Assessing and Managing Risk on IKEA

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Assessing and Managing Risk on IKEA

Ira Hoekwater

GCU BUS 485

Prof. Ed Miller

May 29, 2021

Assessing and Managing Risk on IKEA

IKEA is a Swedish multinational business headquartered in the Netherlands that produces and distributes fully prepared furniture, household appliances, home furnishings, and other essential products and services. It has been proven that IKEA is the market leader in emerging nations for furnishings (Bhasin, 2018). Ingvar Kamprad, who was just 17 years old, created IKEA in 1943 in Sweden. Ever since the IKEA Group has grown to become the world's biggest furniture store (Bhasin, 2018). IKEA has 380 shops throughout the globe and is continually expanding.

It is noted for its modernist designs for various appliances and furniture and its interior design work, which is often connected with an environmentally friendly elegance (Bhasin, 2018). In addition, IKEA is recognized for paying close attention to financial management, ongoing operations, and ongoing design and development, which has helped the company to reduce its pricing by two to three percent on average (Bhasin, 2018). This paper seeks to analyze the risks in IKEA and formulate recommendations on how to manage the risks.

SWOT Analysis

The strategic alternate solution evaluation is used in IKEA's SWOT analysis to aid in the company's development. The SWOT analysis is essential to IKEA since it allows them to assess their strengths, weaknesses, opportunities, and threats. The client demographic is one of IKEA's assets, and this advantage is bolstered by the company's multi-channel distribution, a significant market participant in power negotiations (Bhasin, 2018). To build awareness and perceived brand value, the focus is on long-term development. Because IKEA offers a wide range of items, product recalls might confuse and damage the company's brand. IKEA is a well-known brand, and its products are gaining popularity in a variety of markets.

IKEA takes advantage of competition and creates possibilities by building new stores and extending existing ones. Online sales have increased in the United States, Europe, and other parts of the globe due to technological advancements. The SWOT analysis assists in maintaining tough rivalry, such as firm growth plans to boost manufacturing costs in Europe, which is a significant threat to IKEA (Bhasin, 2018). In addition to using the SWOT analysis technique, IKEA considers the constant comprehensive advantage over their competitors. By maintaining its strategically dynamic segment, IKEA preserves a competitive edge and develops new chances. The organizational approach accomplishes its goal by providing a structure that blends many structural powers with a well-connected supply chain (Bhasin, 2018). IKEA uses the findings of the study and converts them into a potent weapon to sustain a competitive advantage that competitors cannot match.

Formulating Recommendations

The strategic choices for IKEA were systematically discovered, and the management strategies that add value to the firm were highlighted. IKEA's primary objective is to provide goods for daily use made of higher-quality materials while also being affordable to customers. One approach for IKEA to build a larger following is to build IKEA-style shops in regions around the United States, where consumer demand is more substantial (IKEA, 2019). The same designs as the larger furniture models will be shown at these shops, but on a reduced size to fit into smaller areas.

IKEA will compete against established retailers like Walmart and Target by creating smaller locations. The development plan has a starting point. The objective is for IKEA to improve the quality of life for the many people who share IKEA's fundamental values of renewal, transformation, and cooperation (IKEA, 2019). IKEA'S Bootcamp aim, which has been to uncover entrepreneurs who share the IKEA goal and innovate to solve three main difficulties related to the IKEA path, is one of the real worth strategic choices (IKEA, 2019).

This breakthrough technology project, which began in 2019, is a three-month semi-remote program intended to enable economic expansion beginning that will continue to run their daily operations while co-creating using IKEA's founding principles and purpose framework (IKEA, 2019). IKEA and the firms are seriously contemplating whether or not to proceed with the IKEA Bootcamp collaborations during the course.

Financial Analysis

IKEA is a well-known international company with hundreds of locations throughout the globe. The financial analysis consistently demonstrates that IKEA is regarded as a globally recognized brand (Basu, 2019). Financial ratios are used to assess an organization's current performance and the health of its goods. IKEA aims to maintain or raise its net profit margin of 7%, which is used to assess a company's financial standing and quality. A gross profit margin of 0.88:1 indicates that for every $1 in sales, you have 88 cents left over to pay your operational costs and profit (IKEA, n.d.).

Ikea, was founded in 1943, offers a 95,000-item range, including furniture pieces for the house (IKEA, n.d.). Financial ratios are used to assess the productivity and fitness of a company's finances (Basu, 2019). The most popular liquidity measure is the current ratio, which compares existing assets to current liabilities (McClure, 2020). This ratio demonstrates a company's capacity to fulfill its short-term obligations. It is possible to determine if the outcomes of computation are positive or negative (Basu, 2019). It is necessary to have more than one ratio since anything less than one indicates that the firm may have more liabilities than capital. IKEA's current ratio demonstrates that they have the financial resources to satisfy their present obligations.

IKEA's solvency balance is smaller than West Elm's, indicating that IKEA is more reliable in meeting current obligations with cash and cash equivalents than West Elm. The organization of IKEA will be focused on its profitability measures. To enhance this proportion, it is advised that you improve in managerial abilities. The corporation has a strong liquidity position. Current liabilities may provide investing possibilities in other industries.

Performance

To evaluate and evaluate a corporation, investors must examine its financial situation. Analyzing the financial condition of a publicly-traded firm is identical, with the difference that shareholders must go one step further and evaluate the economic situation in market value connections (McClure, 2020). For many years, IKEA has been the unshakeable, steadfast retail titan (Kwun, 2018). After all, the figures suggested that IKEA's business strategy needed to be reconsidered.

The world's largest furniture retailer witnessed a nearly 40% reduction in earnings between 2017 and 2018, and realignment and job cuts totaled 7,500 in November 2018 (Kwun, 2018). IKEA isn't giving up without first attempting to alter the company's product strategy and public perception via a series of bold and zany initiatives (McClure, 2020). Despite competition in the retail market, IKEA franchisees witnessed steady growth in FY18, according to the company's 2018 accounting records (Kwun, 2018). When current impacts are taken into account, retail sales grow by 4.5 percent.

Decision Matrix

One may use the decision matrix in rows and columns with a succession of numbers to graphically analyze options by weighting their essential elements. A decision matrix may not only help you determine the best way to proceed for the organization, but it could also help them schedule work, create solutions, and rationalize choices. If IKEA decides to pursue a recommended strategic option of building smaller IKEA shops to increase competitiveness for Walmart and Target, A decision matrix would be an excellent choice for guiding people through such a choice.

By exploring this option, IKEA will be able to recognize the possible financial consequences for the firm. A decision matrix is a valuable tool for anticipating vulnerability because it allows you to examine a scenario from a logical standpoint while also allowing you to evaluate many similar factors. Multiple competing aspects typically need to be considered when deciding on a matrix suggestion for the most beneficial method in the alternative evaluation. When considering several difficult to compare factors, decision matrix analytics can make a good decision.

Risk Matrix

Ikea has revealed that it will establish a 17,530-square-foot showroom on Manhattan's Upper East Side following spring. The shop exemplifies IKEA's unique strategy, which focuses primarily on vast 300,000-square-foot shops where visitors navigate a labyrinth of aisles full of couches, cupboards, appliances, and trinkets before stopping to recharge in the foot court (Meyersohn, 2018). IKEA looked at the identified risks and determined that the most effective approach to grow would be to build smaller IKEA shops throughout the United States.

The risk matrix's index of likelihood or severity is an excellent tool for risk assessment since it assesses the proportion or possibility of severity connected with a project's possible dangers (Meyersohn, 2018). The risk matrix marketing may be added to the matrix analysis branding. The subsequent risk factor to include in the risk matrix is to devise a new approach to attract younger, urban buyers to a business. The monthly internet traffic to a particular location is the third option to include in the risk matrix.

This information will help us better identify what kinds of products clients are looking for. The sum of money the corporation will invest in opening smaller outlets is a fourth risk factor for the risk matrix (Meyersohn, 2018). A final risk matrix approach is to find how much employment these new small retailers will bring to the community. The next one is to assess the amount of revenue added to the company's financial statements. A seventh risk matrix alternative is to determine whether or not they require additional backers. Using other companies' experiences of what succeeded for them is the eighth risk matrix solution.

When developing smaller shops, a ninth risk matrix option is to target a specific age group. Lastly, a tenth risk matrix alternative is to do a socio-economic study of the neighborhood where the new small business will be placed. The risk matrix system can influence the organization, and it draws on the experiences of previous companies. Target's small-format stores on college campuses and city street corners, for instance, have proven to be profitable (Meyersohn, 2018). Target launched 30 tiny shops in 2017 and aims to build another 30 each year for the next several years.

References

Basu, C. (2019, March 6). Four Basic Types of Financial Ratios Used to Measure a Company's Performance. Small Business - Chron.Com. https://smallbusiness.chron.com/four-basic-types-financial-ratios-used-measure-companys-performance-25299.html

Bhasin, H. (2018, September 8). Marketing Strategy of IKEA – IKEA Marketing Strategy. Marketing91. https://www.marketing91.com/marketing-strategy-ikea/

IKEA. (n.d.). Download financial reports. Retrieved May 29, 2021, from https://www.inter.ikea.com/en/performance/download-financial-reports

IKEA. (2019, June 18). IKEA concludes the first Pilot focused IKEA Bootcamp programme. https://about.ikea.com/en/newsroom/2019/06/18/ikea-concludes-the-first-pilot-focused-ikea-bootcamp-programme

Kwun, A. (2018, December 21). 5 retail lessons from Ikea’s wild year. Fast Company. https://www.fastcompany.com/90281245/5-retail-lessons-from-ikeas-wild-year

McClure, B. (2020, July 1). How to Analyze a Company’s Financial Position. Investopedia. https://www.investopedia.com/articles/fundamental/04/063004.asp

Meyersohn, N. (2018, December 3). The future of Ikea: Small stores in big cities. CNN. https://edition.cnn.com/2018/12/03/business/ikea-new-york-retail/index.html