Constraints of being an LTD franchise
Being a franchisee also has its bad points; it could require a large amount of capital that may pose difficult for small time businessmen/women. Because the business cannot sell shares to the public, capital can be restricted and harder to come by. There are also limited possibilities for the franchisee to make a name for himself/herself, as they are trading under a different business name that may be a reason for their success. A proportion of the profits that the franchisee makes have to be paid to the franchiser. But its not all peaches and cream for the franchiser, they need to closely monitor and control the franchisee. And the specific franchise may not be achieving as well as they would have hoped it would have, in which case the outlet may be shut down.
Ikea is a multinational franchise that has franchisees in over 31 countries operating over 200 different stores. IKEA currently has around 85,000 co-workers. The possible franchisee applicants are carefully and thoroughly researched and evaluated by IKEA systems B.V who then eventually choose the best applicant for the franchised store. This can prove to be very time consuming for the business.
Setting up an L.T.D.
Setting up an L.T.D is quite a complicated process that requires a number of vital documents. As well as requiring at least one shareholder, one secretary and one director, the company must complete 2 forms. These are as Follows:
•The memorandum of association – This document sets the structure and gives details of the company. These details are as follows – the name, the address, the objectives, the liability of its members, the amount of capital to be raised and the number of shares to be issued.
•The articles of association – This deals with the interior operation. For instance The rights of shareholders, the procedures for appointing directors their powers, the length of time directors should serve, the timing and frequency of company meetings and the arrangements for auditing company accounts.
If these are accepted then the companies’ application will be successful. It will then be awarded a certificate of Incorporation that will allow it to trade.
Objectives of IKEA.
A mission statement is a document containing the objectives of a specific business. Every business has a mission statement. They are important because they provide the business with a sense of direction in the form of objectives. These objectives state the long-term and short-term plans for the business. The statement should:
- Be well written, simple and direct
- Identify the values and the culture of the business
- Its purpose as a business
- Identify its target market
- Identify the extent of its activities, e.g. local or “world class.”
- Clearly define its standards and the qualities that distinguish it from its competitors.
A mission statement is principally the main long-term objectives of a business. The business presents objectives to the public which states what the corporation aims to achieve, the objectives can stand for different periods of time. For example you can have long-term and short-term objectives. Some companies set out short-term objectives that are usually achieved in six months to a year. Long-term objectives are usually achieved in say five years.
All large companies have mission statements. 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 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 families.’
Ikea’s vision for Bristol is: “ To be the first choice for home furnishings in the hearts and minds of the South West population.”
However, IKEA also appears to have other smaller, “sub” statements that aim to help them achieve their long-term objective: “ To be the first choice for home furnishings in the hearts and minds of the South West population.”
- Customer Welfare
- Co-worker Welfare
- A store in good working order
- A store with vitality
- A good neighbour
- Environment
There are two types of objectives, long-term and short-term; therefore they are aiming to achieve their objectives over a certain period of time.
- Long-term objectives are over a 3-5 year time period. They usually classify the businesses main aims. For example an increase in profits by 10%
- Short-term objectives are usually set for up to one year ahead, short-term objectives are used to maintain the long-term objectives of the business. For example to increase profits in the southwest by 15%.
From IKEA’s mission statement I have come to the conclusion that they are very keen on meeting a high standard of quality and to produce long lasting products, which are very durable. I can also see that keen to keep with trends in fashion and to make sure they’re at the cutting edge of design and technology.
Judging from Ikea’s mission statement, I have gathered that they are keen on:
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Looking after their customers by doing things right the first time, ensuring that they find it easy to shop, seek help and/ or complain, regularly monitoring and seeking customer feedback on the businesses performance, understanding what customers want and what they expect of IEKA.
Ikea have proven to the public that they can, and do look after their exiting customers well, also whilst trying to accommodate for new customers. Shopping at Ikea is very different to shopping at some of their competitors’ stores in the way that Ikea choose to stand back and wait for the customer to come to them with any problems or what they would like to purchase. This has obviously proven to be a well thought through idea, as it appears to be working well. By looking at the Ikea website you can tell that Ikea are interested in maintaining a good relationship between themselves and the customers. They have proved this by cutting their customers a store-card APR rate of 26.8% now down to 12.9%. In general most other store card offer over 20%APR and some even above 30%.
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The co-workers welfare, the culture of the business: in some agencies, the appreciation that its “co-workers are its most important asset” has traditionally been part of the culture/ ethnicity. Therefore, it is natural for the HR leader to have a voice in agency decisions. Ikea expects its employees to know the business inside out in order to allow them to perform their job to their potential. Ikea also feel that it is important for their employees to have a voice and give them a chance to use it. Ikea are fond of tracking their employee’s progression and how they are performing in order for them to develop. The employees are frequently asked to give feedback on the business in a confidential computer room. They do this to track where the employees and customers think that the business is excelling and to also get an idea of where they may be going wrong. This is a very good way of tracking their general progression.
Ikea have also proven to their co-workers that they are interested in what they feel and what they have to offer the business by regularly taking their views and opinions of what Ikea could improve on. Because of Ikea’s management style it’s important for them be able to communicate well across the board to enable their employees to understand what to do. However, I do not feel that Ikea are meeting certain parts of this objective. Because, they desperately try to reinforce the fact that all of Ikea’s employees are “equal.” I have found information from my research that proves Ikea wrong. There is a huge gap between the managers and the ground-floor co-workers, there are around sixty managers in Ikea Bristol alone, I am positive that these managers would have to have a lot more knowledge of the business than a cashier. This area of the co-worker welfare needs desperate attention if it is going to maintain it’s “equal” status.
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The store is in a good working order by ensuring that they have a well-planned business. They also focus on the stability, practicality, flexibility and preservation of the business and its name.
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The Business is keen on impressing its customers and co-workers, it intends to overwhelm them by the sore and its products, they aim to please!
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Ikea want to prove to their neighbouring businesses, cities, residents and authorities how they can benefit from Ikea. Recently Ikea of Bristol sponsored the Bristol Balloon Fiesta 2004.
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The environment, there are Three cornerstones in IKEA’s environmental work:
- They’re cost consciousness and resource efficiency results in less usage of raw materials and less waste and discharges.
- The extensive use of wood in Ikea’s products. Wood is a recyclable, biodegradable and renewable material and it is excellent from an environmental point of view.
- Training and engaging their co-workers to work with environmental issues.
C1
My judgements on how successful IKEA is meeting its objectives are that I feel that they’re coping well with a few of their written tasks in hand. From the information I have gathered it is clear that the store is in a good working order and the customers are on the whole pleased with the service they’re receiving; the staff are always attentive and helpful by helping the customers with their problems, on their visit to IKEA Bristol. It is apparent that the staff are always trying to make an effort to help the customers.
E3
IKEA is a huge multinational business; therefore it needs to run as smoothly as it can regularly. The way IKEA judge how they’re performing and meeting their objectives is to distribute surveys to their customers. IKEA use an external surveying company to analyse how the customers think the company is performing in comparison to how well they think they’re performing. Once they have received information from the customers the surveying company gives feedback to IKEA. Then IKEA have to come up with ways to how they could improve on their less efficient areas of service. IKEA also have to survey their co-workers. They do this by setting up a small private room in which the co-workers can confidently, confidentially speak about the company; where it’s going wrong and where it is performing well. They may also make recommendations on what they think might be a good idea for IKEA.
Ikea have also employed hundreds of external staff that are involved in customer welfare and co-worker welfare to establish whether they’re meeting their objectives and to distribute surveys. There is also an online survey that can be posted through public relations. Concluding E3, Ikea only gain information from surveys. This may not seem a very reliable source but it seems to be working for Ikea.
E4
An organisational function is a specific department that the business must perform in as efficiently as it can to enable the business to make money. There are several different sections to these fundamental functions: production, marketing, sales, accounting and finance, and few others. The managing directors of Ikea have a specific job; controlling how to perform these functions. It is vital that these separate functions of Ikea all perform well to enable the business to succeed. Each function of the business interlinks with the mission statement and the businesses objectives. Depending on the business structure you can follow the path of the different functions (see appendix 2). Each function has its own co-workers that report back to the managing director of that function. Ikea must find the optimum balance of between Production, Marketing, Sales, human resources, administration, research and development and finance to maintain its accomplishment.
Ikea have several smaller internal functions that also are carried out through the whole of Ikea worldwide. These interior functions consist of: Bathrooms, Beds, Checkouts, Children, Cooking, Eating, Kitchen, Lighting, Living Rooms, Showrooms and Wall Units (shelving). Ikea insist on sticking to this easily followed structure. Ikea’s huge success can be put down high level of fundamental control. Preservation, worldwide, of stability of the IKEA brand name and its image is all-important if they want to continue their market domination! Working the way IEKA does it frequently causes apprehension between the other UK stores and the head office in Sweden. Local stores want to follow local market trends. Because trends affect their stores aswell, however it often causes problems; as other businesses would prefer to stamp their mark on the industry as opposed to follow the crowd. E.G. Store design and effective development both run directly from Sweden. IKEA has currently performed remarkably well, it has set the standards for its competitors to meet, there are very few that can offer the same quality and assurance. It would take major changes in the business environment to nock IKEA of the top! Such as new exceptional rivalry or even an extensive depression.
E5
Leadership Styles
Autocratic. An autocratic management style is one where the manager sets objectives, allocates staff with tasks, and strongly encourages obedience. Therefore the group become dependant on him or her. The result of this style is that the co-workers often become unsatisfied and frustrated with the management. This ultimately results in lack of cohesion, high supervision and a distinct lack of motivation amongst employees in the work place. This does not sound like a management style that a business like Ikea would use. Ikea rely on their co-workers to be able to do their jobs to their potential, if they’re discontented and lack motivation then I’m sure that they will be unable to do so.
Democratic. A democratic management style encourages the staff to participate in decision making on behalf of the business. Often managers may consult employees or could ask them their views on the final decision. After being asked to input their opinions or suggestions the employee may feel like he she has a greater value or importance to the business, therefore they are more likely to put more effort into their work. It is argued that through allowing employees to participate and consult their managers the co-workers fell that they have helped achieve objectives with his or hers input. This eventually results in the co-workers feeling more motivated and a willingness to work harder. Democratic managerial styles depend heavily on strong communication between each level of management. The managers must be able to clearly explain ideas and understand co-worker feedback. This does sound like the approach that Ikea would take towards its management style because of the more laid-back environment and the efficient communication techniques.
Laissez-Faire. A laissez-faire type of leadership allows employees to carry out activities freely within broad limits. This results in a relaxed atmosphere in the workplace, but one where there are few guidelines and directions. This sometimes results in poor productivity and lack of motivation as the employees feel they have little incentive to work harder.
Consultative. A consultative style is similar to a democratic approach but instead of allowing the group to make the decision, managers do it themselves. This approach to management can create high levels of motivation with efficient quality output and results.
Paternalistic. A paternalistic management style involves the manager being very strong in his/ her own ideas and views on what’s best for the business. He/ she believes that it’s important to ask the employees for input and suggestions on what to do in order for them to gain responsibility and feel like they’re needed by the business, this can result in a higher work rate. However he/ she ultimately always makes their own decision, as he/ she feels that they know better than the rest of the employees. This style of management offers a great deal of direction to the work force, and shows a great deal of care and consideration for the co-workers. This also sounds like a managerial style that Ikea may adopt because of the decision-making and the co-worker welfare consideration.
In conclusion to Ikeas management style I do not think that Ikea have a certain, set style. I think that they have done is taken important characteristics from the above styles of management and developed their own “supreme!” management style. However they have been unable to completely free themselves from the worse characteristics. For example giving the employees false hope, by asking their opinions on the business when it is not even taken into consideration. Despite this they are still performing considerably well.
A lot of the management styles bond with cultural styles; the way the business thinks that it should act. Various aspects affect what kind of culture the business follows, such as; the size of the business, the objectives of the business, the management style and also what industry the business is in. The different types of culture are:
Types of culture. Structure
- Role culture Formal hierarchy
Role culture is best suited for a hierarchy-structured business. In this kind of working environment employees tasks are clearly stated, so are their responsibilities. There is a clear chain of command.
Task culture is best suited for the matrix-structured business. This is job or project orientated. All levels of management communicate with one another. Other employees have flexibility weather they want to work by themselves or in a group.
Power culture is best suited to entrepreneurial or a web-structured business. Often found on small businesses, or property and finance trading. A strong central figure typically the founder or chairman usually dominates these businesses.
Person culture this is an unusual structure. It has minimal structure and can best be describes as lots of individual stars all contributing to the main task in hand. It thrives where there is no organisational structure, little rules and lots of communication.
From the above cultures stated I am quite sure that Ikea are applying a role culture to their business. I can tell this by looking closely at Ikeas management style and comparing this to the different cultures and seeing if they meet together. Even though there is a very strong sense of role culture in Ikea there is also a faint element of power culture, this is mainly due to Ingvar being a very strong influential backbone in the business.
C2.
The organisational structure affects Ikea’s performance by increasing the main sense of control flowing from Sweden and The Netherlands. In general this means that Ingvar Kamprad is clearly stating what he wants to be done and how he wants it to be executed. This attitude to how Ingvar wants work to be done backs up my views on the businesses semi paternalistic management style. And also backs up my thoughts on their role culture, which fits in with their hierarchy structured business format.
The affects that an organisations structure have on the business are minimal compared to the extent of the businesses scale worldwide. Although, if you break each individual store down and analyse it closely then you would be able to see the affects of the businesses structure because it is obviously easier to evaluate a smaller business. If we look at Ikea globally then clearly it has to be a very well structured business. (A well-oiled machine if you please!) But if we take a closer look at each of the stores there is a much flatter structure to the business. Bearing in mind that this is still not a “flat” structure, just more condensed levels than the more advanced global structure. This flatter formation means that the co-workers can all contribute more to other jobs that may not necessarily be in their job specifications.
Ultimately the structure of Ikea can, and usually does affect how well they meet their objectives, globally and nationally. Ikea Sweden set the global objectives, which are then distributed around the 114 stores in 25 countries. From these primary objectives the national stores then distribute their own more compact objectives which they hand to the top of the business hierarchy structure, as the process goes on the objectives reach the groundfloor co-owrkers, who work towards their weekly set goals.
The culture that Ikea also follow affects the overall preformance of the business. Because of their strongly defined and clearly set objectives through obeying their role and power culture, their objectives all flow through the hierarchy. The only clear problems that by following these cultures could occur is that, ultimately the “boss” has the final say. And if Ingvar is set in his ways then there is no stopping him! Carrying the immense weight of Ikea on your shoulders is not an easy thing to do, vast responsibilities come with the territory. As you move further down the hierarchy… this weight decreases from you and becomes less aware, like you just don’t care- as you can see from the unwilling ground-floor workers! Although on the flipside of the coin because of Ignvar’s strong ability to drive Ikea through the twenty first century the workforce of Ikea strongly agree with what he has to say. Surely anyone who disagrees with the methods me practices would be out the door straight away. And due to his shiny, sparkling record, there is no reason to doubt him; after all he hasn’t done too badly by the decisions that he’s made.
Culture affects the way the business operates much like the way it affects the businesses overall performance. Co-workers in Ikea are limited to the amount responsibility they have. This means that operations in Ikea are average because little responsibility is taken. The operations are neither good nor bad, jus sufficient.
Appendix 1
Appendix 2
Ikea have a total of nine functions that are fully supported directly through to Sweden and The Netherlands. This illustration gives us a picture of how Ikea is run.
