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Competitive Strategy – IKEA Case

21/12/2009

Competitive Strategy – IKEA Case

דיויד שוגרמן David Sugarman

Question #1:

What were the resources of IKEA’s successful entry to the furniture retailing business in Sweden?

Answer #1:

IKEA successfully passed the introductory stage of the lifecycle and entered the furniture retailing business due to the following reasons:

IKEA succeeded to identify the market segment of young and low-medium economy level customers, whose needs were not faced in the furniture market. IKEA differentiated itself by selling well-designed furniture of a good quality at low prices.

IKEA defined and applied quality and cost control, which enabled the firm to produce and sell the best products for the little price the customer paid.

IKEA applied aggressive marketing approach and persistence in reaching the customers. Despite the reaction of the mature furniture firms that considered IKEA as a threat to their market and tried to prevent IKEA from distribution its products to the customers, IKEA found creative ways to reach its customers.

IKEA applied innovative concepts in marketing, service and management by that it successfully articulated its value-providing features that customers accepted. IKEA distributed catalogues of its products, provided information tickets, applied self-service approach, built the stores in the places with ease approach and parking area and employed young and self-motivated staff, that provided a good service to the customers.

The motivation of Ingvar Kamprad, the company founder was not profit but improving the quality of life of people. This philosophy was implemented in the company’s activities.

Nature furniture firms didn’t response rapidly and didn’t product competitive products.

Question #2:

How important was internationalism to IKEA? What challenge did IKEA face while expanding internationally, and how did it overcome them?

Answer #2:

After IKEA “won” the local market, its expanding to the international market was highly important to IKEA. Since the Scandinavian furniture market was stagnating, the company needed to find new markets to prolong the growth stage of its lifecycle. During expanding to the international market IKEA faced several challenges:

How to preserve the organizational culture of IKEA

How to prevent differentiation between the branches in different countries, how to keep IKEA uniqueness and its symbols

How to preserve the service level of the company within international branches

Whether to adjust the international market to the IKEA concept or to adjust the company products to local tastes?

How to prevent the imitations of IKEA approach in other countries

How to keep low prices

IKEA took several actions to overcome those challenges:

Defining the IKEA concept and philosophy in a document, written by Ingvar Kamprad helped the managers and the workers to better understand the concept of the company

Standardization of IKEA approach, emerging a uniform concept to regional IKEA branches, creating detailed guidelines regarding the management and operating the stores, development of products, IKEA signs, architecture of the IKEA stores. Those steps helped to preserve the company identity.

Creating Expansion Groups and Operations Groups, that are consisted from people that deeply understand and apply the company culture, whose role is to plan expansion to the new markets, establish operations, opening the branch and training the new staff to the organizational culture of the company. Those steps also helped to preserve the company identity and to expose the new staff to the IKEA values and culture.

Central controlling of purchase, distribution and design functions of the stores in order to preserve the spirit and homogeny of the company

Preserving homogeny of Scandinavian in senior management group is used for better applying Scandinavian management philosophy while managing IKEA

Putting extra emphasis on the corporate Swedish identity of the company for emphasizing the differentiation of the company and preventing from imitating.

Maintaining long-term relationship with suppliers in order to assure low and stable costs.

Question #3:

What were the management processes by which IKEA coordinated and controlled its European-wide operation?

Answer #3:

A key factor in IKEA’s drive was the unique organizational culture based on Ingvar Kamprad’s perception of organizational

simplicity, anti-bureaucracy, innovation and entrepreneurship encouragement, strong focus on every detail, cost/price

leadership all the way and people orientation (both for customers and employees). IKEA has a clan organizational culture (and one

of its major challenges is preserving this culture in a huge and rapidly growing organization). The dominant patriarch who set

this culture and company spirit is Ingvar Kamprad.

The organizational structure supported the company’s rapid penetration policy to Europe in the late 70s and 80s. the expansion

group dealt with locating and setting up new stores, and later on the first year group took over and trained the local staff and

managed the new store for the first year. After that the management was handed to the local team.

HR and recruitment policy aimed for young people, not necessarily highly educated, focusing on openness, friendliness.

Encouraged dynamic allocation of people to positions and very fast promotions for outstanding performers (average age of store

manager is 34).

Regional managers were appointed in the early 80s, but all purchasing, design and distribution functions remained centralized in

Sweden

Store standardization approach was adopted in to gain better control on the stores, save costs, ease management and strengthen

the corporate identity of IKEA.

Question #4:

What was Ingvar Kamprad’s role in IKEA’s development?

Answer #4:

Ingvar Kamprad’s role in IKEA was of a few aspects:

Kamprad was the founder of the company. He was the one with the vision. He knew exactly how he wants things to happen, and

wanted it a lot. He made everything he could in order for his vision to become real. Therefore, he was able to motivate all the

organization based on his vision.

Manager – For many years (till recently) Kamprad was the manager of the organization. He was the authority for all company

decision-making, and its actual performance.

In both, Kamprad had a very strong impact on the company performance and culture due to his  personality. Kamprad was a role

model to the eyes of all the employees. Each and every move he wanted to take – was backed up by the company workers who

believed in him (not to say admired). What made him a role model, despite his good character, and his many talents was that

what ever were his demands from his employees, he was applying on himself.

Most of IKEA’s KSF, what makes it so special, and successful during the last 50 years, were derived directly from Kamprad’s vision

and personality :

Kamprad was an excellent business man – he knew how to recognize business opportunities when they were around, he knew how

to turn problems into advantages, he believed that in the business world there is a place for creativity, initiative and gave his

employees a great deal of autonomy.

His ability to understand human nature in general, and his customer and employees needs in particular, his simplicity and lack

of  formality, are an important characteristics of the company products, stores and attitude towards its customers, that had such a

big role in turning it to such successful company. Kamprad’s modesty and attention to details had also important effect on IKEA’s

ability to keep its low costs, and prices.

Question #5:

What challenge lie ahead for IKEA? What course of action should Mr. Moberg follows in order to deal with them?

Answer #5:

The main challenges lies ahead are:

Keeping the company growth at a high rate, like it did until now.

A need for an adjustment in the company’s strategy as a result of the economic trend of a shrinking low-income population, to

which IKEA directs its business, as oppose to large market slice: the higher income population, to which IKEA did not target so far.

Increasing the ability of the company to survive and to growth after the founder, Mr. Kamprad, will retire. Namely, increasing

the management’s dependency of business decision-making, while preserving the unique company’s spirit.

The operative actions for a successful coping with  the challenges above are basically continuing adjusting the company’s strategic

actions, like it successfully did so far. The needed operative actions are:

Significantly improving the hold in the US market, which has the best growth potential for IKEA. The current hold of IKEA is this

market is very limited. Thus, it enables IKEA to keep its growth rate while basically keeping its low-cost strategy in the near and

medium future.

The main operative aim at achieving this goal is an adjustment of the company’s products to the US market needs. IKEA’s stores in

the US must shift into less internationally homogeny products and more products adjusted to the US market needs.

Expanding the variation of the product line of IKEA. This might result a relatively low-cost products to the high-income population

that might well include innovative design motives that characterizes the current products.

Internationalizing the top management of the company.

This process seems extremely important for achieving the following:

Improving the understanding of various markets all over the world for a better strategy planning.

Decreasing the dependency of the current management in Mr. Kamprad. This process should better start before Mr. Kamprad leaves the company for absorbing much of his spirit into the future international management.

Keeping the spirit of innovation in both marketing and products fields. This character significantly contributed the company’s success so far and it might well play important roll for a future growth.

הערה אחת
  1. : thanx a lot for the help

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