IKEA Case Study
IKEA Case Study
IKEA Case Study
Introduction............................................................................................................................3
Background of Case Study..................................................................................................................3
Industry and Company Background...................................................................................................3
Internal and External Challenges.............................................................................................3
Internal Challenges............................................................................................................................3
External Challenges............................................................................................................................4
Transition Phase of IKEA..........................................................................................................4
Global Market for IKEA...........................................................................................................5
Pestle Analysis of IKEA.......................................................................................................................5
Strategic Analysis....................................................................................................................7
Ansoff Matrix.....................................................................................................................................7
Development Method.............................................................................................................8
Suggestions for CSR activities for IKEA.....................................................................................9
Bibliography..........................................................................................................................10
Appendix...............................................................................................................................11
Introduction
Background of Case Study
There are various challenges internally and externally for IKEA but also, they have their own
strategic goals and mission to achieve for the growth of the company. For example, supply chain
of IKEA bottle neck for the company. Similarly, After the resignation of Mr. Kampard, the
whole company is in confusion, whether there will be transition phase like in Walmart after
resignation of Mr. Walton from the position of CEO. IKEA intent to become a global brand by
entering and opening as many stores as they can in different regions and country by developing
different strategies and plans.
IKEA more than 10000 home furnishing products from kitchen cabinets to candlesticks. Product
have a “democratic design”, which according to Kampard. “was just not good, but also from the
start adapted to machine production and thus cheap to assemble” [ CITATION Hil05 \l 1033 ].
IKEA always comes up with the new products continuously and on an average third of its
product replaced by new product in a year[ CITATION Cla13 \l 1033 ].
Everything was micro managed from the HQ through Sam. But after the few years of success,
the model of IKEA remained same but they went to several countries and became more regional.
Under Ingvar’s direct oversight, global decisions were taken from the Head Quatre. However,
the main regional war was assigned to a CEO, who was in charge of all decisions.
There was a lot of power sharing and accountability transfer in this way. In the event of a crisis,
HQ has interruptions in place to rectify the situation. This means that power and obligation are
more fairly distributed, but there will be some problems and adaptation changes, but it is
organized differently than Walmart and will not struggle as much. As a result, the impact will not
be equivalent to Walmart’s leadership transition.
Since it has worked under the superior leadership of its founder, IKEA has been prosperous in its
business venture. Mr. Kampard’s leadership saw the organization go through several ups and
downs. Through his management and decision-making ability, Mr. Kampard has churned
through all of the difficulties. It is said that when an organization loses its most valuable asset, a
CEO or founder with proven management skills, the company’s operations and profits suffer.
The success of a company is determined by its management, and it is believed that Kampard’s
sons play key leadership roles in the company. As a result, it will reassure stakeholders that the
company will continue to run efficiently after Kampard retires if one of Mr. Kampard’s sons is
appointed as CEO of the company.
Global Market for IKEA
It does not surprise us to learn that both developed country (the United States) and also emerging
economies (i.e., China and Russia) are the fastest growing international markets for IKEA.
Because United States GDP in 2013 was US $16,800 Billion and was biggest country in the
world by GDP[ CITATION Rei20 \l 1033 ]. China was the biggest emerging nation with the GDP
growth rate of 12.28%[ CITATION Rei20 \l 1033 ].
IKEA began retail operations in China in 1998[ CITATION Chu13 \l 1033 ]. It formed a joint
venture to comply with local regulations and the business provided a good forum for the
company to test the market, understand local needs, and adjust its strategies as needed[ CITATION
Chu13 \l 1033 ]. Similarly, IKEA had faced problems previously when it entered the United
states. But IKEA has to make a number of changes to its marketing strategy in U.S. As the
company opened the stores from Beijing to Shanghai, the company revenue grew rapidly in
2004, for instance, its China Revenue jumped 40% from the year before[ CITATION Chu13 \l
1033 ].
Economy
International regulations have an impact on IKEA, and the global economy has an impact on
them as well. Even now, several well-known brands are still feeling the effects of the Great
Recession of 2007[CITATION Kie18 \l 1033 ]. At the time, tens of thousands of people had lost
their jobs and as a result, we saw consumers making informed purchase choices. Purchases were
made on the basis of necessity rather than luxury. Despite the fact that people need furniture,
updating a mattress, dresser, or sofa was not on their minds.
Knowing that money was tight, IKEA set their prices low. IKEA is now the first place that
comes to mind when you need trendy yet affordable furniture[CITATION Kie18 \l 1033 ]. You can
get anything you need for your home while saving a few bucks. For decades, this imagery has
persisted. A strong and weak dollar have an effect on IKEA's market because the stronger the
dollar becomes, the more money US brands can lose[CITATION Kie18 \l 1033 ].
Social
That is a law that every organization should obey. Not only to cater the commodity to the needs
of the buyers, but also to prevent offending societal values. IKEA adheres to this law in all of
their marketing materials. Regrettably, their contributions aren't always acknowledged. For
Example, IKEA removed same sex couple from their catalogue because homosexuality was still
considered shameful in Russia[CITATION Kie18 \l 1033 ].
They produce what is "acceptable" for each location and filter out what isn't. If they printed the
same catalog all over the world, they'd almost certainly get more backlash in each region. Profits
may be affected. At the end of the day, IKEA is a company focused solely on profit.[CITATION
Kie18 \l 1033 ]
Technological
Internet has played vital role for the customers to make their decisions and purchases. IKEA's
website has current products, offers, and home decor inspiration. The IKEA website informs you
of their store’s location near you. Increasing customer loyalty benefits all companies. New
ratings, word-of-mouth recommendations, and brand loyalty are the results. Given how much
work IKEA puts into getting to know their customers, it's no surprise that their digital channels
represent this.[ CITATION AJa12 \l 1033 ]
IKEA also comes up with the innovative product design which suits the local customers of
particular country which helps to increase and hold the customers. For every country they have
different strategy and different catalogue of products as per the need of that region[ CITATION
Chu13 \l 1033 ].
Legal
Legal status of countries directly impacts the organizational structure and company operating
system. Legal status of country differs from country to country. For example, the UK 1979 Sale
of Goods Acts is a clear example of a legal tool that impacts on companies such as IKEA
operating in UK[ CITATION Ayo13 \l 1033 ].
Legal risks may affect any large corporation. Any country in which IKEA operates has a plethora
of laws and regulations that must be followed. Since they're physical shops, keeping up with
labor laws is important.
Environmental
Following initial environmental concerns in the early 1980s and 1992 the company has become
more environmentally conscious[ CITATION Pri14 \l 1033 ]. IKEA took a pragmatic approach to
environmental issues, introducing a number of steps to deter potential accidents. Karl-Henrik
Robert, the inventor of the Natural Step, was invited to speak to IKEA's board of directors in
1990[ CITATION Pri14 \l 1033 ]. Robert's sustainable system conditions presented a proactive
approach to enhancing the company's environmental efficiency. IKEA's environmental strategy
was founded on the Natural Step system in 1990. As a result, an Environmental Action Plan was
developed and implemented in 1992[ CITATION Pri14 \l 1033 ].
Strategic Analysis
IKEA need to bring many changes and make strong strategic decisions especially for their intent
to drive growth globally and double annual store openings. By using Ansoff Matrix tools and
Development Choices tools, we can find the best strategic decisions to make their goals and
mission success.
Ansoff Matrix
1. Market Penetration
It is a strategy of increasing share of current markets with the present’s product range.
The IKEA's reach remains unchanged, but its increased strength contributes to increased
market share with customers and suppliers. Since IKEA sells in such large quantities,
they are able to benefit from economies of scale, lowering prices even further[ CITATION
Lau13 \l 1033 ]. IKEA can use the steady reduction of product prices as a strategic tool
for growth sustenance. As they had already adopted the policy of low prices and this
approach became a style, an art that made IKEA’s growth enviable[ CITATION Kar14 \l
1033 ]. It will reposition them for a long-term growth through a further reduction of
product prices and customers will able to get the same high-quality products at lower
prices by IKEA’s R&D, that elements the additional cost of product[ CITATION Kar14 \l
1033 ]. And it should also ensure to reduce cost by economies of scale.
To make the Market Penetration strategy successful (IKEA price-reduction strategy)
IKEA need to have three-way plan.
The company's initial strategy was to retain its custom-built properties while also
establishing new retail outlets.
In addition, the organization introduced a cost-cutting plan for its operational
activities. The second technique involves a rise in output volume. This resulted in
a decline in both production and raw material costs.
The company need to develop a more efficient supply chain protocol.[ CITATION
Kar14 \l 1033 ]
2. Market Development
This strategy would give IKEA a chance to grab the market share amongst the youths.
This strategy is used to offer their products to new markets. This strategy involves
varying degrees of related diversification (interms of markets). IKEA can take the form
of attracting new users by extending the use of IT to younger and internet active
customers and also in fast growing markets such as U.S.A., China and Russia. As IKEA
wants to spread their wings in global markets. In 2013, 45.8%, 68% and 71.4% of total
population of China, Russia and America has used internet respectively[ CITATION
Wor13 \l 1033 ]. So, it will help a lot IKEA to become global brand and capture market
share if they can improve their presence in internet and use of IT. As China is biggest
country by population and emerging nation by GDP growth rate. Russia is also emerging
nation. So, if IKEA can create a product according to their need and culture, it will help
them to meet their goal of doubling the rate of opening new stores.
4. Diversification
IKEA can diversify the product range in similar category. For example, IKEA can offer
the clothes, mattress, and sheets that are required for furniture and home decorations,
which will help the customers to purchase that they require under same roof and it will
help IKEA by increasing the sales and customers. IKEA will have very minimum risk, as
they are diversifying in the similar field and the customer are also same for the goods
they are adding up in their stores. There will be high chance for the success in the field
they are diversifying.
Development Method
Organic Development
IKEA need to develop organically according to time and situation. As different country and
different place has different culture, living style, economic condition. For example, people of
China are more conscious about the price they are paying and local manufacturers started
copying the product. So, IKEA established number of factories in China, and started sourcing
raw materials locally, which help them to reduce the cost of products by around 60%. The
company also started performing local quality inspections closer to manufacturing to save on
repair costs.[ CITATION Chu13 \l 1033 ]
Similarly, Internet users are increasing in a very rapid speed. People are more trying to be more
digitalized. So, IKEA also need to focus on those data and take steps according to the time and
prepare themselves for future.
Strategic Alliance
The key aim of a strategic alliance is to strengthen their competitive positions, gain access to
new markets, complement essential skills, and share the burden and expense of major
development ventures, among other things[ CITATION Mar09 \l 1033 ]. Similarly, to meet the
goals of IKEA’s strategic intent to double annual store openings become a global brand, they
need strategic alliance with the companies which will help them to open and know the culture of
particular area or regions. For example, IKEA did strategic alliance with the company named
Damro in 2011, which helped them to make an entry in Island and India[ CITATION UKe17 \l
1033 ]. Damro is amongst the world’s largest furniture manufacturers offering a diverse range of
traditional and modern furniture[ CITATION UKe17 \l 1033 ]. Similarly, when IKEA will enter the
Indian Market, they can create strategic alliance with the local companies otherwise they might
face specific challenges such as varying laws in different states ruled by different political
parties[ CITATION Chu13 \l 1033 ].
Afforestation Program
IKEA can come up with the ideas related to afforestation. As we all know, majority of raw
materials comes from the forest. If IKEA can promise their customer that, they will plant a tree
in every purchase made by the customers. It will give customer another plus point to purchase
products from IKEA as they are caring for environment. Around 775 million people visited the
stores and 1.35 billion people visited website of IKEA in 2013[ CITATION IKE16 \l 1033 ]. This
CSR program will help to be part for improving the global environment and decrease the global
warming. And also increase the probability of buying products from IKEA stores.
Recycling of Waste
In 21st century, one of the major problems is waste management. About 60% of all products
offered by the furniture retailer are based on renewable materials[ CITATION Joh13 \l 1033 ].
IKEA can use those renewable energy and recycled materials for the manufacturing the products.
This will help IKEA to be more environment conscious. IKEA can also build infrastructure for
those who are involved in waste management and are under poverty.
These are the Corporate Social Responsibilities activities that can be done by IKEA, which will
help the company to create brand loyalty for the customers.
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Appendix
SWOT Analysis
Strength
Constantly using innovations to drive costs down. Low cost are the cornerstone of IKEA
business idea and the company always try to do things as efficient and cost-effective as
possible[ CITATION Ovi13 \l 1033 ]. To cut the cost and time, the company must find new and
innovative ways to do that and to incorporate them in its business model[ CITATION Ovi13 \l
1033 ]. The business innovations include new materials that are more environment friendly and
are less costly.
Unlike IKEA’s largest competitors, the company has fairly diversified business. In addition to
furniture, the company owns and maintains restaurants, homes, and apartments. Despite the fact
that the firm's primary business is designing, producing, and selling furniture, it is less influenced
by market conditions than other furniture retailers[ CITATION Ovi13 \l 1033 ].
Opportunity
IKEA may identify opportunities in providing greener products for its clientele and further
educating the public on waste reduction in the area of furniture usage[ CITATION Ayo13 \l 1033 ].
In the UK and the US, online retail sales account for 17% and 4% of overall retail sales,
respectively. With 870 million visits to its website, IKEA will take advantage of this opportunity
and benefit from higher revenue and lower costs. IKEA has also an opportunity to expand its
grocery business by introducing more grocery stores in its current retail places[ CITATION
Ovi13 \l 1033 ].
IKEA's trademark blue and yellow retail stores are on average 300,000 square feet in size, with
meticulously planned store layouts. They are designed in such a way that; consumer need to pass
all the departments to checkout which increases the chances of more purchase by consumers
during shopping. Every display has pricing details, products used, colors available, directions for
product care, product measurements and characteristics itemized on a standard ticket, and where
to order and collect the product inside the store to make purchase decisions easier[ CITATION
The97 \l 1033 ]. In addition, IKEA further entices customers to stay longer by having restaurants
(usually in the middle of the store) and child care facilities (located at the entrance) [ CITATION
Hil05 \l 1033 ]. This form of “gentle coercion” is to keep customers in the store as long as
possible.