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The main intent of the IKEA case is to evaluate the key objectives and strategies of the company and analyze the external and internal environments of the home products industry globally. Further it is very important to suggest key business elements that the organization needs to improve in the long run and recommend the ways that the organization can reduce their operational costs and maximize their profits.
According to the case, IKEA currently functions in the home products industry and their primary objective is to offer inexpensive but modern furniture which suit the middle class globally. In order to keep their costs as low as possible the top management has taken many steps such as maximizing the employment productivity and conducting research and development in order to produce low cost but durable and modern products. The SWOT analysis is used to identify the organizational strengths and opportunities in the business industry. Also it further helps to identify the organizational weakness and the threats that can arise from the home products. By conducting the PESTEL analysis IKEA can identify key elements that influence to their business dealings. Next we move on to industry analysis in order to evaluate the competitiveness of the home products or the furniture industry. As a supportive model mainly Porter’s five forces model is used. Next important part is financial analysis and by conducting this it is very easy to identify the current financial situation of the company.
1. Introduction
With the rapid development of the global economy customer requirements and satisfaction levels have rapidly raised and they have more freedom to purchase what they really like. Modern trade industries have become more dynamic, complicated, competitive and volatile as a result of the vast amount of customer needs and wants, sudden changes of the customer preferences; and technological advancements. Therefore in order to survive in the highly competitive market and to gain completive advantages, all the firms should have better understanding about their core competencies, changes and the features of their business environment, buyer behavior and the competitor behavior.
So this report has given more priority to the above mentioned main elements and it has further discussed the competencies of IKEA, challenges that the whole home products industry face, critical issues that the IKEA has faced during last few years and the issues that they have to cope with, how they performed the business and what they currently use as their main business strategies and what they need to improve in the long run and IKEA’s plans on returning to Japan.
IKEA was founded in 1943 by 17-year-old Ingvar Kamprad in Sweden. Currently, the company is owned by a Dutch-registered foundation that is believed to be controlled by the Kamprad family. IKEA is a privately held, international home products retailer that sells flat pack furniture, accessories, and bathroom and kitchen items in their retail stores around the world. The company, which pioneered flat-pack design furniture at affordable prices, is now the world’s largest furniture retailer. The case study provides a detailed description of IKEA’s business proceedings in the year 2005.
Ryan air has increased their profits unbelievable way and they have captured considerable market share particularly because of the precise procedures which were taken by the missionary man, Ingvar Kamprad, the 76 year old currently retired founder of IKEA. Kramprad is a leader who has great ability to climb up the ladder of success by adjusting to the situation and he is rich of valuable business ideas also he is a true entrepreneur by tendency. As a positive impact of his commitments company has gained stunning growth and profitability in the very competitive and volatile home furnishing industry.
In order to evaluate the given case fundamental models, theories, paradigms and analysis methods are to be used. PESTLE analysis is to be used to find out the issues in the external environment to measure the industry and Macro environment which influence future industry growth and development beneath the organization. Double Loop learning model is applied to find out the gaps which involved in this particular situation. Finally spotlighted on the resources, capabilities of IKEA to identify strategic capabilities within the organization.
The value chain will be used to analyze the organization’s strategic capability. Moreover, porter’s five forces model, strategic groups and competitor analysis will be used in the industry analysis. Then the gap analysis, the cultural web, SWOT analysis will be used to identify the strategic intend of the company. Finally, limitations, Recommendation and conclusion will be evaluated throughout the analysis of the overall report and information gathered from external sources.
2. Company Review
IKEA was founded in 1943 is currently owned by a Dutch-registered foundation that is believed to be controlled by the Kamprad family. IKEA is an acronym comprising the initials of the founder’s name (Ingvar Kamprad), the farm where he grew up (Elmtaryd), and his home parish (Agunnaryd, in Småland, South Sweden).
INGKA Holding B.V. is the parent company for all IKEA Group companies, including the industrial group Swedwood, which commissions the manufacturing of IKEA furniture coming from any manufacturer worldwide (outsourcing), the sales companies that run IKEA stores, as well as purchasing and supply functions, and IKEA of Sweden, which is responsible for the design and development of products in the IKEA range. INGKA Holding B.V. is wholly owned by Stitching INGKA Foundation, which is a non-profit foundation registered in Leiden, Netherlands. The logistics centre Europe is located in Dortmund, Germany.
Inter IKEA Systems B.V. in Delft, also in the Netherlands, owns the IKEA concept and trademark, and there is a franchising agreement with every IKEA store in the world. The IKEA Group is the biggest franchisee of Inter IKEA Systems B.V. Inter IKEA Systems B.V. is not owned by INGKA Holding B.V., but by Inter IKEA Holding S.A. registered in Luxembourg, which in turn is part of Inter IKEA Holding registered in the Netherlands Antilles. The ownership of the holding companies has not been disclosed.
The company which was originated in Småland, Sweden, distributes its products through its retail outlets. As of May 2010, the chain has 313 stores in 37 countries, most of them in Europe, North America, Asia and Australia. The IKEA Group itself owns 276 stores in 25 countries and the other 37 stores are owned and run by franchisees outside the IKEA Group in 16 countries/territories. 2006 saw the opening of 16 new stores. A total of at least 15 openings or relocations are planned for 2010. The IKEA Website contains about 12,000 products and is the closest representation of the entire IKEA range. There were over 470 million visitors to the IKEA websites in the year from Sep. 2007-Sep. 2008
3. Identifying Critical Issues
The main critical issue faced by IKEA is the challenge faced by any organization as it becomes larger and more diverse is how to keep the core founding values alive. The company has grown in to a global cult brand over the past thirty years and has been the most successful retailer of home products globally. The issue remains with the fact that IKEA is still run by the managers trained and groomed by Kamprad himself and they are personally devoted to the founder. But the problem starts emerging direct links with Kamprad disappear and the culture of the organization may start to fade.
The company’s strategy to keep thriving as a cult brand is another critical situation. For example, IKEA’s attempt to gear up for a return to Japan in 2006 could be critical since IKEA stumbled badly before when there was a foray thirty years ago which was a complete failure. There was a gap between what Japanese wanted and what IKEA offered. The Japanese wanted high quality and great materials, not low price and particle board.
With the historical average of its sales growing IKEA will need to source twice as much material as today. Since there will be a shortage or probably a ‘bottleneck’ of supply IKEA cannot increase the amount of stores it currently has by more than twenty stores.
The competitors such as Target Corp. (TGT) in the U.S., Kmart, Fly in France and Nitori Co. in Japan who have started to imitate the low price differentiation strategy as IKEA will be great challenges to IKEA in the future since they are all going to imitate the strategy used by IKEA which has so far been its Sustainable Competitive Advantage it had over the competitors.
To identify the objectives and strategies of IKEA it is would be highly advisable to identify vision, mission and core- values of the company.
Company Vision, mission statement and company objectives further illustrated on (Appendix_1).
4. Analysis
External environment and the internal environment are the best two ways of defining the environment with regard to an organisation.
Source: www.publicsafety.gc.ca
4.1. External Environmental Analysis
The reason for taking effort to conduct this external environmental analysis is to identify the environmental strain towards the organizational activities and develop the opportunities which are considered as benefits to the organization and avoid the threats. The precise rationale behind the external environment analysis is to detect the problems that are external to the organization. Organizational resources and capabilities should be identifies in order to adopt to the situation; since external environmental aspects such as politics, economy, socio-cultural issues and technology directly impacts on the organizational functions. Environmental Analysis again divided in to two components as macro environment and industry analysis.
4.1.1. Macro Environmental Analysis
Most important external environmental uncontrollable issues such as political-legal,economical,socio cultural, technological and also some other factors which effects to the organizational decision making are consider as macro environment.
PESTEL Analysis
The word “PESTLE” stands for Political, Economical, socio-cultural, technological, and legal and environment. This is a tool which guides us to identify the future path of an organization. To identify the analyzed factors and in order to get the complete idea about the Ryan air refer (Appendix _2)
4.1.2. Industry Analysis
By using this industry analysis we always try to have a better idea about the real competitors in the market, new entrants, substitutes and many other external factors which influenced to the industry. Industry consists of local governments, public, vendors, customers, employees, competitors, creditors, unions, Inland Revenue, Banks and many other stake holders.
Porters’ Five Forces Model
We can use Porter’s five forces model as an analytical method for find out the external environment in the industry and the market profitability. Five forces in this model consist of;
Intensity of current competition
threat of potential competitors
threat of substitute products
Bargaining power of customers
Bargaining power of suppliers
Porter’s five forces model can be able to use as a powerful analysis tool to analyze the current position and performance in the industry of Ryan air -the low-fares airline. (Appendix_3)
Competitor Analysis
Today everything changes very dynamic way. All around the world become a one city. Though last few decades ago only one particular product available in the market which someone produced; but nowadays everything change and customer can purchase whatever they want by their wish. So it is a opportunity to customers for having a chance to get the best, quality product. Also customers have a choice now because of this range of different products. Competitor analysis basically use for evaluate the competitors in the market and identify the best strategy for them. So by having a competitor analysis Ryan air needs to identify their competitors.
Industry Perspective; when do the competitor analysis in the industry perspective all budget airline companies in the European region could consider as their competitors since Ryan air is a budget airline. There are around forty companies.
Ex: Lufthansa, Easy Jet
Customer Perspective; when Ryan air analyses under customer perspective direct competition as well as indirect competition get to the consideration.
Ex: British Airways, Cathy pacific, Aer Lingus
4.2. Internal Environmental Analysis
After estimating the external environment it is important to identify internal environmental resources and competencies which could be the organizational strengths and weaknesses in the case of Ryan air.
In order to realize the Ryan air we need to collect information regarding the marketing, finance, management and Hr issues in the case study. In here we are using models such as VRIO-VRINE model, and value chain analysis and used ratio analysis to find the financial performance in the environment.
VRIO/VRINE Model
VRIO/VRINE is another model which uses to analyses the internal environment in the organization. By using this model it check that organization has the ability to compete with different kind of potential and existing competitors.
The resources in this model must be; valuable, rare, inimitable, non-substitutable, organized and exploitable. The capabilities must be managing knowledge, learning and innovation.
According to the Ryan air it is very low budget airline and owed largest number of passengers for a year. Though this is not a rare industry resource it makes valuable by the capabilities of management. Other important issue is though Ryan air used imitable tangible factors they couldn’t imitate since high capability of managing knowledge, learning and innovation skills. Within long time period Ryan air has make a good reputation towards their organization and also brand loyalty so those are difficult to imitate. Ryan air’s CEO O’Leary is other strategy they have chosen.
The model of the VRIO/VRINE is in (Appendix_4)
Value Chain Analysis
Basically the value chain analysis model use to value adding process to the Business. Managers used to find out their internal issues such as strengths and weaknesses by using this tool. This is very valuable model, because this can add value to the HR in the organization as well as to the organization. For the reason that when managers identifying their strengths and achieve opportunities while minimize the weaknesses to overcome the threats it is overall beneficial to the business.
Value chain analysis of Ryan air is in (Appendix _5).
Financial Ratio Analysis
In here we were carryout this financial analysis for the purpose of identify how the Ryan airlines’ liquidity, profitability, activity and leverage effects to the business.
All the calculations are done for the year ended 31 March 2006. Refer (Appendix_6)
5. Gap Analysis
A gap analysis is used to Help the organization with its strategy development process and in simple terms it is design to illustrate “where are we now” and ‘where do we want to be”. (Bermish, Ashford, 2007-2008)
When doing a gap analysis to the organization to achieve the accepted level whole the organization restructure by adjusting the marketing mix strategy such as capital,HR,Fixed assets, money according to fill the gap in between the intended objective and the current position.
The Performance Gap
Time
Sales
0
6. SWOT Analysis
SWOT analysis explains about the Strengths, weaknesses, opportunities and threats in the organization. Internal environment influences on strengths and weaknesses. Opportunities and threats have been discussed under External environment. By understanding the strength and opportunities; it is easy for us to grasp opportunities and increase the profits in the organization. And also by identifying weaknesses and threats we can formulate better strategies to overcome these problems. It will be helpful to forecast whether this intended strategy is valid or not.
How the SWOT analysis applies to the Ryan air is fully illustrated in (Appendix_7)
7. Recommendation
The introduction of in flight mobile phone usage on aircraft was criticized by the readers of the Financial Times poll stating that passengers do not wish to be disturbed and “just another reason not to fly Ryan Air”. The response of the CEO, Michal O’Leary, of Ryan Air for these issues was unprofessional and stated that “if you want a quite flight then use another airline”. This kind of remarks to the public by highly ranked personnel from the staff of Ryan Air depicts arrogant attitude and tarnish the image of the company and by issuing statements such as the above the brand value of the service becomes minimal as always the service provider should look after its clients and if not it may lose its customer base day by day. Therefore the attitude of the management should be more positive towards the customer as if not it may lead up to a critical aspect of losing your own customers.
Also Ryan air should have offered more employment opportunities to the market since of their sudden growth and expansion more competitors of them suddenly collapsed and Ryan air should have offered more job opportunities which will help to benefit the company’s performance and more workforce could bring up more efficiency to work and also would benefit the economy of Ireland as a country where unemployment is one of the few larger burdens every government face in their regime.
As an airline Ryan air better perform a more employee friendly environment at the office environment to reduce stress of the people and people to be more reliable. Then the people will think about the ryanair in positively.
They are doing only a short distance travel, if they expand the business in to long haul also customer base will be increased. So Ryan air could able to lead in that market because of their opportunities.
If they can purchase the jet fuel directly they could able to reduce the price level further more.
8. Conclusion
primary objective of this case analysis was to accomplish the complete analysis of the air line industry of the Europe which is relevant to Ryan Air and to find out Ryan airs core business strategies, management styles, current objectives and future objectives and finally provide satisfactory recommendations to the Ryan Air company in order to minimize their current failures and drawbacks and to maximize their productivity, efficiency and to achieve maximum profits in the long run.
When analyzing this case we have found that their current success particularly relies on its CEO Michael O’ Leary’s creative ideas. Therefore as a leading organization it is much needed to empower their decision making and management process in order to exist for a long time.
The case has given all the necessary details about the Ryan Air and it has consists of current and expected future business objectives and goals. This case has given me an opportunity to learn more theories which can apply in order to evaluate the air line industry and I could examine the external and external environment which influences the Airline industry. Finally I would like to say that the knowledge I gathered by evaluating this case is really helpful to apply to the real world business situations and this would help me to improve my analytical abilities.
9. References
Beamish, K., Ashford, R., (2008). CIM course Book: Marketing planning, (1st ed).
David, R. D. (2005). Strategic Management : concepts and cases, (10th ed). Prentice Hall of India.
Kotler, P. (2001). Marketing Management,(11th ed). Pearson Education (Singapore) Pte.Ltd.,India
Kotler, P.(2006).Marketing management, (11th ed) western university, USA
RYANAIR (2005):SUCCESSFUL LOW COST LEADERSHIP,Thomas M. Box, Pittsburg State University
Viljoen, J., Dann, S. (2003). Strategic management. (4th ed.). Frenchs Forest, New South Wales: Pearson Education Pty Ltd.
Williams, J., Curtis. (2008). CIM Course book, marketing management in practice. (1st ed).
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10. Appendix
Appendix_1
Identifying Critical Issues
In order to identify the objectives and strategies of the IKEA it is very important to identify vision, mission and core- values of the company.
IKEA vision statement is ;
“To create a better everyday life for the many.”
IKEA mission statement is;
“To offer a wide range of home furnishing items of good design and function, excellent quality and durability, at prices so low that the majority of people can afford to buy them”
IKEA market positioning statement is
“Your partner in better living. We do our part, you do yours. Together we save money.”
Objectives
– To produce cheap and affordable product for the public/customers.
– Better life for those who cant afford expensive products.
– Ensure the customer finds what they are looking for in store.
– Low prices.
Appendix_2
PESTLE Analysis
Source : www.whatmakesagoodleader.com/image-files/pestel.gif
Political-Legal Factors
Since the political and legal issues highly influence to the organizational activities you should have a brief knowledge about the issues such as;
foreign trade regulations
Government stability
Taxation policies
Business Ethics
Social welfare policies
Trading Agreements – (EU,NAFTA,ASEAN)
Competition law
Employment law
Health and safety issues
Product safety
According to the case; Ryan airline always was prompt for controversy mainly due to their CEO. They took contrasting decisions against their own clients and employees. A company should always comply with the political nature of a county where all the legal procedures are maintained by the political nature of that country. For example, the environmental protection law, tax laws, attitude towards foreign companies. Due to the new EU regulations came into effect from February 2005 any inconvenience costs to the passengers were likely to get compensations on many areas such as meals, refreshment, and lodging and so forth. So as an airline carrier Ryan air was also bound to go through this procedure but the issues was Ryan air was a company which was more of a short distance travel airway rather being long distance which is not the ideal thing to happen to them. The advertising strategy they used involving politicians may not have been intentionally but the approach or the strategy they used is not that sounding for any political relationship for Ryan air. Also the neglecting of trade union rights as well as making negative remark on French politician by the CEO of Ryan air is not the ideal attitude that a company should poses to be in the travel industry. In the issue of environmental taxing on accelerating carbon from the aviation industry also was a legal complication and Ryan air tried to argue with this matter leveling in bad terms with other parties and helping their competitors to be more competitive. Due to the security and various laws for air travelling for countries several landing charges and expenses may occur and trying to challenging them may cause the business to be adhering to a loss.
Economic Factors
The purpose of having any business/organization is to have a better economic stability. Because of that salesperson always should highly concern about the economic factors in short term as well as long term.
economic stability
Interest rates
Inflation,Unemploymet
Gross Domestic Product (GDP),Gross National Product (GNP)
Money supply
Disposable Income
Business Cycles
Since brilliant future of the organization directly effects to the country’s achievements; adjust with the economic variables are really important. Because government directly influences to the organization and also organizations affect to the government’s financial stability as well. Under major economic variables purchasing power of consumers, consumer confidence, Disposable and discretionary income, consumer credit and interest rates, general economic conditions and government trade policies such as fiscal and monetary policies, industry subsidies, foreign trade policies, goods and services tax (GST) can be taken in to consideration. while each and every component affect to the organization and also later to the government it is good for Ryan air to behave according to the standards.
(Marketing,P.38)
Ryan air is a company which works under the category of being an expensive business service sector the economical environment of the country and its neighboring countries especially the region in this case Europe is an important factor. As of Ryan air being declared as a low fare airline it should attain and compromise with effective plans with the community it work with. This mainly focus on the rules and regulations declared by the respective governments on their economical plans and as business services organizations they should adapt to these condition to keep their business in tact with the respective countries. Business that flow as a services has to look out for GDP trends, interest rates , wage, price controls as they should also try to maximize the gap between expenditure as income. According to the case study when Ryan air was booming in net profits despite a 74% increase of fuel costs should have carefully invested its profit on the company’s growth and expansion. When the airline was having half year profits in November 2006 the company should have turnout for an IPO (public offer) to sell some of its shares to the public sector as the European public sector is more financially stable with their gross domestic product (GDP).
Availability of energy is also a vital role in this sort of a service where fuel price always in the increase and adding it to the bill of any customer service provided or trying to add it from another service will only leave the clients becoming demoralized and the end result would be less clients and higher travel fee.
Socio- cultural Factors
Since in the business world is a collection of various types of people who get changed by their age, religion, country and gender. It is vital to having an excellent idea about the socio-cultural factors such as;
Religion
Attitudes towards work and leisure
Languages
Life style changes
Role of men and women within society (Gender)
Population
Education level
This element is highly engage to find about the particular socio and cultural issues in the particular country. This is a mixture of set of values, beliefs and norms. Since Ryan air is a international Company it has to concern about both socio and cultural issues which strictly effect to the business as well as the government.HR managers have to think about these HR practices since there will be expatriates who comes from different regions.”They provide a good insight in to the understandings of the markets and how they impact on a business.”(Marketing,P.35)
This is an element which diversifies groups in the society. In the case of Ryan air they have always targeted to go beyond the limits as an example using a politician indirectly to an advertising campaign and even in the negative form results in unpopularity from community as politicians are leaders of countries and they are being formed by people and if go against them then the damage will not be just one client but a whole set of clients who follow the steps of that leader. Also another fact is that the refusal to recognize unions and providing poor work conditions. After all if the company is unable to look after and to hear what their employees say then there will not be a productive working culture resulting loss of profits. Another impact that hit on them was the imposing of wheelchair charges and from a socio- cultural aspect it is not the most ethical way to do business.
Technological Factors
Technology helps us to change the world and make the all countries together. So technology is highly influence on any organization.
New Discoveries – Tailor machines, robots
New developments – Internet banking, mobile phones
New technologies – Books via internet
New ways to communicate – Customer relationship management (CRM)
Rates of obsolescence
Technology is a very dramatic factor which effects to the people and organizations in today’s ever changing world. Technology can do many things within few second. It can do innovative things up-to-the minute and it will helpful to give a competition to the competitors among the same industry and also substitutes.
“Technology can be used to enhance the product by improving quality, adding features, expanding the range, reducing the price etc”. (Marketing,P.39)
Technology is an integral part of any business. Using it to gain more effectiveness and efficiency to a business is of a positive approach but similarly it should be used in such a manner that sometimes it could lead to ethical issues. When Ryan air started to offer online ticket reservations, the number of passengers travelling per day and flying times start to increase. One of the places where Ryan air used its technological aspect in a negative manner was the introduction of the usage of mobile phones on board. This was a good attempt to gain more business people to the air line but in the other sense Ryan air ways being a low fare air line you can’t expect more business people to travel other than people who look out for economical travel plans and they are not more keen on having mobile conversations on board ranger than having a calm and quite travel. The usage of an entertainment system is also a good passenger incremental idea but Ryan air being a low budget air ways it is more of a costly step. Ryan air always tried to come up with new technological aspects but were in vain as they always forgot when it comes to applying technology that it is a low fare air way. The beneficial factor of using technology at its most was that to keep staff training and aircraft maintenance cost as low as possible using Boeing 737 planes where they were more eco friendly , larger seat capacity ,low emission from the air craft’s, 45% less fuel burn and 45% lower noise emission per fleet.
Appendix_3
Porter’s five forces Model
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