IKEA a Global Leader

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!