Introduction
At IKEA, the chosen organizational strategy is that of cost leadership. The organization aims to make simple but high-quality furniture and set its price as low as possible for affordability by customers. Following this strategic way of running the business, IKEA has grown immensely nationally and internationally. The organization has approximately 460 stores which are spread across 63 countries. At the corporate level, the company is well managed with an outstanding performance from its executives. About international ventures, this organization is growing at high speed (Kremer, 2019). IKEA has increased sales significantly following its cost leadership strategy, positively impacting business-level management. However, concerning business operations, IKEA needs help with its supply chain.
Business Level Issues at IKEA
At the business level, IKEA faces strategic implementation issues such as supply chain distraction which affects the operations systems. Concerning this problem, the company has been encountering shortages in its acquisition of products leading to poor workflow. Due to this, the sales flow has reduced, making it hard for IKEA to serve its consumers effectively. For a company prioritizing its consumers, ensuring an adequate flow of goods has been challenging, especially given the inflation issues that have impacted many countries. However, partnering with other suppliers can counter this business-level strategic implementation. Some loyal suppliers are willing to keep orders flowing as usual. This issue might be costly for IKEA, but it will ensure that sales are always high and consumers are well served.
The other issue affecting IKEA’s strategic implementation is inflation, which has led to the high cost of products (Catalan, 2022). Due to the rise in prices, IKEA can no longer purchase items in the market as it used to. Due to this, the organization is suffering an increased cost of production. With the cost of manufacturing items being high, the only solution that IKEA has is to raise its prices to cover the production expenses. For an extended period, IKEA has used the cost leadership strategy. Following this, low prices have helped it become a market leader. Hence, the firm stands to lose some customers if it increases the prices of its products. Therefore, there is a need to weigh the pros and cons of taking the alternative of a price increase. Loyal customers will remain as long as the quality of the products remains high.
Corporate-Level Strategic Implementation Issues
At the corporate level, IKEA also applies the differentiation strategy. One of the ways that the firm differentiates itself is through talent management through training. Following this, the organization accrues many costs related to staff maintenance. Hence, exercise should be limited to in-house operations where senior staff train the rest to evade this issue of wastage of resources (Kremer, 2019).
The other corporate-level issue needs a more effective organizational structure. 11 franchises operating across 500 locations take time to manage. Due to this, the aspect of shared values as per McKinsey’s 7s Model only applies sometimes. For a solution, the organization should embrace a more decentralized structure for the shared value aspect to be effective.
International Level Strategic Implementation Issues
For a company that has ventured internationally in 63 countries, it is evident that it has achieved high levels of success. However, this comes with issues such as more staff integration with the organization’s vision and mission. With its hierarchical leadership, IKEA has a centralized idea of high quality and low prices. Such strategies are not applicable in some countries. Due to this, the staff lacks a sense of unified culture. Such issues can be solved through decentralization. If the organization upholds a decentralized culture internationally, it could help bridge the cultural gap among employees.
The other issue that this organization has faced internationally concerns staff compensation. Some regions offer more wages than others. The case has led to diversities in IKEA worker’s compensation rates (Catalan, 2022). The issue can be solved by having a centralized wage rate for all IKEA workers in all ventured countries. Through this solution, unity is promoted in the staff function.
Main Strategic Issues Affecting IKEA
The two main issues affecting IKEA are its organizational structure and supply chain disturbances. The organization has experienced many issues regarding the need for more goods in the supply chain, making it impossible to keep up with sales. IKEA has faced challenges regarding its organizational structure, especially following international ventures. The firm’s hierarchical, centralized system makes it hard for international franchises to experience the culture. Hence, it is necessary to have a decentralized structure that ensures the vision and mission of the organization are spread evenly to all locations ventured.
Applying McKinsey’s 7s Model to Support IKEA Strategic Implementation
The McKinsey 7s Model has seven categories of business aspects that help create a good balance in an organization. They will provide the most appropriate support by applying them to the case of IKEA’s strategic implementation.
Structure: IKEA maintains a centralized business structure where the chain of command starts at the headquarters in the UK. Due to this, the company needs a more unified culture across the ventured region, which affects operations. Hence, it would be effective if IKEA applied a decentralized structure that shows that the organization is well managed at all levels.
Strategy: IKEA utilizes cost leadership and differentiation strategies. In the current commercial environment, venturing into technology has proven more effective. Hence, the organization must uphold technological advancement in operations, especially with international ventures (Yurt & Deniz, 2021).
Systems: IKEA’s current supply chain system could be more effective as the organization has recently been experiencing issues with a lack of products. For the organization to combat this, it should develop a system where all supply chain players are integrated to create transparency. Through this, there will be a limited possibility of the need for more resources in warehouses.
Skills: To foster employee development, IKEA has invested in training existing and new workers. With the possibility of turnover, such training has become ineffective. IKEA should explore different techniques, such as in-house training (Bouhia, 2022). Through this, these individuals will develop the necessary skills cheaply.
Style: Senior employees need to be exemplary for an effective leadership style. IKEA can benefit a lot, especially in developing an interactive culture throughout all levels of management.
Staff: Despite IKEA going through issues with its sales due to economic challenges, the organization has paid decent wages to its employees. IKEA can show loyalty to its workers through techniques such as recruiting for better positions and training (Al Shuwaler et al., 2020).
Shared Values: IKEA must portray an effective organizational design rooted in shared cultural perspectives. The values, mission, and objectives followed by IKEA dictate the developing culture. The company can ensure that all its branches uphold similar visions, missions, and shared goals through a decentralized system.
Strategic Evaluation through Triple Bottom Line Model
People/Social Performance
IKEA is a transparent organization that shares details of its successes and shortcomings. The organization’s self-reported analysis shows that it performs highly in social, financial, and environmental aspects. When it comes to this organization’s people or social responsiveness, it is said that the staff is well-paid to sustain their lifestyles. When most organizations perform poorly financially, they cut off some workers or reduce their wages. However, this has yet to take place in IKEA. The organization pays its employees well, reflecting the enterprise’s financial conditions. This organization is known to care effectively for the community it serves to ensure individuals get employed in their facility as long as they have the necessary skills. The organization also sees that it sets its prices low enough for the affordability of many in the community. With its cost leadership strategy, IKEA has consumers from almost all socio-economic backgrounds (Al Shuwaler et al., 2020). This promotes equality as any person can afford the products in this company. The organization also ensures that customers experience value for their money during purchase, following maintained high quality.
Profits/Economic Performance
In terms of profits or economic value, the organization targets high sales to promote sales. As much as the company focuses on social aspects, such as taking care of employees and other stakeholders, it also earns profits. The only way to uphold sustainability and be socially responsible is by making returns through ethical means. The organization has ventured into 63 countries where the business has been blooming. The company, during the year 2022, recorded a revenue of EUR 27.6 billion. The net profits for this year were approximately EUR 0.7 billion. In 2021, the income was EUR 41.9 billion, which is expected to keep rising. With such high returns, their organization will keep growing globally in selling furniture, decorations, and kitchen appliances, among other things. The products this organization deals with take time to become obsolete; hence, it will continue to thrive in the market. Simple and quality designs are the main traits of products at IKEA (Bouhia, 2022). Following this, it is inevitable that this organization has excellent prospects. From the time it was established in 1943 till now, the organization’s returns have continued to grow. Due to this, its economic capacities are also expected to develop.
Planet/Environmental Performance
Concerning the environment, IKEA has highly upheld the practice of being environmentally responsible. Beginning from the design of its products, the organization has established a shared goal of having repairable, resold, reusable, and recyclable items. Due to this, the organization ends up causing as much waste in the environment as possible. This organization is sustainable for the planet. Most of its products get recycled; hence, they must find their way into the environment where they could cause damage. The organization aims to reduce its carbon emissions in the supply chain by 15% by the end of 2030. IKEA also hopes to ensure it designs products with a longer life cycle to prevent ineffective disposal. Using life-prolonging materials, IKEA furthers its sustainable development goals, which are suitable for the planet (Yurt & Deniz, 2021). With its current sustainable goals, IKEA is helping fight against global warming. Through environmentally friendly goals, the organization will effectively earn the trust of its customers hence becoming more popular. These environmental strategies will produce a positive impact on IKEA.
Conclusion
Ikea is an organization that has been growing well in the industry, but due to economic changes as of 2020, it started to experience some issues, such as a need for more products. The organization’s supply chain could be leaner at the business level. At the corporate level, better leadership techniques need to be explored with more ventures in technology advancements. Internationally, the firm should focus on decentralizing its operations. The organization should continue with its sustainable development goals alongside social responsiveness. When these aspects are taken into consideration, IKEA will be able to regain its profitability and experience more stable international ventures.
References
Al Shuwaler, A., Quttainah, M. A., Kee, D. M. H., Kei, C. M., Qi, E. J., Wen, E. C., … & Pandey, R. (2020). IKEA’s corporate social responsibility. International Journal of Tourism and Hospitality in Asia Pacific (IJTHAP), 3(2), 70–77.’
Bouhia, G. (2022). Applying the circular economy concept to a sustainable business model for large retailers: the case of IKEA. International Journal of Competitiveness, 2(3), 212–233.
Catalan, M. L. P. (2022). IKEA’s Supply Chain: Growth on Sustainability.
Kremer, K. (2019, June). Operations strategy: Literature review and case study of IKEA. In Proceedings of FEB Zagreb International Odyssey Conference on Economics and Business (Vol. 1, No. 1, pp. 606-616). The University of Zagreb, Faculty of Economics and Business.
Yurt, C., & Deniz, D. (2021). Product-based and knowledge-based sustainable living practices: The case of IKEA. Sustinere: Journal of Environment and Sustainability, 5(2), 133-145.
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