IKEA s Strengths and Weaknesses

Executive Summary
This report provides information on each of the following areas pertaining to IKEA’s organization, culture, ethical framework, revenue and so on. The following sections provide the relevant data:
1) Organization Background & Benchmarking
2)Organization Background, Ethics/Legal, and Current events
3) Marketing, Financials & Accounting
4) Organization Culture, People, and Diversity
5) Strategy and Planning Analysis—Organization Goals
6) SWOT analysis 
7) Recommendations, 21st Century, and Moving Forward
A brief summation of the separate sections is as follows: 1) focuses on IKEA’s standard store concept and how benchmarking analysis can be used to more effectively harness the firm’s potential in development. It also examines internal benchmarking that is a factor in the firm’s ability to promote progressive ideals; 2) focuses on ethical and legal compliance within the organization and how the company has addressed issues such as child labor and equality in the workplace; 3) focuses on how the firm differentiates itself from competitors, the strength of its financials, and accounting difficulties it is having in Europe; 4) focuses on the company’s positive organizational culture, and its commitment to people and diversity; 5) shows that IKEA has implemented a strong sustainability strategy in order to obtain its organizational goals; 6) reveals that IKEA has several strengths that outweigh its weaknesses and that there are opportunities to develop its brand even in the face of e-commerce engines like Alibaba and Amazon; 7) provides recommendations to enhance to the “experience” aspect of its retail outlets and the need to maintain its progressive platform in the 21st century.
Organization Background & Benchmarking
As Martenson and Servin (2002) point out, IKEA has used a “standard store concept” to facilitate the development of IKEA stores across 40+ different countries all over the globe. This standard store concept enables the organization to quickly build stores that are essentially all the same in a way that is efficient, simple to manage, and highly standardized. However, the problem is that retail construction costs vary significantly from one country to the next. A benchmarking analysis can help to oversee the continual process of updating the standard store concept in order to make it more efficient where these differences in economies arise.
IKEA has as other organizational issues that are not related simply to build-outs and expansion. There is human capital at stake as well and the improvement and development of its human capital as well as its corporate social responsibility in the various regions around the world are essential factors that must be taken into consideration. Benchmarking analysis can be applied here as well.
As an organization, IKEA wants to be recognized around the world as a good and positive environment where diverse people can come together to achieve a common aim, that is reflective of the overall community’s values and beliefs. To this end, the organization seeks to promote equality within its workplace environment and has been recognized and honored as a progressive company by the Human Rights Campaign Foundation’s 14th Annual Scorecard on LGBT Workplace Equality.
As IKEA (2017) notes, “the CEI (Corporate Equality Index) is a national benchmarking survey and report on corporate policies and practices related to LGBT workplace equality, administered by the Human Rights Campaign (HRC) Foundation.”  However, the company does not just focus on equality in the workplace but also on providing its workers with the opportunity to create a better life for themselves. A number of points can be mentioned to this end to show how benchmarking analysis has led IKEA to offer incentives to its employees so that it retains its 100 percent score on the CEI and at the forefront of the more than 1000 companies worldwide monitored and assessed by the HRC. These incentives include:
· Extending benefits coverage to spouses and domestic partners including health/medical, dental, vision, dependent coverage, COBRA, FMLA, bereavement, relocation/travel assistance, adoption benefits, employee discount, employee-assistance program.
· Including in the employee medical plan gender reassignment surgery and other services.
· New minimum wage, retirement savings (401k)— IKEA offers a 401K plan and matches a portion of contributions. IKEA offers a 100% match on the first 4% of salary contributed, and a 50% match on the next 2% of salary contributed.
· Health benefits, paid time off, and growth and development opportunities via education assistance for workers, including undergraduate and graduate programs, plus tuition discounts (Corporate News, 2016).
Organization Background, Ethics/Legal, and Current Events
IKEA’s ethics and legal organizational background is rooted in its corporate social responsibility policy. The guiding principles of the organization are described in the corporation’s IWAY Standard (2008): “At IKEA we recognize that our business has an impact on social and environmental issues, in particular people’s working conditions, as well as the environment, both locally and globally” (p. 1). The company’s desire to do good business is predicated on its desire to be a good business—and to that end it has placed as a pre-condition for future growth certain principles:
· What is in the best interest of the child?
· What is in the best interest of the worker?
· What is in the best interest of the environment?
The IKEA Way on Purchasing Products, Materials and Services (IWAY) thus acts as a code of conduct for the organization throughout the world and directly addresses the issue of child labor specifically. The framework for this code of conduct is found in the core conventions defined by the Fundamental Principles of Rights at Work, ILO declaration (1998) and the Rio Declaration on Sustainable Development (1992) as well as the UN Johannesburg Summit on Sustainable Development and the Ten Principles of the UN Global Compact (2000) (IWAY Standard, 2008).
IKEA’s legal compliance and organizational requirements are situated in the following assertion: IKEA and its suppliers shall always work to comply with all requirements of national laws and regulations, as “the law shall always be complied with and prevail” (IWAY Standard, 2008).
The organization’s ethics are based on the values of trust, integrity and honesty, which the company views as the foundations for relationships and sustainable development. The company states that “it is important that all IKEA co-workers and external business partners understand the IKEA position on corruption and its prevention. This has been established in the IKEA Corruption Prevention Policy and The IKEA Rules on Prevention of Corruption and communicated in the IKEA Way of Doing Business and the vendor letter which shall be signed by all business partners” (IWAY Standard, 2008).
In terms of current events, the company is at the forefront of complying with ethical issues like workplace equality, as is evidenced by its 100% CEI score. It continues to advances causes and issues that are important to its nations’ peoples and to comply with ethical and legal standards regarding labor laws across the world.
Marketing, Financials & Accounting
IKEA markets itself according to the marketing mix formula and focuses on what differentiates the organization from its competitors—namely, its ability to provide “great design, quality and affordability for all” (IKEA Yearly Summary FY15, 2016, p. 2). Differentiation is one of the primary tools of a marketer to help bring consumers to its brand in a crowded industry: as Trout and Rivkin (2006) state, the marketer must “differentiate or die” (p. 2). IKEA has been able to do this exceptionally well by providing a unique shopping experience to consumers that is unlike any other in the furniture retail sector.
IKEA’s accounting policies have not always been as equally embraced as its marketing, however. Shen (2016) reports that in Europe, IKEA is under fire for seeking tax havens for its sales profit: “The Swedish furniture company has been accused of avoiding more than €1 billion in taxes over the past six years by Ministers of the European Parliament. The ministers are demanding an official probe into the companies tax practices.” IKEA’s accounting shows that it transferred billions of Euros from countries with high taxation rates (for instance, France, Germany, UK) into tax havens, where low or even no tax would have to be paid. IKEA reported a 2016 profit of nearly $4 billion and paid 822 million Euros in corporate taxes for that financial year on top of another 700 million Euros in property-levied taxes (Shen, 2016).
IKEA’s financials show that the fiscal year 2015 saw “strong sales, continued expansion and a 3.5 billion Euro net profit” (IKEA Yearly Summary FY15, 2016, p. 31). IKEA’s finances have benefitted from a strategy that focuses more on seeing returns from rental income on top of its core business. This has led to improved returns year over year for the organization: “In FY15, total sales translated into Euro increased by 11.2% compared with FY14, to €31.9 billion. Adjusted for currency impact, total sales increased by 8.9% and sales in comparable stores grew by 5.1%” (IKEA Yearly Summary FY15, 2016, p. 31). This increase has enabled the company to continue to reinvest in itself and in the projects that are important to its stakeholders. As the annual report notes, “Together with the rental income from our shopping centres, total revenue was €32.7 billion – 11.5% more than in FY14. This increase is partially due to the €140 million increase in rental income from acquiring remaining shares of the shopping centre companies Inter IKEA Centre Group and Ikano Retail Centres” (IKEA Yearly Summary FY15, 2016, p. 31). Thus, IKEA is situated nicely to continue to perform well into the future.
Organization Culture, People and Diversity
IKEA’s organizational culture is built around its code of conduct, its ethical system, and its core principles expressed and communicated in its corporate social responsibility program. IKEA’s organizational culture is said to be “a culture of the heart” where shared values that are promoted include togetherness, respect, and simplicity (6Q, 2016). While the culture is difficult to describe, even according to IKEA itself (because the organization itself is rather complexly configured with a parent company as well as franchisees making up the overall dynamic), the values that the organization promotes within its settings are “easy to embrace” because they are rooted in a “culture of enthusiasm, togetherness and willpower, born from their roots in southern Sweden and inspired by the IKEA founder, Ingvar Kamprad” (6Q, 2016). IKEA employs a diverse group of people all over the world and promotes values that are respective of diversity and all people no matter their ethnicity, gender, race, culture, religion, sex, age or nationality.
Strategy and Planning Analysis—Organization Goals
The organizational goals of IKEA are to continue to be profitable into the future because when the firm is profitable it can use its profits to develop projects that are important to its stakeholders, the communities in which it operates and the people who are impacted by its business (IKEA Yearly Summary FY15, 2016). Thus, an analysis of its strategy and planning reveals that IKEA is dedicated to meeting its sustainability goals for 2020 while also continuing to increase its net profit year over year by combining rental income streams with its retail outlet revenue.
The strategy for IKEA in terms of sustainability is expressed in the company’s People & Planet Positive: IKEA Group Sustainability Strategy for 2020 (2014) paper. This strategy and plan is outlined in the firm’s IWAY code, which addresses relationships with suppliers and workers around the planet. It was launched in 200 and has been developed and expanded to be better integrated into the entire company, so that its social, economic and environmental impacts can be spread to the maximum scope. IKEA is focused on protecting children’s rights and has formulated that IKEA Way on Preventing Child Labor, in which strict requirements regarding supply chain hiring of underage workers is described and how IKEA will handle each situation in which it is found that a supplier has engaged in child labor practices. IKEA has also developed a strategy to ensure that it embraces renewable energy: its use of green energy is “equivalent to one third of our total energy consumption. We have currently installed around 550,000 photovoltaic panels on more than 100 stores and other buildings in nine countries, and we have 96 wind turbines in operation in seven countries. We have committed to own and operate wind turbines in ten countries” (People and Planet Positive, 2014). IKEA also notes that “eighty-two per cent of the heat energy used by IKEA Industry Group comes from biomass” and that the company’s aim is “to use less energy and compared to 2010, the energy efficiency of our stores has improved by 8%, and our distribution centres by 9% (People and Planet Positive, 2014, p. 5).
IKEA is using sustainability as the basis of its strategy to move its brand forward in the coming years and develop greater brand strength and consumer loyalty so that it can grow and achieve its organizational goals. IKEA aims to use sustainability “to drive innovation, transform our business, steer our investments and unleash new business opportunities” (People and Planet Positive, 2014, p. 7). Moreover, the sustainability plan is designed to enable IKEA to “strengthen our competitiveness by securing long-term access to important raw materials, maintain and develop our supplier base, deepen our relationships with co-workers and customers, and increase productivity. It will help us to lead change in society” (People and Planet Positive, 2014, p. 7). In other words, the organizational aims of IKEA are two-fold: to increase its revenue and to promote change in society that is reflective of progressive ideals and values. The strategy to achieve these goals simultaneously is to embrace sustainability as a foundation for advancement.
SWOT Analysis
Strengths: IKEA’s strengths are in its ability to differentiate itself from its competitors. Its retail outlets are like stadium-sized stores where the act of shopping for furniture is transformed into an experience. There are play centers there for children and food and refreshments for adults. One is meant to go to IKEA and spend the day there. IKEA’s strengths are also evident in its commitment to progressive ideals, for which it has been recognized by numerous groups and awarded for its promotion of equality in the workplace. It provides good wages to its workers along with numerous benefits, and its low-cost and but efficient products have earned the company a strong reputation among consumers. It has a strong brand and solid earnings year over year.
Weaknesses: In the age of online retailing taking over thanks to competitors like Amazon, the physical bricks-and-mortar store is becoming like a dying breed. In order to stay relevant, IKEA has to continue to promote its brand and stores as an “experience” rather than just as a retail brick and mortar outlet. This is already evident to some extent in the way that IKEA markets its stores as experiential—but that concept will need to be built upon and elaborated in the coming years to combat the existential threat that is online shopping. In an era where everything can be purchased with ease over the Internet, the brick-and-mortar facility has to provide more than just product: it has to provide an experience as well (Freedman, 2017).
Opportunities: With the decrease in bricks-and-mortar retail, IKEA can stand to gain considerable market share by expanding its stores to regions where other, smaller chains are going out of business for failing to counter the impact of e-commerce on the marketplace. IKEA also has room to grow and expand in emerging markets where other competitors have failed to penetrate. It must study these markets’ cultures and prepare entry based on adapting to the needs of consumers in these regions.
Threats: The major threat to IKEA’s sustainability is regional destabilization and political and economic warfare among states. IKEA’s expansion has been in large part thanks to the peaceful partnership of many nations around the world. With war-promoting rhetoric streaming from nations’ leaders, like in the U.S. or in North Korea, the outbreak of war could disrupt IKEA’s sustainability efforts, its supply chains, and the achievement of its goals. It is in the best interest of the firm that peace among the nations be maintained.
Recommendations, 21st Century, and Moving Forward
It is recommended that IKEA continue to strategically implement its sustainability plan into the 21st century to ensure growth, stability, and ethical/legal compliance with laws and regulations recognized both nationally and internationally. Furthermore, this plan will facilitate and promote the company’s commitment to its core values and allow it to focus on supporting causes and issues that are primary concerns to its stakeholders—from environmental issues to social issues.
The funding of these projects will depend upon IKEA’s ability to continue to improve its revenue streams, and its focus on combining rental income with retail outlet revenue has helped to offset some of the challenge faced by the company with the rise of e-commerce and online web retailers like Alibaba and Amazon. By focusing on its retail outlets serving as centers where consumers can obtain an “experience” and not just a product, IKEA can retain and enhance its brand image. Already this is being seen, with its play centers for children and refreshment centers in the stores. As commercial real estate and malls in particular begin the shutter more and more doors, IKEA will stand out as unique and continue to be able to differentiate itself from competitors by the sheer scope of the shopping experience that it is able to provide.
There is also an opportunity to boost its retail outlets through web-based shopping, which is virtually essential for any retailer in this day and age. IKEA may strengthen its e-commerce division in order to compete with other retailers in the industry. The 21st century will be a digital era linked with real-world experience-driven consumerism, and IKEA is positioned to benefit from this situation so long as it adheres to its business model. Benchmarking analysis should be used to create more efficient development updates to its standard store concept to reduce risk in the future.
Moving forward, IKEA’s products are well-liked and low-cost, and the supply chain is managed with a view towards ethical achievement of the firm’s goals. As IKEA looks to the future, it may consider how values around the world are being shaped by today’s current issues. In order to be ready and positioned to promote the values of the nations of tomorrow, IKEA should survey its consumers to find out what issues are important to them. As stakeholders, IKEA will want to support programs and policies that in turn please its consuming communities so that a spirit of good will and brand loyalty will continue to be a factor in IKEA’s success in the future. It should also maintain its incentive-based approach to employee satisfaction, as this helps to drive the firm’s overall image as pro-worker and pro-family.

References
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