IKEA Case Analysis

IKEA Case Analysis

Source of IKEA’s success in Sweden early on (the 50s and 60s)?

In 1943, IKEA was founded by Ingvar Kamprad in his home town, selling mainly pencils, postcards and other merchandise. From the late 40s to the early 50s, manufacturing furniture was introduced as a complement to general merchandise. This enabled Kamprad to step into the furniture business and explore the situation and find new opportunities. The business had to gain massive success in the domestic market since opening, and the key to its achievements is Kamprad’s leadership. He not only had the vision for the furniture industry, market situation, and enthusiasm for business, but Kamprad also played an important role in managing the company’s resources, turning them into capabilities and proving IKEA’s distinctive core competencies. An example of that can be IKEA’s leap into the furniture retail industry: more affordable products to target numerous customers, showroom and store concept, better customer experience…

IKEA’s strategy and business model were also the company’s source of success. IKEA prioritize the need of the customer, in which price and product range rank first when it comes to satisfying customer demand, followed by IKEA store, catalogue… The marketing strategy was also totally different from other market players at that time, with free and comprehensive catalogues, IKEA was able to introduce customers to a new shopping experience. IKEA’s simple objectives were also needed for its growth. IKEA stated that low costs in all operations are prerequisites for the lowest prices. Low prices give big volumes in sales and long-term profits for IKEA.

How was IKEA able to apply this source of success to the international markets when this industry is clearly domestic?

At the moment when the domestic market was already saturated and demand for furniture had decreased, IKEA’s business model hasn’t been widely accepted by competitors in the industry, and the similar situation in the international market also created opportunities for IKEA to expand over the neighbour area. Several stores were opened in the Scandinavian region in just less than a decade. Taking over the market share in that market, IKEA was able to create a reputation throughout the European area, this certainly cleared a path for its further expansion. The furniture industry in other European countries was stagnant and sluggish in reacting to IKEA’s fresh breeze

In addition to that, with the established partnership with suppliers in the Central Europe area, IKEA was able to bring to the market the most suitable solution for consumers’ needs. Because the company had already familiarized itself with the supplier’s network and market needs, establishing the business in the European market will not be a difficult task. A similar practice was used when IKEA tried to gain its position in other continent markets.

Stores tried to keep stock low, cost-cutting (packaging > less human cost, smaller stock keeping unit…)

How was IKEA able to manage this complex strategy in a variety of national markets in a period of rapid expansion?

As a global company with an amazing growth rate, IKEA was able to manage its business firstly through Ingvar Kamprad’s leadership. Because the company’s operating area was relatively large, along with a comprehensive product range, IKEA tried to keep processes as simple as possible in order to achieve a lean flow of material and processes from resources to production. As stated in its “Testament of a Furniture Dealer”, simplicity is a virtue, the more complicated the strategy is, the higher the failure risks for a business. IKEA’s goal was to build the same solid base block as the number one criteria in every functioning area of the company, and make slight customization in different processes/markets/products… Simplicity not only helps the company manage through the toughness of the business and the complexity of the evolving market, but it also stated IKEA’s solid position by defining the image of IKEA in Sweden, and “Swedish” in the international market.

What role did Ingvar Kamprad play in the company’s success?

Being the company founder, Ingvar Kamprad was the one who brought the vision, which was still IKEA’s direction from the beginning until the present. With passion and devotion to his own child and society, Kamprad not only made IKEA become the market leader in the furniture retailing industry but also help to improve the living quality of the majority of the population

Secondly, Kamprad was the manager of IKEA, which operated its business and consolidated the fragmented market, outlined its strategy. His motto was always simple and that was applied to every aspect of IKEA’s operation, and visible success had been observed. Ingvar was also the leader of IKEA, the company’s highest role model, and his characteristic also defined IKEA’s image. Kamprad’s motto when it comes to leading was always to be an example for his followers. Motivating his employees was his will; Kamprad showed concern for employees’ motivation and working conditions when the firm’s operating scope got too large, and he was not able to spread his enthusiasm throughout every corner of the company.

What risks and challenges do you see in IKEA’s future?

Going global means more risks and challenges will come in IKEA’s developing path. Being a market leader with a high market share and massive sale revenue, IKEA also has a large operating scope. This helps the firm achieve a high position and profit, but also arises higher risks and challenges. Firstly is in managing its operation in the global context. Employing many an employee means more difficult to accomplish a standard level in every area. Although the company’s culture and image were established and maintained for a long period of time, working in a different area of the world made its “Swedish” traits less effective throughout time, thus Kamprad’s influence toward oversea-offices is weaker. In addition, a large market with a diverse range of needs and tastes is becoming the main challenge for IKEA. There is a need to diversify the product range to meet customer need and preference, plus a more adaptive strategy toward the different market.