Organizations operate in an environment that poses immense challenges, which may hinder their long-term success. Thus, it is necessary to balance all environmental dynamics to guarantee short-term and long-term success. This process calls for an environmental analysis of an organization, irrespective of its industry of operation through various strategies such as SWOT and PESTLE analysis. A SWOT analysis at IKEA, which is an international home-furnishing company, identifies the company’s potential opportunities for growth together with elements that may hinder its progress. This paper defines SWOT analysis, explains differences between internal and external factors that affects an organization’s operations, analyzes mechanisms in which IKEA has managed to minimize threats to its business, and the contribution of SWOT analysis in IKEA business growth.
The Meaning of SWOT Analysis
Any business encounters a myriad of challenges and opportunities in its operations. To determine how the management needs to respond to such situations, it is critical to conduct a SWOT analysis. In the acronym, ‘S’ refers to the strengths. ‘W’ stands for weakness while ‘O’ and ‘T’ refer to opportunities and threats respectively. The utmost goal of any business that seeks to deal proactively with the dynamics of the business environment is to capitalize on opportunities and strengths while directing its strategic plans towards the minimization of the impact of the firm’s weaknesses and threats on its profitability levels.
IKEA deploys the SWOT breakdown to attain its business agenda. It defines it as “the identification and evaluation of the strengths and weaknesses of a firm and the opportunities and threats in its external environment” (IKEA 78). Based on this definition, a SWOT analysis helps in analyzing the internal and external factors that influence the success of the company’s objectives. It helps the organization to focus on the major issues that affect the success of its business model. The SWOT analysis is the first stage in any business planning activity.
Strengths are the traits that enable an organization to have an advantage in comparison with other organizations. Weaknesses or the limitations are the traits of an organization that place it at a disadvantage in comparison with other organization in the same industry (Hill and Westbrook 47). Opportunities refer to the existing external forces, which while utilized properly can make the organization improve its performance.
Threats are the external elements that impair the performance of an organization (Hill and Westbrook 49). Without a tool for effective analysis of the in-house and outdoor environment, organizations, including IKEA, can experience challenges of setting priorities right. This situation is disadvantageous, considering that a successful performance requires an organization’s capability to establish a competitive advantage as an important resource. The ability to deal with competition increases an organization’s market share so that it can record a continuous growth and success in both local and international markets. Thus, for IKEA, a SWOT analysis is a tool for analyzing the capability of the organization to deal with emerging challenges that hinder the expansion of its market share in the competitive home-furnishing industry.
The Difference between Internal and External Factors
Internal and external environments have significant implications for the success of IKEA’s business. Internal factors denote all elements that operate within an organization where they influent the running of its business. They include company assets, employees, and the available finances among others.
IKEA’s employees are critical to the success of its business. Well-trained, motivated, and skilled employees influence positively the performance of an organization. With poor motivation and untrained employees, an organization fails to achieve its projected or anticipated productivity levels, even upon the proposal of an effective plan for increasing performance. IKEA’s assets include equipment, motor vehicles, machines and other facilities that support or increase the efficiency of its production process. Finances imply the owner’s equity and any other monetary resources for running a business. Financial availability determines the ability of the organization to achieve economies of scale as a strategy for increasing competitive advantage.
External factors produce indirect impacts on an organization’s business. IKEA identifies technological advances and social situations in the business environment together with social changes as examples of external factors that determine its business (78). Other external factors include political and legal factors, which operate without the control of the organization. Thus, they represent the sphere of business opportunities and threats that IKEA faces. Strengths and weaknesses are within IKEA’s control. Therefore, they represent the company’s internal factors.
Mechanisms for Reducing Threats at IKEA
IKEA believes that responding well to threats in its external environment requires it to understand them. After developing this understanding, the company can develop counter reactive strategies or plans. This process involves using IKEA’s strengths as the tool to fight the emerging threats (IKEA 80). The company identifies social trends, market forces, and economic factors as the important sources of threats. It then uses its strengths to respond to them.
From the platform of collective development, IKEA is establishing an online guide for its clientele, especially on continued life. Through its website, the company informs its customers about mechanisms for improving houses while exposing the environment to minimal threats. Resorting to the internet and social media as tools for enhancing customer communication is important since it saves financial resources, which can then be channeled into other productive areas such as improvement of product quality levels or increasing production levels so that the organization can pursue economies of scale policies. People are also resorting to associating themselves with organizations that focus on sustainable businesses. In repose to this challenge, IKEA trains its employees on sustainability, especially their role and/or how they can become sustainable.
In response to the problem of market forces such as competition, the company seeks mechanisms for becoming more competitive in its industry of operation. One of such strategies addresses the economies of scale. This strategy “lowers the average costs in the long run through, for example, better use of technology or employing specialized managers” (IKEA 80). Indeed, this strategy is appropriate, especially when customers are looking for products that provide value for their money. Saving on the production process can be transmitted as price relief to customers. The plan gives IKEA a better competitive edge.
From the perspective of economic factors, a low-price deal due to economies of scale is important since the price tag is an important factor that determines buying decisions during trying financial times. For IKEA, low prices are incredibly important. The company targets low-income market segments. Pursuing the low-price strategy also helps in creating entry barriers, especially for small new companies. This strategy helps to reduce the degree of competition.
Contribution of SWOT Analysis in IKEA Business Growth
A SWOT analysis is an important tool for IKEA. When strengths, limitations, prospects, and intimidations are clear, it becomes possible for the management of IKEA to concentrate on the strengths and opportunities to enhance its performance while ensuring that it takes the appropriate strategies to mitigate the weaknesses and threats in the effort to attain optimal performance. Without understanding the capabilities and areas of weakness, it becomes possible to develop appropriate plans for facing future uncertainties in the market.
Through the identification of the organization’s strengths, it has been able to deploy its resources more effectively in areas that yield higher growth. For example, better utilization of materials is important in reducing operational costs. For example, “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 79). Business growth is more probable if its hindrances are overcome.
IKEA can increase its production capacity akin to the availability of adequate financial resources. However, effective production occurs with optimal utilization of the available assets. This outcome also requires the identification of market success opportunities and investing in them. However, this goal cannot be realized without recognizing the most appropriate opportunities to focus on, bearing in mind that organizational resources are limited in supply. Success depends on a proper choice of alternatives that have the lowest opportunity cost and high-return expectations. A SWOT analysis has been pivotal in IKEA in terms of helping to select such opportunities.
The success of any business plan requires a clear understanding of both internal and external environment. However, one has to understand an organization’s strengths, weakness, opportunities, and threats to develop an organization’s success strategies. Weaknesses and strengths are internal to an organization. Indeed, business growth for IKEA depends on the capacity to scan its internal and external environment through a SWOT analysis.
Hill, Terry, and Roy Westbrook. “SWOT Analysis: It’s Time for a Product Recall.” Long Range Planning 30.1(1997): 46–52. Print.
IKEA. SWOT analysis and sustainable business planning, 2015. Web.