Management Assignment

On
IKEA

Submitted to:
Academic College of London

Prepared By:
Tejal Raval
Student ID: 100152
Advanced Professional Diploma
In Business Management

TABLE OF CONTENTS

 Synopsis ………………………………………………………. -
  Methodology ……………………………………………….. -
 Introduction …………………………………………………. 1
 Operational Level & Management System…….. 2
 Objectives & Strategies ………………………………… 3
 IWAY …………………………………………………………….. 5
 New Product Development …………………………… 6
 SWOT Analysis ………………………………………………. 7
 Conclusion & Recommendations …………………… 10
 References …………………………………………………….. 11

Synopsis
This assignment is based on the research project and new product
development. IKEA has been identified as company for this assignment.
Assignment covers the introduction of the company, operational level and
management system, objectives and strategies, code of conduct of the
company which is called “IWAY”, new product development plan, SWOT
analysis.

In the introduction part of the assignment, it has been covered that how
company has been founded and how it has been grown. History of the
company has been shown in it. IKEA was established in 1943 by Ingvar
Kamprad from Sweden. Its now expanded worldwide with 230 stores in 43
countries. As a private organisation, It has vision to create better life for many
people.

Operational level and Management system plays vital role in it. Their
operations and management is efficient and effective. Objectives and
Strategies of IKEA are major points to it. Their main objective is to reduce cost
and provide cheaper goods, but not to compromise with quality. They also
aiming at dependability and flexibility. Few major strategies are Developing a
strong and vital range of goods, outstanding sale prices, better customer
services, continue to reduce purchase prices and product quality to offer
cheaper rates and customer satisfaction.

Their main attraction is their Code of Conduct, which was introduced in 2000.
They call it as “IWAY”. In IWAY, they target at confidentiality and business
ethics.

New Product Development is the main research topic of this assignment.

Entering into electronic goods like Laptop will be the key development for
them. They can provide cheaper deals in laptops and they can generate good
revenue in return as they are having back bone of better suppliers and good
market image. They are not less than any other Brands available in each
category. In the beginning they can compete with small companies like
emachines, Packard-bell and then can compete with major companies in
future.

Methodology
There are few methods to evaluate the company and make assignment. Here,
research method has been used to generate the information and assess the
assignment.
Various types of research has been used in it like, internet surfing, case study
collected from the public library, management books and other references.
Personal view has been used in the research as well.

INTRODUCTION
Consumers are trying to improve their standard of living with more goods and
services that have long term consequences for the environment. No any
organization shows responsibility towards environment which IKEA did by
being a responsible i.e. they use the resources efficiently, do not harm the
environment and consider how what they do affects the ability of future
generations to meet their needs.

Established in 1943, by Ingvar Kamprad from Sweden, at early stage used to

sell pencil, pens, wallets, watches and seeds through local milk delivery
network which turns into selling household goods and furniture and named
IKEA, (The name was formed from the founder’s initials i.e. Ingvar Kamprad
plus the first letters of Elmtaryd and Agunnaryd, the farm and village where he
grew up.) the most successful market retailer, selling Scandinavian-style home
furnishings and other house goods like goods used in kitchen, bedrooms, living
rooms, bathrooms and children’s rooms in 230 stores in 42 countries and
hosting 410 million shoppers per year. No design, no matter how inspired,
finds its way into the catalogue if it cannot be made affordable. With an aim of
lowering prices across its entire offering by an average of 2% to 3% each year,
its signature feature is the flat packed product that customers assemble at
home, thus reducing transportation costs.

Being a private organization, the IKEA Vision is to create a better everyday life
for the many people. Built up with the idea to “offer a wide range of well-
designed, functional home furnishing products at low prices so that as many
people as possible will be able to afford them”. Yet, unlike some peers, IKEA
has sustainability at heart and, through an internal mantra of ‘low price but not
at any price’ is a leading example of sustainable innovation and business
growth. Between 1974 and 1997, IKEA expanded from a company with 10
stores, only 1 of which was outside Scandinavia, and annual revenues of $210
million to a group with 138 stores in 28 countries and sales of close to $6
billion. Only 11 percent of its sales were generated in Sweden in 1997. Of the
balance, 29.6 percent of sales came from Germany, 42.5 percent from the rest
of Western Europe, and 14.4 percent from North America. But in 2010, the
turnover rises up to 23.8 billion (sales tax not included). IKEA is now expanding
into Asia, with the opening of stores in mainland China.
Ref.: A case study

OPERATION LEVEL AND MANAGEMENT SYSTEM

‘‘the systematic design, direction and control of processes that transform

inputs into services and products for internal, as well as external customers is
called Operational Management.’’

Operations management means managing the processes to produce and

distribute products and services. All activities include product creation,
development, production and distribution. Operations management is in
regard to all operations within the organization. Major activities are like
managing purchases, inventory control, quality control, storage, logistics and
 evaluations. A great deal of focus is on efficiency and effectiveness of
processes. How to carry the operations in the organisation is basically depends
on the nature of products or services in the organization, for example, retail,
manufacturing, wholesale, etc.

Figure: A general model of Operation Management

CUSTOMER FEEDBACK

INPUT OUTPUT
 HUMAN  GOOGS
RESOURCES
THE  SERVICES
 FACILITIES &
TRANSFORMATION
PROCESS
PROCESS
 TECHNOLOGIES
 MATERIALS

PERFORMANCE FEEDBACK

(Source: Operations Management, R. Dan Reid & Nada R. Sanders, 2007)

OBJECTIVES AND STRATEGIES

IKEA always tries to reduce costs by anyhow and whatever way it will be. IKEA,
the name of furniture (in Swedish), stays the same in each country, avoiding so
an expensive translation. To reduce their stocks, IKEA dims the price of its
products. It also employs few employees on its stores and uses its own
employees as models for their catalogue. IKEA achieves this by focusing not
only the material and manufacturing costs of the products themselves but also
the costs of associated with inventory, staffing and retail premises etc.
Furthermore, his employees are asked to travel in second class even in “low
cost” companies for much economy.
Another part is the quality of IKEA which aims to offer their customers
products which do not compromise on technical or functional quality despite
their relatively low prices. IKEA reassure their customers of this fact by having
in store mock-up ‘test cells’ which illustrate their product’s robustness.

Apart from those, speed is also the another part of it. IKEA wants the majority
of its products available for immediate purchase, enabling the customer to
take them away during the same visit or within a very short time after. They
also want the customer’s in store shopping experience to be as quick and as
simple as possible whilst maximising the opportunity to offer them additional
goods and services.

Dependability can be taken as the performance objectives that aim to keep its
customers fully informed of how and when they will get the product they have
chosen to purchase.   Customers are made aware of what they can and cannot
pick up in store, how they need to order it, how long it will take to arrive and
the delivery or collection options they have when it is available. By doing this
both parties are clear on their expectations and comments to one another.

Finally, flexibility, the last key objectives aims to offer its customer a huge
range of furnishing products to choose from. Its product portfolio is
continuously being expanded, complementing existing products which have
been offered for sale for many years.

The IKEA group is very much built on the joint concept described in the
business idea and by supplying the same kind of products worldwide built on
the design of IKEA of Sweden. The demands and possibilities of being an
employee in IKEA is further emphasising.

 Willingness to take responsibilities, service-orientation, open for

changes, challenging established patterns, open and just in co-operation,
cost-conscious.

 Working in a growing company with human values, develop

professionalism, chose between different positions, secure and
reasonable terms of employment
An important development strategy for the group was established in 1999 as
ten jobs in ten years 2001-2010. These 10 strategies are as follow:

1. Developing a strong and vital range

2. Offer outstanding sales prices
3. Improve meeting with our customers
4. Continue to reduce purchase prices and improve product quality
5. Develop a logistic efficiency in the whole pipeline
6. Attract, develop and inspire our people
7. Be one IKEA
8. Become leaner, more simplified and quicker
9. Take responsibility for our suppliers, their co-workers and for the
environment
10. Keep the culture of IKEA a strong living reality
Ref.: Adopted from the IKEA website and IKEA case study.

IWAY
IWAY is the IKEA code of conduct, first introduced in 2000. It specifies the
requirements that we place on suppliers of products and services and details
what they can expect in return from IKEA. There are several industry-specific
supplements and a special code of conduct for child labour. IKEA suppliers are
responsible for communicating the content of the IKEA code of conduct to
their employees and sub-suppliers.

Confidentiality
IWAY and all of its activities are dependent upon co-operation, mutual trust
and respect between the supplier and IKEA. All observations, discussions and
written information received from the supplier are to be treated confidentially
by IKEA, its employees and any third party organisations appointed by IKEA.

Business ethics
The values of trust, integrity and honesty are at the foundation of IWAY and
are keys to its sustainable implementation. It is on this basis that we begin the
relationships and through continued respect of these values that it will grow.

It is important that all IKEA co-workers and external business partners

understand the IKEA position on corruption and its prevention. This has been
established in the IKEA Corruption Prevention Policy and The IKEA Rules on
Prevention of Corruption and communicated in the IKEA Way of Doing
Business and the vendor letter which shall be signed by all business partners.
Ref.: IWAY Code of Conduct Document

New Product Development

IKEA has vast range or products in its basket. They are into furnishing house
and providing products for housing and commercial uses. They help furnish
bedrooms, kitchen, living room, laundry, etc. It’s time to make a change to
their product list. They are providing washing machines, household appliances.
But, they are not into hard core electronics yet. They can start with cheap
laptops. Laptop market is very much influenced these days. New competitors
coming to challenge major companies like Dell, HP, Sony Vaio. Why not IKEA?
They are capable of providing cheap deals. They are into market for longer
time. They have their own position in the market. According to research
carried out, Laptop from IKEA, will make a difference.
 Source: http://pctechnotes.com/how-to-choose-a-cheap-laptop/

IKEA can generate support to get the accessories and materials torgtg make
cheap laptop. Their image in the market is the back-bone for them to launch
new products.

SWOT analysis
IKEA's goals of sustainability and environmental design are central to its
business strategy. It has launched a new sustainability plan to take the
company through to 2015. This will combine social, environmental and
economic issues. IKEA uses SWOT analysis to help it reach its objectives. This is
a strategic planning tool. It helps the business to focus on key issues. SWOT is
the first stage of planning and looks at the Strengths, Weaknesses,
Opportunities and Threats involved in a project or business venture. Strengths
and weaknesses are internal aspects. This means that they are within the
control of the business. They may refer to aspects of marketing, finance,
manufacturing or organisation. Opportunities and threats are external factors.
This means that they are outside the control of the business. These may
include the environment, the economic situation, social changes or
technological advances, such as the internet.

Strengths

Strengths could include a company’s specialist marketing expertise or its

location. They are any aspect of the business that adds value to its product or
service. IKEA’s strengths include:

• A strong global brand which attracts key consumer groups. It promises the
same quality and range worldwide
• Its vision – ‘to create a better everyday life for many people’
• A strong concept – based on offering a wide range of well designed,
functional products at low prices
• A ‘democratic design’ – reaching an ideal balance between function, quality,
design and price.

These strengths contribute to IKEA being able to attract and retain its
customers. One way IKEA measures its strengths is the use of Key Performance
Indicators (KPI). KPIs help IKEA to assess the progress of its vision and long-
term goals by setting targets and monitoring progress towards these. An
example of one of IKEA’s KPIs is the percentage of suppliers that are currently
IWAY approved. The IWAY is the IKEA Way of Purchasing Home Furnishing
Products. These are the measurements which provide the social and
environmental requirements IKEA expects of its suppliers. IKEA has strengths
right through its production processes:

• Increasing use of renewable materials i.e. IKEA improved its overall use from
71% in 2007 to 75% in 2009.
• ‘Smarter’ use of raw materials i.e. IKEA increased the use of recycled or
reclaimed waste products in energy production across all stores from 84% in
2007 to 90% in 2009.
• Volume commitments i.e. IKEA believes in creating long-term partnerships
with its suppliers in order to achieve this. By committing to buying large
volumes over a number of years IKEA can negotiate lower prices. This also
benefits the suppliers because they enjoy the greater security of having
guaranteed orders.
• Economies of scale i.e. bulk buying
• Sourcing materials close to the supply chain to reduce transport costs.
• Delivering products directly from the supplier to IKEA stores. This slashes
handling costs, reduces road miles and lowers the carbon footprint.
• Using new technologies

Opportunities

A business uses its strengths to take advantage of the opportunities that arise.
IKEA has focused on environment friendly products which will result in good
returns even in a price sensitive market. As the company states:

There is a true business potential for IKEA in providing solutions that enable
customers to live a more sustainable life at home. IKEA is developing effective
solutions for customers in order to support them recycling or reusing used
products, aiming at no products ending up at landfill and the recycled materials
used in producing new IKEA products. Some of the opportunities that IKEA
takes advantage of through its sustainability agenda are:

• A growing demand for greener products

• A growing demand for low priced products. Trends in the current financial
climate may result in consumers trading down from more expensive stores
• Demand for reduced water usage and lower carbon footprints.

Weaknesses

IKEA has to acknowledge its weaknesses in order to improve and manage

them. This can play a key role in helping it to set objectives and develop new
strategies. IKEA’s weaknesses may include:

• The size and scale of its global business. This could make it hard to control
standards and quality. Some countries where IKEA products are made do not
implement the legislation to control working conditions. This could represent a
weak link in IKEA’s supply chain, affecting consumer views of IKEA’s products.
The IWAY code is backed up by training and inspectors visiting factories to
make sure that suppliers meet its requirements.
• The need for low cost products. This needs to be balanced against producing
good quality. IKEA also needs to differentiate itself and its products from
competitors. IKEA believes there is no compromise between being able to offer
good quality products and low prices.
• IKEA needs to keep good communication with its consumers and other
stakeholders about its environmental activities. The scale of the business
makes this a difficult task. IKEA produces publications in print and online (for
example ‘People and the Environment’) and carries out major TV and radio
campaigns to enable the business to communicate with different target
audiences.

Threats

If a company is aware of possible external threats, it can plan to counteract

them. By generating new ideas, IKEA can use a particular strength to defend
against threats in the market. Threats to IKEA may stem from:
• Social trends – such as the slowdown in first time buyers entering the
housing market. This is a core market segment for IKEA products
• Market forces – more competitors entering the low price household and
furnishings markets. IKEA needs to reinforce its unique qualities to compete
with these
• Economic factors –the recession slows down consumer spending and
disposable income reduces. IKEA addresses these issues in many ways. It
manages weaknesses and threats to create a positive outcome.

Conclusion
After gathering all information and studying the case study given, it seems that
IKEA is a largest international home products retailer which has expertise
business into its field around the world. They have a competitive advantage in
the market for their strategy on cost reduction and they are leader in market
for that.

IKEA’s long-term ambition is to become the leading home furnishing company.

As a globalised organisation in the world, IKEA has been a leader in creating a
sustainable way of providing better goods and also providing better working
condition for their employees. Consumers are made aware of IKEA’s
commitment to sustainability through its involvement with many other
organisations such as the WWF and UNICEF. IKEA is now considered by both
suppliers and consumers to be a responsible company that they can trust.

IKEA is also involved in doing CSR in their way. They are avoiding child labour,
forced & bonded labour, etc. They are also making policies to avoid these
issues though they have been doing business with Asian Countries which has
impression of child labour and other irresponsible works.

References

1. IKEA, website.
http://www.ikea.com/ms/en_GB/about_ikea/index.html (Accessed multiple times since 19 th
February, 2011)

2. Management Library, Online.

http://managementhelp.org/ops_mgnt/ops_mgnt.htm (Accessed on 21st February, 2011.)

3. The Times 100, Website.

http://www.thetimes100.co.uk/case-study--building-sustainable-supply-chain--110--279--
1.php (Accessed multiple times since 1st March, 2011.)
4. IKEA, Code of Conduct, Website.
http://www.ikea.com/ms/en_GB/about_ikea/our_responsibility/iway/index.html ( Accessed
on 21st March, 2011.)

5. Operations Management, Presentation, R. Dan Reid & Nada R. Sanders,

Wiley Publications, 2007

6. PC Technotes, Website.
http://pctechnotes.com/how-to-choose-a-cheap-laptop/ (Acccessed on 4th April, 2011.)