BMAN24442

Foundations of Strategy and Innovation

Seminar 1
The concept of strategy: The IKEA case
 Seminars
• 8 seminars
• Facilitate lectures
• Discussion & small groups
• Material for preparation on BlackBoard
• [Attendance will be recorded ]
IKEA case
 IKEA profile
• The world’s largest furniture retailer
• Founded by Ingvar Kamprand in 1943
• IKEA = Ingvar Kamprand Elmtaryd Agunnaryd
• Started as a tiny Swedish mail-order catalogue business, selling pencils, postcards,
and other merchandise
• 1948: Furniture was introduced in the IKEA business
• 433 IKEA stores in 52 markets
• €41.3 billion – global revenue for FY 2019
 What is IKEA’s strategy?

 Where does IKEA compete?

 What unique value does IKEA bring?

 What resources/capabilities does IKEA utilize?

 How does IKEA sustain unique value?

Discuss IKEA vision and mission
 IKEA mission & vision

“Our vision is to create a better everyday life for the

many people – for customers, but also for our co-
workers and the people who work at our suppliers”.
IKEA levels of strategy
 CORPORATE LEVEL
Geographical scope, Diversity of
products or services, Acquisition of new
business – integration

BUSINESS LEVEL
Attempts to secure competitive
advantage in existing products or certain
geographic markets

FUNCTIONAL STRATEGIES
Facilitate achievement of corporate and
business level strategies (Marketing
department, Accounting department,
Human Resources, Information systems)
 Define/provide examples of IKEAs corporate level
strategies, business level strategies and functional
strategies

 What corporate level strategies does IKEA pursue?

 What business level strategies does IKEA pursue?

 What does IKEA do at the functional level to make sure that

it facilitates its strategy?

 Corporate level
 Geographical scope
 Diversity of products or services
 Acquisition of new business
 Corporate level
• CORPORATE LEVEL
• Geographical scope:
• International expansion (433 stores in 52 markets)
• Plans for further expansion in new (e.g. Latin America) and existing markets (UK, USA, Europe etc).

• Products or services differentiation:

- Smart home – smart appliances
- Food and catering (restaurants in its stores)
- Furniture rental
- Solar PV systems
- IKEA hotel (in Sweden)
- IKEA museum (Sweden)
- Houses and flats (BoKlok – owned by IKEA)
- Shopping malls (44 in the world including Russia and China, plan one for the UK too)

• Acquisitions
• Vertical integration acquisitions
• Recently bought forests in Romania and Bulgaria for having a better control over its supply chain
• TaskRabbit (deliver purchases and assemble)
 Business level strategies
 Secure competitive advantage in existing
products and certain geographic markets
 Attain and satisfy customers, offer goods and
services that meet their needs
 Increase operating profits.
 Business level strategies
• BUSINESS LEVEL STRATEGIES

How IKEA secures competitive advantage in existing products or certain geographic markets:

• Business-level strategy focuses on positioning itself against competitors and staying up to date on market trends and technology changes.

• Ikea’s business level strategy has a number of important dimensions.

• Market Segmentation: First, the company has a clear sense of who its customers are. It has a very clear market segmentation strategy. IKEA targets people with
limited disposable income, but a desire for tastefully designed furniture (young, hip, upwardly mobile middle class people. This includes college students, post-
college individuals starting out on their careers, and young married couples).

• Value Offering – Attractive design: The value that it offers its target market is attractively designed furniture that adherers to the clean minimalist lines associated
with Swedish furniture. IKEA differentiates itself from rivals by its design ethic.

• Value Offering – Advertising: Ikea also differentiates itself through its somewhat quirky avant garde advertising, that is clearly tailored towards its target market.

• Value Offering – Wide selection of products in stores : IKEA also differentiates itself by offering a wider selection of merchandise than found in competing furniture
retailers in large footprint stores.

• Low Costs: IKEA has worked out how to offer this value at a low cost. IKEA aims to produce products that can be priced 30-50% below those sold by rivals. The low
cost is achieve, among other things, by design for manufacturing, distribution through large footprint warehouse style stores, self assembly and self service
concepts, and working closely with suppliers.

• IKEA's follows a business strategy of overall cost leadership with a focus on lower-middle class individuals who are also likely new homeowners. Part of the IKEA
business idea is to provide home furnishing products "at prices so low that as many people as possible will be able to afford them." To do this, IKEA starts each
product with a target price and does all it can to achieve that low price even if it means re-working some initial design concepts. IKEA realizes that they are many
more expensive fine furniture options on the market and takes the view that if that's what a customer wants, by all means they he or she can pay more. IKEA wants
to reach those customers who don't necessarily have as much disposable cash, but who still want valuable furniture.
 Functional strategies
 Facilitate achievement of corporate and business level strategies
 Functional strategies
• Design for Manufacturing: Designers pay great attention to designing products that are easy to manufacture and assemble.

• Self Assembly and flat packing: IKEA early on embraced the self-assembly concept. By flat packing furniture, and pushing off assembly onto customers, it was
able to inventory reduce storage costs, transportation costs, and assembly costs. its core demographic embraced the concept of self assembly in return for lower
prices.

• Working with suppliers: IKEA was an early leader in outsourcing manufacturing to efficient producers in other countries. This started with outsourcing to Poland,
which at the time was low cost location for serving Western Europe, and has since evolved into a global supply chain with 1380 suppliers in 54 countries. IKEAs
philosophy is to outsource manufacturing to reduce costs, and then pass on the cost savings to customers in the form of lower prices. This reduces transportation
costs (products can be made close to where they are sold), and allows the company to compare the efficiency of different suppliers. IKEA works cooperatively
with its suppliers to ensure that they adopt the best manufacturing practices. The goal is to drive forward manufacturing productivity and ensure quality. (see:
https://inter.ikea.com/en/inter-ikea-group/ikea-range-and-supply/)

• Vertical Integration: IKEA has vertically integrated into the manufacture of furniture – IKEA industry. It produces about 10 – 12& in-house. The rest is coming
from suppliers. This enables IKEA to gain important information about the manufacturing process, and to drive forward improvements in manufacturing, that can
then be transferred to independent suppliers, improving the efficiency and effectiveness of the entire supply chain. See at https://inter.ikea.com/inter-ikea-
group/ikea-industry/index.html & https://inter.ikea.com/en/about-us/business-in-brief/
•
• Store Layout and Location: IKEA pioneered the use of large warehouse type stores in the furniture and home fittings retail industry. The stores are typically
located on the outskirts of urban areas close to major traffic corridors with amply parking (now this is changing – urban stores). The stores are laid out as a
maze, which ensures that customers have to walk through every department before they reach the cash registers. This maximizes impulse buys and drives up
sales per square foot, increasing the productivity of every dollar of capital invested in the stores. The stores often incorporate a restaurant and child care, which
helps to increase the amount of time that people spend in the stores, and hence sales per square foot. The stores are self-service (which reduces costs). The self-
service concept extends to the pickup of flat packed furniture and other items from an in-store warehouse located at the exit to the display sections, just before
the cash registers. Pushing off warehouse tasks onto customers is yet another source of cost savings.

• Marketing: The stores all utilize Swedish colors, and are quickly recognizable.
IKEA
 Assessment
•NOT included in the word count: End of text references, graphs, tables, and figures.

About the assessment:

Firms within industries compete with other firms in products/services markets for
market shares and superior returns.

This competition turns into strategic rivalry. For example, Apple vs. Microsoft.

Firms that find themselves in such a rivalry aim to maintain and improve their
market share in order to sustain and improve their long-term performance.

Each firm thus seeks to develop and sustain a competitive advantage vis-à-vis its
main rivals. These efforts are facilitated or constrained by the resources and
capabilities that each of these firms has at their disposal.
PRODUCT/SERVICE MARKET FIRM 1 RIVAL FIRM

Mobile banking (Europe) Monzo Revolut

Online food delivery (United Kingdom) Uber (Uber Eats) Deliveroo

Online Retailer (United Kingdom) Ebay Amazon

Mobile Payment (Global) Paypal Apple (Apple Pay)

Social networking (Global) TikTok Instagram

Online grocery delivery (United Kingdom) Amazon Ocado

Video game consoles (Global) Microsoft Sony

Questions & Comments