D. Environmental Scan
Opportunities
As IKEA aims to retain a strong market share, it is necessary to take advantage of the different opportunities of both the market or industry, and the organization itself. If the company can tap these opportunities properly and on time, these opportunities will translate financial success for the company.
- Green and Smart Products Demand. Due to the coverage of health and sustainability, more consumers are looking for greener products. These smart and green products are healthier because they are produced from renewable raw materials through a sustainable process, rather than just regular production processes. As the purchasing behavior of consumers change, IKEA can use its 75% of renewable materials and technologies used in production.
- Demand for Low and Affordable Priced Products. After the impact of the global recession and financial crisis, consumers have shifted from expensive productions to affordable or cheaper products. Consumers want to get quality alternatives to the mainstream products they buy prior to the financial crisis that hit the global market. As IKEA maintains cheaper products, as the result of its low-cost production, the organization can readily use this advantage for its benefit.
- Low Water and Carbon Imprint. Consumers of today’s market are more informed, making them pickier when it comes to purchasing products. This is a market opportunity for IKEA to take on. By tapping a market opportunity that is already open and does not demand for new technologies to be used, IKEA can easily outgrow its current market size.
- More Focused and Segmented Products. Over the years, consumers are looking for more specific products that can meet their demands. As the demographic of consumers plays an important role in marketing, new products can be introduced to meet this behavior. Consumers don’t want to have general benefits from products, but they want to have specific advantages and benefits from these products.
With the current behavior of the market, IKEA can use its resources and strengths to ensure retention of its customers and the acquisition of new customers that will increase the market size of the company and to expand the company’s current financial value. On the other hand, with the massive opportunity of corporate social responsibility on renewable and green initiatives, IKEA can invest its resources to ensure a good market and community reputation that will help the organization to plant a good impression to its market audience.
Threats
There are also external threats that should be acknowledged and addressed by IKEA to ensure that it defends its strengths from possible vulnerabilities that will pose decline of its market share and potential. These external threats are serious to the generation of a forward direction for the company.
The threats of the company can be as follow:
- More Competitors. With the behavior of consumers toward cheaper products, more new and smaller companies are producing low-priced products. This poses a threat of market share erosion for the company and this also affects the financial stability of the company.
- Recession and Financial Crisis. The impact of the financial crisis and market recession may hinder the growth of IKEA. As the spending of people slows down, the company also suffers the setbacks (Prasad, 2009). Without enough money in the market, the consumers of IKEA may not likely buy household products and furnishing.
- Changing Social Trends. From time to time, the social trends have changed which affect the overall flow of the business. For instance, as trends on buying or purchasing change, it is also necessary for IKEA to change itself, but the company cannot easily transform itself in just a matter of time.
E. Internal Scan
Strengths
The success of IKEA can be traced to its key strengths that advanced the organization's objectives, both for internal and external results. These key strengths help IKEA to acquire new customers as it tries to retain its current pool of customers. IKEA's strengths include the following:
- As a global brand, IKEA provides quality products that attract key consumers groups throughout the globe. The quality of products that consumers can find in the US market is the same quality of products in the Asian market.
- At the top of IKEA's vision is its strength. The company targets to "create a better everyday life for many people". IKEA continues to innovate itself to become a leader in the industry and to provide for the demands and needs of its consumers.
- IKEA is not limited to certain products only, rather the company offers wide range of products at low prices to meet demands of consumers and attract new consumers.
- The production design of the company is anchored on in the idea of "Cost Consciousness," which considers the lowest available cost for the production of products without reducing or sacrificing its quality (Doole & Lowe, 2008).
IKEA's primary strength is embedded in its production processes. In terms of commitment to use renewable materials, IKEA had increased from 71% to 75% usage of renewable materials, such as recycled and reclaimed waste productions for energy production, thereby reducing energy cost (Pradhan, 2010). With the use of advanced and state-of-the-art technologies, IKEA can produce products from small amount of raw materials.
Over the past years, IKEA has improved its partnership with suppliers. As the result of this long-term partnership, the company can easily negotiate with suppliers for prices of large volumes of raw materials. With this arrangement, IKEA is assured to get the necessary raw materials to avoid delays in production, while it also helps to give suppliers guaranteed orders. IKEA can greatly benefit from cheaper prices of raw materials, as the company can get higher profit per unit of products.
Over the years, IKEA has maintained a strong supply chain management by outsourcing suppliers and raw materials that are near the production plant. This reduces the cost of transportation, increases the response time of suppliers on the demand of IKEA, and ensures engagement with customers whenever necessary.
Weaknesses
For the development of stronger organizational structure, it is necessary for IKEA to identify and acknowledge its weaknesses. If IKEA fails to address these weaknesses, these may be the reasons of the company's failure to advance its objectives and causes in the market. As such, these weaknesses, if properly addressed and mitigated, can be turned into assets of the organization for the achievement of its vision-mission statements.
The following are the weaknesses of IKEA:
- IKEA has continually grown over the past years making it a global brand. However, the same makes it harder for the management to ensure that all production plants follow standards and quality processes (Nelson & Quick, 2009). For instance, in other countries that don't have working condition regulations, IKEA may also have relaxed regard to the production conditions. This would damage the company's reputation as a leader in quality and affordable products.
- As the company moves toward the direction of reducing prices, the production may also put quality into minimal conditions. The compromise of quality becomes the next option of IKEA to ensure cheaper products.
- The global expansion of IKEA makes it harder for the company to translate its environmental initiatives on stakeholders and consumers. This poses a big expense on advertising and information-drive.
Strategic Recommendations
Based on the analysis of the opportunities and threats, strengths and weaknesses of IKEA, it is necessary for the organization to maintain and employ strategic actions that will ensure its steady growth. These strategies are directed to address threats and opportunities of IKEA, with the aid of its weaknesses and strengths.
- Help in dictating social trends. Social trends are not just simple phenomena that happen without motivation. As such, if IKEA wants to make use of the social trend for its benefit, it is necessary to condition the mind of consumers on the possible impact of smart and green products. This ensures that consumers’ mindset over these factors of products will not change in the near future. Publishing newsletters, practical guides, and such other materials about renewable materials and products can help to translate the objective of IKEA into social trends.
- Use its large size. Rather than dwelling in the problem of its size, IKEA can use its size to hinder smaller companies to enter the market. Placing specialized managers can help the company to achieve its goals and potentials. It is necessary for the company to perfect its supply chain and production system to ensure that products are of high quality and the cost of producing will not hurt to the company, even if IKEA goes to lower price introduction in the market.
- Keep customers buying. Perhaps, the toughest battle of IKEA is to attract consumers to buy even in the middle of deep economic recession. It is important for the company to create plans, promos and other activities that will attract consumers to buy and enable to buy as well. By offering new payment schemes, IKEA can still keep its cash-strapped customers buying products from them. As a result, IKEA maintains its steady growth even in the middle of the financial crisis that cripples most consumers.
References:
Doole, I. & Lowe, R. (2008). International Marketing Strategy. Cengage Learning EMEA.
Nelson, D. & Quick, J. Organization Behavior Science: The Real World and You. Cengage Learning.
Pradhan, S. (2010). Retail MerchandisingTata McGraw-Hill Education. New Delhi, India.
Prasad, K. (2009). Strategic Management: Text and Cases. PHI Private Learning. New Delhi, India.