Factors affecting implementation of e-business: IKEA Business Case

 
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Executive Summary

IKEA Company is a leading company in dealing with furniture in the UAE and across the world. The company has recently been facing a decline in sales as a result of consumers moving online. The online sales in the UAE have been increasing at are expected to continue growing. IKEA Company is expected to embrace e-business to take advantage of the boom in online sales. The objective of implementing e-business in IKEA is to increase its sales through reaching more customers and new markets. Although the project is expensive to implement, it has a long-term impact on the sales and the competitive of the firm thus worth spending on it.

Several alternatives are available for the IKEA Company to improve its sales; however, operating an online store alongside a few physical stores is the best option for the company. This way the company will cater to the consumers not willing to shop online and those who have already shifted. A team of able professionals will be used in the implementation of the project where all the departments will be involved to reduce resistance. The company will employ programmers and contract experts for better implementation of the project.

The project will cost about 15million which will cater for all the expenses including the construction of new pick up points. The major risk associated with the project is the security risk and financial risk. Strategic planning of the implementation and involvement of experts in the implementation will help in the mitigation of the risks. It is recommended that the company operate the online store alongside online store. Implementing the project in two phases is also recommended for a better outcome. The first phase is to involve selling on company’s website and the second phase is to include third party websites in selling the products.


 

Factors affecting implementation of e-business: IKEA Business Case

USER AND PROBLEM DESCRIPTION

IKEA Company is finally reaping from embracing e-commerce. The company has been operating as brick and motor for a long time. In the past few years, the company was experiencing slow growth as consumers embarked on shopping online. However, the company was slow to embrace online shopping as it faced substantial resistance from within. The company had to embrace e-commerce to improve its sales and keep up with the customers shift.

PROJECT DESCRIPTION

Background information

The retailing in the United Arabs Emirate and other parts of the world is changing at a tremendous rate. Many brick and motor stores have been facing challenges in the recent years as consumers have moved to online shopping (Singh & Singh, 2014). IKEA is one of the companies that have been faced with the challenge of low sales as a result of increased online shopping. This is the main reason why the IKEA Company is required to embrace e-business fully and remain competitive in the furniture market and increase its sales.

According to D’Cunha (2016), there has been a drastic shift to online shopping in the UAE in the past few years. In the year 2016, the online sales in the MENA region were about two billion US dollars with the UAE being among the booming markets for the e-commerce. The region is expected to experience more massive growth in the online shopping within the next five years. In 2014, the value of the e-commerce in the UAE was about 2.5 billion US dollars. The value of the e-Commerce is expected to reach about $10 billion by the end of 2018 (D’Cunha, 2016). As such, there is a great need for the IKEA Company to have well-developed e-business to benefit from the shifting shopping behavior and the growth of the online shopping in the region.

Majority of shoppers in the UAE prefer shopping from a single brand website when seeking good services and from multi brands website when seeking lower prices. As such, IKEA Company will be required there will be a need for IKEA to develop its website for this particular group of individuals and t the same time remain selling its products through the third party websites to attract all types of the customers (PWC, 2017).

The IKEA Company will be required to developed new pick up stores in the city centers for easier delivery of products when the consumers order online. The company is also required to develop new pop up stores from which the consumers will be viewing the furniture online. Upon embracing the e-business model, the IKEA Company will also be required to collaborate with other companies such as the Task rabbit for helping the customers in various places to assemble furniture upon buying.

Business objective

The main objective of the project is to help the IKEA Company fully embrace e-commerce for it to remain competitive in the market where the online market has dominated. Although the company has agreed to work with the third party website to market and sell their products in other parts of the world, developing a strong e-business for the EAU Company will be of great importance to increase its sales. The company is focused on offering quality furniture to customers at the lowest price possible. The e-business implementation support the company’s strategy as it helps it to meet the needs of the customers better and in a convenient manner.


 

Benefits and limitations

Benefits

The major benefits the company is likely to enjoy for implementing the e-business will be increased sales as it will be able to attract the consumers who have already shifted to online shopping. The company will also be able to put up with competition and be able to have a better understanding of the consumer preferences through the use of big data from the customer feedback (Su & Cui, 2009).

The implementation of the e-business supports IKEA business strategy for expanding to the international markets. By going online, the company will be visible to a wider range of customers in different parts of the world. Further r more the company will easily penetrate to new markets in other countries as investment cost will be reduced as there will be no need of developing too many stores as it was the case for brick and motor.

Another benefit associated with IKEA implementation of the e-business is that it will help improve customer experience. The brick and motor stores are not preferred by many as they consider them not convenient, and they facilitate impulse buying for some items which make customers spend more than expected. Better customer service is vital as they determine the probability of customers coming back in the store in future or recommending others to shop in the store (Otto & Chung, 2000).

Limitations

The major limitation of the e-business implementation for the IKEA Company is that it will have to spend huge amounts of money to change the store settings. The develop new pick up centres in the city centres to support delivery and development of a new website to support online selling will require the company to invest huge amounts of money. Another limitation may be associated with consumers who like feeling and touching the furniture before buying.

ALTERNATIVES IDENTIFICATION AND SELECTION

Becoming virtual company

The main problem that the IKEA Company is currently facing is a decline in their sales due to the shift to the online shopping. Operating as an online company is one of the options that the IKEA Company has to boost its sales. This option involves transforming the current business to a completely virtual business. This will require the company to change all its store settings to fit the requirements of the online store. If the company is to implement this option, it may be required to retrench its current employees and employ programmers and those employees who are good at online selling. Alternatively, the company may be required to train the current workforce to understand online selling. To success with this option, the company is required to have professional programmers who will help in the development of a website and continuous maintenance for better customer service.

IKEA will also be required to obtain efficient transaction software and be in a position to ensure the security of customer information during transitions. IKEA will be required to build trust and provide customers with the choice to succeed as an online company. Although this option can help increase sales, the initial cost may be very costly. Another limitation of this option is that the company may lock out the consumers who like feeling and touching their products before buying them. Furthermore, although many people have adopted the online shopping some people still prefer the brick and motor stores especially for expensive furniture among other products.


 

Operating both brick and motor and online store

Operating an online store alongside the current brick and motor store is the second option that the company has to improve the sales which have declined as customers shift to online shopping. In implementing this option, the company may choose to upgrade its website to accommodate online selling while at the same time operating the physical stores. However, the company will be required to develop some new pick up stores for easier delivery of products to facilitate good customer experience (Otto & Chung, 2000). Operating the two types of business will be advantageous although the company will need a few additional stores. However, the company will be required to restructure its supply chain to fit the new business model.

This option is advantageous as it will help the company to maintain their loyal customers who prefer shopping furniture in physical stores and attract new customers. Furthermore, apart from serving the local customers, the company will have a chance of serving customers in different parts of the world. This option is also advantageous as it will help cater for those consumers who like feeling and touching the products before buying (Otto & Chung, 2000).

Investing in marketing

The company may also choose to invest in online marketing to attract new customers. In this case, the company may choose to advertise more on social media platforms such as Facebook and Twitter to attract new customers. The company may also use third party websites as well as their website to inform their customers about their brand and the location of their stores. In this case, IKE may choose to use its marketing team or may choose to use third-party professionals. The marketing should be focused on informing new customers of their brand and convincing customers of their products. The aim of marketing should focus on increasing sales. This option is cheap to implement; however, it may have little impact as the drop of sales is as a result of a change in shopping behavior.

Selected option

The best option that the IKEA Company should embrace is the second option which is to operate an online store and at the same time maintain their physical store. With this option, the company will meet the needs of the customers who are resistant to shopping online as well as those who are shifting to online shopping. Although the implementation cost is expected to be high, the reward is going to be huge the company will be able to more customers and more markets unlike when operating from a physical store.

PROJECT TEAM

The project will be undertaken by a team of five seasoned professionals from the company. The team will work together with a consultant from KPMG. There will also be a project steering committee that which will be overseeing the project for better implementation. The project members will be derived from different departments to ensure smooth implementation and resolving of issues that may affect the departments as a result of the implementation. The inclusion of different department is also essential in reducing resistance from the employees.

STAKEHOLDERS AND BENEFITS

The business, shareholders and the customers are the first beneficiaries of the project. The business will benefit as it will be able to cover a wider market and a wider range of customers at a lower cost. An increase in sales will lead to increased profits thus higher dividends for the shareholders. On the other hand, the customers will have a variety to choose from on the internet. Moreover, the customers will be able to obtain quality products more conveniently.

OPERATIONS

The project is intended to take around ten months to be implemented fully. The operations that will be undertaken during this period will be designing a website and obtaining the transaction software from a reliable source such as Oracle. There will also be the construction of new stores in different cities that will act as pick up points for purchases to lower delivery cost, especially for the bulky furniture. IKEA also seeks to recruit professional programmers who will create the website and who will be charged with its maintenance. The employees will also be educated about the new business model to ease resistance.

FINANCIAL METRICS

The total cost of the implementation will be around 15 million dollars. The initial cost of about 4million will include the acquisition of the transaction software and development of the company website and initial marketing of the company. About 5 million will be set aside for constructing new pick up stores in different towns within the UAE. One million dollars will be used to acquire professional programmer who will be charged with the website maintenance and training of the employees. 4 million will be used for installing other programs that support the e-business such as the ERP. The remaining one million will cater for other miscellaneous expenses. The company is financially stable therefore funding may not be a problem. Although the project is costly, it is worth implementing as it will have a long-term impact on the company sales, competitiveness, and profitability.


 

IMPLEMENTATION, STATUS, AND TRACTION

The project requires being given the priority at every meeting. The implementation of the project will be in two phases. The first face will focus on selling the products on the company’s official website. This will help the company to have a better understanding of how online markets work and a better understanding of the customer’s preferences. Upon successful sales with own website, the second phase will include collaborating with third party websites such as Amazon and Alibaba. This will be aimed at attracting higher traffic and increasing customers’ choices online. The implementation process will also include the training of the employee and acquisition of experts to help in the implementation. The project is expected to be fully implemented within ten months.

RISKS

Security risk

Information security risk is one of the major risks that is associated with online transactions. In case there are security issues with the company customers may shy away from transacting with them and may also face some legal issues. The company will need to have well-developed advance security measures to enhance customer’s confidence to transact with them. Furthermore, the company needs to have up to date antivirus and regular monitoring of its software to detect any vulnerability that may facilitate security issues (Ford & Baum, 2000).

Financial risk

The other major risk is associated with loss of finances. The project involves lots of finances. Improper implementation of the project may lead to failure of the project leading to loss of finances. To mitigate the risk, the company needs to have a well-developed strategic plan to implement the project. Experts need to be involved in the implementation of the project for better and easier implementation.

CONCLUSION AND RECOMMENDATION

IKEA is facing sales decline as many consumers prefer doing their shopping online. The company has realized the existing problem, and it is focused on making changes in the organization to counter the issue. Implementing e-business is considered to be the best solution for the company to increase its sales and remain competitive. It is recommended that the company sell its products on its official website as well on the third party website to meet the needs of all the consumers. It is also recommended that the company operate both physical locations shops as well as online stores as some customers are still reluctant to buy some furniture online.

 

 

References

D’Cunha S., D. (2016, Nov 11th). E-commerce Gains grounds on malls in UAE with $2B in online sales. The Forbes.

Ford, W., & Baum, M.S. (2000). Secure electronic commerce: building the infrastructure for digital signatures and encryption. Prentice Hall PTR.

Otto, J.R., & Chung, Q.B. (2000). A framework for cyber-enhanced retailing: Integrating e-commerce retailing with brick-and-mortar retailing. Electronic Markets10(3), 185-191

PWC (2017). What’s the outlook for the Middle East?: Total retail 2017. Retrieved from https://www.pwc.com/m1/en/publications/total-retail-2017/total-retail-middle-east-2017.pdf

Singh, S., & Singh, B. (2014). A cross-sectional study of online shopping behavior trends of electronics in UAE: A case of Ajman. Middle East Journal of Business9(3), 22-30.

Su, Q., Li, L., & Cui, Y.W. (2009). Analyzing relational benefits in e-business environment from behavioral perspective. Systems Research and Behavioral Science26(2), 129-142.

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