Reference no: EM132224639
CASE: IKEA Focuses on Growth
IKEA, the global Swedish home furnishing company, has been on a growth spurt. Revenue grew 28% from 2010 to 2015, resulting in total revenue of 9.2 billion Euros ($10.3 billion) in 2015. The company is more profitable than Target and Lowe’s.
IKEA operates a total of 328 stores in 28 countries. It has 20,500 employees and sells 9,500 products from 978 suppliers.
The company’s vision is “To create a better everyday life for the many people.” The mission is “to offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.” To accomplish this vision, the company strives to “achieve quality at affordable prices … through optimizing our entire value chain, by building long-term supplier relationships, investing in highly automated production and producing large
volumes.”
The company’s growth strategy is based on the goal of achieving €50 billion in sales by 2020. This requires successfully opening stores in emerging markets like China and India. The good news is that IKEA has a proven traffic record of global expansion. One expert noted that IKEA is “ferocious about not expanding too rapidly.” Mikael Palmquist, IKEA’s regional manager for retail in Asia Pacific, said, “The more global, the more complex it gets.” He also believes that IKEA is very careful in how it plans such expansions.
To make his point, Palmquist told a reporter from Fortune that it took about six years to plan and open IKEA’s inaugural store in Gwangmyeong, South Korea. This 624,000-square-foot store is the company’s largest and is on track to be a top performer.
Strategic Management Insight, an online resource that focuses on strategic management, conducted a SWOT analysis of IKEA. Results uncovered the following conclusions:
Strengths: customer and market knowledge; low cost provider, and an integrated supply chain
Weaknesses: public criticism of its treatment of employees, questionable advertising, and decreases in quality associated with continually trying to lower costs
Opportunities: global expansion, online sales, and expansion into selling groceries
Threats: growing competition from companies like Walmart and Tesco and increasing average consumer income.
IKEA’s product development process is based on extensive market research. For example, the company did a study of over 8,000 people to investigate their morning routines. The idea was to understand how people’s routines could be enhanced by designing products that met their needs. This led to creating the Knapper, a freestanding mirror that contains a rack on the back side for hanging clothes. Additional research revealed that more people are moving into cities, creating the need for multifunctional products. IKEA thus developed lamps and bedside tables that contained built-in wireless charging for mobile devices.
IKEA’s strategic mantra is volume at low costs. This requires a continuous focus on cost containment and efficiency. The company does things like “skip an extra coating of lacquer on the underside of a table” because people don’t see it. They also reduce labor costs by pushing assembly tasks to the consumer. The use of flat-packed furniture also saves costs. It reduces the expense of stocking and delivery.
Allan Dickner, deputy manager of packaging, has a goal of reducing “air space” in the packaging. Fortune noted that “The magic of flat packing allows goods to be jammed into shipping containers without wasting any space.” Space is money, according to Dickner. He said, “I hate air.” To find creative ideas to reduce the spacing in packaging, the company implemented an “air hunt competition.” The winner received a two-week vacation in Thailand.
To ensure that flat packing does not put too much burden on the assembly of its products, IKEA uses an instruction-manual team. The team writes about 1,400 sets of assembly instructions every year. The goal of these instructions is to reduce the time it takes for people who are not “handy” to assemble products.
A reporter for the Business Insider concluded that there are four key strategic issues that continue to guide IKEA’s success. They are
Solving the worst part of buying. IKEA has designed products that many shoppers desire. They are attractive, yet not overly durable. They are designed to be used until they wear out, or until the buyer wants to purchase higher-quality furnishings.
Hitting the right demographic. The company has targeted younger shoppers, particularly Millennials. Products are designed to meet their tastes and values.
Not expensive, but not cheap. The price point is in the sweet spot between deep discounters like Aldi and higher-end outlets like Bed, Bath & Beyond.
Stores are a destination. People still like to visit IKEA stores due to their showrooms and cafeterias.
IN YOUR OWN WORDS, outline and discuss following the five steps of the strategic-management process, and discuss how you believe IKEA is following each of these five steps of the strategic-management process.
IN YOUR OWN WORDS, outline and discuss your understanding of Michael Porter’s four competitive strategies and discuss how you believe IKEA is trying to follow any of these strategies. Based on your discussion, does IKEA have a good strategy for growth? Explain.
Applying lessons from this chapter, discuss your thought about IKEA’s vision and mission statements
IN YOUR OWN WORDS, discuss the SWOT analysis. Based on your understanding, to what extent does the SWOT analysis support IKEA’s strategies? Explain your rationale.