKEAs business activities. Such issues include waste disposal, green initiatives and cutting down on emissions of toxic gases through use of renewable energy.    

Analysis of IKEAs Internal Environment
Porters five forces determine the competitive intensity and attractiveness of a market and any changes to any of these forces would require a company to re-assess the market place (Porter 37). The five forces include barriers to entry barriers to exit the buying power of customers threats of substitute products and bargaining power of suppliers. The furniture industry exists as a highly deregulated sector, a situation which however, if combined with the relatively low fixed costs compared to other industries, makes it easy for new players to make entry. The low barriers to entry introduce intense competition in the furniture production and distribution business. Barriers to exit serve as indicators on how easily a company can exit the market, and IKEA is characterized by high barriers to exit because company has wide network of distribution channels and highly specialized equipments that cannot be sold off easily. Customer buying power represents the level of power that buyers have over products (Johnson, Scholes  Whittington, 2009). The demand for IKEA furniture products in the short run is inelastic and therefore customers have much of options for other furniture brands. As such, customers have high buying power relative to the IKEA furniture because buyers can freely switch brands on service and cost preferential grounds. Threats of substitute products are therefore very high given that there are many furniture production companies in Sweden and around the world. Competitive rivalry is the ability of a product to match the performance of the existing products in the market and evidently, the IKEA brand faces high competitive intensity in most of its target market at the domestic and international levels. The power of suppliers relates to the readiness or difficulties of switching suppliers. IKEA enjoys low power of suppliers because of the existence of numerous supplier alternatives for supply of raw materials for furniture processing and production.

Critical Success factors
With reference to the Nadler and Tushman Congruence Model (Nadler  Tushman, 1980), the environment, resources, organizational history and strategy have been identified as the critical success factors guiding the business and operational drive in IKEA. According to the complexity theory dynamism in organizations is typified in multi-directional relationship across systems. Interactions among different elements of a particular system therefore results to emergence of new norms and behavior. By and large, the emerging change is usually as a result of interactions amongst localized agents within the system and between the system and other forces in the environmental (Nadler  Tushman, 1980). Effectively, the complexity theory acknowledges the need for organizations to match any normative changes with convincing efforts to promote an understanding of the emerging norms and ensure that interactions between localized parts of the complex system are not interfered with.

The strategy clock is equally based on the long term strategy aligned towards competitive advantage. Advanced by Cliff Bowman, the framework is premised on the competitive positioning of company product and service orientation (Johnson, Scholes  Whittington, 2009). Bowmans strategy is a strategic concept providing eight key options for evaluating and enhancing market competitiveness (Johnson, Scholes  Whittington, 2009). The eight options include low added value,   hybrid, focused differentiation, low price, increased price  reduced value, differentiation, low value  standard price, differentiation. These options are effective parameters for measuring the performance standards vis a vis long term profitability projections in IKEA.

Part B
The value chain model as presented by Michael Porter has at its core the creation of sustainable and strategic competitive advantage in business organizations. The key elements that define competitive strategy include inbound logistics, operations, outbound logistics, value chain model of Porter marketing and sales, service, procurement, technology development, value chain model of Michael Porter Human resource management (Johnson, Scholes  Whittington, 2009). The element of inbound logistics in IKEA define storage, control of inventory, scheduling of transport operations and processes for receiving goods. The operations factor in IKEA is related to the value creation activities that facilitate the transformation of material inputs into final furniture products. As for outbound logistics define the activities intended to achieve production value through distribution strategies, marketing and sales bring on board the goals of convincing buyers to purchase IKEAs furniture products through advertising and product awareness initiatives.

The Value Chain Table
Firm Infrastructure
Human Resource Management
Technology Development
Procurement SHAPE   MERGEFORMAT

Comprehensive evaluation IKEAs competitive advantage can be achieved effectively through a critical SWOT analyses (Grant, 2005). SWOT is a synonym that refers to strengths, weaknesses, opportunities and threats that characterize the products or services provided by a business entity. Grant (2005) emphasized that an organization can perform an audit of its external environment through SWOT evaluation. This is because a thorough SWOT evaluation is important in initial planning stages in organizations and determines the ability of managers to identify the major issues facilitates the transformation of the issues into objectives. IKEA has demonstrated sensitivity, cohesiveness, identity and tolerance to the varying implications and challenges posed by internal and external environmental factors. Indeed, the external and internal environments portend either positive or negative impact on the strategic plans of any organization (Whittington et al, 2006). The organizational abilities to build relationships and create community with sense of purpose and vision are wholly pegged on the leadership strengths and goodwill. Openness and effectiveness in leadership in IKEA ensures that all stakeholders, with particular emphasis to the customers, are kept abreast of the organizational processes. The customers are facilitated to bear influence in the companys decision-making processes through the internet as an enhanced communications and public relations channel. The key elements that constitute social and cultural factors that portend influence on IKEAs planning strategies are religious beliefs, attitudes of employees from diverse cultures and the importance of language in communicating organizational policies and plans.

Insights into resource allocation related to the corporate plans and management functions in IKEA takes a two-pronged approach (1) organizational approach in which key concepts of the economic theory such as resource allocation and competitive advantage relative to rationality, maximization of profit and responsiveness are analyzed and (2) sociological approach in which the nature of human interactions relative bound rationality, behavior satisfaction and perception of profit-making as sub-optimal objective are extensively evaluated (Whittington et al, 2006). The company has adopted risk reduction approaches in the design of business plans and further implements its vision for access for all stakeholders. Indeed, this has been modeled alongside the efficiency perspective, which informs the philosophy behind the theory of strategic management because it defines the formulation of corporate objectives, development of plans for achieving the set corporate objectives and the allocation of resources for plan implementation. PetMeds has without doubts implemented a human resources management strategy that is geared towards the provision of guiding framework for staff management, welfare and development, as well as comprehensive internal control and risk management measures that serve to ensure the smooth running of all the departments in the company.

IKEA enjoys a rich organizational history as founded by its mission and vision. IKEAs history is an input that serves as reference for the organizations current undertakings and future plans.  Corporate governance in this organization is defined by a hierarchical structure which consists of different departments and sub-departments responsible for different duties within the companys distribution channel for pet medicines and health products. IKEA has successfully retained well developed organizational operational infrastructure that support the integration of strategic and business planning initiatives. The organizational history is what informs the procedures and processes for conducting business in IKEA.

Part C
Recommendation of Five Years Growth Strategy for IKEA
The crucial links across IKEAs core strategic functionalities strategy should be modeled alongside the key inputs of the environment, resources and organizational history. These functionalities are best summarized by Porters three generic competitive strategies consisting of cost leadership, differentiation and focus. IKEAs cost leadership strategy should be ignited through the adoption of e-commerce distribution strategies which minimize the distribution costs by eliminating the need for establishing and maintaining branches in Sweden and internationally. The move will effectively reduce other operating and overhead costs including rental costs, labor costs and input costs. The company should further adopt generic strategy of differentiation through the production and distribution of a wide range of furniture products to meet varying customer tastes and preferences. Being a successful distributor for different varieties of high quality furniture products, the IKEA enjoys a competitive edge over pricing and profit margins in its nationwide and international distribution network. The generic element of focus should be enhanced through the companys specialization in furniture product line. The move will enable the company to identify easily with a particular niche, that is, home owners and redistributors of furniture products. This will lead to the companys brand name gaining greater brand loyalty, thereby gaining strategic competitive advantage.

Evidently, the three recommended generic competitive strategies fits in with IKEAs environmental, resource and historical inputs by way of ensuring the achievement of sustainable business model that ensures the perpetuation of the companys mission and vision but also ensure proper planning and optimal utility of human and financial resources. In an article titled Images of Strategy, Cummings  Wilson describe strategy as the course for onward movement for organizations both in terms of time and space with regards to where the organization seeks to go and what to avoid. As such, planning and strategies should be viewed as two independent but integrative and interlinked components of organizing in IKEA. Indeed, none of the two concepts can work independently of each other. Notably though, IKEAs strategies may experience set backs arising from the difficulty to accurately predict the outcomes and implications of organizational planning and strategizing decisions. Such setbacks arise from the susceptibility of organizational planning to unforeseen constraints and changes. Organizational planning and management in IKEA therefore demands the acknowledgement of possible setbacks in the implementation and achievement of projected objectives by the organizational management. Cummings  Wilson noted that the value of any strategic models lie in their ability to fully achieve effective and objective representation of the environment but also their viability in focusing minds and helping people to take particular actions from informed perspectives.  Mintzberg (qtd in Whittington et al (2006) is emphatic that strategy is a concept which should wholly be viewed as tailored through emerging processes, effectively portraying as a distraction the tendency towards formal strategy analyses. In his study and findings on the departmental level strategies and planning for eight different oil companies which demonstrated continuous transformations in strategizing, Grant (2005) identified that organizations are decreasing reliance on the business as usual analyses and forecasts and increasing dependency in organizational factors such as communication, control and coordination. To this end, change management projects, workshops and symbolizing through artifacts (Whittington et al., 2006) are seen as the essential practices that IKEA should perfect in order to achieve optimized communication, control and coordination.

Moreover, further growth of the GDP and personal income growth in a country tend to benefit the subsidiaries of an international firm in the form of increased sales in the expanded markets. It is for this reason that the management team of IKEA should always undertake systemic evaluations of the target markets in the home country and international markets to ensure that the long-term and short-term growth opportunities in the industry are well guaranteed. In the short term however, the IKEA has to contend with the global economic crisis which has already impacted negatively on the GDP of countries around the world and hence on the consumer spending parameters. The continuous adoption of advanced information and communication technology is one such technological strategy that the IKEA must adopt domestically and internationally so as to optimize on efficiency and performance. IKEA must also contend with the internet infrastructure challenges associated with the ongoing changeover from satellite supported internet to undersea cables.

Furthermore, IKEA should endeavors to undertake comprehensive reviews of current operational structures and processes to identify areas of weaknesses and improvements. As such, emphasis and continuous pursuit of knowledge, perception of the organization as community of people and perpetual endurance are the characteristics that define learning organizations. Factors such as the stakeholders, partnerships and industry life cycles must also be tailored to suit the strategic needs in IKEA as situations may demand. To this end, IKEA should streamline its corporate plans to reflect realistic and achievable objectives. Contrary to the assumption of many business organizations, the successful implementation of organizational strategies is dependent on the strengths and goodwill in the organization and any functional lapses in the environment lead to failure in achieving the overall targeted objectives.  

The PESTLE factors in the IKEAs external environment will evidently bear very significant impact on the marketing strategies of the company in the next five years. This demonstrates the importance of taking into account all the important aspects of the environment whenever carrying out external marketing audit of the company. Each and every element of marketing must always be accorded full attention in order to ensure success of all marketing objectives of the organization (Peters  Waterman, 1982). Other factors such as the stakeholders, partnerships and industry life cycles must also be tailored to suit the marketing needs of a business organization at all times. Product life cycle is very important in determining and overcoming barriers to entry as well as testing the maturity of a product market (Porter, 1980). Contrary to the assumption of many managers, the functional area of marketing relies so much on the overall nature of the organization and therefore, any functional gaps in the organizations environment leads to failure in achieving overall marketing objectives.

The management of IKEA should also accord adequate recognition to organizational change parameters in the company in the next five years. Organizational change is an operational variable that presents as much challenges as credibility to the overall management processes in organizations because of its impact on the general performance and success in the organizations (Johnson, Scholes  Whittington, 2009). The scope of change management in organizations goes a long way in determining the outcome of operational and managerial decisions in organizations (Barnes, 2005). It is with this regard that change management in IKEA should be accorded much prominence in the management processes of the company. Moreover, it is incumbent upon the management of IKEA to identify the controllable and uncontrollable variables so as to be able to initiate appropriate responsive measures to different forces and mechanisms of change.