The name IKEA famed for its flat pack stylish furniture is well known even in countries where it is not present. We had a case study presentation at Tasmac on Wed – Nov 2010. The analysis done by the student group was insightful. Some of IKEAs sources of competitive advantages discussed in class are penned in this post.

Kamini, Sonam, Reshma, Sachin, Niraj, Adripta (not in pic)

The iconic $31billion Scandinavian home products giant, IKEA is a privately held, international home products company that designs and sells ready-to-assemble furniture, appliances, kitchen items and home accessories. The company is now the world’s largest furniture retailer. For information read at the free Wikipedia http://en.wikipedia.org/wiki/IKEA

“The IKEA store offers “everything under one roof”, most of it available for immediate take-away. IKEA offers service where you need it, but allows customers to make most of the decisions themselves. This means that we need to make it easy to choose the right products by displaying them correctly, describing them accurately and having a simple returns policy. The warm welcoming Swedish style has become a model of simplicity, practicality, and informality that is now world renown”.

Ingvar Kamprad’s Great Leadership

It was the founder who shaped the brilliant success of IKEA’s growth and expansion worldwide. Retired 20 years ago he still remains the soul of IKEA. The company’s three distinct features were function, quality, and low price with meaning became a big hit. He broke through the Swedish practice of handing down custom-made furniture through generations and attracted young the folk looking for inexpensive yet fashionable furniture. Also  cheap and disposable.

His entrepreneurial instincts were evident – selling fish in 1943, Christmas magazines and seeds. By 1990s he started catalogue marketing combined with one showroom for customers to see and touch the furniture. Kamprad’s vision was to improve the quality of daily life of the masses. The global dimension of his vision soon veered into what he liked best – furniture designing and retailing and soon became a leader in the furniture industry worldwide.

IKEAs  market positioning statement matched Kamrad’s vision – “Your partner in better living. We do our part, you do yours. Together we save money.”

The critical success factor of IKEA was that he innovatively made furniture an awkward to transport breakable item into a modular neat flat pack system. Thus meeting the criteria of a easily transportable global product.

His first objective was to establish his business model in Sweden and Scandinavian countries. This is a great way to develop core competencies and leverage them for the overseas expansion.

He took the lead in using nontraditional materials for furniture, like plastics, that made IKEA design well-known worldwide. The company targeted younger families. It moved to the U.S. in the mid-1980s and has been targeting Eastern and Central Europe since the 1990s.

Challenges

By mid 1990s demand had slowed as baby boomers moved into middle age and their tastes changed. Input costs were rising and competitors began to imitate IKEAs best practices in distribution by offering better furniture at lower prices in Eastern Europe. Yet they could not match or copy IKEAs strategies, core competencies and organizational capabilities in international expansion.

International expansion

An important competency that made IKEAs international expansion successful was its ability to balance the two opposing forces of global standardization (standardized articles in catalogues) and national responsiveness through moderate customization.

Brand: Its brand in all countries is powerful and appeals to the young and elder folks as niche, intellectual and contemporary. The brand image is the result of over 50 years work by IKEA co-workers at all levels all over the world.

Organic growth: IKEA followed the strategy of organic growth and owned its own stores to preserve its core identity.

Learning: IKEA learned some great lessons in its European expansion from all the different countries – Germany, Switzerland, France, UK and Russia (& Eastern Europe). In 1979 in Canada it bought a limping IKEA franchise in Canada and turned it into a prospering business. A US entry in the 80s was its boldest decision as many European retailers had failed. But it fought its way through various barriers and understood the differences in customer preferences. Houses here were much larger.

Well done – Sachin, Kamini, Niraj, Sonam, Reshma & Adripta

Culture

Ingvar himself a hands-on man believed that the Smalandish (Southern Sweden) values of thrift and cost-consciousness assisted the company in its initial growth. These values were the core of the organizational culture. Work culture was shaped by Ingvar himself. Informal dress code, open offices and first name basis.

‘Anti bureaucratic weeks’ the managers worked in showrooms and warehouses. Founder, Ingvar Kamprad travels on public transport to save money and sets a powerful example. A great way to keep the organization from becoming complacent.

Social responsibility was another important priority with a serious concern for maintaining the highest environmental standards.

India entry

India’s tight investment rules restrict overseas retail firms to “back-end” wholesaling — except for single-brand outlets such as Nokia or Reebok — to protect local, family-run stores which fear being driven out of business. IKEA is keen on entering India and replicate its success in China. India’s growing middle class whose purchasing power is gradually increasing will want inexpensive but nice home furnishings.

Question:            Would you like to switch to IKEA when they do enter India and why?

Thank you!

About dilipnaidu

An open mind! Love to share my thoughts and a keenness to learn. An engineer and a MBA I had a wonderful innings in the Army and later moved to consultancy and teaching. My current interests are reading, music, growing culinary herbs, playing golf and yoga. I am serious on "Living life less seriously". A warm welcome to you be well and be cheerful always.

8 responses »

  1. Snehal says:

    Hi,

    Congratulations on a well written blog…Being in Canada I am a IKEA customer too. However I would like to highlight that India too is manufacturing such furniture, just that its not on such a large scale as yet, maybe because with cheap labor and carpentry work being reasonable, no one as yet has explored the modular furniture market. But I must share that in Pune city we have a furniture showroom called Rawat Brothers, which has its modular furniture making facility in the city. I found the quality of modular furniture much superior than IKEA. I wish someone would do research on them and write a blog to make them famous…on how to get an IKEA look for less in INDIA….

    Like

    • Dilip says:

      Hi Snehal,

      Thank you for your visit and meaningful comments.I am certain that quite a few friends will be interested in IKEA type of furniture at Pune. Our student group will love to visit Rawat Brothers and have a chat with them. Lets see how we move forward thereafter.

      If we could have their contact details it will be nice.Thanks.

      Kind regards!

      Like

  2. Navin Kumar says:

    As compared to other “global giants” which have gone public, exited and returned to a particular country or region , resorted to vertical integration, experimented with marketing strategies, spent manifolds more than IKEA on R & D (including sales and promotion of their goods and services), engaged talents from across the globe to reinvent and /or strengthen their competitive advantage, IKEA, a privately held company has succeeded in almost every respect which includes grabbing and retaining the elusive market presence beyond the political boundaries of it’s home country. It is also noteworthy that IKEA’s name does not figure in any of the controversial questionable practices as is the case with other “global giants”. This also means that IKEA’s success is not at all ethically compromised.

    Needless to say IKEA’s one of the “competitive advantages” is none other than Ingvar Kamprad himself who decided on a strategic intent and ensured that it was supported by the organizational capabilities in order for it (strategic intent) to be realised. He converted his Vision: CREATE A BETTER EVERYDAY LIFE FOR THE MAJORITY OF PEOPLE into the IKEA spirit-cost consciousness, humility, simplicity, and enthusiasm. Being a visionary, he has put together those management processes (can be classified in to Structure, System, and Manning) which have withstood the test of time and space.

    Here are three most important questions:

    How would things shape up at IKEA after Ingvar Kamprad is gone?

    Would IKEA remain at the top even without him?

    What kind of succession planning strategies are being worked out by Ingvar Kamprad himself?

    Like

    • Dilip says:

      Great to read your views Navin. Yes I am with you on Ingvar’s exceptional leadership and its profound impact on IKEA’s grand success.

      Thought provoking questions too! I feel the first two can be answered with a resounding YES! Structure System & Manning is fine but to maintain sustainability in the long haul – it is his personal core values deeply embedded in IKEAs culture that will help.

      I have not researched on the ‘succession planning’ part but am aware of a strong professional management system being in place. This will throw-up leaders as and when required. We may discuss succession planning may be in a separate post.

      Thanks & come again.

      Like

  3. Gaurav R Arora says:

    I first came to know about IKEA in final year Marketing,under distribution channel. This Swedish style model with low cost and differentiation strategies in terms of packaging is amazing. IKEA furniture represents modern design. It’s easy to maintain. And the best part is you can move it around .I remember IKEA has also started selling online. IKEA furniture’s, privately held; international, low-cost home products are an inevitable part of interior furnishings at many houses in the world. IKEA furniture’s are marked for its modern utilitarian design.

    What fascinate me more is the Simplicity of the founder Mr Kamprad,who still drives an old Volvo, flies only economy class, and encourages IKEA employees to always write on both sides of a paper. He is known to often visit IKEA for a “cheap meal” and buys Christmas paper and presents in post-Christmas sales (to use the next year).

    IKEA has initiated its activities in India in 2000.Together with UNICEF; IKEA initiated a broad community program in the north of India in August 2000. The aim was to prevent child labor by creating awareness and addressing the root causes. The project focuses on 200 rural communities, involving the villagers in strategies for preventing child labor. However in spite of its attempt IKEA was not able to enter India one of the reason being strict licensing laws for foreign-owned companies. While there are few other reasons as well.

    Firstly the idea of getting furniture made from scratch is nothing new in India, where labor is cheap and mass-produced products are often low quality. But the changing aesthetic reflects changes in the lifestyles of middle-class Indians over the past decade.

    International companies opening offices and call centers in India, combined with astronomical growth in the information-technology industry, have created a lucrative urban job market for a tech-savvy generation.

    Instead of living at home with parents until marriage, many young Indians are moving into their own apartments, postponing marriage, and even cohabiting.

    Real estate is booming and city living is getting more expensive, so many find themselves squeezed into tight quarters with a need for modern, space-saving furniture.

    I think IKEA,model probably would not work in India due to Its prices, which cant be bargained, and those who could afford real IKEA products are too few.

    IKEA have come out with programme for its customers, where Members of the company’s, IKEA Family, can post and sell their items for free.
    IKEA makes the change for a brighter future. From August 1, 2010, have started to phase out all incandescent light bulbs in their US stores. The aggressive IKEA US store phase out program exemplifies IKEA’s strong commitment to helping their customers live an everyday sustainable life. IKEA is the first US retailer to completely phase out incandescent light bulbs.

    Regards
    Gaurav R Arora

    Like

    • Dilip says:

      Gaurav,

      In one word – a brilliant response. I particularly like the piece on Kamprad who despite being in the list of ‘worlds richest men’ believes in simple & frugal living. I am certain it is these qualities in leaders that get embedded in the value system and the culture of the organization – in this case IKEA.

      I sincerely appreciate the effort & interest taken by you to in posting this comment. It adds value. Well done.

      Cheers🙂

      Like

  4. Maitreyee Dey says:

    Congratulations on highlighting IKEA. I’d like to add a few points from my personal experience of the brand I greatly admire and love.

    I believe IKEA has taken furniture buying ‘out of the closet’ (a dull, boring, heavy, time consuming, expensive routine) to the realm of the exciting, entertaining and something a family looks forward to.

    The main criteria of a truly enduring brand — consistency, differentiation, focus, uniqueness, innovation and a strong, identifiable globally-relevant personality – are all wonderfully integrated in the IKEA image.

    However, the most outstanding feature of IKEA in my view is the unparalleled degree of customer empowerment and engagement it represents. IKEA has given ‘self-service’ a whole new dimension. By allowing customers to cherry pick exactly what they want (for example, you can choose a body of a table lamp and match it with a variety of different lampshades rather than buying a standard table lamp!). You can mix and match decoration pieces or upholstery items from a huge selection, literally piece by piece and part by part. You can colour-coordinate and create your own unique living environment.

    Secondly, IKEA’s supermarket style retail formula not only pushes a lot of the ‘channel flows’ to the customer thereby reducing cost and price; it also makes it interestingly engaging for the buyer to ‘bring home’ and build the furniture at his/her own pace. My sons actually enjoyed building their bunk bed or study table on their own (which kept them out of my hair for a good half day!).

    When brands are trying to enhance the shopping environment, IKEA’s large stores with row after row of furniture laid out in typical home or office settings are truly inspiring. I also like the small but highly considerate additions like their customary Children’s soft play area, self service coffee shop (serving delightful Swedish stuff like meat balls and open sandwiches) and selection of jams and sauces.

    IKEA is an excellent example of how being inexpensive/ affordable does not have to mean ‘cheap’. While, hugely successful as a global brand, IKEA’s strong commitment to its Swedish origin is both obvious and well-entrenched. It covers everything from the choice of its logo colours (Swedish flag colours), the style and design of the furniture and its brand culture. Its commitment to the environment is also praiseworthy in a business category that leaves a great ecological imprint.

    Sorry, I kinda’ got carried away. Hope it it useful.

    Like

    • Dilip says:

      Brilliant and great articulation. Full justice to IKEA – the brand that is simply irresistible to the consumer! I have seen shoppers going to IKEA for one one item but coming out excited and loaded with several different pieces.

      A great learning for my viewers, students and for me. A great contribution once again.

      Regards & thanks!

      Like

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