IKEA: Strategic Development Plans - Coursework Example

IKEA: Strategic development plans IKEA: Introduction According to Kippenberger, (1997 pp. 33-34), IKEA is a one of the world biggest retailer in furniture and other household products. It is a Swedish based international company with over 300 retail stores worldwide. Since its foundation in 1943 by the Swedish Ingvar Kamprad, the company has operations in 38 countries most of its activities concentrated in Europe, USA, Canada Asia, and Australia. One of the peculiar attributes of IKEA is that it is one of the few known organizations with distribution outlets in both Israel and other Middle Eastern countries. Edvardsson, and Edquist (2002 pp155) suggest that the business name IKEA is an abbreviation that stands for the name initials of the founder, and his place where he grew up. IKEA stands for Ingvar Kamprad (names of the founder), Elmtaryd, Agunnaryd, where he grew up South Sweden). IKEA strategic Development plans since 2000 and their results The organization vision is “to create a better everyday life for the many people” by offering a wide range of well designed, functional home furnishing products at so low prices that as many people as possible will be able to afford them (IKEA, 2004 pp 2). With over 12,000 unique products, IKEA has been famed for the affordability and customizability if its furniture which enable the consumer to assemble for themselves. According to the founder, IKEA’s corporate culture is strongly built on this philosophy all the way from the design teams to the customer. The organization corporate themes and philosophy are concerned at remaining socially responsibly and environmentally friendly in all its operations and those of its partners (Moller, 2005 pp 28). The organization’s common market positioning slogan call for customers and stakeholders to partner in better living with an acclaimed idea that ‘together they save money.’ The strength and the success of IKEA brand as an international brand is a result of effective strategies whose concept has been founded on relationship with its customers. The company use inexpensive materials in a creative way to minimize the costs of production and contribution. In this way, the customers have been able to enjoy low prices of IKEA products. IKEA’s main marketing tool is its catalogue, which is printed in 17 different editions in over 200,000 copies and distributed freely in all its distribution centers. Over the past years since establishment, IKEA has been keen pursue strategies for growth and quality improvement in the supply chain. In the 5-year strategic plan for 2000-2005, the organization focus was mainly on two activities. Firstly, IKEA operations were to be merged to follow the requirements of its code of conduct, which is, “the IKEA Way on purchasing Furnishing Products commonly” shortened as the ‘IWAY’. One major element of this strategy was its operations and the operations of its sub-contractors and suppliers to fulfill the IWAY conditions. Secondly, IKEA intended to engage in projects and activities that were directly in line with needs and situations unique to the customers and stakeholders. With partnerships established with reputable organizations such as UNICEF and Save the Children, the collaborations were intended at streamlining all operations of the organization to its philosophy of social responsibility and environmental consciousness throughout the world. Towards the end of 2000, IKEA launched the code of conduct IWAY for suppliers, and a special code of conduct on child labor. The first child rights project undertaken with a collaboration of UNICEF in India. In 2002 while collaborating with WWF, IKEA embarked on a number of projects to maintain the development of responsible forestry management. WWF, a global agency that works towards forestry conservation, and IKEA collaborated for a common goals of improving the world’s forests. They carry out projects that reduce unsustainable logging. ‘Sow a Seed’ is one such project that has helped in restoration of over 18000 hectares of forests in Malaysian, Borneo affected by fire in 1993 and unchecked logging. The aim of this project was to restore the forest. IKEA customers contributed largely towards the funding of this project. Similarly, IKEA supported the Rain forest Alliance in China that promoted Forest Stewardships Council whose core business is to educates and certify foresters and stakeholders. This project provided key experts with the necessary tools and training for conducting workshops in order to increase the level of sustainable forests in China. In 2004, the organization released its first Social and Environmental Responsibility Report. The comprehensive report included Key Performance Indicators in achievement of the specific objective in line with the organization philosophy of being socially responsible and environmentally conscious. The KPIs has helped the organization in continuous improvement. As at 2005, assessment indicated that the organization and its partnering suppliers had on average achieved 88% compliance to the IWAY requirement. On Child labor, the organization admitted various challenges encountered in different countries while implanting the policy. Results however confirmed commendable achievement but called for much more efforts to enforce the policies especially in China and India. At the close of the phase in 2005, IKEA Social imitative was incorporated into a Foundation. While collaborating with WWF, IKEA Foundation started Farmer Field Schools in India that sought to return children laborers back to class from cotton farms. The same projected also started in Pakistan the same year. Curbing labor and improving forestry has been two key areas of great interests to IKEA. These two philosophical centers of focus provided the basis of working relationship between IKEA and its global suppliers. Before any supply starts a business’s relationship with the company, the supplier must proof compliance of the basic requirements, which include prevention of child labor and environmental conservation. IKEA established a special unit in its administrative structure that sends representative to vets as well establishing personal relationships prospective and existing suppliers. This establishment was consistent with the policy highlighted in the strategic development plan of IKEA of getting closer to its suppliers for rational and long-term cooperation. The effort to build a strong base of suppliers was also capture in the strategies plan. This was not a new strategy however since the organization founder and Chairman Ingvar Kamprad had tried making contacts with suppliers in the middle 1980s. In 2005-2010 strategic plans, the management, while echoing the founder’s efforts, admitted the difficulty in recruiting new partners and suppliers; but resolved, “Going from city to city, from door to door looking for entrepreneurs and factories to partner with.” As a result, the relationships with suppliers greatly improved with IKEA representatives establishing personal contacts with supplier’s management and getting involved production and other operations in their factories. These relationships were built and reflected on compliance and by the suppliers to IKEA Code of Conduct. Up to 2005, the organization had operations in less than 15 countries. Its strategic development plans were focused at exploring new markets, while ensuring continued improvement in supply and quality of products is in the existing distribution centers. The organization sought to increase its purchasing countries. According to the IKEA Group brief of 2005, the company sought to strengthen its relationship with suppliers. This was intended to support the organization business idea of producing lowly priced home furnishing items using techniques and practices that were socially responsible and environmentally friendly. It was in its strategic plan, which mainly was expansionary, that saw the organization open over 46 trading offices in 32 countries by the end of 2006. In the same period, IKEA was able to increasing its purchasing countries, which according to statics; China was leading purchasing the 18% of the IKEA products. Other included Poland, Sweden, Italy, and Germany in successively. An evaluation of the Current situation at IKEA When IKEA reviewed its marketing strategies in 2008, its new focus was to increase awareness of its brands in the UK and other countries and attract more customers to the retail stores. Retail advertising was adopted. Although most of the TV ads run by the organization in the UK were controversial, IKEA was able to raise awareness. The company was able to distinguish itself from other suppliers of home furnishing equipments. This was reflected in the increased volumes of sales. The marketing strategy incorporated all aspects of marketing: advertising and brand communication, from electronic to print mediums, sponsorships, and promotions. This strategy helped the company to support many of its different areas of business that included but not limited to enhanced brand awareness and corporate themes. IKEA’s current strategic development plan is derived from its 2015 goals. Current strategic focus is also based on expansion, execution, and implementation of the previous policies that were supposed to have been achieved by end of 2010. The organization has devoted belief in conserving the environment, social responsibility, achieving more with less; conserved and economical use of resources remains the key themes in its current and future strategies. On sustainability, IKEA at the beginning of 2010, through a circular introduced a policy that every employee at IKEA specifically the managers, must include sustainability in their departmental goals and objectives both in the short, medium and long terms. To support the process, IKEA has created Sustainability Unit, which comprises of specialists in forestry, chemical engineering, energy managers, auditors, environmentalists, and code of conduct specialists. Additionally, every IKEA retail store has employed social and environmental coordinators who train the management and staff and to some extent; customer on safety, waste management, water and energy conservation. On climate and environmental conservation, the organization in 2010 became one of the companies championing the new global standards on Green House Protocol otherwise known as the GhG Protocol. In this project, the organization advocating for reduction of carbon emissions through quantified and accounted quantities of gas emissions by organizations and business leaders. In pilot a project in 2010, IKEA collaborated with WWF and played vocal and paradigm role in a road test of the new global standards. Data obtained in this pioneer project have been used by IKEA in its current carbon foot print calculations. Although, the data have been inadequate and inconsistent in several situations, they have been handy in mapping out activities that help directly influences the amount of carbon emissions in operations. In its 2015 strategy, IKEA will expand this projects exploring and collaborating with others to build new and better measuring and accounting techniques for monitoring carbon emissions. The success of these initiatives will have a great impact on boasting the public image of the organization. The strategic benefits from the breakthroughs of these projects will include enabling the enterprise save huge energy costs thorough the value chain while protecting the environment. In addition, being in the forefront in successfully monitoring and pursuing ways of reducing carbon emissions will put IKEA above competitions. Similarly, energy conservation has been another critical focus in the current strategic development plan. Another pilot project undertaken in FY 2010/2011 in China and Poland sought to indentify and remove obstacles that restrain faster achievement of low-carbon supply chain. From the projects, the organization has been able to support initiatives to safe energy and minimizing the impact on climate while at the same time reducing costs and increasing efficiency. The most interesting current strategic development at IKEA is based on projects that were piloted in 2007 on transporting people to and from IKEA stores (Daniels, 2007 pp. 44) Started in UK, China and USA; IKEA continues to pursue sustainable ways helping customers reach IKEA centers with contributing to carbon emissions on roads by using their cars. A continues of the previous plan, the future strategic direction at IKEA is an outlined blueprint dubbed: The IKEA Sustainability Direction 2015. The IKEA Sustainability Direction 2015 outlines the organization’s priorities for 2010-2015. These sets of priorities not only is a guidance but also an profound influence on all short, medium and long term strategic decisions, and value chains up to the end of their products’ life cycle. The priorities have been distributed to each of the years. In order to measure the progress the each organs of the organizations has been allocated specific targets for each of the years. Heavily borrowed from the current development goals, the five main key priorities outlined in the IKEA Sustainability Direction 2015 are: 1. To offer a range of products that are more sustainable 2. To take a leading role towards a low carbon society 3. To turn waste into resources 4. To reduce water footprint 5. To take social responsibility Future Strategic direction Offering a range of products that are more sustainable Although the organization boost itself for having operations in over 41 countries, the role of competitors and other market dynamic is presenting the organization with various challenges. To protect the existing market niches, whiles annexing or entering markets, IKEA’s priorities and initiatives are centered at becoming a sustainable one-stop shop globally. The organization projects up to 90 percent of its sales value to come from home furnishing products that have been categorized as “more sustainable” in the IKEA Sustainability product Score Card (IKEA 2010/2011 pp 14). According to the organization Sustainability Score card, a product is classified as more sustainable if it is made from a renewable and recycled material. It has to be a quality product with more of it made from less of its materials. It has be transport efficient, which means that large quantities of the products can be packed in a single container. Energy efficiency in production of the commodity is another critical factor in the scorecard. From several parameters highlighted in the Score Card, a sustainable product must score certain minimum-set points. Apart from this score, the product must be produced by suppliers who operated with full compliance of the IKEA Code of Conduct IWAY. These are some of the strictly internal tools employed by IKEA in building its brands and sustainability in the market (IKEA, IWAY Standard, 2008). The specific goals used to achieve this objective by the end of FY 2015 are based on specific product development targets. For instance, for the IKEA energy-consuming products, the company will produce home equipment that will at least be 50% more efficient compared to average products in the markets. Similarly, water-consuming products such as washing machines will be at least 50% efficient. The benefits of efficiency will also be extended to consumer to help them to save on their costs. Taking a leading role towards a low carbon society Through innovation, the efficiency in energy consumption both in the process of manufacturing and use of the products by consumers, IKEA its supply chain store and customers will significantly reduces the emissions of Carbon. The use of renewable energy is another perspective that will yield success in reducing carbon emissions is production. The success of this technology will also help the customers reduce carbon emission and reside in more sustainable homes. In the past, the organization has collaborated with WWF in running the Earth Hour event that has sensitized the society on climate changes and practical initiatives that would help control carbon emission, which is the major contribution of climate change. Fundamentally, IKEA’s response to climate change is focused at inventing mechanisms that helps reduce carbon emissions from all its operations from extraction of raw materials to end life of the product. The success of the innovation in 2011-2015 will be breakthroughs to IKEA commitment to climate change response. The organization believes that it is capable of using practical initiative such as reducing green house gas emissions that equally have negative impact on the environment. Generally, IKEA’s concerns over the environment are attributed to fact that modern society is sensitive to environmentally friendly businesses. For this reason, many organizations are using these marketing tools. For IKEA the realization of these trends since 2000 has been its competitive advantage (Stevenson and Spring, 2007, pp 686). IKEA has always and will continue to minimize the harmful effects on the environment through application of various strategies along its value chain. Turning waste into resources While endeavoring to reduce carbon emission in the value chain, IKEA has also strategized to undertake possible researches to pursue possibility of turning wastes into valuable resources. This is one of the strategic objectives IKEA is planning to have accomplished by 2015. The organization anticipates having zero waste to landfill from its own operations and even of its supplier factories. Recycling is one obvious method IKEA has indentified is currently funding a sensitization programs to enable and encourage customers in all markets to reuse or recycle all IKEA products at end-of-life. The success of this project will be beneficial in tow folds. First, it will enable the organization in achieving the other objectives of sustainability and reduction of carbon emission. Secondly, IKEA will be able to generate income, save costs from wastes that would rather have been harmful and expansive to manage. For a long time, IKEA has been cost conscious and has always been motivated to pursue researches or attempts that would enable them make more from fewer quantities of resources while minimizing wastes of any form. This has helped the organization make incredible contribution to better environment worldwide. The 2010-2015 strategy will be an expansion of the program with more probable benefits to stakeholders. To reduce water footprint As a way of conserving natural resources, IKEA in FY 2010-2015, intends to reduce usage of water in its operations as well as throughout the value chain. Early in 2010, the organization released taps fitted with Pressure Compensating Aerator (PCA), a device that reduces water use by up 30% while accomplish the same tasks. Pursuant to the 2015 overall strategic development of sustainability, IKEA intends to apply the same technology to all bathroom taps by the ends of 2011. Consumers are major beneficiary of this initiative. Taking social responsibility Social responsibility has been one of the most fundamental elements of the IWAY code of conducts, which IKEA’s furnishing suppliers comply with its requirements. IKEA foundation is a brainchild from this program. The foundation has funded various projects that have reached more than 700 million underprivileged children globally since its inception. For example, in 2010, IKEA collaborated with UNICEF investing 7.5 Euros into various Water and Sanitation programs in 15 countries in Asia and Africa. One projects in 2010-2015 strategic development program, IKEA has its place is ensuring that all its units, including distributors and retails stores have clearly defined plans for community involvements as outlined in the IKEA Charity Policy (IKEA 2010/2011). Conclusion In conclusion, IKEA’s strategic development programs has been strongly founded on local, National and global responsibility. Their culture has been interwoven on ethics of integrating sustainable behaviors not only throughout the organization, but also among all stakeholders. Their values which include cost consciousness, simplicity, humility, and togetherness are so emotive that it has enabled the organization indentify with many stakeholders. It listens to and learns from others. These principles have been its competitive advantage and are expected to guide the organization in the next phase of strategic development lapsing in 2015. References Daniels, C., (2007), “Create IKEA, Make Millions, Take Bus”, Fortune, 149, 9: 44. Edvardsson, B. & Edquist B. (2002) “‘The IKEA Saga’: How Service Culture Drives Service Strategy”, The Service Industries Journal, 22, 4: 153-186. Howell, D., (2006), “IKEA ‘Leeds’ The Way”, Chain Store Age, 82, 13: 101-102. IKEA, (2008) IWAY Standard Minimum Requirements for Environment and Social & Working Conditions when Purchasing Products, Materials and Services IKEA: Facts and Figures 2004-2005 IKEA: Sustainability Report 2010 accessed on April 5, 2011 at: http://www.ikea.com/ms/en_US/about_ikea/pdf/ikea_ser_2010.pdf Kippenberger, T., (1997), “The Story of IKEA”, The Antidote, 2, 5: 33-34. Kling, K. & Goteman I., (2010) “IKEA CEO Anders Dahlvig on international growth and IKEA’s unique corporate culture and brand identity”, Academy of Management Executive, 17, 1: 31-37. Miller, P. M. (2010), “IKEA with Chinese characteristics”, The China Business Review, 31, 4: 36-38. Moller, D. (2005) “IKEA-The Total Solution”, Business Beijing. 45: 28-30 Stevenson, M, & Spring, M., (2007),’ Flexibility from a supply chain perspective; definition and review’, international journal of operations and production management, vol.27, no.7, pp. 685-713. The Greenhouse Gas Protocol Initiative. Accessed on April 5, 2011 at: http://www.ghgprotocol.org/ www.unicef.org Read More