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Introduction

Headquartered in Delft, Netherlands, and founded in 1943 by 17-year-old Ingvar Kamprad in Sweden, IKEA is the world’s largest furniture retailer according to O’Connell (2018) recognized world-wide for its Scandinavian style. Popular for its flat-pack, ready to assemble (RTA) furniture, IKEA stores also contain restaurants and cafes that serve typical Swedish recipes on their menu. The presence of IKEA around the world is largely supported by its food which enables it to connect with the local audience and give s strong competition to local retailers. The company is famous to make necessary changes to its basic product design to thrive wherever they go.

The most suitable example is the change in bed size in America to meet the customer standards in their American division. The company’s vision is “ To create everyday life better for many people” and this is the reason why it is known as “a pioneer of sustainability“ as it keeps its business up to date with suitable transformations of its core business. This paper identifies the transformation methods and how IKEA applied these transformations to keep its business competitive in the race for going transformation. The following image shows the timeline of how IKEA captured the furniture market and became the world’s largest furniture selling giant.

image shows IKEA History Timeline

Fig: IKEA History Timeline

In the fiscal year 2018, IKEA sold products worth 44.6 billion US dollars ((Ringstrom, 2018). There are 424 IKEA stores in around 52 countries worldwide as of data collected in 2018. (“Inter IKEA Systems B.V. - IKEA Franchisees”, 2018)

IKEA’s organizational structure is divided into two sections: Operations and Franchising. It is operated and owned by a complex array of non-profit and profit organizations.The company works in various ways to sustainable development by engaging in climate control methods by improving its production process by recycling the waste material produced. (“Creating a More Sustainable Life”, 2015).

Flowchart shows structure and ownership of IKEA companies

Fig: Flowchart showing structure and ownership of IKEA companies

Analysis Into the Need for Enterprise Transformation

To drive an enterprise transformation, decision-makers use SWOT analysis to gain insights into all the factors affecting the result of a proposed action plan. This tool identifies the Strength, Weakness, Opportunities, and Threats (SWOT) by a two by two matrix and filling strength and opportunities in the first column and weakness and threats in the second column. Following diagram shows that current context of IKEA’s business model:

image shows SWOT analysis tool

Fig: SWOT analysis tool

Strengths and Weaknesses are internal to the business and can be controlled and managed directly by the company in focus for example marketing, financing, and manufacturing. On the other hand, Opportunities and Threats are external elements and are outside the control which can be economic or technological changes such as the internet.

SWOT analysis of IKEA:

Strengths

  • Global market leader

  • Popular conceptual designs

  • Cost-efficient product and process innovations

  • High brand value with a strong financial position

  • Wide range of products with focused parameters

Weakness

  • Weak presence in the Asia region( Facts & Figures (2019)

  • Decrease in reputation due to some previous incidents (Andrew & Castle, 2013)

  • Store layouts can cause problems to customers that want one specific item

  • Swedish design can be non-compelling to other nations

  • RTA furniture is not built to last long

  • Lacking technological advancements to boost up the sales

Opportunities

  • Capturing unexplored markets for example developing countries like India.

  • Launching premium product range into their portfolio which are build to last longer

  • Increasing competitive advantage using technological innovations, for example, smart home systems

Threats

  • Indirect threats from Wal-mart, Target and rivals

  • Worldwide Economic Crisis

  • Trends in shopping-People moving to online shopping which ease the complete process of purchasing furniture

  • Increasing Competition - more and more companies are entering the market with advance technological concepts like smart home and Augment Reality

Outcome of SWOT analysis (Reasons that support Enterprise Transformation at IKEA)

Identifying strengths is easy and the company is already working on those processes.Identifying the weaknesses takes courage and is an internal factor that is in the company’s control to overcome those weaknesses by correctly identifying the major area to work upon. Seizing Opportunities and mitigating threats are essential for IKEA to keep its vision under the scope.

After identifying all these areas, the external factors identify one thing in common which is both - a threat as well as an opportunity to develop and maintain its competitive advantage in the industry and that is Digital Transformation.

The SWOT analysis identifies the need for taking IKEA’s store-based furniture retailing to creating an online app that will support Augmented Reality and customers can just open up their mobile cameras and select a product from IKEA’s portfolio to place decorate that corner of their homes. To keep its competitive advantage, IKEA has to break into the Smart Home Devices and start adding devices like smart speakers and lightings to their portfolio of products.

According to Rouse (2005) market plays an important role in triggering the change in enterprises. It depends on external factors like competition and the supply of products and services. And in the concerned scenario, decision managers at IKEA has decided to transform the company with the help of different holistic and integrative business transformation methods that are discussed in this paper.

Conclusion

On the basis of above discussion it can be analyzed that periodically transformation of the operations is important in order to achieve competitive advantage in the market. However, it becomes important for an organization to implement the change management process effectively in order to retrieve the benefits of transformation taking place.

Change in the transformation process was required in IKEA because the organization earlier was using a large amount of water in its overall business operations, which was having negative impact on the cost structure as well as the sustainability aspect of the organization. Therefore, the waste management plan will help the organization in not only saving cost but increase the sustainability of the business operations. Another important finding of the discussion is that change was also necessary for IKEA for withstanding the current level of competition in the market. The competitors in the market are utilizing latest technologies for Digital Transformation which further increased the requirement of IKEA to adopt methods that increases the effectiveness of the business operations and reduces the cost of the business operations in order to be ahead in comparison to the other competitors in the market.

In the report, the change of the enterprise transformation has been recognized through the application of SWOT analysis. The analysis helped in finding out that in spite of having big brand value and competitive position in the market, there were some weakness from which the company was dealing with. Therefore, it can be understood that timely organizational evaluation is important in order to sustain the similar competitive position.

With the help of the analysis undertaken it could be derived that IKEA needs to create an online app supported by Augmented reality with the help of which the customers will be able to place orders for products directly from their smart phones. The managers also adopted different holistic and integrative business transformation methods for making the organization better for further seizing the opportunities available in the market. The effective availing and utilization of opportunities will help the organization in further increasing the margins of its productivity and profitability.

References

O’Connell, liam (2018). Topic: IKEA. [online] www.statista.com. Available at: https://www.statista.com/topics/1961/ikea/.

Facts & Figures (2019) IKEA, Available at: https://www.ikea.com/ms/en_AU/about_ikea/facts_and_figures/

Higgins Andrew, and Stephen Castle. “Ikea Recalls Meatballs After Detection of Horse Meat.” The New York Times, 26 Feb. 2013, nytimes.com/2013/02/26/world/europe/ikea-recalls-itsmeatballs-horse-meat-is-detected.html

"Inter IKEA Systems B.V. - IKEA franchisees". franchisor.ikea.com. Archived from the original on 23 December 2018. Retrieved on 22 May, 2020.

“Creating a More Sustainable Life.” Com, www.ikea.com/gb/en/this-is-ikea/about-us/a sustainable-ikea-pub0b61e238, 2015.

Rouse, W.B., 2005. A theory of enterprise transformation. Systems Engineering, 8(4), pp.279-295

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