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Is IKEA’s success sustainable? Essay Sample

Is IKEA’s success sustainable? Pages
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1. List IKEA’s external and internal challenges. Looking at IKEA’s challenges, which do you think pose the greatest threats? Why? How would you address the challenges?

External challenges
Opening new stores to drive future growth
Finding new sources of supply to support more store openings Find suppliers to be a strategic fit with its highly efficient operations Given the issue of deforestation and the link to global warming, IKEA would need to take into consideration finding a low-cost material as a replacement for wood.

Internal challenges
The person responsible for all the strategic decisions made for IKEA and the influence he has on the culture and organization of the company The privately holding of IKEA by a complicated network of foundations and holding companies form Netherlands, Lichtenstein and Luxembourg, that restrains the access of large capital sums needed for a rapid global expansion. Taking a closer look at the challenges that IKEA has to take, in my opinion, the greatest threat from the internal ones would be the one regarding the decision-making process and person in charge of it. Considering the fact that in his late 80’s the most important man, who founded and led the company decided to step back, it’s a big step to decide on the new chairman, his actions, decisions or strategy to implement. Also, regarding the external challenges IKEA has to face the competitors, with different strategies on each market.

IKEA should definitely try to expand on the furniture market, which involves a high attention to the strategy used to open new stores and as well further thinking and plan when it comes to production factors, especially raw materials. I think it is really important for them to take into consideration the deforestation and global warming issue, so to find a low-cost material that could successfully replace wood, at a still satisfactory quality. Discussing the importance of the challenges shown above, I think IKEA places itself at a pretty important step in its expansion and development process. Therefore, the challenges mentioned above should be treated very seriously and with a lot of attention to the details and potential threats. Of course, a decision making process it is not a simple thing to do, but the new chairman and his board team should take into consideration all the possible ways of developing the business and select to go further on with the most likely to success, not only on the already existing markets, but also on the new ones, where they plan to expand.

2. Walmart entered a period of difficulties after Sam Walton stopped down. Do you anticipate IKEA having the same leadership transition challenges? Why or why not? I think that in IKEA’s case could be easily met the same challenges that were seen in the case of Walmart change of leadership. It is normal somehow to have a slightly new way of leading a team and managing a business when the leader changes. Still, in IKEA’s case there is not really a big difference in the change occurred, as the leadership will be taken further by one of Mr. Kamprad’s sons, so the business still stays in the family more or less. Being just a “family” change, I suppose that the son would be still advised or somehow influenced by his father, so the main objectives, plan of action and ways of achieving the results would not be so different from the ones that the company was already used to from the former way of leading.

Of course that there could be some challenges, as IKEA’s plan is also to develop and enlarge the stores network, so there would be needed a strong hand and a very precise decision-making process. As seen in the exhibits presented in the paper, IKEA had a really strong growth starting from 2004, not only regarding the number of stores, that increased to over 330 all over the world, but also regarding the revenues, that were proportionally keeping up with the development pace. I think that the strategy they used proved to be a good one, so they should keep growing as number of stores and also maintain the main strategy that Mr. Kamprad implemented and kept all through the company’s history up to the present moment. 3. Did it surprise you to learn that both a developed country ( the United States) and also emerging economies (i.e. China and Russia) are the fastest growing international markets for IKEA? Does this fact pose any challenges in the way IKEA ought to compete across the globe? Why or why not?

Personally I was not surprised to learn that IKEA has the fastest growing international markets both in developed countries such as the United States and emerging economies such as China and Russia. The main reason why it did not was that I know that their products are really affordable, but at the same time of pretty high quality. IKEA tries to have products that are both useful and pleasant, affordable, but still durable. Even if their main target market would be the average or low income consumers, the still have a quality satisfactory enough to reach the expectation of the high income consumers as well. Therefore, it does not really matter the level of general development or the income of the potential customers on the market, they still succeed to convince and prove that their products are reliable at a decent price, that makes it a double benefit for its customers. As regarding the challenges in the way IKEA ought to compete around the globe, I think that they should not be so worried about the other competitors on the market in their market segment.

They already have a good strategy of development and market enlargement and also a really strong and good brand image. Being one of the most famous and trusted producer in its field, they could easily enter new markets, gain market power and so then continue to expand. The main things they should think about as challenges would be the fact that the consumers are becoming more and more sensible to the issue of deforestation and global warming, so the leaders of IKEA should definitely think about a good wood substitute. This issue may require pretty much attention to the management team, as it needs to maintain the quality and at the same time to make sure that there are not so many price variations. In this sense, one of the most powerful examples is the furniture market in North America, where they decided to hire top designers, but launch a wide range of low-priced furniture in order to satisfy the demand on the market ( as generally Americans tend to use and prefer products with a shorter imposed life cycle – so that the reason of renewing the furniture is not the fact that is no longer in a good condition, but the fact that they feel the need of a change).

4. What can IKEA do to continue to drive growth globally, especially given its strategic intent to double annual store openings?

In my opinion in order to continue to drive growth globally, IKEA should maintain its strategy that allowed them to sell more or less the same type of home furnishing across the globe only with little adaptations. Even if they were pretty slow in the beginning to expand and it took almost 20 years to come across the Swedish borders to Norway, they succeeded in developing a really strong international strategy to grow first in Europe and then beyond. After this strategy they continued with a global standardization one, that permitted them to achieve better economies of scale while effectively managing the whole supply chain. Therefore, as they intend to double the annual store openings, I think that they should keep as the main core the global standardization strategy, but slightly change a few factors of production for instance when it comes to the main raw materials and production factors used (mainly try to find a substitute for the wood they use as the principle production factor at the moment).

5. Assume you are hired to consult IKEA on the topic of corporate social responsibility. Which areas would you the company to be more sensitive to and how should these be addressed? If talking about the corporate social responsibility of IKEA, I would consider that the most important thing to be taken into consideration is the fact that the consumers started to be more sensitive regarding the deforestation issues and global warming. Due to these factors I think that IKEA and its management team should be really careful with the raw materials they use to produce furniture. Especially that they plan to continue the expansion of their stores they should definitely try to find a substitute for the wood, which is currently their most used material. Nevertheless, this kind of changes should not affect the quality of their products, neither their prices that should be still affordable for mostly all the consumers of low and middle income in the market. In addition to becoming more social responsible I think that this change could bring them a lot more trust and appreciation on behalf of the customers, so that they can gain even more market share. Also their brand image could be improved and their products will not have to face the comparisons to the competitors, because they would be definitely superior.

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