Business Analysis of IKEA

It appeals mostly to the young and hip audience, as it makes affordable furniture and home furnishings choices available to those just starting out on their own. IKEA furniture is affordable to a wide range of people, attractive and is of high quality. It has grown rapidly since it was founded in 1943. Today it is the world’s largest furniture retailer, recognised for its Scandinavian style. The majority of IKEA’s furniture is flat-pack, ready to be assembled by the consumer. This allows a reduction in costs and packaging. IKEA carries a range of 9,500 products, including home furniture and accessories.

This wide range is available in all IKEA stores and customers can order much of the range online through IKEA’s website. (IKEA, 2013) IKEA stores include restaurants and cafes serving typical Swedish food. They also have small food shops selling Swedish groceries, everything from the famous meatballs to jam. In August 2008 the IKEA group had 253 stores in 24 countries, with a further 32 stores owned and run by franchisees. It welcomed a total of 565 million visitors to the stores during the year and a further 450 million visits were made to the IKEA website. IKEA, 2013) This business report will cover the major aspects of the business IKEA, and how it is organised to be the successful business it is today. This report will cover the objective and goals of IKEA, their mission statement, legal and financial undertakings, organisational structure, external factors/forces, stakeholders, and evaluation of the business’ success and any recommendations that IKEA should take in to help make their business stronger and more successful leading to increased profits for IKEA.

IKEA History

The founder of IKEA, Ingvar Kamprad, began his entrepreneurial business career as a young boy selling matches sold in bulk for a profit to his neighbours near Agunnaryd. As his business grew, he expanded to selling fish, seeds, Christmas decorations and eventually, pencils and ball-point pens which were just new in 1935. In 1943, at the age of 17, Ingvar Kamprad established his business, using his initials, Ingvar Kamprad, the name of the farm on which he was born, Elmtaryd and the village nearby, Agunnaryd for the acronym of IKEA.

At this time, he was selling everything from pens and wallets to watches and nylon stockings by going door to door and selling directly to his customers. By 1945, the first advertisements for IKEA began showing up in local newspapers and he had developed a basic catalogue. However, it was in furniture that he saw the greatest opportunity. (Petterson, 2011) When Ingvar Kamprad discovered the use of catalogues as an economical and effective way of marketing, he soon developed more catalogues which he sent to a growing customer base.

Due to his newly found marketing technique, Kamprad’s demand for his products grew and in 1953, he converted a disused factory in southern Sweden into a warehouse/showroom. In 1958, IKEA opened its first store, based at Almhult and it was the largest furniture display in Scandinavia at the time with 6, 700 square meters of land. In the years between 1965 and 1973, IKEA opened seven new stores in Scandinavia and captured a 15% share of the Swedish market. IKEA stores have become popular to the local residents due to the quality of furniture at low prices.

In the early 1970’s when the Swedish furniture market was stagnating, Kamprad felt that it was time for international expansion. “It is our Duty” Ingvar Kamprad stated. (Petterson, 2011) Today IKEA is a privately held company owned by Stichting INGKA Foundation which is a non-profit organisation registered in Leiden in the Netherlands that is controlled by the Kamprad’s three sons. The Dutch foundation was worth US$36 billion in 2006. The IKEA Group with its headquarters in Denmark, is a multinational operator of a chain of stores for home furnishing and furniture.

It is the world’s largest furniture retailer with a reputation for low cost, style and design. IKEA’s annual home furnishing sales come to 25 billion dollars with more than 260 IKEA Group stores in 25 countries (Ohlsson, 2010) 1. 2 Organisations An Organization is a group of two or more people whose sole purpose is to create goods, services or ideas. Organisations are social entities that are organized to accomplish an overall, common goal or set of goals. The main purpose of an organisation is economic production and a formal organisational structure exists.

Member involvement is contractual and the primary beneficiaries are the owners and managers. (Department, 2013) All organisations are open systems. Therefore, the way that it is operated and managed is affected by the nature, demands and actions of all the internal and external environments including stakeholders. Organisations receive resources from its environment (e. g. labour, finance, information), and replaces then with outputs (e. g. goods, services or ideas).

The environment is continually changing and therefore it impacts on the organisation’s actions. There are many external forces that can influence the way a company is managed and is operated. These include, political and legal forces, environmental forces, social, cultural and demographic forces, technological forces, international forces and competitive and economic forces. (Department, 2013) All businesses have stakeholders. Stakeholders are the individuals or group of individuals who have an active economic and possibly moral interest in an organisation.

Stakeholder’s interest can be financial, but they can also involve broader issues such as the safety of the product or the quality of the natural environment that may be effected by the organisation. Individuals and groups with a stake in corporate performance and activities are found in both internal and external environment. Internal organisation stakeholders are part of the organisation itself and can include; managers, employees, and owners of various formal and informal groups.

External organisation stakeholders are members external to the organisation however, can be effected by the actions of the business and can include; competitors, suppliers, distributors, creditors, customers, shareholders, trade unions, government departments, citizen action groups, and many more. (Department, 2013) There are five main key criteria which makes an organisation. First, any organisation should provide goods, services or ideas to the public. The ownership subsides in the private sector and the main purpose is to make profit.

All organisations work towards collective goals set by the owners and a formal organisation exists. Member involvement is contractual and the primary beneficiaries are owners and managers. (Department, 2013)

IKEA as a Company

IKEA is a private company. A private company is owned either by non-governmental organisation or by a fairly small number of shareholders or company members which does not offer or trade its company stock (shares) to the general public on the stock market exchanges, but instead, the company’s stock is offered, owned and traded or exchanged privately. Rowan, 2008) Privately held companies have fewer or less thorough reporting requirements and obligations for comparison to other companies, via annual reports, etc. than publicly traded companies do. Most privately held companies in Australia are not generally required to publish their financial statements. By not being required to disclose details about their operations and financial state, private companies are not forced to provide information about themselves that may potentially be valuable to competitors and can avoid the loss of customers in financial distress.

In Australia, Part 2E of the Corporations Act 2001 requires that publicly traded companies file certain documents relating to their annual general meeting with the Australian Securities and Investments Commission, while there is no similar requirement for privately held companies. (Rowan, 2008) There are many advantages that come with running a private company. The first is that there is limited Liability which means that if the company experience financial distress because of normal business activity, the personal assets of shareholders will not be at risk of being seized by creditors.

More capital can be raised with a private company as the maximum number of shareholders allowed is 50. Therefore, Scope of expansion is higher because easy to raise capital from financial institutions and the advantage of limited liability. There are also some many disadvantages that come with running a private company. The first is that growth may be limited because maximum shareholders allowed are only 50. The shares in a private limited company also cannot be sold or transferred to anyone else without the agreement of other shareholders. (Rowan, 2008)

Objectives and Goals

Well thought-out business goals and objectives point businesses in the right direction and keeps an established company on the right track. Every successful business would have their objectives and goals in their minds when they perform tasks and projects so that they have a key understanding of what the business wants to do and how they are going to evaluate the ending results to see whether they are moving closer to their goals. From this information, businesses can determine what they have to change or keep the same to achieve better outcomes.

Goals state where the business intends to go and is a benchmark for the business’ performance. Goals can help improve the overall effectiveness as a company; for example, if you want to improve your customer service, goals can be set to monitor if you are moving closer towards a better business. The more carefully the business defines their goals, the more likely they are to do the right things and achieve what is wanted to be accomplished in the first place. Objectives are the specific steps the owners/managers as well as the company needs to take in order to reach each of the goals that were stated by the business.

They specify what you must do and when these steps need to be done. Objectives are often made with numbers and specific dates so that they can be easily monitored. Together, goals and objectives form the foundation for your company’s future. Without them, you risk making wrong turns and wasting precious recourses, and losing the support of your stakeholders. Therefore, the business is becoming less effective, and less efficient, which are two major goals that are needed for a business to become successful and make the most profit. Smith, 2009) When establishing goals and objectives, the process needs to involve everyone who will have the responsibility of achieving those goals and objectives after you lay them out. This is so that everyone knows what their role is in making the business better and confusion doesn’t occur. This will also speed up the process. These can include employees, managers, consumers, and many other stakeholders affecting the business. There are two types of goals which businesses aim to achieve, long term goals and short term goals.

Usually, the short-term goals which are set for the business are the steps necessary to achieve the longer-term goals. An example of a short-term goal is to increase your advertising budget each month for the next three months. An example of a long-term business goal that the short-term goal helps achieve is to double business revenue by the end of the financial year. (Smith, 2009) The most useful method for monitoring the progress of your business’ set goals/objectives is a key performance indicator (also known as a KPI).

Once a business has analysed its mission, identified all its stakeholders, and defined its goals, it needs a way to measure progress toward those goals. Key Performance Indicators are those measurements. KPIs are quantitative and qualitative measures which are used to review an organisation’s progress of achieving its goals. These are broken down and set as targets for achievement by departments and individuals which can be reached by a set date/time. The achievement of these targets is reviewed at regular intervals. Therefore, they will also help shape the behaviours of employees within the company. (Reh, 2008)

KPIs need to be specific to an individual job and specific employees (can me departmental or individual). This may include explaining clearly to each of the employees what they nned to do in terms of performance to be successful. KPIs must be achievable and be realistic. If it is set too high, not only would it be irrelevant but insure failure. The acronym SMART is often used to describe what is needed in KPIs. SMART stands for: specific, measurable, achievable, relevant and timely. (Reh, 2008) Like many businesses, IKEA have goals and objectives set so that they have a level of achievement they are continually striving to move toward.

IKEA’s vision is to create a better life for the many people who purchase their products. IKEA’s mission is to offer a wide range of home furnishing items of good design and function, excellent quality and durability, at prices so low that the majority of people can afford to buy them (IKEA 1994). The company targets the customer who is looking for value and is willing to do a little bit of work serving themselves, transporting the items home and assembling the furniture for a better price. The typical IKEA customer is young low to middle income family.

IKEA’s business philosophy and how business is done at a very successful organization is best described through the 4 goals of any of the many IKEA Stores. They give even greater insight to why customer service is so good at these stores. The first goal is to act as a highly efficient and staffed sales mechanism. This goal is orientated mainly to the employees of IKEA. The second goal is to show home furnishings solutions full of home furnishing ideas. This is done throughout the store, as IKEA has many showrooms and different examples (e. g. ictures, product descriptions) throughout the store which showcases products and how and where they can be used. The third goal isto serve as a well qualified home furnishing specialist. All of IKEA’s employees are given criteria even before they apply to work which states what they need to do and how they need to do it. They also have an intensive training program which employees need to pass before they are serving and working for IKEA. The major characteristics which are needed to work in IKEA include: humbleness, simplicity, enthusiasm, challenging, responsibility, possible, teamwork, coaching and cost consciousness.

The last and most important goal of IKEA is to provide a day out for the whole family. This is a very important goal as nearly all business exists for the customer. We can get this from the saying “the customer is always right”. All businesses need to impress their customer when they enter the store. This will increase repeat business and one of the most effective marketing strategies are started – word of mouth. By having more customers come to your store, and leaving pleased with the services and product quality, a multiplying effect will be an outcome and soon, the business is reaching new possibilities with increased profit.

All business’ main goal is to make profit. Like many other business’, IKEA is finding ways to be more eco-friendly such as using LED lights, installing sun roofs, and using recycled material. These are some of many ways a business may decrease the cost of the recourses used so that the final product creates more profit for the business. (IKEA, 2013). IKEA has great, stylish furniture for their customers. There are 316 large stores in 267 countries. IKEA works to maintain a well-known brand identity. IKEA marketing plan is very well design to sell the product.

The Integrated Marketing Communications Campaign (IMC) of IKEA strives to work to a great quality product design, catalogues, advertising, and public promotions. IKEA has continually been working on ways to improve itself as a company and to be more “green”. There are many ways that IKEA is working towards is goals and objectives. Every IKEA employee has been trained to think about recycling and the conservation of resources. Most of IKEA’s products contain recycled cardboard and wood to make sure they are producing the products as low as they can but still making profit.

The majority of IKEA’s furniture is flat-pack, ready to be assembled by the consumer. This allows a reduction in costs and packaging. Since it was founded IKEA has always had concern for people and the environment. The IKEA vision ‘to create a better everyday life for the many people’ puts this concern at the heart of the business. IKEA has responded to the public’s rising concern for sustainability in its choice of product range, suppliers, stores and communication. It has also spotted business potential in providing sustainable solutions.

IKEA’s concern for people and the environment encourages it to make better use of both raw materials and energy. This keeps costs down and helps the company to reach its green targets and have an overall positive impact on the environment. IKEA also recycles everything that is not used and is also a source of money for the company. IKEA has many “green” alternatives such as using solar/open roof to provide free energy and light to the store. (Noris, 2010)

Mission Statement

Whenever a new business is made, the owner or franchise owner needs to have a clear vision of where the business is going and its purpose.

Mission statements define a business’ purpose, activities and values. Whenever a business losses track of itself, it should be able to look back on their mission statement and be reminded of where they intend to go. A mission statement is a written statement of a business’ fundamental reason for existence and what it wants to accomplish. Every organisation exists for a purpose whether or not it is explicitly stated. The purpose should be written down and communicated so that all who join the organisation has a clear idea of what the organisation is about.

A clear statement of the purpose of an organisation and organisational culture gives a focus to what the organisation is about. (Department, 2013) There are several key criteria that mission statements should be orientated by. They include; broad but will limiting the sphere of activity, inspirational, enduring, stretching and challenging, encompassing the values of the organisation, clear and concise, visionary, customer focused, and achievable. There are also six elements which help business write and evaluate their mission statement.

The first element is to state why the business exists- an example is to provide quality products, or the best service. The second is to give employees a common purpose- This can include stating that you offer friendly service by knowledgeable staff. The third is to create business identity- stating what the business is about and what it offers. The fourth is to indicate business strengths – This can include best quality, best service, fast delivery, and customer comes first. The fifth contributes to business’ public image.

Lastly is a benchmark to evaluate business performance- This means that your mission statement should be viewed as a goal that you are moving towards and can be evaluated by actual business performance. (Department, 2013)

IKEA’s Mission Statement

IKEA’s mission statement is: “to offer a wide range of home furnishing items of good design and function, excellent quality and durability, at prices so low that the majority of people can afford to buy them” IKEA’s mission statement is a big goal that IKEA has set for itself and is a good benchmark for the business.

The first and most important element for a mission statement is included in IKEA’s is the reason of the businesses existence; this is shown in the whole of the mission statement showing that the business exists to create a better everyday life for the many people by offering a wide range of well-designed functional home furnishing at low prices. Another element shown is creating a business identity; indicated in the section stating; that they offer home furnishing items of good design and function, excellent quality and durability, at prices so low.

This is one of the main known facts of IKEA which is known to many people and is the reason why customers continually buy IKEA’s products. This can also be seen as the element of showing business strengths. The next element shown is, contributing to the business’ public image; this is also given when IKEA states that it has high quality products and low prices. The last element which is included is a benchmark to evaluate the business’ performance. This is mainly shown in the last part of the mission statement, stating that IKEA strives to have the lowest possible costs for their customers.

IKEA is continually working to find ways to improve their products, from using less pricy materials (may be recycled), to finding ways to lower their carbon footprint. The benchmark is also stated when IKEA produces items of good design and function, excellent quality and durability, as IKEA is continually seeking ways to improve their product design and seeking ways to make their products more environmentally friendly. IKEA also uses many different qualities a mission statement should have such as; a broad mission statement, inspirational, enduring, challenging, clear and concise, visionary and achievable.

The elements that IKEA did not include are; giving employees a common purpose. (Department, 2013)

Legal and Financial Undertakings

Types of Businesses

There are three types of businesses; Sole trader, partnership, and company. A sole trader is the simplest form of business structure and therefore, it has the lowest set up costs. Other advantages include: all sole traders retain complete control of your assets and business decisions and it is relatively easy to change your legal structure if the business grows, or if you wish to wind things up. A major disadvantage of this structure is that the sole trader has unlimited liability.

This means that the owner is personally liable for all depts. and obligations encountered by the business. (Department, 2013) A partnership is defined by the Partnership Act as the relationship that ‘subsists between persons carrying on a business in common with a view to profit’. A partnership can be between 2-20 people. Although not necessary, most partnerships have a formal written partnership agreement which includes what each partner should be committing, how profits are shared, how risks and losses will be handles and how disputes will be resolved.

Like sole traders, partnerships are relatively easy to establish and with more than one owner, the ability to raise funds may be increased, both because two or more partners may be able to contribute more funds and because their borrowing capacity may be greater. A partnership may also benefit from the combination of skills of two or more people. There is a wider range of knowledge, skills and contacts. There are also major disadvantages of running a partnership.

These can include; profits must be shared with other partners, since decisions are shared, disagreements can occur, you have to consult your partner and negotiate more as you cannot make decisions by yourself. You therefore need to be more flexible. A major disadvantage of a partnership as well as a sole trader is unlimited liability. (Department, 2013) A company is a separate legal entity which is established under the Corporations Act. Companies are in many ways similar to a sole trader and a partnership however, companies are legally a separate entity and are also the hardest and complex to administer out of all business types.

The people who form the company and own it are not personally liable for the depts. and obligations (limited liability) made by the actions and performance of the company which means that the owners can only loose the value of their investment. The process of setting up a business is called incorporation and there are two types of companies, private company and public company. The main difference between a private and public company is that you can only sell your shares to the public with a public company. Public companies are also listed on the stock exchange market. (Department, 2013) IKEA is a private company.

A private company is a business company owned either by non-governmental organizations or by a relatively small number of shareholders or company members which does not offer or trade its company shares to the general public on the stock market exchanges, but instead, the company’s stock is offered, owned and traded or exchanged privately. Although private companies are legally required to file certain documents depending where it is located, and follow required compliance laws for shareholders, public companies must follow strict government regulations which private companies do not.

Private companies are also not required to publicly reveal financial information, while public companies are required by the Securities and Exchange Commission to file an annual report documenting their performance in detail. Private companies don’t need shareholder support for operational and growth strategy decisions made by the company, as long as that is stated in their corporate documents. (Rowan, 2008) A private company has many advantages which outweigh the disadvantage of being a complex type of business and being costly to set up.

The first is that there is limited Liability which means that if the company experience financial distress because of normal business activity, the personal assets of shareholders will not be at risk of being seized by creditors. More capital can also be raised with a private company as the maximum number of shareholders allowed is 50. Therefore, Scope of expansion is higher because easy to raise capital from financial institutions and the advantage of limited liability. The study of public companies into your own companies is seen as a major disadvantage in the business sector.

Public companies are required to release financial reporting statements that present key company financial data, and to disclose any new developments of material interest to shareholders or potential investors. Staying private allows you to keep your financial data private and to avoid this level of intense examination. As a private company, there tends to be less public pressure from consumer and environmental watch groups for your actions. (Kokemuller, 2009)

Types of Finance

There are two main types of finance which are equity financing and debt financing.

Equity financing is where money is invested into the company in exchange for a share of the company itself. Debt financing is usually in the form of a loan where the major amount borrowed and interest accumulated on the loan needs to be paid. (Unknown, Financial Planning, 2010) Like many big businesses, IKEA has a finance division which looks after how IKEA gets money and how (if any) IKEA will pay debts The Finance Division in IKEA aims to manage financial assets and deliver a reasonable risk adjusted return in the long-term.

The division also includes a treasury function to manage group liquidity. The head of division is Ole Nielsen. IKEA is equity financed which is a major advantage that IKEA has. By equity financing, IKEA is able to spend its own money and does not lose money though interest when taking out a loan. Equity financing doesn’t have to be repaid. You also share the risks and liabilities of company ownership with the new investors. Since you don’t have to make debt payments, you can use the cash flow generated to further grow the company or to diversify into other areas.

Maintaining a low debt-to-equity ratio also puts you in a better position to get a loan in the future when needed. (Unknown, Financial Planning, 2010) There are also disadvantages that come with equity financing. By taking on equity investment, you give up partial ownership and, in turn, some level of decision-making authority over your business. Large equity investors often insist on placing representatives on company boards or in executive positions. This would mean that the company does not have full control of the business. However, equity financing does not need to be taken out from just the public.

IKEA takes financing mostly from the profit they make and that alone, can be their source of capital. IKEA also takes capital from the people who already own parts of the business. (Unknown, Financial Planning, 2010)

Legal Undertakings

A legal undertaking in general terms is an agreement to be responsible for something. A legal undertaking refers to a second party agreeing to a security arrangement. This is done under which they will pay arrears or perform a duty if the other individual who is supposed to pay the debt or carry out the duty fails to do so. Mallanor, 2008) Starting a private company like IKEA is a long process and legally, needs many things to be called a private company. The first and most important factor is that all companies, private or public, must abide by the corporations law that is set for the specific type of company. This Law must be read and be the pinnacle of when starting up the business so the company is legally set as it includes everything that is needed for a company. The Australian corporation’s law structure now consists of a single, national statute, the Corporations Act 2001.

The statute is administered by a single national regulatory authority, the Australian Securities and Investments Commission. All companies must also make tax returns. Australian tax returns for the tax year ending 30 June are generally due on 31 October of the same calendar year. A tax return is a document filed with state or federal authorities that declares the business’ liability for being taxed, based on their yearly income. Three outcomes are possible from filing a tax return: either the taxpayer has either been charged too much or too little for their income, or they have been charged the correct amount.

If they have been charged too much, the government must refund them, whereas if they have been charged too little, they must pay the difference. Companies must also focus on the Workplace Health and Safety Legislation. This legislation is concerned with protecting the safety, health and welfare of people engaged in work or employment. All business’ have a duty of care to ensure that employees and any other people who may be affected by the companies undertaking remain safe at all times.

The Australian Government may check the business secretly or conduct and Workplace health and Safety check to ensure that the business is protecting the stakeholders of the business. Some business’ have a certificate to show that they are safe and is issued by Safe Work Australia. Business’ also have to register their business name with the government. There are also many other factors of the Corporations Law of making a company which found on the Australian Government website. (Government, N/D)

Organisational Structure

Organisations need an organisational structure in order to allocate, coordinate, and control work possibilities. Organisational structures show the pattern of relationships among its members which exist to facilitate the effective coordination and control of the different activities undertaken in the organisation. (Unknown, Organizational Structure, 2013) Organizational structure governs how the roles, power and responsibilities are assigned, controlled, and coordinated, and how information flows between the different levels of management.

The structure depends on the organization’s objectives and strategy. In a central structure, the top layer of management has most of the decision making power and has tight control over departments and divisions. In a distributed structure, the decision making power is distributed and the departments and divisions may have different degrees of independence. An organizational chart illustrates the organizational structure. (Unknown, Organizational Structure, 2013) There are three main management levels within a company, which are top, middle and operational.

Top or senior management are generally the owners/CEOs of the company. Their main role is executive coaching, change management, leadership and delegation & empowerment. They also have many other roles which they need to abide by. Some include; laying down the objective and broad policies of the enterprise, prepare strategic plans & policies for the enterprise, controls & coordinates the activities of all the departments, provide guidance and direction and top management is also responsible towards the shareholders for the performance of the enterprise.

Middle management is generally the department heads and their main responsibilities are problem solving, team building, talent development and performance management. They also have many other role which can include: executing the plans of the organisation in accordance with top management, participate in employment & training of lower level management, coordinating activities within the division/department, and they are also responsible for inspiring lower level managers towards better performance.

Operational management are generally the managers the business and their work consist of assigning jobs and tasks to various workers, guide and instruct workers for day to day activities, are responsible for providing training to the workers, motivating the workers, and are the image builders of the enterprise because they are in direct contact with the workers. (Department, 2013)

IKEA’s Organisational Structure

IKEA’s corporate structure is divided into two main parts: operations and franchising. This can be seen in Appendix 1.

Most of IKEA’s operations, including the management of most of its stores, the design and manufacture of its furniture, and purchasing and supply functions are overseen by INGKA Holding, a private, for-profit Dutch company. From the IKEA stores in 36 countries, 235 are run by the INGKA Holding. The remaining 30 stores are run by franchisees outside of the INGKA Holding. (IKEA, 2013) INGKA Holding owned by the Stichting Ingka Foundation, which Ingvar Kamprad established in 1982 in the Netherlands as a tax-exempt, not-for-profit foundation.

The Ingka Foundation is controlled by a five-member executive committee that is chaired by Kamprad and includes his wife and attorney. (IKEA 2013) The full IKEA organisational structure can be seen in Appendix 2. As this business structural chart shows, Stichting IKEA Foundation, Stichting INGKA Foundation and Stichting IMAS Foundation are the top level of management. Stichting IKEA Foundation funds programs that improve the rights of children in developing countries and is in charge of being socially responsible. The Stichting INGKA Foundation is the owner of INGKA Holding B. V, and its purpose is to maintain an ownership structure.

The Stichting IMAS Foundation manages financial assets for the IKEA Company. Altogether, their main role is executive coaching, change management, leadership and delegation ;amp; empowerment. They also have many other roles which they need to abide by. Some include; laying down the objective and broad policies of the enterprise, prepare strategic plans ;amp; policies for the enterprise, controls ;amp; coordinates the activities of all the departments, provide guidance and direction and top management is also responsible towards the shareholders for the performance of the enterprise. In the middle of the management level, is INGKA Holding B. V.. The INGKA Holding B. V is the parent company of IKEA group and its purpose is to support and manage the IKEA group. Middle management is generally the department heads and their main responsibilities are problem solving, team building, talent development and performance management. They are also responsible for inspiring lower level managers towards better performance. In the bottom level of management (Operations Management) is the IKEA Group. The IKEA Group Is a group of companies that include Range Strategy, Product Development and Supply Chain, Retail companies and Industrial Groups.

Operational management are generally the managers the business and their work consist of assigning jobs and tasks to various workers, guide and instruct workers for day to day activities, are responsible for providing training to the workers, motivating the workers, and are the image builders of the enterprise because they are in direct contact with the workers. (Department, 2013) (IKEA, 2013)

External Factors/Forces

The business organisation is an open system. They influence and are influenced by the environment in which they operate.

This includes the demands and actions of internal and external environments and stakeholders. This leads to a state of continuous change of the equilibrium between the organisation and its environment. The productivity of an organisation is dependent on being able to match its pace of change in line with the rate of change with its environment. Therefore, there can be dangers to an organisation if it reacts too slowly or too quickly to change. Organisations receive resources from its environment (e. g. labour, finance, information), and replaces then with outputs (e. g. goods, services or ideas).

The environment is continually changing and therefore it impacts on the organisation’s actions. There are many external forces that can influence the way a company is managed and is operated. These include, political and legal forces, environmental forces, social, cultural and demographic forces, technological forces, international forces and competitive and economic forces. (Department, 2013) Any organizational open system is composed of three parts: inputs, transformations, and outputs. Inputs include human or other resources, such as information, energy, and materials, coming into the system.

Inputs are gathered from the system’s external environment. For example, a manufacturer in organization acquires raw materials from an outside supplier. The system obtains resources (can be raw materials or information etc. ) from its external environment. Transformations are the processes of converting inputs into outputs. Organizations have developed different mechanisms for transforming incoming resources into goods and services. Outputs are the results of what is transformed by the system and sent to the environment. Unknown, Organization as Open Systems, 2006) Feedback is information regarding the actual performance or the results of the open system. Feedback can be used to maintain the open system in a steady state or to help the organization adapt to changing circumstances. IKEA, for example, has strict feedback processes to ensure that a product in one store is as similar as possible to a product in another store when appropriate. (Unknown, Organization as Open Systems, 2006)

IKEA as an Open System

As with all other businesses, IKEA is operated as an open system.

Because of this, there are many forces internally and externally that affect the way that IKEA is managed and is operated. The first force that IKEA is challenged with is economic forces. The main factor that affects this is the changes to economic variables and the behaviour of stakeholders. Stakeholders are the individuals or group of individuals who have an active economic and possibly moral interest in an organisation. Stakeholder’s interest can be financial, but they can also involve broader issues such as the safety of the product or the quality of the natural environment that may be effected by the organisation.

Individuals and groups with a stake in corporate performance and activities are found in both internal and external environment. Internal organisation stakeholders are part of the organisation itself and can include; managers, employees, and owners of various formal and informal groups. External organisation stakeholders are members external to the organisation however, can be effected by the actions of the business and can include; competitors, suppliers, distributors, creditors, customers, shareholders, trade unions, government departments, citizen action groups, and many more.

IKEA has an abundance of stakeholders that affect the business from the organisation heads, to the environmental department of that country. Some other economic forces include inflations on the prices of materials which IKEA use to make its products. This is a major problem as IKEA’s main resource needed is wood. This problem however, is ruled out as IKEA uses recycled materials for some of their products. IKEA also finds ways to minimize resources needed for a product. An example of this is flat-packing their products.

By doing this, IKEA is not only freeing up space in the freight of the products, but also using fewer materials to package the product. Another major economic force is if there was a Global Financial Crises, due to high priced products and consumers cannot afford to buy. However, this again, is ruled out as IKEA is always working to achieve the lowest prices of goods and services so that as much people can buy their products as possible. (Department, 2013) Another force is social, cultural and demographic forces. This is mainly the force related to the general public near where the business is set up.

This can be affected by the financial income of the targeted family. The products that a business is trying to sell to the targeted marked have to be in the price range that the consumers are willing to pay. However, the price also needs to be high enough to meet production costs and can be priced to make profit. This is a job that economics can do for a business. Another factor is the culture of the country and individuals that are living there. This can also be affected if the public has access to the technology needed for a particular product.

An example of this is that if you are selling the public baby equipment/kids toys that need power to operate, the business has to make sure that the consumers have the power needed for that product. This can also be managed if labelling is provided that states this. IKEA is solely a consumer oriented store and all of the products are designed to the particular target market it is aimed at. This means that all of the IKEA stores worldwide are designed differently. An example of this is when IKEA entered the United States market; they discovered that Americans did not like its products.

This was apparently due to its beds and kitchen cabinets not fitting into the American sheets and appliances. Their sofas were also too hard for the comfort of Americans and the kitchenware was too small for American serving-size preferences. This was the major concern for the product VASEN which was originally a large vase. Americans thought of it as a normal large cup and started buying the product for the purpose of general drinking. (IKEA, 2013) Another force is political and legal forces. Some examples of these include government protection and barriers to entry of product.

This means that all resources/ready-made products need to follow strict rules and guild lines when being imported and exported to and from the country. Organisations can also be greatly affected by changes in government charges, legislation, contracts and location of public facilities. Changes in legislation must be monitored as it can significantly affect organisations. Consumers are fundamental to business and their rights are protected by consumer law. Some examples of this are Trace Practices Act, Fair Trading Acts and Sale of Goods Act.

IKEA is a very popular store, as they are true to their consumers and have had low problems with the laws of the country of operations. IKEA has strict labelling on their products and even show demonstrations of some of the offered products in the showrooms. (Department, 2013) Ecological forces are also a major factor contributing to the open system of any organisation. This force is mainly part of the public image a business provides for its stakeholders. This force is an internal force and is mainly a challenge of an organisation’s pollution emitted, disposal of wastes, supply of energy and how sustainable it is with economic development.

Organisations must also be aware of environmental regulations, energy conservation, pollution taxes (especially with Australia’s new ‘Carbon Tax’) and clean technologies. IKEA is a very eco-friendly company and this is one of their main strengths that they enforce to the public. IKEA has a majority of advertisements inside the showrooms stating about the energy efficient lights, recycled materials used, and how IKEA is continually finding ways to improve their energy and resource conservation. An example of this is IKEA’s use of their open sun roof which provides free light for the store during operational hours. Department, 2013)

Stakeholders

Stakeholders are people in society who have an interest in the performance and activities of business, because it has an impact on them. Stakeholder’s interests can be financial, but they can also involve broader issues such as the safety of an organisations product or the quality or the natural environment that an organisation might be affecting. Individuals and groups with a stake in corporate performance and activities are found in both the internal and external environment. All businesses have stakeholders.

Internal organisation stakeholders are part of the organisation itself and can include; managers, employees, and owners of various formal and informal groups. External organisation stakeholders are members external to the organisation however, can be effected by the actions of the business and can include; competitors, suppliers, distributors, creditors, customers, shareholders, trade unions, government departments, citizen action groups, and many more. (Department, 2013) Stakeholders are big resource for companies.

Based on different levels of power and interests to companies, stakeholders are divided into four types – high power, high interested; high power, less interested; low power, high interested; low power, less interested. Since the four types of stakeholders affect companies differently, businesses should use specific strategies to manage each of them. Stakeholders with high power and high interests are key stakeholders in a company. Business managers should pay the most attention to this type of stakeholders, because they usually have the most ability to make major decisions for a company.

For stakeholders with low power and high interests to a company, managers should keep them informed by up-to-date information. By sending current news or information to this type of stakeholders, managers can both make them satisfied and collect useful feedback that are very supportive information to companies. (Smith, 2009) To collect feedback from customers, IKEA carries out market research in the form of Market Capital – a tool to monitor and follow up each store’s implementation of the IKEA concept and assess how well it works in each market. The survey is carried out once every three years.

For some years the survey has included questions about stakeholder confidence, which has produced scores of between 45 and 64 percent from their customers. Every three years since 1993, a supplier survey has been conducted with all current IKEA suppliers with the aim of receiving feedback on strengths and weaknesses and how they can improve their work. The survey is conducted anonymously by a third party. Another tool IKEA uses to collect feedback from stakeholders is the Customer Satisfaction Index, CSI. This survey is carried out twice a year to investigate customers’ satisfaction with the IKEA stores.

It provides an international benchmark and ensures that customer satisfaction issues are addressed regularly. IKEA can see a positive development regarding the overall Customer Satisfaction Index. (IKEA, 2013)

IKEA’s Internal Stakeholders

IKEA has many different internal stakeholders which affect the business and the way it is operated and managed. The first important stakeholders are the employees who work for the IKEA organisation. Employees and their representative groups are interested in information about the stability and profitability of the company they are working for.

They are also interested in information which enables them to assess the ability of the enterprise to provide remuneration, retirement benefits and employment opportunities. Employees are the most important stakeholder as in IKEA, the employees are the face of the IKEA brand and their attitude and work ethic is important. The second internal stakeholders are the investors in IKEA. They are the providers of risk capital and their advisers are concerned with the risk inherent in, and return provided by, their investments.

They need information to help them determine whether they should buy, hold or sell. Shareholders are also interested in information which enables them to assess the ability of the enterprise to pay dividends. Most of IKEA’s investors are internal to the company as even the shares are private and cannot be bought publicly. Another type of internal stakeholders are the management and those who appointed them in IKEA. Financial statements also show the results of the stewardship of management, or the accountability of management for the resources entrusted to it.

Those users who wish to assess the stewardship or accountability of management do so in order that they may make economic decisions; these decisions may include, for example, whether to hold or sell their investment in the enterprise or whether to reappoint or replace the management. (Department, 2013)

IKEA’s External Stakeholders

As a company ran worldwide, IKEA cooperates with many local and international stakeholders. Since IKEA mainly produces furniture, most of its main stakeholders are non-profit environmentally friendly organizations, such as Clean Cargo Working Group (CCWG) and WWF.

By learning and sharing experience with these organizations, IKEA gains knowledge about taking social responsibilities and also builds up its reputation of being green. By cooperating with companies, trade unions and organizations, IKEA can learn, share experiences, and achieve more than what they would have done by themselves. IKEA has its main stakeholders listed publicly. The first stakeholder, Building and Wood Workers’ International (BWI), is a Global Union Federation of democratic and free trade unions, which protects more than 12 million members in 350 trade unions around the world in the building, wood, and forestry industries.

These two companies meet continuously to exchange experiences and to discuss working conditions and social responsibility, which are two very important factors in organizations. Second, IKEA is cooperating with Business for Social Responsibility (BSR), which is a global, non-profit organization that helps member companies to achieve success while respecting people, communities, ethical values, and the environment. BSR is a company that provides information, tools, training and advisory services to make corporate social responsibility a significant factor of business operations and strategies.

These two organizations are two great examples of IKEA’s stakeholders. These organizations will help IKEA to improve important parts of the company and to grow in a positive manner. (IKEA, 2013) IKEA also has many other stakeholders including; Better Cotton Initiative (BCI) which IKEA is a founding member of. BCI aims to promote recognisable improvements in the key environmental and social impacts of cotton cultivation worldwide to make it more sustainable; Clean Cargo Working Group (CCWG) who is working to promote sustainable product transportation.

CCWG develops voluntary environmental management guidelines and measures to help evaluate and improve the performance of freight transport; European Retailers Round Table (ERRT), who is a network organisation for retail companies in Europe. The group liaises with policy makers in the European Union on issues related to the retail industry, to help companies stay informed on the development.

Focus for activities include consumer protection, food safety, environmental issues, corporate social responsibility and trade issues; Forest Stewardship Council (FSC) which is an international network promoting responsible management of the world’s forests; Global Compact who promotes responsible corporate citizenship and works to ensure that business is involved in solving the challenges of globalisation; Green Power Market Development, who is a partnership dedicated to building commercial and industrial markets for renewable energy.

The group seeks to define the business case for corporate purchase of green energy products, to reduce market barriers faced by green power suppliers and buyers by providing independent information, and develop strategies that reduce green power costs by devising innovative purchasing options; International Labour Organisation (ILO), who is committed to social justice and developing internationally recognised human and labour rights; Rainforest Alliance, who is a non-profit organisation that works to conserve biodiversity and promote sustainable agricultural and forestry practices; Refrigerants Naturally ! who is acting as a supporter, educator and facilitator to promote the wise and sustainable development of the global environment; Save The Children, who is the world’s largest independent organisation for children, and works to secure and protect children’s rights to food, shelter, health care, education and freedom from violence, abuse and exploitation; The Network for Transport and Environment (NTM), who aims to establish a common base of values on how to calculate the environmental performance of various modes of transport; UNICEF, who is the world’s leading organisation for children; UTZ Certified who is an independent, not-for-profit organisation that operates the world’s largest and fastest growing certification programme for responsible coffee production and WWF who is one of the world’s largest and most experienced conservation organisations with a global network active in more than 100 countries.

WWF’s mission is to stop the degradation of the planet’s natural environment and to build a future in which humans live in harmony with nature, by conserving the world’s biological diversity, ensuring the sustainable use of renewable natural resources and promoting the reduction of pollution and wasteful consumption. (IKEA, 2013) Finally, as with all other business, external stakeholders also include competitors, suppliers, distributors, creditors, customers, shareholders, trade unions, government departments and citizen action groups. (Department, 2013)

Evaluation of Business Success 8.

SWOT Analysis

A SWOT analysis is a structured planning technique used to assess the Strengths, Weaknesses, Opportunities, and Threats involved in a project, business venture, or the overall business itself.

A SWOT analysis can be conducted for a product, place, industry or person. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favourable and unfavourable to achieving that objective. Strengths are characteristics of the business or project that give it an advantage over others and are internal. Weaknesses are characteristics that place the team at a disadvantage relative to others and are also internal. Opportunities are external elements that the project could utilize to its advantage. Threats are also external and are elements in the environment that could cause trouble for the business or project. Government, N/D) The main advantages of conducting a SWOT analysis is that it has little or no cost – anyone who understands the business can perform a SWOT analysis for it. This means that you can take steps towards improving your business without the expense of an external consultant or business adviser. Another advantage of a SWOT analysis is that it concentrates on the most important factors affecting your business. Using a SWOT, you can; understand your business better, address weaknesses, deter threats, capitalise on opportunities, take advantage of your strengths and develop business goals and strategies for achieving them. (Government, N/D) IKEA uses SWOT analyses 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. The full IKEA SWOT analysis can be seen in appendix 3. (Unknown, SWOT Analysis and Sustainable Business Planning, 2010) A business can counter threats by making the most of its strengths and addressing its weaknesses.

For example, one of IKEA’s key strengths is its strategic aim to use no more material than necessary in the production of each item. In addition, it develops its product plans to amplify its use of waste or recycled materials. (Unknown, SWOT Analysis and Sustainable Business Planning, 2010) Some examples of this are IKEA’s NORDEN table. It uses knotty birch wood. The knots in this wood usually mean it is rejected by other retailers and manufacturers as unsuitable for use. However, IKEA has made the knots part of its intended feature of the design. Another example is IKEA’s OGLA chairs. They are made using wood waste from saw mills. Another product is IKEA’s LACK tables.

It uses a ‘sandwich’ of stiff card between wood sheets to reduce the amount of solid wood needed. (Unknown, SWOT Analysis and Sustainable Business Planning, 2010)

IKEA’s SWOT Analysis

IKEA’s SWOT analysis covers a wide range of topics as IKEA is a big company. Here is an example of two of each of the strengths, weaknesses, Opportunities and Threats. The rest can be found in Appendix 3. IKEA has many strengths that are an advantage to the huge furniture retailer. The first of IKEA’s strengths include a strong global brand which attracts key consumer groups. It promises the same quality and range worldwide. Another strength is that IKEA’s vision ‘to create a better everyday life for many people. There are also many opportunities that IKEA can focus on to achieve in the future. Some of the opportunities that IKEA takes advantage of through its sustainability agenda are; a growing demand for eco-friendly/green products, a growing demand for low priced products, and the demand for reduced water usage and lower carbon footprints. IKEA has many weaknesses which the company can work to eliminate. 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. The first weakness is the size and scale of its global business. This could make it hard to control standards and quality of IKEA products.

Some countries where IKEA products are made do not apply the legislation to control working conditions for IKEA’s suppliers. 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. Another weakness is 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 also has many threats that can affect the profit, and goals of IKEA. 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. The first threat is any social trends such as the slowdown in first time buyers entering the housing market. This is a core market segment for IKEA products. Another threat is that the market may forces more competitors entering the low price household and furnishings markets. (Unknown, SWOT Analysis and Sustainable Business Planning, 2010)

Efficiency and Effectiveness

Organisation effectiveness is the degree to which an organisation satisfies the demands of its stakeholders, while efficiency is the use of the organisations resources in achieving objectives at the lowest possible costs. Department, 2013) In many ways, IKEA is working to constantly satisfy the demands of its stakeholders. The first and main may IKEA satisfies its stakeholders is by being a very eco-friendly company. This gives the company the look of being a sustainable company to the limited resources of the earth and appeals a wide audience. By doing this, IKEA can also lower the costs of the products as IKEA’s resources are produced with less money therefore, IKEA can provide customers with products they can afford while still gaining profit. Employees are also being satisfied as they know and can trust in the IKEA brand and know they are helping the environment. IKEA’s employees are also a major focus on its branding.

The IKEA Way on Purchasing Products, Materials and Services, is based on international conventions and declarations. It includes provisions based on the United Nations Universal Declaration of Human Rights (1948), the International Labour Organisation Declaration on Fundamental Principles and Rights at Work (1998), and the Rio Declaration on Environment and Development (1992). It covers working conditions, the prevention of child labour, the environment, responsible forestry management and more. IKEA’s employees are getting fair wages and working conditions as part of this movement. This is therefore, satisfying the trade unions as IKEA has fair treatment of employees.

The shareholders in the company can also rest assure that they are investing in a popular brand and get a good return on their investment. Environmentalists are also a big part of any business stakeholders and would be very pleased with IKEA. This is because IKEA adheres to the laws of protecting the environment and are proactively finding ways to do more. (Department, 2013) (IKEA, 2013) IKEA is well known for how efficient it is with its resources. Low prices are the cornerstone of the IKEA vision, business idea and concept. The basic thinking behind all IKEA products is that low prices make well-designed, functional home furnishings available to everyone.

IKEA is constantly trying to do everything a little better, a little simpler, more efficiently and always cost-effectively. All IKEA units play an important part in creating their low prices which are then able to offer our customers. One IKEA product developer decided to use a door as a tabletop when he toured a door factory that used board-on-frame construction – a layering of sheets of wood over a honeycomb core that gives a strong, lightweight structure with a minimal wood content. This type of construction is cost-effective and environmentally friendly and is used today in IKEA products such as the LACK table from 1980. One of IKEA’s main goals before was to cut transportation costs.

This was the reason IKEA knocked down furniture into disassembled parts, which could be packed and shipped in flat cardboard. This reduced the coast of transportation by more than 80%. To cut costs even more, the furniture was sold directly to customers in the same flat boxes that they were supplied in. During a challenge to IKEA’s product designers in 2003, the challenge was “Make an existing product better for the customer and at a lower row price. ” A redesign of IKEA’s candles (GLIMMA) packaging, resulted in an increase from 252 bags on a pallet to 360. In the course of a year, this translated into 18,500 fewer pallets to handle and store and a consequent cost saving for IKEA of 3. million euro. (IKEA, 2013) (Petterson, 2011)

Social Responsibility

Social Responsibility is a set of obligations that an organisation has to help achieve the prevailing objectives of society. The social responsibility behaviour model can be seen in Appendix 4. The 4 factors of social responsibility are acts illegally, meet legal obligations, respond to demands, and contribute pro-actively. (Department, 2013) There are many positives of being socially responsible, especially being a large company that IKEA is. The first positive is that employees will be happy with the company. Employees want to feel proud of the organization they work for.

An employee with a positive attitude towards the company, is less likely to look for a job elsewhere. It is also likely that you will receive more job applications because people want to work for you. More choice means a better workforce. Because of the high positive impact of being socially responsible on employee wellbeing and motivation, the role of HR in managing socially responsible projects is significant. The second positive is that customers will be happy. Research shows that a strong record of a socially responsible company improves customers’ attitude towards the company. If a customer likes the company, he or she will buy more products or services and will be less willing to change to another brand.

Being socially responsible also provides the opportunity to share positive stories online and through media. Companies no longer have to waste money on expensive advertising campaigns. Instead they generate free publicity and benefit from worth of mouth marketing. Being cost effective also does not have to cost much or any money. An example of this is if a company becomes green and has solar power, and energy saving lights. A social responsibility program requires an open, outside oriented approach. The business must be in a constant conversation with customers, suppliers and other parties that affect the organization. Because of continuous interaction with others, the business will be the first to know about new business opportunities. Unknown, What is Corporate Social Responsibility? , 2011) In many ways, IKEA is socially responsible. IKEA invests in many charities and funds programs which promote eco-friendliness. For more than 10 years, IKEA has been a key partner, contributing to UNICEF’s work through strategic social investments, cause-related marketing promotions, sales of UNICEF Greeting Cards, in-kind assistance and national-level fundraising and promotional activities by IKEA customers and employees around the world. But what makes IKEA Social Initiative a true partner, is the company’s faithful promise to social responsibility and their direct engagement with issues affecting children.

They have joined with UNICEF to tackle issues like child labour at their root causes. The largest corporate cash donor to UNICEF, IKEA Social Initiative has committed more than $180 million in cash and in-kind donations to UNICEF’s programmes to save and improve the lives of children and their families. One IKEA ambition is to make work with social and environmental issues an integrated and natural part of daily business. Although many things remain to be done, great achievements have been made over the years. IKEA regard the work as a continuous process and work step by step to achieve the goals they have set. IKEA also has a “maximum benefit from minimum resources” approach to product development.

This means using the smallest amount of resources to make the best possible product. IKEA aims to improve all environmental aspects of business. In addition to using resources wisely, IKEA strives to minimise the negative environmental effect caused by business activities. IKEA sees the forest as a valuable resource, and therefore works to ensure that the wood used in IKEA products comes from well-managed forests that will continue to provide goods and services for future generations. Efficient distribution plays a key role in creating the low price, and contributes to minimise the environmental impact of our activities. IKEA co-operates with partners throughout the world on social and environmental issues.

The result is a wide range of activities; from vaccination programmes for thousands of children in South Asia to rehabilitation of burned and degraded rain-forests in Malaysian Borneo. (IKEA, 2013) IKEA evaluates how they are moving towards our social and environmental goals by asking co-workers if they agree that “IKEA is a company that shows in action that it takes social and environmental responsibility”. In the 2005 confidence survey in which 12,189 participated (14 percent of all IKEA Group co-workers), 68 percent agreed with this statement. The results also showed that the work IKEA does regarding social and environmental issues makes it an attractive company to work for and makes IKEA co-workers proud. (IKEA, 2013) As part of being socially responsible, IKEA is also part of many charities.

Greenpeace is a non-profit organisation focusing on the most vital worldwide threats to the planet’s biodiversity and environment. Greenpeace campaigns to stop climate change, protect ancient forests, and save the oceans. IKEA discusses forestry and related issues with Greenpeace, but does not work on any joint projects with the organisation. The Green Power Market Development Group is run by the World Resource Institute and IKEA is a member of the organisation. IKEA is developing tools and strategies that increase the use of electricity generated from renewable sources. Save the Children helps millions of children and adults around the world to improve their lives.

IKEA and Save the Children work jointly both at global and local level, and have a long relationship working on projects mainly related to preventing child labour. The organisation helped IKEA define a special code of conduct to address child labour issues. (IKEA, 2013) 8. 0 Recommendations Here are some recommendations that IKEA should consider to improve its company, and therefore, improve its profits: The first problem is in IKEA’s mission statement. “to offer a wide range of home furnishing items of good design and function, excellent quality and durability, at prices so low that the majority of people can afford to buy them. ” There are six elements which help business write and evaluate their mission statement.

The first element is to state why the business exists- an example is to provide quality products, or the best service. The second is to give employees a common purpose- This can include stating that you offer friendly service by knowledgeable staff. The third is to create business identity- stating what the business is about and what it offers. The fourth is to indicate business strengths – This can include best quality, best service, fast delivery, and customer comes first. The fifth contributes to business’ public image. Lastly is a benchmark to evaluate business performance- This means that your mission statement should be viewed as a goal that you are moving towards and can be evaluated by actual business performance.

Most of the elements of a mission statement is present however, IKEA does not set employees a common purpose. An example of a new mission statement with all elements is: “to offer a wide range of home furnishing items of good design and function, excellent quality and durability, with the most knowledgeable and motivated staff, at prices so low that the majority of people can afford to buy them. ” IKEA’s food quality is also not of high standard. Although it is sold at a relatively low price, consumers can be put off by the quality of food in the store, which will ultimately mean that customers will find somewhere else to eat, leading in a loss of profit and money if food is being wasted.

To overcome this, IKEA should use the ingredients of its food, from local suppliers as IKEA is generally using cheaper imported ingredients. My doing this, the food is more fresh and appetizing for the customers. The foods are now also what the customers expect and can be reliant on as it was sourced locally. If IKEA does this, more people will want to eat at IKEA stores after doing their furniture shopping, leading in more food items bought, leading in a higher profit. A big disadvantage to IKEA is the way that it ships items. IKEA uses a method of shipping that allows maximum numbers of product to be shipped when they run out. This means that if the product runs out early, IKEA stores have to wait until it has the maximum products available to ship before it reaches stores.

This can be seen as an advantage for IKEA as it can lower the costs of shipping if bulk shipping is done rather than shipping little at a time. However, this is also a disadvantage as if IKEA runs out of stock, customers have to wait for their wanted product to arrive. Customers may get frustrated with the waiting time and transfer furniture retailers. This would mean that IKEA will lose its customers, losing cash, which ultimately leads in a lower profit. A way that IKEA can fix this, is that they can determine the times where people generally buy more of a type of item. This way, IKEA can stock more of an item. IKEA can also ship their products more frequently so that they are always in stock.

By doing this, IKEA always has products ready to sell, leading in more customers buying the items, leading in a bigger profit. IKEA is a highly successful and popular furniture brand recognized worldwide. Therefore, IKEA should benefit from providing more choice in stock that more consumers are starting to buy. IKEA has always sold the same things, furniture and household items. However, IKEA has not had much items sold in the outdoor furniture type of items. IKEA does however, have some items in the pickup area, but it is not very extensive. IKEA will greatly benefit from this as more people are starting to start the craze of outdoor living, especially in Australia.

The backdoor area has always been an important in Australian living, with barbeques and get-togethers being held frequently. By having an outdoor area in the showroom, IKEA can market an outdoor range to a wide audience and sell large quantities, especially to the ‘outdoor loving’ Australians. By doing this, IKEA will gain more cash from the outdoor furniture and items being sold, and ultimately, increase profit. Another recommendation is that IKEA should make their showrooms bigger. A large number of people find IKEA stores claustrophobic and hard to get around its narrow walkways. The paths are also generally a one way zone and are hard for people with trolleys, roam around the store.

This is because if another customer wants to walk past a trolley that is stationary, the customer might have a hard time finding a path around as the walkway is narrow. This situation is even worse if two trolleys are met up. This would mean that people carrying trolleys have to continually walk the speed that other customers are walking so that customers don’t get angry at them. This is a disadvantage as one of IKEA’s main tools of marketing their products in store is to provide customers on examples of how to use their products and therefore, needs some time for the customers to look around. To fix this, IKEA can widen its path to the size of two trolleys which will then mean that the paths are more users friendly.

By doing this, more people would come to IKEA stores with the knowledge that they don’t have to feel claustrophobic and have time to look at all of the products and showrooms IKEA has to offer. Therefore, more customers would visit and buy more things, rising the amount of cash earned, leading in a higher profit. A big decision that IKEA has to make is that if it is publicly listed or not. I recommend that IKEA does become publicly listed so that the company can get more capital from investors. The shares of a public company are also freely transferable. This makes investment in the shares liquid and an investor is not bound to remain with the company. There is also an unlimited range for growth and expansion of business.

New shares can be used to raise additional capital. Experts can be employed to manage the increasing business activities. Therefore, a public company can avail of the economies of large scale operations. By having more capital, IKEA can therefore, grow as a company, and in the long run, increase profit. (Department, 2013) Another recommendation 9. 0 Conclusion This business report will cover the major aspects of how a business is run, especially focusing on how IKEA became a big company like it is today and make the most profit. IKEA is one of the most recognized furniture brands all over the world. It appeals mostly to the young and hip audience, as it akes affordable furniture and home furnishings choices available to those just starting out on their own. IKEA furniture is affordable to a wide range of people, attractive and is of high quality. It has grown rapidly since it was founded in 1943. Today it is the world’s largest furniture retailer, recognised for its Scandinavian style. The majority of IKEA’s furniture is flat-pack, ready to be assembled by the consumer. This allows a reduction in costs and packaging. IKEA carries a range of 9,500 products, including home furniture and accessories. This wide range is available in all IKEA stores and customers can order much of the range online through IKEA’s website. (IKEA, 2013) IKEA is a private company.

A private company is owned either by non-governmental organisation or by a fairly small number of shareholders or company members which does not offer or trade its company stock (shares) to the general public on the stock market exchanges, but instead, the company’s stock is offered, owned and traded or exchanged privately. (Rowan, 2008) Well thought-out business goals and objectives point businesses in the right direction and keeps an established company on the right track. Every successful business would have their objectives and goals in their minds when they perform tasks and projects so that they have a key understanding of what the business wants to do and how they are going to evaluate the ending results to see whether they are moving closer to their goals.

From this information, businesses can determine what they have to change or keep the same to achieve better outcomes. IKEA has well thought out business goals and objectives that challenges IKEA as a company to reach these. . IKEA’s vision is to create a better life for the many people who purchase their products. IKEA’s mission is to offer a wide range of home furnishing items of good design and function, excellent quality and durability, at prices so low that the majority of people can afford to buy them (IKEA 1994). IKEA’s mission statement is a big goal that IKEA has set for itself and is a good benchmark for the business. IKEA has continually been working on ways to improve itself as a company and to be more “green”.

There are many ways that IKEA is working towards is goals and objectives. There are many examples stated in the report. Every IKEA employee has been trained to think about recycling and the conservation of resources. Most of IKEA’s products contain recycled cardboard and wood to make sure they are producing the products as low as they can but still making profit. The majority of IKEA’s furniture is flat-pack, ready to be assembled by the consumer. IKEA has a finance division which looks after how IKEA gets money and how (if any) IKEA will pay debts The Finance Division in IKEA aims to manage financial assets and deliver a reasonable risk adjusted return in the long-term.

The division also includes a treasury function to manage group liquidity. The head of division is Ole Nielsen. IKEA is equity financed which is a major advantage that IKEA has. By equity financing, IKEA is able to spend its own money and does not lose money though interest when taking out a loan. Equity financing doesn’t have to be repaid. You also share the risks and liabilities of company ownership with the new investors. Since you don’t have to make debt payments, you can use the cash flow generated to further grow the company or to diversify into other areas. Maintaining a low debt-to-equity ratio also puts you in a better position to get a loan in the future when needed. Unknown, Financial Planning, 2010) IKEA’s corporate structure is divided into two main parts: operations and franchising. This can be seen in Appendix 1. Most of IKEA’s operations, including the management of most of its stores, the design and manufacture of its furniture, and purchasing and supply functions are overseen by INGKA Holding, a private, for-profit Dutch company. From the IKEA stores in 36 countries, 235 are run by the INGKA Holding. The remaining 30 stores are run by franchisees outside of the INGKA Holding. (IKEA, 2013) The business organisation is an open system. They influence and are influenced by the environment in which they operate. There are many external forces that can influence the way a company is managed and is operated.

These include, political and legal forces, environmental forces, social, cultural and demographic forces, technological forces, international forces and competitive and economic forces. (Department, 2013) IKEA has many different internal stakeholders which affect the business and the way it is operated and managed. This can include employees, managers, and owners/CEOs. As a company ran worldwide, IKEA cooperates with many local and international stakeholders. Since IKEA mainly produces furniture, most of its main stakeholders are non-profit environmentally friendly organizations, such as Clean Cargo Working Group (CCWG) and WWF. IKEA uses SWOT analyses 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. The full IKEA SWOT analysis can be seen in appendix 3. Unknown, SWOT Analysis and Sustainable Business Planning, 2010)Organisation effectiveness is the degree to which an organisation satisfies the demands of its stakeholders, while efficiency is the use of the organisations resources in achieving objectives at the lowest possible costs. (Department, 2013) Social Responsibility is a set of obligations that an organisation has to help achieve the prevailing objectives of society. The social responsibility behaviour model can be seen in Appendix 4. The 4 factors of social responsibility are acts illegally, meet legal obligations, respond to demands, and contribute pro-actively. (Department, 2013) IKEA is a well-planned and organised business. Its green concept is striking the target market and persuading customers that IKEA is the best possible furniture brand to buy from.

IKEA’s ways of operating is also very sustainable in the way that it finds cheaper ways to do the same things. IKEA also has a big advantage to its public image from this and the way that IKEA is socially responsible. Overall, IKEA will have strong growth with new plans of business franchising all over the world. Appendix 1 Source: Wikipedia http://en. wikipedia. org/wiki/IKEA Appendix 2 Source: http://www. slideshare. net/krumambi/ikea-funding-and-financing/ Appendix 3 Strengths| Weaknesses

• IKEA is a strong global brand which attracts key consumer groups. This helps with IKEA’s word of mouth marketing, and gain more customers, increasing profit. IKEA promises the same quality and range worldwide with some differing products that focus on the target area. By doing this, customers know that they are getting high quality products, increasing customers, increasing profit.
• IKEA’s vision – ‘to create a better everyday life for many people. ’ People can see this and be proud to help the IKEA Way and its charities IKEA supports.
• IKEA has a strong concept – based on contributing a wide range of well designed, functional products at the lowest prices possible.
• IKEA has a ‘unique product design’ – reaching an ideal balance between function, quality, design and price. This can increase customers, increasing profit. IKEA’s ‘Cost Consciousness’ means that low prices are taken into account when each product is designed from the beginning. This means that more people are able to buy IKEA products, increasing profit.
• IKEA has increasing use of renewable materials IKEA improved its overall use from 71% in 2007 to 75% in 2009.
• IKEA has ‘Smarter’ use of raw materials. IKEA increased the use of recycled or reclaimed waste products in energy production across all stores from 84% in 2007 to 90% in 2009.
• IKEA believes in creating long-term partnerships with its suppliers. 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 for instance, bulk buying at cheaper unit costs. This can increase profit as IKEA becomes more efficient in its recourses.
• Sourcing materials close to the supply chain to reduce transport costs. This can therefore, increase profit.
• Delivering products directly from the supplier to IKEA stores. This slashes handling costs, reduces road miles and lowers the carbon footprint
• Using new technologies for example, IKEA’s OGLA chair has been in its range since 1980. The chair has changed through the years to reduce the amount of raw materials needed.
• The size and scale of IKEA’s global business can be a disadvantage. This could make it hard to control standards and quality of their products and services.
• 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.
• By doing this, IKEA has more products to sell, ultimately increasing profit.

Illegal dumping clearance of farm land). Waste. Source: Business Department, Business Education, 2013, Grace Lutheran College.

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