Ikea Case Study 95w3y

1. IKEA’s strategy in Sweden What were the sources of IKEA’s successful entry in furniture retailing in Sweden? During the post-war boom, young householders were looking for stylish and afford able furniture instead of the tradition hand-down furniture from the older gener ations. Kamprad saw opportunity when he saw that the cartel formed by both the S wedish manufacturers and retailers kept prices high causing the price to rise 41 % faster than other household products. He then decided to enter the market by o ffering low-cost furniture to the majority of population while retaining style a nd function. As the furniture cartel knew that with the offering of stylish low-cost furnitur e by IKEA, Kamprad was a great threat to their business and profit. Hence Kampra d faced great resistance from the furniture cartel when he first participated in the annual furniture trade fair in 1950’s. The furniture cartel first banned IKEA from selling direct to customer, and then banned them from displaying price dur ing the trade show, and eventually cutting off his source of supplies in Sweden. Faced with all the resistances in Sweden, Kamprad began to source for alternati ve suppliers in Poland. Which to his joy, he managed to bring down his cost even more resulting in even lower-priced furniture. By year 1961, IKEA turnover was 80 times larger at over SKr40 million compared t o an average furniture store. Kamprad being aware of the market trend and shoppi ng habits was able to effectively capture the market. With the development of in formative catalogs, knock-down kits and cash-and-carry concept. Along with targe ting the middle to low income population, Kamprad is able to capture a much larg er market as compared to the cartel formed by the Swedish manufacturer and retai lers (see figure 1). With the economies of scale it allows Kamprad to price IKEA products lower. This in turn successfully reinforced IKEA’s market position and m arket share in Sweden as a low-cost furniture provider with stylish design. Figure 1 – Long Tail Graph 2. IKEA’s strategy while expanding internationally How important was internationalization to IKEA? What challenges did IKEA face while expanding internationally, and how d id it overcome them? It is crucial for IKEA to continue to expand bigger so that they can have even l arger economies of scale which can drives cost down and increase sales. In the e arly 1970’s, Kamprad saw the critical need for IKEA to expand internationally when the growth for the Swedish furniture market was stagnating. IKEA faced several challenges when it starts to expand internationally. One inst ance was when IKEA first entered the Switzerland market, where its furniture was made using dark wood, of traditional design and sturdy construction. On the oth er hand IKEA’s furniture was made using oaks or pinewood, of contemporary design a nd furniture in knock-down kits. In addition, IKEA stores uses self-service and cash-and-carry concept as compared to service-intensive which was a norm then. A ll these are a direct opposite of what the market in Switzerland is offering at that time. IKEA overcome these challenges by distributing half a million of catalogs to cre ate awareness along with the use of unconventional advertising to dismiss negati ve impression on IKEA’s and its products. IKEA managed to attract 650,000 visitors in its first year. As IKEA expanded, competition among stores was tremendous. Even though with comp etition, innovative ideas was being generated. However it also leads to separati on from the parent company identity. IKEA overcomes this by standardizing each a nd every store; from the goods being displayed at the showroom, down to the arra ngement for each product. In order to overcome the challenges IKEA faced during expansion internationally, 2 groups where form; Expansion Group and an Operations Group. This ensures that IKEA expansion can be done smoothly and quickly. However in order to maintain t

he low-cost advantage that IKEA has; purchasing, deg and distribution was kept centrally controlled. This is because most purchasers are from Småland, which are well known for their thriftiness. IKEA also faced the shift in its targeted consumers group, as the median age and income raised; its original targeted market will be shrinking. IKEA overcome th is by changing the company’s crazy Swedes image and shift it to quality image. IKE A also expanded into other market such as the office furniture to capture a larg er market.

3. Organization capabilities of IKEA What were the management processes by which IKEA coordinated and control led its Europe-wide operations? How effective were they? The management process was very much driven by Kamprad and his view of life. Kam prad wants IKEA to move away from status and convention, and this will make empl oyees more at ease. IKEA management also often stressed simplicity and attention to detail. Kamprad also often mentioned that “Waste of resources is a mortal sin at IKEA”. The root of IKEA spirit is frugality and wants to spread this idea down to all its employees. IKEA management often hires younger, more open recruits as this not only drives down cost. It also ensures that the employees are not imme rsed in another cultural so much so that they are unable to adopt IKEA strong an d unique culture. With the use of IKEA ambassadors which are trained personally by Kamprad, they are assigned to key positions to spread the company’s philosophy and values, and also to act as role models. However when it comes to the effectiveness of these processes, not everyone in t he company will stand to benefit from it. With the moving away from status and c onvention, it puts pressure on management to perform as there is no security beh ind hierarchy or closed doors. The thrifty and spirit of frugality is also hard to maintain when IKEA has a turnover of billions each year, more and more employ ees are anxious to share the rewards. 4. Organization values and Ingvar Kamprad’s vision What was Ingvar Kamprad’s role in IKEA’s development? As the founder of IKEA, Kamprad and his values very much drive the entire IKEA o rganization. Even when he is the chairman of IKEA, he was seen often bying t he normal hierarchy and going down to communicate with the designers and manager s that are five or more levels below him. This shows the entire IKEA organizatio n that he is committed to move away from formality and status. Kamprad himself i s a very good role model to his employees, in such as frugality and whatev er he expects from his employees, he is practicing it himself. Kamprad’s vision of “To create a better everyday life for the many people” and busines s idea “To offer a wide range of well-designed, functional home furnishing product s at prices so low that as many people will be able to afford them” still drives I KEA after more than 50 years. Coupled with Kamprad’s ability to forecast consumer needs, he is able to turn difficulties into advantages and uses it to expand IKE A’s business. Kamprad himself play a significant and an indispensible role in the entire IKEA’s development over the years and what Kamprad’s envision more than 50 ye ars ago is still very much applicable in today’s market. Results can be seen from IKEA financial standing of an increase in sales of 7.7% to 23.1 billion EURO as compared to year 20091. 5. Action plan for the future What challenges lie ahead for IKEA? Please recommend what course of action Anders Moberg should follow in or der to deal with them. The challenges for IKEA would be to constantly keeping the growth of the company high, which is what it has done for the past 50 years while keeping the cost of their furniture low. IKEA also faced challenges in of demographic differe

nces which bring about differences in consumer’s needs and demand. With an increas e in the median age and income for developing countries, IKEA’s original targeted market is shrinking and shifting towards the older and higher income group. IKEA have to repackage themselves to appeal to these consumers, while at the same ti me not diverting too much away from their roots of providing low-priced furnitur e that is affordable to as many people as possible. In addition, IKEA today is v ery much dependent on Kamprad and hence the departure of him from IKEA will grea tly impact the entire organization. Anders Moberg should firstly identify and forecast the trend and needs of its ta rgeted consumers market. This can be done by having more nationality from across the world to be in their top management, this will aid IKEA to be able to have a better view on the different markets that they are in. Anders Moberg should al so decide whether to continue to focus on their original market group; the middl e to low income. There are three choices that he can look into. 1) To shift IKEA’s attention in accordance to the shift in median age and inc ome; however this will divert IKEA from its original roots of low-priced furnitu re. 2) To stay put and continue to target the middle to low-income, however ove r the years this will actually reduce the amount of market share IKEA will have in the furniture industry as this market is shrinking. 3) Lastly, to expand IKEA’s products to cater to the higher income and median age market, while retaining its original target of low-priced furniture for the low income market. Anders Moberg should also slowly reduce the importance of Kamprad in the IKEA or ganization while learning as much as possible of his believes, vision and spirit . This will allows the management to slowly take shape and take charge of the en tire operations. This is to reduce the amount of impact it has on IKEA with the departure of Kamprad in the future. IKEA Today IKEA current CEO and President which took position since 2009; Mikael Ohlsson is expanding the range of products that IKEA carries. This is done in order to cap ture the higher income and median age buyers which are a growing market over the past few years. However IKEA still retains its low-priced furniture and stylish design for the low-income group that it has been serving for the past 50 over y ears. This has actually allows IKEA to firm itself in the furniture market and e nsure its constant growth in of revenue and expansion of stores worldwide. IKEA is also reinforcing its image as stylish and low-priced furniture, while h aving reasonable quality furniture to appeal to the higher income group. Constan t innovations such as alternative materials used, better way of packing can be s een over the years with the price reduction of 10% - 30% in several furniture pr oducts. This is very much related to Kamprad’s motto of keeping cost down so as to ensure IKEA’s products are low-priced. However the top management in IKEA is still very much from the Scandinavia regio ns. This is something perhaps Mikael Ohlsson should look into, by allowing more nationality to be involve in the organization planning to have a wider perspecti ve on the world’s market.