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Carmen Kwok

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Strategic Management IKEA Company Background Evaluation SWOT Analysis 1. Concentration Growth Strategies Porter 5 forces - Well developed and mature strategic Management system Opportunities 1.Further expand market into the world(esp. Asia ) -e.g. India/China/Japan/Singapore
-improved living condition -> willing to invest
-India ~US$8 billion / growth rate 25- 30% annually 2. Develop different products for broader market pens/watches/accessories->furniture->food 3. New types of stores e.g. outlet/smaller stores 4.Growing concern about environment Ikea produce environmentally-friendly product Threats 1. Economic factors
- recession slows down
consumer spending and
disposable income reduces
- furniture-> non-perishable
goods 2. Market Forces
- more competitors entering low price household furniture
market (e.g. China )
- in China, 2004-2011, sales value annual average rate of 31%
- 1-11/2012 , sales value reaching Rmb137.5 billion. 3. To sustain in Long Run - IKEA : low price strategies -> attract customers
- create easier entrants of competitors
- increase in self-supplier competitors
- price : no longer a competitive advantage What Strategies did IKEA use? Growth / Stability / Renewal ? Focusing on a primary line of business and increasing the number of products offered or markets served - not much focus on it
- brand IKEA mainly as furniture retailer
- still invest in other areas : food 2. Vertical Integration Backward Vertical Integration WHY? Maintain competencies in low price furniture market - build up network of suppliers to obtain resources
- restructured his supply chain into Poland -1991, furniture manufacturing subsidiary,Swedwood,
to manufacture wooden furniture and components - further expand into Taiwan, Malaysia, Spain, and China 3. Unrelated Diversification WHY ? erase the threat of economic forces & be able to sustain in long run - expand to food market
- diversify the product
- safer to invest in other market to prevent
loss Vision
create a better everyday life for the many people Business idea
To offer a wide range of well-designed, functional, low price home furnishing products Value
We are constantly trying to do everything a little better, a little simpler, more efficiently and always cost-effectively. IKEA founder Kamprad : founded under enthusiasm, on our constant will to renew, on our willingness to assume responsibility and to help, on our humbleness before the task and on the simplicity in our behavior‘. (Daft, 2010) History – how it all began
- IKEA went from the woods of southern Sweden to being a major retail experience in 40 countries/territories around the world.  Threats of new entrants -opportunity for new entrants to enter small town

BUT
-not easy to for new competitors to establish a vast supply chain
-high set up cost
-IKEA has strong global brand ->high customer loyalty
-well-developed business in large market Competitive Rivalry within the industry -Intense competition within the global furniture industry
-No limit to entry or exit the market
Example of competitors:
1. Aim at a more upscale market and charge in higher price: Crate & Barrel, Ethan Allen
2. Provide low-cost but do not have much styles: Wal-Mart, Costco
-many retailers import from China and sell at low price -High competitiveness - market leader
-Provide both discounted furniture and different styles of furniture

Example of other competitive advantages:
1. a hugely popular mail-order catalog: printed in 27 languages and distributed in 34 countries.(from Byte Level Research)
2. Minimize the number and complexity of variables e.g. currencies: same product sells in different countries with near price(from Byte Level Research) IKEA's Competitiveness Bargaining power of suppliers -large company -> can bargain for discount and enjoy economies of scale
-1380 suppliers in 54 countries (until 2008)
-good relationships with suppliers
-long-term cooperation to maintain lowest price: e.g. a purchasing team find new suppliers and evaluate and develop existing ones
-Own manufacturing companies (e.g. Swedwood): ensure production conditions, capacity, product quality and availability -12 designers and 80 freelancers (Business Week Magazine)
-identify the appropriate materials and least costly suppliers
e.g. The 50 cents Trofé mug comes only in blue and white, the least expensive pigments Bargaining power of suppliers Threats of substitutes -No alternatives for furniture
-BUT
-> Changes in styles and trends: e.g. wood to plywood,
rot iron or plastics (Miller, Pawloski and Standridge,
2010)
-> customers become more environmental-concerned LOW HIGH LOW LOW IKEA spirit What is Strategic Management ? - An ongoing process of formulating strategies
- SR: observe and adapt to business environment changes
- LR : Coordinate diverse organizational units, help them focus on organizational goals
- LR : Result in higher organizational performance BCG Matrix
Porter 5 forces Bargaining power of buyers -competition among market -> provide choices for customers
e.g. PRICERITE
-IKEA sell its product at low price -> may trigger price war -> loss its competitive advantage
- buyer's will to purchase largely affected by economic factors
-> furniture : durable goods Moderate BUT..... BUT... - IKEA ensure their customers being satisfied for quality service they provide
-Focused their marketing approach on demands and needs of the buyer
-unique product of IKEA
-good reputation of products
-corporate responsibility & environmentally-friendly -> good public image Strength -A strong global brand
-> Largest & leading furnishing retailer
-> 332 stores in 38 countries -Clear concept
-> Provide a wide range of well designed
products at low cost
-> More than 10000 products IKEA Crate & Barrel -Unique business model
-> Own industrial group
-> Wood producers – production process
-> e.g. Swedwood
-Ensure the production capacity of IKEA
-Provide raw materials
-Wood-based furniture and wooden components
-Operation covers every step of production
-> own design group - Distinctive Store Layout
-> good through all products

- Good cooperate image
-> environmentally-friendly -> recycle
-> Being social responsible
-> efficient use of materials Weakness Not enough distribution channel
-> 3 stores in HK
-> DSC : 22 stores Problem of product recall Difficult to control standards and quality
->Global company BCG Matrix -Plan to open 10-11 stores per year (IKEA, 2011) Competitive Strategies 1. Differentiation Strategy - Competitive Advantage:
i) special store settings
-customers need to walk through the
whole store to search for the items they want
-> Create special customer experience
ii) Integrated Service
- Low price / fashionable / Environmentally-friendly / User-friendly WHY Deal with Bargaining power of buyers Current Situation + Recommendations
1. Threat from new competitors ( easy to copy IKEA)
-> expand to small cities by open small stores
+ve : small cost / entry to small market and town /
-> expand Africa / China 2. Problem of Sustainability
-> Begin to develop Stability Strategies
-> occupied nearly half of the world market
-> face the risk of saturated market 2. Cost leadership Strategy WHY -Products are low-cost and affordable for most people
-Lowest price among the industry
Reason:
1. Decide retail price of product first -> design and production process given the established price
2. Designers directly communicate with suppliers-> reduce the cost at factory level
3. flat packages -> decrease cost : IKEA stores more products-> decrease price: transporters convey more products at one time
( Baxter and Landry, 2010) erase the competitive rivalry Reference List Baxter, M. & Landry, A. 2010. IKEA: Product, Pricing, and Pass-Through. Retrieved from http://www.dallasfed.org/assets/documents/institute/events/2010/10micro_landry.pdf

Tarnovskaya, V., Ghauri, P. N., & Elg, U. Market driving supplier strategy: IKEA’s global sourcing network in Europe. Retrieved from http://www.snee.org/filer/papers/482.pdf

IKEA Sustainability Report. 2008. Retrieved from http://www.ikea.com/ms/en_IE/about_ikea/pdf/ikea_se_report_2008.pdf

Byte Level Research. IKEA: Behind the Best Global Retail Web Site. Retrieved from http://bytelevel.com/news/IKEA_article.pdf
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