Strategic Management
IKEA Case Study
Table of Contents
Introduction Page 3
IKEA Strategy Description: Porter’s Generic Strategy Options Page 4
IKEA Strategy Description: Ansoff Matrix Page 7
IKEA Strategy Evaluation: Suitability Page 9
IKEA Strategy Evaluation: Porter’s 5 Forces Page 9
IKEA Strategy Evaluation: Capabilities Page 11
IKEA Strategy Evaluation: SWOT-Analysis Page 12
Stakeholder Expectations: Page 14
Conclusion: Page 15
References: Page 16
Introduction
IKEA has been one of Europe’s greatest recent success stories. Founded by a Swede of German origin in the 1940’s, the company has grown to become one of the largest and most profitable corporations in the world,
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The Harvard professor argues that differentiation strategy and cost are inter-related as a company must generally attempt to limit its costs in all fields except those were it is using differentiation if it wishes to sustain the competitive advantage this strategic option offers over the long-term (Porter, 2004).
Finally, there is the ‘Focused’ strategy. Here, a company chooses to tailor its operations to one segment in exclusion of others. It can do this either through ‘Cost Focus’, by attempting to attain a cost advantage in its focused target market, or through ‘Differentiation Focus’, where it seeks to differentiate itself within the focused target market itself.
While the 3 Generic Strategy Options can overlap, one is usually dominant and can be applied with clarity to any singular case study. Potential problems that can arise through the combination of several strategies instead of focusing on one, such as ‘the stuck in the middle’ paradigm (and how IKEA manages to avoid this) will be elaborated on later.
IKEA has long had the corporate mentality of cutting cost – making stylish Scandinavian design available at the lowest possible price to the consumer (The Economist, 2006). This corporate mentality has been instilled by its founder Ingvar Kamprad, who is known for his frugality - despite being one of the richest men in the
IKEA is a “privately held, international home products company that designs and sells ready-to-assemble furniture such as beds and desks, appliances and home accessories” (www.worldisyouroyster.com). The company was established in 1943 by Ingvar Kamprad in Sweden when he was just 17 years old. Kamprad himself, who still owns the private company, is rumored to be the world’s richest man. IKEA is currently the world 's largest furniture retailer and arguably the most successful global retailer. Being one of the biggest global retailers, IKEA benefited a lot by the globalization of its business; IKEA’s target market is the global middle class who is
IKEA is a world famous furnishing company known for selling Scandinavian-style furniture and other home-based goods. The company has over 230 stores, with operations carried out in over 42 countries with well over 70 000 employees. The stores themselves can occupy 410 million shoppers per year. It is a Swedish based company built on the idea of offering a wide range of well-designed, functional home furnishing products such low prices, that a majority of people will be able to afford them. The IKEA group is currently solely owned by the INGKA Foundation through a holding company, unlisted on any stock exchange.
Differentiation strategy is generally reserved for companies with a clear competitive advantage. Companies such as Mercedes and Apple employ this strategy. Differentiation strategy is demonstrated when a company provides value to customers through unique unique features and characteristics of a company's products rather than by the lowest price (Open Learning World 2010).
In order to assess and give recommendations to IKEA, it is important to fully understand the operations and the values that drive the company, ant its philosophy. Since was founded in 1954 by Ingvar Kamprad the Swedish company’s vision of “creating a better life for the many people” inspired them to develop high quality and lower cost products in the furniture business, and almost a decade later, after they consolidate in the Swedish market, they made the decision to expand abroad opening stores in Northway and Denmark respectively (Exhibit 1). With a relatively rapid expansion the company needed to transmit their unique philosophy and created the testament of a furniture Dealer and trained ambassadors to help spread and secure the firm’s values (Exhibit 3). Furthermore, IKEA’s adopted another principle, the company preferred to focus on establish close ties with business partners and supporting their suppliers in a long-term relationship rather than just
IKEA is rumored to be a very standardized retailer, i.e., a certain set of marketing strategies is used that are the same around the world. This indeed sets IKEA, operating on markets in Europe, US as well as Asia and Australia, apart among international retailers. Often the theoretical conclusions in international
IKEA is an international company which designs house products and sells them in the form of ready to assemble furniture. It is one of the world’s largest furniture companies. It is founded by17 years old Ingvar Kamprad in Sweden in 1943. The most important fact about the company is the attention to control the cost of the products, which allows them to lower the prices. Even today they are continuing to expand in the world by looking forward to new product developments. The number of stores of IKEA in the United States is 14 at the moment and they aim to have 50 stores by 2013.
2. What are the cultural factors which make expansion abroad in retailing difficult? What has made it possible in IKEA's case?
Since its 1943 establishing in Sweden by Ingvar Kamprad at 17 years old years, IKEA has offered home furniture and frill of good outline and capacity at low costs so most of the general population can manage the cost of them. IKEA 's vision is to: "Make a superior regular life for the numerous individuals" Its business thought is "To offer an extensive variety of all-around outlined, practical home outfitting items at costs so low that whatever number individuals as could be expected under the circumstances will have the capacity to bear the cost of them"(IKEA 2004)
Ikea is a great company that starts from humble beginnings and has made an impact upon the world for almost a century. Ikea is a Swedish company that specializes in selling furniture and other housing products across a market of over 40 countries (IKEA history - how it all began, n.d.). The founder of the Swedish company was Ingvar Kamprad. Kamprad as a child would sell matches, pencils, and flower seeds to the people living around him. Even at a young age, it was evident that the young Kamprad was destined to become a great businessman. In the 1940’s, when Kamprad was just 17 years old, he founded Ikea and was able to create his new business through the money that was awarded to him by his father. What is interesting about Ikea’s name is that Kamprad combined his first two initials of his name with the first initials of the village and farm he grew up in in order to come up with the name, Ikea.
Ikea, the world’s largest home furniture retailing company, was founded by Ingvar Kamprad. He built his business empire through developing a distinct corporate culture. The Ikean
IKEA is the largest furniture chain in the world, and in 2011 the Swedish company operated over 270 stores in 25 countries. In 2011 IKEA sales soared to over $35 billion, or over 20% of the global furniture market. Most of its stuffs believed IKEA will massive growth throughout the world in the coming decade because IKEA could provide what customer wanted: good design, and good made contemporary furniture with an affordable price. In one word, IKEA’s global approach focuses on simplicity, attention to detail, cost consciousness, and responsiveness in every aspect of its operations and behavior. (Jones, 2013)
An organisation bases its strategy according to its environment, and if implemented right will be successful. Firms can target their products by a broad target, thereby covering most of the marketplace, or they can focus on a narrow target in the market (Lynch, 2003). Michael Porter created a generic strategies framework in order for an organisation to gain a competitive advantage in their industry. Porter considers three generic strategies in his framework that an organisation can undertake to gain this advantage. He believes that an organisation falls into either cost leadership (lower cost) or differentiation and once applied in a broad or narrow scope, as discussed by Lynch, creates focus (Figure 1). Furthermore, some organisations undertake in more that one of these strategies and if unsuccessful is called the stuck-in-the-middle strategy. However, if the organisation combines elements of differentiation and elements of low-cost successfully, this becomes and hybrid option and is becoming increasingly popular amongst firms in the modern day.
The Differentiation Strategy is broad/ industry wide and their advantage is producing a unique product. This strategy provides unique products or services that are valuable to the consumers and these products/ services are more desirable than that of the competition. With such a differentiated product, the firm would be able to charge a high price for their quality good. The lessons that can be learned form the use of the Differentiation Strategy
1. Broad differentiation: The middle of the value creation frontier is the broad differentiation. Companies can reach to broad differentiation by developing business-level strategies to improve their differentiation and cost structure simultaneously. Companies that can formulate and implement their business model based on broad differentiation can impose threat to both differentiators and cost-leaders over time. If strategic managers can pursue this broad differentiation business model, then they can steadily increase their market share and profitability over time.
IKEA established itself as the largest furniture retailer in Sweden by the early 1970s by reinventing the wheel of furniture manufacturing at that time. Majority of furniture manufacturers in Sweden produced expensive products with designs that were basic or passed down generation to generation, additionally other manufacturers stores where located in downtown congested areas. IKEA’s strategies which consisted of low cost low priced furniture, brave intricate designs, self-assembly,