1.Does IKEA Systems need IT?2.Why IT is important for survival ?
3.What is required to apply IT into IEKA?
4.How does your IKEA use IT?
5.What benefits and advantages does IT bring to IKEA?
6.What type of risks does IT bring to IKEA business?
7.How can IKEA maintain and monitor IT?
IKEA is Swedish company that sells ready to assemble furniture at its retail stores at an affordable price and is currently the world’s largest furniture selling company. It has presence is more than 21 countries in which it owns 277 stores. There are 37 more stores which are run by the franchise. IKEA also started franchise business model for quick business expansion however due to some quality issues and brand reputation, it has put restriction on franchise model and return back to its original philosophy of expanding by owning the stores. Main advantage is that there is no single worldwide global furniture retailer who has such huge presence which means it has no global competitors. However, in each country, there are some local retailers which act as its competitors in those countries. IKEA understands its market very well and competes in providing the low cost furniture. It is not competing at high end furniture but affordable furniture and thereby targeting bottom of pyramid which has largest population and thus it caters to the masses.
Specific to Australia, IKEA stores are run by 2 companies Cebas Pty and INGKA holding through franchise model. The purpose of this case study is to analyze the IKEA systems at depth and why IT systems are important for the company not only to survive and perform basic day to day life operations but also to differentiate itself from the local competition.
- Yes, there is no doubt about it that IKEA systems need IT. IKEA competes for providing low cost furniture and is having cost leadership. This low cost has been achieved over a period of years by streamlining the business processes and making them quite efficient and automate them as much as possible so that the cost savings achieved can be passed on to their customers. Such automation and streamlining of the processes can be possible without leveraging IT systems.
- It has presence in 21 countries and thus everything needs to be rolled up to reflect the profits of the whole group as well as other financial metrics. Without IT, it becomes impossible to manage more than 300 stores in so many countries. Not only this, if there are no IT systems, each store will use its own way to manage the processes. Apart from that, there will be increasing changes of fraud if there are no IT systems. Assume franchise is making a sale but not hiding that transaction to save its franchise fees that it gives to IKEA. In order to protect from such Frauds and maintain the transparency, IT systems are indispensable.
- Apart from it, online presence is mandatory these days because many people prefer to look at the catalogue online during their leisure and make purchases online. Thus, it is important to setup online distribution channel which can be possible only by using IT systems.
- IKEA is a very large scale company with revenue of around 35 billion Euro and imagine the amount of daily operational work it is generating like reports, managing suppliers data, managing customer data, managing inventory, accounts reconciliation, There is no way other than IT systems to manage such huge data.
- Also, with the advent of social media and digital revolution, online presence is become mandatory for marketing purposes as well as to get the intelligence from the systems.
- Today, all the companies are using IT systems to provide better services to their customers. For example, customer can make purchases online, check the catalogues and also read the specifications. When competitors are doing it, people started taking for granted such services and it becomes indispensable for the company to implement IT systems if it wants to survive (Heizer, & Barry, 2013).
- When the company starts, it has few suppliers, fewer customers and thus less data and operations are also simple that can be manageable using excel sheets or traditional systems. However, when the company expand beyond its boundaries, the scale of data, operations also increases and becomes impossible to manage without using the IT or ERP systems (Khodakarami, & Chan, 2014).
- Also, there is pressure on all the companies to reduce the cost due to massive competition. Thus, companies are streamlining their processes as well as automating them so as to reduce the manpower and thereby reducing the cost and thus able to survive. This automation and streamlining becomes possible by effectively using IT systems and that is a reason IT systems becomes very basic infrastructure for any business to survive. Having IT systems does not guarantee success, it just helps you to compete in the market.
- Also, digitalization, crowdsourcing are the buzzword in today’s world and organizations have to Use IT systems to use these concepts. Also, online presence helps the company to build the brand by tapping the power of social media and by directly engaging the customers on social media and gaining traction.
3. (I.e. cost, planning, designing, equipment, installation, training, etc...)
Applying IT in any business is not very straightforward. It’s a quite complex process and often leaves the organization vulnerable if the implementation is not done properly. There are numerous examples of FoxMeyer Drug, Hershey’s, Nestle, Nike that how there IT implementation projects go wrong and bring the company on the verge of bankruptcy (Kim, 2013)). Thus, it is very important to understand and conduct feasibility study of the critical business processes before implementing IT systems. Once study is done, company should invite proposals from vendor and should closely monitor how many processes are supported by the software. Customization should be as low as possible in the chosen software. Once software is identified, company can think about various hardware costs if setting up an infrastructure or using cloud computing would be feasible.
Once the basic decisions are finalized, company should plan various milestones and timelines of project. It should not ignore the important phases like Testing and training. There are examples of companies that have failed due to improper training and by cutting the testing cycles. Company should went live during the lean order booking period for a safer go live. Hershey’s went live during its busiest period and which lead to failure of go-live and rolling back to legacy systems (Chung, Ahmad, & Tang, 2015). Once planning is done, company should prepare global business process templates which are basically laying the ground for all the stores worldwide. If any country has localized requirement that should also be captured in the plan. Company should ensure that all the requirements are captured and designed in design phase. Once design phase is completed, configurations and build phase starts. After that, users test the flow of the business processes. There can be many time back and forth for arriving at a full proof business processes. Thus, In a nutshell, below are what some of the things required to implement IT are:
Hardware systems and software systems selection
- Vendor selection
- Cost discussion
- Risk mitigation matrix
- Quality matrix
- Project timeline and key milestones
- Training and testing requirements
Usage of IKEA IT Systems for its suppliers: IKEA has to buy many raw materials from various suppliers located across the world. Without IT systems, buying a material would be cumbersome task. Now, IKEA systems just releases proposal consisting of its requirements and conduct reverse auction among the various suppliers over its IT systems. Based on reverse auction, it selects the appropriate supplier, digitally signs the contract and place purchases order with the supplier. This is e-procurement process at IKEA systems which is possible due to its IT systems (Edvardsson, 2014). It has drastically reduce the lead time and also open its doors for many suppliers whose location is quite far.
Usage of IKEA IT Systems for its employees: Employees can effectively use the IT systems to check the availability of their inventory at a given time for promising order to customers, conducts the lead time analysis for some items based on the suppliers lead time for items if they are not available. Thus, Employees are using its systems to better serve the customers. They also use it to maintain their profile, personnel information, bank account information, leaves. Not only this, IKEA can better engage with customers using social media (Akesson, Edcardsson, & Tronyoll, 2014).
Usage of IKEA IT Systems for its customers: With efficient IT systems, customer can places the orders from the comfort of their home and thus IT systems open ups another distribution channel for IKEA. Customers can also tracks their orders online, see specifications of various products, see their past history of orders. They can also enroll for the softcopy of the catalogue of IKEA that consists of its latest offerings.
- IT has bring numerous benefits to IKEA systems. Not only it is able to manage its suppliers and customers well but it has also automated and streamlined its various business processes resulting in more on time delivery at various stores and better order fulfillment rate. It helps the company to prevent the fraud as all the order booking needs to be entered into the system. IT has integrated the various business processes and increase the collaboration between various departments. Procure to pay and order to cash are some of its standard business cycles that spans through multiple departments. Without IT systems, each department is maintaining data as per his convenience and which created redundancy i.e. entering of same data twice, human errors and all this results in huge efforts during account reconciliation at month end. All these processes have been automated by usage of IT systems and processes are improved (Sharma, Chang, Tim, Wong, & Gadia, 2016). There is no redundancy.
- Also, IKEA is now able to engage the customers better by leveraging social media and which helps in more brand building and more sales.
- Another biggest benefits is the lead time and cycle time reduction. Cash to cash cycle is reduced very much, lead time is also reduced as orders are placed and contract are signed digitally in real time, inventory turnover is also increased. In short, whole supply chain of IKEA systems is improved (Holmberg, 2000).
6.(I.e. security, privacy, confidentiality)
When IT is implemented, there are also increased risk of data theft, privacy and confidentiality. Only last week, one of the ransomware WannaCry has attacked on NHS hospitals, UK and also demanding the payments for releasing the systems back. Thus, IT systems increased the risk of attack by malware which puts entire data at risk. Company have to stay update by using latest anti-viruses and upgrading its systems continuously. Implementing IT systems is not 1 time investment but regular on going expense.
IT systems are quite secure but it is very important that everyone has right functional responsibility so that he/she can see only the authorized data otherwise the system data will be at risk. Also, if the company is not having the on premise hardware and using clouds, there is greater issue of security because cloud is generally shared with many other customers by means of virtualization. Thus, company data is stored on the cloud servers shared with many other companies. Sometimes, cloud also raises risks related to security compliance (Haimes, Horowitz, Guo, Andrijcic, & Bogdanor, 2015). For instance, some countries have rules like their data could not be stored on the servers in different countries. In such cases, although cloud server is located in your country but multiple backup copies may be located at safer geographies.
It is very important to monitor your IT systems regularly to protect them from any attack. As the usage of IT systems have increased in the systems and so is the activity of hackers and malwares who are continuously looking to hack the systems. Apart from monitoring, regular maintenance is also needed so as to clear the cache, waste memory and fix other issues to get the optimum performance from the server. Company can monitor its server on regular basis and implement any upgrades/patches as soon as they are released. If the company is using cloud computing, then it don’t have to perform such maintenance and monitoring tasks because they will be the responsibility of cloud service provider.
This case study discusses about the role IT systems plays in the life of corporations and organizations and no global organizations can imagine itself running without using IT systems. There is so much data and operations generated today that effective IT systems are indispensable to manage them. IKEA business is selected as part of this paper and evaluated at depth how IT systems are improving the processes for IKEA and helping it’s to realize its vision of maintaining cost leadership and providing affordable furniture to its customers.
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