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This presentation was a take home exam where I analyzed different strategic issues on IKEA

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  1. 1. HOW DID IKEA CHANGE FURNITURE RETAILING FOREVER?! Advanced Strategic Management – June 2013 – 152112130 Paulo Alves – Professor Adriano Freire!
  3. 3. IKEA AT A GLANCE 2011! STORE VISITS ! In 2011, the IKEA Group stores had 655 million visits.! IKEA FOOD SERVICES! IKEA food turnover for the year was 1.2 billion.! PRODUCTS! The IKEA range consists of approximately 9,500 products.! IKEA.COM! IKEA website had 870 million visits in 2011.! TOTAL SALES FY11! Sales increased by 6.9% compared to 2010. Total sales amounted to EUR 24.7 billion.! PRINTED CATALOGUES, LANGUAGES & EDITIONS! The IKEA catalogue was printed in more than 208 million copies in 30 languages and 59 editions.! CO-WORKERS PER FUNCTION! Purchasing, distribution, wholesale, range & other: 14,300! Retail: 100,000! Swedwood: 16,000! Swedspan: 700! Total in FY11: 131,000! IKEA TIME LINE! 1920s! 1940s! The founder of IKEA, Ingvar Kamprad, is born.! IKEA is founded by Ingvar Kamprad aged 17 in a small farming village in Sweden. The Name IKEA was formed from the founder’s initials (I.K.) plus the first letters of Elmtaryd and Agunnaryd, the farm and village where he grew up. Originally IKEA sold everything from pens and wallets to picture frames, watches and even ladies stockings.! 1950s! Production of the first IKEA catalogue in 1951 and the first IKEA advertisements appear in local newspapers. Ingvar distributed his products via the county milk van, which delivered them to the nearby train station. In the late 1950’s Ingvar decided to stop selling everything except furniture items – IKEA AS WE KNOW IT TODAY WAS BORN! The first store opened in Almhult, Sweden.! “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 VISION:! “TO CREATE A BETTER EVERYDAY LIFE FOR THE MANY PEOPLE”! 1960s! First IKEA stores opened outside Sweden - Norway and Denmark! 1970s! MISSION:! THEM.”! IKEA keeps on going and expanding its business. Switzerland was the first store outside Scandinavia country where IKEA opened a store. Followed subsequently by Germany, Australia, Canada, Austria and the Netherlands.! 1980s! USA and UK opened its first stores. IKEA won the Excellent Swedish Design Prize.! 1990s! IKEA introduces is product line for children and keeps on expansion through Hungary, Poland, Czech Republic, United Arab Emirates, Spain and China.! 2000s! Stores opened in Russia and Japan. Everything for the bedroom and kitchen is explored and presented in coordinated furnishing solutions. This period also sees the successes of several partnerships regarding social and environmental projects.! IKEA GROUP! The IKEA group has operations in 41 countries. 29 trading offices are located in 25 of these countries. The remaining 16 countries are home to 26 distribution centers and 11 customer distribution centers.! SUPPLIERS IN 2011! IKEA had 1,018 suppliers in 53 countries! INDUSTRIAL GROUPS! - Swedwood, a manufacturing group within IKEA group had 16,000 co-workers and 33 production units in 10 countries! - Swedspan, an industrial supplier within the IKEA Group, had 700 co-workers and 5 production units in 5 countries.! - IKEA industry investment & development (IIID) is an advisory and investment service company and has 13 co-workers.! 4
  4. 4. IKEA AT A GLANCE 2011! 287! IKEA GROUP STORES WORLDWIDE! In 2011, the IKEA Group opened 7 new stores in 7 countries. As of 31st August 2011, the IKEA Group had a total of 287 stores in 26 countries.! CO-WORKERS PER REGION! Europe: 106,500! North America: 16,500! Russia, Asia & Australia: 8,000! PURCHASING PER REGION! Europe: 63%! North America: 33%! Russia, Asia & Australia: 4%! SALE PER REGION! Europe: 79%! North America: 14%! Russia, Asia & Australia: 7%! TOP SELLING COUNTRIES! Germany: 15%! USA: 11%! France: 10%! Italy: 7%! Sweden: 6%! TOP PURCHASING COUNTRIES! China: 22%! Poland: 18%! Italy: 8%! Sweden: 5%! Germany: 4%! 6
  5. 5. IKEA STRATEGIC POSITIONING! LINE(S) OF BUSINESS! Narrow View! Broad View! TIME FRAME! Short-medium term! TRADITIONAL FURNITURE RETAILERS! - Traditional furniture! - Low range of products! - Replacement driven! - Sales oriented! - Delayed delivery! - Fairly expensive! LUXURY FURNITURE! RETAILERS! - Modern furniture! - Stylish designs! - Truly expensive! - High-end customers! - Customer oriented service! - Customized service! Medium-long term! LOW-COST FURNITURE RETAILERS! - Low price furniture! - Cost oriented production! - Cost efficient network! - Short-product life cycle! ! ! ! ! “NEXT GEN” FURNITURE RETAILERS! - Modern furniture! - Large range of products! - Design driven! - Customer oriented service! - Immediate delivery! - Low price furniture! - Cost efficient production/network! BACK IN THE LATE 1950s…! …the young entrepreneur, Ingvar Kampard, saw an opportunity in the furniture industry. By being used to sell everything he could at lower prices than traditional local retailers, this young man decided to build a business from the scratch, a business that ended in revolutionizing the furniture retailing forever. ! But, how did he do that? Well, that is the question we will be answering through this report. Regarding the company’s strategic positioning it is important to go some years back and look at the market opportunities as it was back then. The following table summarizes these opportunities:! In one hand, a fragmented market, full of local and traditional players where it was possible to find a low innovative product and service driven by the customer’s need to replace an old furniture or furnish a new place. On the other hand, a customized service for the high end customer. A luxury market driven by the creativity and demand of the own customer.! Faced with this reality, Ingvar Kampard realized the opportunity to deliver a low cost product/service. Ingvar’s innovative idea was to offer a home furnishing product of good function and design at prices much lower than competitors by using simple cost-cutting solutions that did not affect the quality of the product. His concept guided the way IKEA’s product was designed, manufactured, transported, sold and assembled.! What looked like a model of low prices, rapidly became what I like to call the “next gen” (for that time) furniture manufacture, a mass customer-oriented business. Through the high success of its first store in Sweden, Ingvar’s rapidly started to internationalize, allowing him to achieve economies of scale and to develop its business without loosing margins.! Indeed, Mr. Kampard have shown to the market that was possible to combine a customer oriented product/service with a low costs/price policy. In few years, IKEA stores started to offer a huge range of products, advisory services, a catering service and suggestions for complete home sets.! WHAT ABOUT THE FUTURE?! The future of the IKEA’s positioning is difficult to imagine. They can keep on improving directly their core business with a larger range of products or they might prefer to do it indirectly by improving their service standards with differentiated customer oriented activities or a new business offer. ! We took a view on both. Firstly, in order to directly improve their core business it is only possible to forecast a new positioning taking into account few industry trends: society is growing and becoming more and more urban; simplicity and quality are core demands; growing individualization and rising e-commerce.! LINE(S) OF BUSINESS! Narrow View! Broad View! TIME FRAME! Short-medium term! MASS CUSTOMER-ORIENTED FURNITURE! - Modern furniture! - Large range of products! - Design driven! - Customer oriented service! - Immediate delivery! - Low price furniture! - Cost efficient production/network! MASS CUSTOM-MADE! FURNITURE! - Modern furniture! - Stylish designs! - Large range of prototypes ! - Customer oriented service/product! - Cost efficient production/network! Medium-long term! MASS SPACE-SAVING! FURNITURE! - Modern furniture! - Large variety of product bundle! - Technology driven! - Customer oriented service! MASS CUSTOMIZED MULTIFUNCTIONAL FURNITURE! - Space saving furniture! - Stylish designs! - Large range of prototypes ! - Customer oriented service/product! - Cost efficient production/network! Looking at the table above, one thing is sure about IKEA’s future. They cannot lose the competitive advantage of massive production. It is the only way they found profitable to combine low price with customer oriented service and supply.! However, there are things where they can take a position. Nowadays, customers seem to have an higher interest on having products based on their personal wishes not on those of the mass market. IKEA already provides some freedom to its customers by selling complementary products separately (such has drawers and handles), by providing an online tool where the customer is allowed to design its own room, and by having already some prototypes that can be complemented with the customer’s preference. Nevertheless, mostly due to the lower supply, it stills very different and distant from the traditional customized furniture retail. In the short-term a market opportunity for IKEA is to position himself as a mass custom-made furniture retailer by keep on developing and design more and new prototypes. This will allow to increase the customer’s freedom to assemble its own furniture and keep on with the same costs strategy.! In the medium-long term IKEA shall start thinking on space-saving furniture. The urbanization rates will keep on growing, the cities are becoming overpopulated and apartments are smaller in this regions. Entire families will get used to leave with smaller spaces, which makes this possible positioning very attractive.! IKEA already offers some furniture in this sense, but mostly for children. It is necessary to design new prototypes where a simple table can be complemented with something else. The perfect stage forecasted in this sense is too combine this two market opportunities in a mass customized multifunctional furniture retailing.! 8
  6. 6. IKEA STRATEGIC POSITIONING! In what concerns to an indirect improvement on IKEA’s core business, the options are limitless and hard to predict. IKEA could go in very different ways and be successful in all of them. Such reality is consequence of a high valuable and powerful group. Indeed, IKEA is the 43th most powerful brand in the world, according to Forbes (business magazine).! By complementing the right partners with the wide range of competencies and strengths within the group, most probably, the sky is the limit.! However, for this particular analysis it was taken into account, once again the industry’s macro environment and some speculative news and trials that IKEA is being taking in order to diversify its business.! LINE(S) OF BUSINESS! Narrow View! Broad View! TIME FRAME! Short-medium term! CUSTOMER-ORIENTED FURNITURE BUSINESS! - Differentiated product line (as previously seen)! - Advisory Services! - Catering Services! - Assembly services! - Product immediately pick-up! - Product home delivery! - Product catalogue! SPECIALIZED CUSTOMER-ORIENTED FURNITURE BUSINESS! - Online planning! - Online store! - Online advisory service! - Smartphone application! - Kitchen Equipment (stoves and ovens)! - Home decoration (Paintings, photo frames, curtains,…)! Medium-long term! ! CUSTOMER-ORIENTED HOME BUSINESS! - Furniture complementary business! - Home technology (TVs, computers, sound systems, movie systems,…)! - Kitchen equipment (Fridges, Microwaves,…)! CUSTOMER-ORIENTED HOUSE ON HAND BUSINESS! - Real estate industry! - Cost efficient construction! - Home distinctive design! - Home furniture assembly! - Delivery of a completely equipped house at a low price! SPACE SAVING FURNITURE/APARTMENT! By taking a look over the table above, more specifically to the broad view on the short-term, it is true that IKEA already covers most of the features in this type of business. However, it still has many flaws to fade. IKEA has assumed this positioning a long time ago, but the high development on the technology industry and their 1st mover behavior make it look complex and difficult to manage for the customer. Also the smartphone application despite being able to see 3-D animations, videos, and pictures, it only lets the customer look at the catalog without being able to make any note or bookmark.! Before moving abroad, IKEA should pay attention to these flaws and improve its core service. Indeed, e-commerce is becoming more and more trendy and it is important for IKEA to follow the market behavior.! Regarding the medium-long run, IKEA has the opportunity to diversify its core business by offering home technology and kitchen equipment inside its stores. It is common to find in the IKEA’s room sets some prototypes of these products made in paper. Nevertheless it would be smart for them to start selling this kind of equipment. ! It is true that the customers are becoming more sedentary. E-commerce is just a proof of this reality. By joining the useful to the pleasant, technology and kitchen equipment are one opportunity that IKEA should take into account.! Finally, in a broad view of the IKEA’s long-term positioning, we have the low cost real estate business opportunity. IKEA is already partially present in this position. In a matter of fact, since 1996 that they have been supplying the Boklok houses with discounted furniture. Furthermore, IKEA has recently projected to join the construction business by themselves. Some effort have been done in this sense with “IKEA neighborhood”, which is a completely new condominium built by IKEA that will be launched in 2014 and might result in a once again very profitable decision. ! 10
  8. 8. Source: Report Linker! MAJOR 200 FURNITURE MANUFACTURES - PLANTS LOCATIONS:! WESTERN EUROPE! CONSUMPTION RATES LED BY MIDDLE AND LOW INCOME COUNTRIES! (44%)! FURNITURE AT A GLANCE! INDUSTRY KEY FIGURES! $450bn! In 2012! $630bn! By 2015! VALUE:! MARMKAERTK ESTE GSEMGEMNETNST:S! :! HOME FURNITURE! 62%! OFFICE FURNITURE! 38%! CENTRAL, EASTERN EUROPE, RUSSIA & TURKEY! 109 PLANTS! OTHER ASIA! 77 PLANTS! DEVELOPING ASIA! 199 PLANTS! 243 PLANTS! OTHER COUNTRIES! 14 PLANTS! AMERICA! 356 PLANTS! HOME FURNITURE SEGMENT INCLUDES FURNITURE AND HOME DECORATION ITEMS.! WORLD FURNITURE PRODUCTION – US$BN:! 500! 450! 400! 350! 300! 250! 200! 150! 100! 50! 0! ADVANCED ECONOMIES! EMERGING ECONOMIES! 2002! 2003! 2004! 2005! 2006! 2007! 2008! 2009! 2010! 2011! 2012! INDUSTRY KEY TRENDS! Source: CSIL! Source: CSIL! Source: Report Linker! Source: CSIL! INTERNATIONALIZATION LARGE FURNITURE RETAILERS CONTINUE TO STRENGTHEN THEIR NETWORKS AND GEOGRAPHICAL COVERAGE E-COMMERCE A RISING NUMBER OF FURNITURE RETAILERS ARE OFFERING ONLINE SALES ADDITIONALLY TO THEIR STORE STRONGER COMPETITION THE PROFITABILITY IS FALLING AND THE MARKET POWER OF RETAIL DISTRIBUTION NETWORKS IS GROWING 10 TRENDS ON THE FURNITURE PRODUCT LINE: GREEN FURNITURE IS BECOMING MAINSTREAM INCREASING REQUEST FOR FURNITURE WITH A SMALLER PROFILE INCREASING REQUEST FOR MULTIFUNCTIONAL FURNITURE TECHNOLOGY DRIVEN FURNITURE DESIGN INCREASING POPULARITY OF VINTAGE FURNITURE TASTES ARE BECOMING GLOBAL GROWING IMPORTANCE OF OUTDOOR FURNITURE CUSTOMIZATION KEEPS EVOLVING AND BEING DEVELOPED GROWING INTEREST FOR SPECIALTY SLEEP SURFACES LEATHER FURNITURE KEEPS FINDING NEW LOOKS INDUSTRY ENVIRONMENTAL TRENDS! SUPPLY! DEMAND! POLITICAL! Austerity Policies will keep increasing in developed countries! -! -! Improved macroeconomic policies. National Governs more transparent.! +! ECONOMIC! European Recession keeps delaying the market growth potential! -! -! Overall GDP per capita will increase. Forecasts tell developed countries will keep the higher numbers. Although merging economies are faced with an huge expectation for middle class increasing.! -! +! SOCIAL! The population keeps ageing! -! -! Urbanization rates will keep on growing! +! +! Increasing Individualization (higher interest on products based on personal wishes)! Increased Healthcare, Security and Time Management concern. People will tend to be attracted for simplicity and effective performance goods. ! -! TECHNOLOGICAL! Emergence of new Information technologies! +! +! Overall retailers are becoming more efficient and vertical integrated! +! +! Technology driven designs! +! 14
  9. 9. FURNITURE AT A GLANCE! THE FUTURE OF FURNITURE! INDUSTRY GLOBAL PLAYERS (examples excluding IKEA)! COUNTRY OF ORIGIN! Italy! COMPETENCIES! Brand Image! Huge product quality! STRATEGY! Product-Markets! Focus on sofas and armchairs both in B2C and B2B markets! Vertical Integration! Full integrated on conception, prototyping, production and commercialization.! Internationalization! Present in 123 countries all over the world mostly through organic growth! Diversification! The business is not diversified! NET SALES ($)! 618 million USD (2012)! COUNTRY OF ORIGIN! China! COMPETENCIES! Cost efficient production! Large range of Brands! STRATEGY! Product-Markets! Complete product line for Home, office and hotels! Vertical Integration! Full integrated business model both in mainland China and USA.! Internationalization! Present all over the world mostly through M&A! Diversification! The business is not diversified! NET SALES ($)! 423 million USD (2012)! COUNTRY OF ORIGIN! Germany! COMPETENCIES! World class distribution and warehousing infrastructure! Deep knowledge of the African market! STRATEGY! Product-Markets! Complete line of products for all types of customer through different brands.! Vertical Integration! Integrated on sourcing and manufacturing! Internationalization! Present in Brazil, Africa, Europe and Asia! Diversification! Business diversified into different retail businesses (footwear, automotive) logistics (communications, transport of passengers and goods), industrial services, and financial services! NET SALES ($)! 579 million USD (2011 - just from furniture retail)! 16
  10. 10. STRATEGIC GROUPS! Indeed, the furniture industry has clearly changed since Mr. Kamprad’s first store opened. However, since we are trying to understand how he could be so successful in a so short period of time, it is important to take a view on how the market was grouped back then, more specifically the Swedish market.! The graph below appears as a narrow view of the market, where we may perceive the gap that Mr. Kamprad tried to fill. ! As we already understood on the strategic positioning analysis, Mr. Kamprad was faced with a market composed by traditional retailers - small stores, without a brand, with few range of products within the same line, and very local -, and luxury furniture retailers – most of the times without a store, working together with the customer in exclusive and single furniture production according to their request, and relying mostly on the word-of-mouth marketing.! Looking at such reality Mr. Kamprad founded its first store where it was possible to find good quality products with an innovative design and at reasonable lower prices. By changing the rules of the market, the traditional retailers - the most similar business model to the one founded by Mr. Kamprad - joined in a price war with IKEA.! Traditional Furniture Retailers! Quality! QUALITY! Traditional Furniture retailers were recognized by being the most similar to a nowadays mass retailer. However, customers did not have much opportunity to choose or fill its truly needs.! PRICE! High! Low! Quality! IKEA appeared in the market with more or less the same product line and quality as traditional furniture retailers. However, IKEA distinguished himself by empowering new designs, with the same quality at a lower price.! Low ! Price! Luxury Furniture appears with a because they were more or less able expensive wood furniture according to the customer High! Price! Luxury Furniture Retailers! high quality product line to supply needs.! Struggling on keeping up with the quality at the same time that competitors were doing pressure by lowering their prices, IKEA decided to go abroad and search for scale economies (Norway, 1963). ! It was the starting point for the IKEA that we know today. By moving abroad, where markets were also facing more or less the same reality as the Swedish furniture market, IKEA was able to apply the same concept that Mr. Kamprad has once projected.! WHAT ABOUT TODAY?! Today, the furniture industry became much more globalized. It is possible to find many more players and strategic groups competing among each other for sales and customers attention.! The main goal of this analysis is to figure how did IKEA answer to the industry’s demands and to see how did other players adapt to him. ! Below it is possible to find a table that summarizes the strategic groups that are possible to find today in this particular industry: ! CONCEPT! KEY SUCCESS FACTORS! PLAYERS (BRANDS)! MASS FURNITURE RETAILING! ! It offers a large range and product line. Relies on cost efficient production.! - Cost efficiency! - Brand awareness! - Catchment area! - IKEA! - Conforama! - Home Depot! CATALOG/ONLINE RETAILERS! ! Mostly offering traditional furniture for all tastes and prices through a catalog or online.! - Marketing! - Innovation! - Distribution network! - Williams-Sonoma Home! - Ebay! - Restoration Hardware! OWN BRAND MANUFACTURERS! ! Stores that offer an entire line of products made by themselves and their own brand. ! - Local recognition! - Customer service! - Vertical integration! - Natuzzi! - Chateau d’ax! - Drextel Heritage! PRIVATE-LABEL! STORES ! ! Stores that buy furniture from a broad range of manufacturers and sell it under their brand.! - Bargaining power! - Brand image! - Margins! - Pottery Barn! - Moviflor! - DFS! TRADITIONAL FURNITURE RETAILERS ! ! Includes local stores with a selection of brands at various prices. ! - Local recognition! - Distribution network! - Margins! - Duresta! - Andante! - Kincaid Furniture! HYPERMARKETS! It offers a large variety of products at appealing prices under the same roof, including furniture.! - Product range! - Convenience! - Bargaining power! ! - Wal-Mart Stores, Inc.! - Carrefour S.A.! - Tesco PLC! ! DEPARTMENT STORES! ! It carries a variety of categories and it has broad assortment for the high-end customer, including furniture! - Brand recognition! - Customization! - Availability! - Sears Holdings Corp.! - Macy’s, Inc.! - Kohl’s Corporation! ! 18
  11. 11. STRATEGIC GROUPS! It is a fact. The industry has completely change its behavior since the creation of IKEA’s concept. However, it is also a fact that IKEA has become the global furniture market leader with at least twice the size of other furniture retailers. ! In order to explain how it all evolved and how it appears to be nowadays, we rely on three strategic group analysis. Firstly let us compare how IKEA distinguish himself from competitors when analyzing the geographical reach of the company with the size of its store:! STORE SIZE! Private-Label! Stores! Local! Regional! Global! GEOGRAPHICAL REACH! Small! Medium! Large! Mass Furniture Retailing! Own Brand Manufacturers! Traditional Furniture Retailers! Department Stores! Hypermarkets! In a matter of fact, IKEA distinguish himself by its global reach. In one hand, it was the consequence of being so successful among customers but, on the other hand, internationalization was also the only way found by IKEA to keep up with the production in scale. Also since IKEA is recognized by having huge stores with great catchment areas, it would not make sense for IKEA to be very concentrated in one country because 2 or 3 stores may already be able to pull customers from a whole country (depending on its size). ! The interesting precision to take from the graph above is that nobody is able to achieve the strategy preformed by IKEA. Even other mass furniture retailers are way far from IKEA. Most certainly due to brand power and recognition that IKEA has earned in the market. By being a so successful first mover and by constantly follow the customer trends, it was possible to never lose and even increase its market position.! Nowadays, Hypermarkets have also become a threat for IKEA. With the same low-end customers, more or else the same reach and catchment area, this stores might still some market share from IKEA mostly due to the convenience that these stores offer to their customers. ! Regarding the overall picture to take from this graph, we can say that as local a company looks to be as smaller it is in size. The exception are the own brand manufactures. Some of these companies are recognized for their high quality and luxury design, which make them pursue both regional and global players.! DID YOU KNOW AN IKEA CUSTOMER SPENDS IN AVERAGE 3 HOURS TO VISIT THE WHOLE STORE?! Another interesting analysis to make in this sense is to see how IKEA evolved in the market regarding its product line and the depth of their lines:! PRODUCT LINE! Catalog/Online! retailers! Little Choice! High Depth! LINE DEPTH! Complete! Line! Narrow! Line! Mass Furniture Retailing! Own Brand! Manufacturers! Private-Label! Stores and Traditional Furniture Retailers! Hypermarkets! Department Stores! Here we perceive one of the greatest IKEA’s advantages. In fact, IKEA offers to its customers a large depth in most of the product’s line, killing the previously stated competition from hypermarkets.! It is a huge product differentiation from the other strategic groups, where despite having most of the times a more or less complete product’s line, the range of different designs and sizes within the same line of product become really smaller than when compared with IKEA. ! 20
  12. 12. But, let us go deeper in this issue and look on how the IKEA’s product life cycle (in the store) behaves according to the value for the customer:! PRODUCT LIFE CYCLE (IN THE STORE)! Catalog/Online! retailers! Traditional Furniture Retailers! VALUE TO THE CUSTOMER! Unique ! features! Price/Quality! ratio! Low ! Price! Short! Long! Mass Furniture Retailing! Own Brand ! Manufacturers! Private-Label! Stores! Department Stores! Hypermarkets! Another amazing and distinguishable positioning for IKEA, where it is possible to perceive that as faster the customer identifies a retailer by its unique features as longer the product life cycle of their products become. Indeed, it is the consequence of a time consuming and costly production. However, IKEA emerges as a product within an average quality but at a lower price for the customer perception. This is a truly cherry on the top of the cake and IKEA knows that.! By having more than 280 stores (as we previously saw), 28 distribution centers and 11 customer distribution centers, IKEA is not only allowed to produce in scale but also to keep the product life cycle short in the store. Adopting a flat packaging, rail and see transportation, and fuel-saving techniques, IKEA is allowed to be cost-effective and environmentally friendly at the same time as they keep the customer interested and entertained with constant new products and product replacements. Usually, IKEA changes most of its products according to the season. It is the consequence of promoting a fashionable and trendy product.! The bottom line of all these strategic groups analysis is to understand how did IKEA evolved since Mr. Kamprad entrepreneurial idea. We were able to realize that IKEA was not only able keep up with the market requests but, it has also go much more deeper. By creating a position in the market with what is quite impossible to compete, IKEA became the most valuable company in the private domain. Most of that reality is consequence of different variable’s combination that we have seen here in these analysis. Recalling a global reach, a large store size, a depth and large product line, a low price value to the consumer and a short product life cycle (in the store). These are labels that made and are making IKEA successful. ! Indeed, global reach is most probably the base for all its success because it not only allowed to reach more customers but also to keep on producing at costs that seem to be unreachable by other strategic groups.! IKEA CHRISTMAS ROOM SET! 22
  13. 13. IKEA! INNOVATION! MANAGEMENT! IKEA INNOVATION MANAGEMENT! BACK IN THE LATE 1950s…! As we previously mentioned, IKEA has been changing since Almhult. The first signal of innovation in IKEA appeared with the concept and brand idealization itself. Mr. Kamprad has projected a business model that was not being applied anywhere at that time. Indeed, it is a real proof of his entrepreneurial behavior and project innovation.! Nevertheless his goals to implement his own furniture retail chain did not stop just by providing furniture at low prices. Mr. Kamprad wanted more and he have decided to make furniture an appealing, fashionable and trendy industry. Through design innovation, Mr. Kamprad created a line of simple, effective and attractive products that were a success.! This type of products were already a trend in the Swedish design but Mr. Kamprad was allowed to project it at lower prices and the same quality. How could he do that? At the beginning just by lowering the profit margins but as the company started to evolve and the competition to get closer, Mr. Kamprad designed a truly innovative process. IKEA started to offer simple cost-cutting solutions that did not affect the quality of the products – for example: customers used to select, pick up products, transport them home and assemble them by themselves; designers used to use leftover materials from the production of one product to create an entirely new one.! Indeed Mr. Kamprad’s innovative idea was the starting point for the furniture industry revolution that we are answering with this report.! COMPETITIVE STRENGTH! WEAK! AVERAGE! HIGH! MARKET ATTRACTIVENESS! HIGH! SERVICE INNOVATION! Immediate pick up! CONTINUOUS IMPROVEMENT! CONCEPT INNOVATION! Low cost furniture! AVERAGE! DESIGN INNOVATION! Simple, Fashionable, and effective furniture! TECHNOLOGICAL REORGANIZATION! PROCESS INNOVATION! Simple cost cutting solution! LOW! PACKAGING INNOVATION! REFORMULATION! BRAND CREATION! IKEA brand creation! COMPETITIVE STRENGTH! EXISTING! NEW! TECHNOLOGIES! EXISTING! INCREMENTAL INNOVATION! ARCHITECTURAL INNOVATION! IKEA was idealized from existing materials, components, technologies. However the business model was completely designed to target a new market that was being underserved by the furniture retailers of that time.! NEW! DISRUPTIVE INNOVATION! RADICAL INNOVATION! 24
  14. 14. The first IKEA catalog is published! IKEA INNOVATION MANAGEMENT! AFTER 50 YEARS, DOES IKEA STILL INNOVATIVE?! Nowadays, being truly innovative is an issue that is becoming harder even for IKEA. However, during all this time IKEA did not step back and it has tried indeed to keep the customer interested in its business. Below, it is possible to meet a timeline where the most important innovation behaviors from IKEA were underlined.! INNOVATION TIMELINE:! IKEA INNOVATIVE MARKETING IDEA! 1943! 1948! 1951! 1953! 1958! 1960! 1961! 1962! 1963! 1968! 1973! 1974! 1976! 1978! 1980! 1982! IKEA is founded by Ingvar Kamprad! Furniture is introduced into the IKEA range! Service Innovation! Furniture showroom open in Almhult, Sweden! The first IKEA store opens in Sweden. ! Gillis Lundgren designs the TORE drawer unit! (simple, practical storage unit for home furniture)! The 1st IKEA restaurant opens in Almhult store! OGLA chair design comes out for sale! Marian Grabinski designs the MTP bookcase! IKEA goes abroad with a store opening in Norway! Practical Board makes its mark (inexpensive, hard-wearing and easy-to-process material is a natural fit for IKEA’s production)! Denim is used for the first time for furniture.! Introduction on SKOPA chairs. (Developed by a supplier that usually makes plastic buckets POEM is launched – and bowls)! classic chair made from laminated wood.! Billy bookcase is born! Brand new KLIPPAN and LACK product line arrives at IKEA (resistant, simple, low-priced and functional)! IKEA Group is formed. Owned by a foundation with headquarters in Netherlands! Concept Innovation! Brand ! Creation! Service Innovation! Service Innovation! Service Innovation! Design Innovation! Design Innovation! Process! Innovation! Concept Innovation! Concept Innovation! Design Innovation! Design Innovation! Design Innovation! Process! Innovation! 26
  15. 15. IKEA INNOVATION MANAGEMENT! 1984! 1985! 1990! 1991! 1994! 1995! 1997! 1998! 2000! 2001! 2002! 2004! 2005! 2006! 2012! IKEA family is launched (customer club that has nowadays about 15 million members)! MOMENT sofa is designed by Niels Gammelgaard! The first environmental policy at IKEA! Swedwood – the industrial group IKEA! (IKEA acquires its own sawmills and production plants)! MAMMUT comes out and IKEA gives the 1st evidence of getting in the Children’s Design Innovation! The first IKEA PS furniture segment! collection is launched! IKEA goes officially on the children’s furniture with the launch of Children’s IKEA.! IKEA also launches the 365+ product line composed by preparing, cooking, serving and eating goods.! The first forestry manager is employed at the IKEA IKEA customers can shop group.! online for the 1st time.! IKEA Group trials running its own rail operations through IKEA Rail AB.! IKEA recovery is launched! (product-recovery concept is implemented in more than 100 stores)! 1st environmental report! Everything for the bedroom under one roof! (A complete and coordinated collection of bedroom furnishings is launched)! IKEA food is launched! IKEA starts idealizing IKEA’s neighborhood.! Service Innovation! Design Innovation! Continuous Improvement! Process! Innovation! Concept Innovation! Concept Innovation! Process! Innovation! Design Innovation! Process! Innovation! Service Innovation! Concept Innovation! Continuous Improvement! Concept Innovation! Continuous Improvement! By being a first mover sometimes and a mere follower in others, the true is that IKEA never stopped innovating and complementing its business. IKEA did not event the next generation furniture or a new extraordinary concept within the furniture product line. However, by being able to catch opportunities sometimes from different industries, IKEA was able to adapt and keep up an architectural innovation that is worthy to special attention.! In one hand, continuous improvements on its product line and continuous innovation on its production process were core competencies for its success within a more competitive environment. On the other hand, by promoting innovation within the store – meaning service innovation – and exploring the powerful tool of marketing, IKEA was able to keep the customers’ attention and to increase its power and catchment in the furniture retail industry.! More than staying above competitors, in a matter of fact, IKEA’s main goal is to be sure that customers will keep visiting its store regularly. Indeed such strategy was only possible due to the its astonishing size.! Still there are other important innovations within the company that were not underlined in the innovation timeline and that we try now to show you through the GE/Mckinsey innovation matrix where it is possible to meet a summary of all the innovations undertaken by IKEA with special attention to the ones that were not mentioned on the timeline:! COMPETITIVE STRENGTH! WEAK! AVERAGE! HIGH! MARKET ATTRACTIVENESS! HIGH! SERVICE INNOVATION! - Maze store layout.! - Outstanding marketing in-store and outside the store.! - Catering services! - Advisory services! ! CONTINUOUS IMPROVEMENT! - Always looking for the next customer need.! - Always re designing new room sets.! - Always working to improve their product line.! CONCEPT INNOVATION! - Continuous seek for a new concept. Ultimately they have launched the IKEA neighborhood project and the 2013 catalog with augmented reality that is revolutionizing the way customers interact with a catalog.! AVERAGE! DESIGN INNOVATION! - Seek for new and functional designs (12 internal designers and about 80 freelancer always working for the next functional and appealing design).! ! TECHNOLOGICAL REORGANIZATION! PROCESS INNOVATION! - Unconventional producers! - Utilization of leftover materials from the production of one product to create an entirely new one! - Immediate pick up! - By the end of 2015 all the product materials shall be renewable! LOW! PACKAGING INNOVATION! - Flat, easy to transport packaging never seen before.! REFORMULATION! BRAND CREATION! - IKEA do not rely anymore in brand creation. They keep everything with the IKEA name.! Indeed, the maze store layout was an IKEA innovation. As we previously stated it takes in average three hours for a customer to visit the whole store. This concept was designed to stimulate the customer to buy their products once they get into the store since it forces the customer to run all the ikea’s product line before acquiring the product they were looking for.! The IKEA collaborators are also stimulated to provided to most complete and attentive service possible through flexible work design, comprehensive benefits, quality of work life, and employee training and development.! Interestingly only 10% of the IKEA’s furniture is produced by themselves. Indeed, they have some unconventional producers – for example like having a shirt factory produce their upholstery.! The bottom line that is important to take from the innovation management strategy is that IKEA makes everything based on cost efficient production, not because they want to remain the most efficient company in the furniture business but because as their mission statement says: they want to deliver a good product at the lower price possible.! IKEA is also not afraid to make a first move when it is necessary, that is the great advantage from keeping its capital structure privately held and from its high competitive strength. ! PRODUCT/SERVICE! PRESENT! NEW! MARKET! PRESENT! MARKET PENETRATION! (Process, service, design and packaging innovations)! PRODUCT/SERVICE EXTENSION! NEW! MARKET EXTENSION! Service Innovation! DIVERSIFICATION! 28
  16. 16. By taking a look over the matrix: Phases of the industry lifecycle vs. IKEA’s competitive strength, we perceive that if in one hand, IKEA is doing what the theory demands – concept and process innovation (strong competitive strength and medium-high attractiveness) -, on the other hand, IKEA still relying in different innovation strategies, mainly to keep their core business stimulated, which is fundamental due to the medium-high volatility of the demand, the stronger competitive environment, and the shorter product life cycle (in store).! IKEA INNOVATIONS! PHASES OF INDUSTRY LIFECYCLE! ESTABLISHMENTS! INTRODUCTION! GROWTH! MATURITY! DECLINE! COMPETITIVE STRENGTH! HIGH! CONCEPT INNOVATION! PROCESS INNOVATION! PROCESS INNOVATION! BRAND CREATION! BRAND CREATION! PROCESS INNOVATION! BRAND CREATION! AVERAGE! CONTINUOUS IMPROVEMENT! CONTINUOUS IMPROVEMENT! TECHNOLOGICAL REORGANIZATION! TECHNOLOGICAL REORGANIZATION! REFORMULATION! REFORMULATION! LOW! SERVICE INNOVATION! SERVICE INNOVATION! DESIGN INNOVATION! DESIGN INNOVATION! PACKAGING INNOVATION! IKEA! UNCERTAINTY! MANAGEMENT! 30
  17. 17. IKEA UNCERTAINTY MANAGEMENT! HOW DID THEY MANAGE UNCERTAINTY AS THE WORLD AND THE BUSINESS BECAME MORE GLOBALIZED?! It is hard to say how is IKEA managing this reality. Indeed, they are a private company and the information disclosed stills very limited. However, we are allowed to understand the big picture by analyzing the sources of uncertainty and the main strategies of the every day business of the company.! SOURCES OF UNCERTAINTY:! ! BACK IN THE LATE 1950s…! …the world was much more closed to what is today the trade market. Looking at an Europe totally devastated by the II World war, people and even less companies were ready to disclose any kind of information. Facing an industry made mostly by local companies, the uncertainty was high and contracts were difficult to enforce both with financial and non-financial institutions because of an unpredictable and corruptive legal system. It was impossible to find any kind of insurance system or protection for entrepreneurs and new managers. Even Mr. Kamprad was involved with the Swedish Nazi group and stayed close to sympathizers well after the war, which may have resulted in a not so good starting point.! Facing such reality, Mr. Kamprad clung to what he had in his reach and started to build up a business. He started by selling pens, jewelry, and nylon stockings with some money that his father has given to him as a reward for succeeding in his studies. Goods that were most in need by his neighborhood, which already shows some technique to manage the risk/uncertainty that he was taking on not selling the goods. ! Furthermore, he expands and starts advertising his business. By being unable to leverage its business or to defend himself from a possible business failure, Mr. Kamprad starts using the local milk van to deliver products to the nearby train station (uncertainty management). During this period of time Mr. Kamprad also perceives that he was able to buy some furniture, lower the prices and still make good profit.! The business started to exponentially grow and few years after, already with the brand IKEA becoming locally known, he opens its first store and instantly gets in a price war with its main competitors. Watching his margins getting lower and lower in shorter periods of time, Mr. Kamprad decides to move abroad with its business. ! This was indeed the first clearly risk/uncertainty management strategy that he took. His goal was to get a strong competitive advantage by achieving scale economies and match a production cost that was impossible to be taken by its local competitors – traditional furniture retailers.! LEVEL OF UNCERTAINTY! HIGH! LOW! HOW SHOULD IT BE MANAGED?! STRUCTURAL MANAGEMENT! - POLITICAL! - ECONOMICAL! - SOCIAL! - TECHNOLOGICAL! HOW SHOULD IT BE MANAGED?! TECHNOCRATIC MANAGEMENT! HOW SHOULD IT BE MANAGED?! CONVENTIONAL MANAGEMENT! HOW SHOULD IT BE MANAGED?! POLITICAL MANAGEMENT! POTENTIAL CONTROL OVER SOURCES OF UNCERTAINTY! LOW! TRUE AMBIGUITY! - Overall GDP per capita will increase with special attention for the increase of the middle class in emerging economies - Economy.! - Increasing healthcare, security and time management - Society.! - Emergence of new information technologies - Technology.! - Technology driven designs – Technology.! - Increasing single households – Society.! ALTERNATE FUTURES! - European recession keeps delaying the potential market growth – Economy.! - Increasing individualization – Society.! - Increasing mobility – Society & Economy.! - Stagnation of the real estate market - Economy! HIGH! A RANGE OF FUTURES! - Austerity policies will keep on rising – Politics.! - National governs are becoming more transparent – Politics.! - Tastes are becoming standard – Society.! - Society tends to be attracted by simplicity and effective performance goods – Society.! - Tighter trade policies in emerging economies – Politics.! A CLEAR-ENOUGH FUTURE! - Population keeps ageing – Society.! - Urbanization rates will keep on growth – Society.! - Increasing in labor, energy and raw material costs – Economy.! - Increasing environmental concern – Society.! ! 32
  18. 18. IKEA UNCERTAINTY MANAGEMENT! LEVEL OF UNCERTAINTY! HIGH! LOW! POTENTIAL CONTROL OVER SOURCES OF UNCERTAINTY! LOW! TRUE AMBIGUITY! - Increasing single households – Clients.! - Demand high volatility – Clients! - The furniture industry is highly fragmented - Competitors! - Different tastes, cultures and values according to different countries - community! ALTERNATE FUTURES! - Low end customer are getting struggle with the European crisis – clients.! - Increasing overall production costs – Suppliers.! - Strong dependence on suppliers performance - suppliers! - Increasing safety concerns – community! HIGH! A RANGE OF FUTURES! - Increasing complaints on the store maze layout– Clients.! - Furniture retailers have to compete today with mass retailers – Competitors! - Increasing price competition - Competitors! A CLEAR-ENOUGH FUTURE! - Seek for better performance goods– Clients.! - Increasing environmental concern – Community.! - Increasing elderly in Europe – Clients! - Increasing need for CSR - community! ! - CLIENTS! - COMPETITORS! - SUPPLIERS! - COMMUNITY! LEVEL OF UNCERTAINTY! HIGH! LOW! POTENTIAL CONTROL OVER SOURCES OF UNCERTAINTY! LOW! TRUE AMBIGUITY! - Increasing vulnerability to disruption as IKEA becomes more global – Human Resources.! - Narrow information disclosure – Organizational Resources! - Highly volatile customer– Financial Resources! ALTERNATE FUTURES! - High dependence on internal investment– Financial Resources.! - Vertical Integration planning is very time consuming- Organizational Resources! - Almost 90% of the production is outsourced – Organizational Resources! HIGH! A RANGE OF FUTURES! - Difficult store monitoring– Human Resources.! - Tighter financing capacity – Financial Resources! A CLEAR-ENOUGH FUTURE! - Power Centralization – Organizational Resources! - Keep on reducing CO2 emissions – Organizational Resources! - Increasing concern on creating a sustainable product line – Organizational Resources! - HUMAN RESOURCES! - FINANCIAL RESOURCES! - ORGANIZATIONAL RESOURCES! Indeed, the market environment has some big challenges for IKEA. IKEA has to take special attention to what is going on in Europe. Remember that this region represents almost 80% of the company’s revenue.! In one hand, this region is living a strong financial crisis that is struggling the low end customer (IKEA’s main target) and, on the other hand, the population if becoming more and more aged and unemployment rates are keep on growing.! Regarding the 2nd step of this analysis, you may find below an analysis done over the IKEA’s micro environment were we will meet the sources of uncertainty from suppliers, clients, competitors and community:! The environment is becoming more competitive day after day. Indeed, the customer is becoming more demanding, suppliers more expensive and competition is arising from other sides of the overall retailing industry.! The environmental concerns together with corporate social responsibility are key topics for companies nowadays.! To understand a little bite more from this, we may find below an analysis over the uncertainty surrounding the firm itself:! HOW SHOULD IT BE MANAGED?! STRUCTURAL MANAGEMENT! HOW SHOULD IT BE MANAGED?! TECHNOCRATIC MANAGEMENT! HOW SHOULD IT BE MANAGED?! CONVENTIONAL MANAGEMENT! HOW SHOULD IT BE MANAGED?! POLITICAL MANAGEMENT! HOW SHOULD IT BE MANAGED?! STRUCTURAL MANAGEMENT! HOW SHOULD IT BE MANAGED?! TECHNOCRATIC MANAGEMENT! HOW SHOULD IT BE MANAGED?! CONVENTIONAL MANAGEMENT! HOW SHOULD IT BE MANAGED?! POLITICAL MANAGEMENT! 34
  19. 19. IKEA UNCERTAINTY MANAGEMENT! PRODUCT-MARKETS! MANAGEMENT DIMENSION! INTERNAL DEVELOPMENT! - IKEA defined a formula for product presentation and sale! - Structural Management (core activities’ strength)! - Conventional management (statistical forecasting)! - Particular attention to style (light and modern)! - Structural Management (core activities’ strength)! - Products are redesigned at regular intervals! - Structural Management (core activities’ strength)! - Store location in relatively cheap suburban areas, and do-it-yourself approach to marketing and distribution! - Political Management (Institutional initiative)! - IKEA does not deliver, although it will organize delivery at the purchaser’s cost, if it needed. At a cost it will even organize assembly to the customer ! - Structural Management (core activities’ strength)! - They provide crèches and playgrounds or video room for older children, both available in order to free the parents from outside distraction in their shopping.! - Political Management (Institutional initiative)! - There are also free buggies, reasonably price restaurants and cafes! - Structural Management (core activities’ strength)! - Promotion is centered on their catalog! - Structural Management (core activities’ strength)! - Colorful and attractive nature of the retail! - Structural Management (core activities’ strength)! - By 2015, IKEA want to introduce a totally sustainable (renewable) product line! - Structural Management (core activities’ strength)! - Easy communication of sales information! - Structural Management (core activities’ strength)! EXTERNAL DEVELOPMENT! M&A! - X! - X! STRATEGIC ALLIANCES! - T-Mobile, marketing partnership! - Political Management (alliance)! MARKET TRANSACTIONS! - X! - X! VERTICAL INTEGRATION! MANAGEMENT DIMENSION! INTERNAL DEVELOPMENT! - Strong adherence to low-price strategies, with OEMs who fail being simply tossed aside! - Structural Management (core activities’ strength; sequential decision)! - Conventional Management (statistical forecasting)! - IKEA designs does not manufacture! - Structural Management (core activities’ strength)! - Increasing emphasis on cheap manufacturing sources such as china! - Technocratic Management (contingency planning) ! - Most of the production is done in Poland as well as Sweden! - Political Management (Alliances)! - The company delivers CSR and sustainability report every year! - Political Management (Institutional initiative)! - IKEA has internally management over design, marketing, logistics, and distribution/retailing! - Structural Management (core activities’ strength)! - Maintaining low costs and high volume production requests! - Structural Management (core activities’ strength; sequential decision)! - Conventional Management (statistical forecasting)! - Inventories are kept down to a minimum! - Technocratic Management (contingency planning) ! - Conventional Management (statistical forecasting)! - The cash registers of the retail stores are directly connected to the distribution centers, providing monitoring and immediate information on changes in demand patterns! - Technocratic Management (early warning systems) ! - Conventional Management (business modeling)! - The warehouses are at the same time storage facilities, logistical control points, consolidation centers and transport nodes! - Structural Management (core activities’ strength)! - Conventional Management (business modeling)! - 70% of the total product line is handled by centers, the other 30% go directly to the store! - Structural Management (core activities’ strength)! - Before designing a new product, the first step is to set the price, which is suggested by the location of the product in a matrix of price range and product style created by the strategists. The second step is to choose a manufacture. Only at the third stage does the company design the product! - Structural Management (core activities’ strength)! EXTERNAL DEVELOPMENT! M&A! - X! - X! STRATEGIC ALLIANCES! - More than 1,800 suppliers within 55 countries! - Strong long-term relationship with its suppliers! - Suppliers mainly in Europe! - WWF for CSR partnership! - Whirlpool, a microwaves manufacturer! - Political Management (Alliances)! ! MARKET TRANSACTIONS! - IKEA, through its engineers, provide technical assistance to reduce costs and improve quality. IKEA does everything, from leasing equipment to suppliers to offering frequent advice, in order to bring production up to world standards and keep down costs! - IKEA owns larger scale outlets, but it is prepared to franchise in markets which are smaller or carry a bigger risk! Political Management (Alliances; institutional Initiatives)! ! Bottom line, the environment is getting tighter, competitive and demanding from all sources of uncertainty.! It is know time to see how IKEA answers to this environmental reality and for that we rely on an analysis over the most important IKEA’s strategic issues (Product-Markets, Vertical Integration, Internationalization, Diversification), where we will underline the type of management within the uncertainty level that this specific strategy suggests:! 36
  20. 20. IKEA UNCERTAINTY MANAGEMENT! INTERNATIONALIZATION! MANAGEMENT DIMENSION! INTERNAL DEVELOPMENT! - Close attention to the cultures of the countries! - Technocratic Management (scenario planning)! - Local HR manager to better understand what was expected! - Structural Management (core activities’ strength)! - Product is homogeneous worldwide! - Structural Management (core activities’ strength)! - The company relies mostly in organic growth! - Conventional management (Long-term investments)! EXTERNAL DEVELOPMENT! M&A! - X! - X! STRATEGIC ALLIANCES! - X! - X! MARKET TRANSACTIONS! - X! - X! DIVERSIFICATION! MANAGEMENT DIMENSION! INTERNAL DEVELOPMENT! - Real estate through “IKEA neighborhood”! - Structural Management (diversification)! EXTERNAL DEVELOPMENT! M&A! - X! - X! STRATEGIC ALLIANCES! - Real state through Skanska! - Mobile industry – IKEA family mobile! - Political Management (Alliances)! MARKET TRANSACTIONS! - X! - X! As it was possible to conclude, IKEA as innumerous strategies to fade the strength of such uncertainty. In a matter of fact, they rely in all the strategies that are available to manage uncertainty (Structural, Technocratic, Political and conventional management). Indeed to a complex market study IKEA looks in the better way to fit its products to the environmental conditions. If in one hand, it is of big importance to keep the client happy and stimulated, on the other hand, it is also important to keep in mind its great competitive strength: low prices. IKEA has also adapted its strategy to the different markets – managers and strategists working locally - and global concerns – CSR report and sustainability goals.! In order to have a narrow vision on what can be the future of IKEA’s strategy we have forecasted some scenarios and suggested some strategies according to each dimension of uncertainty. For that we have chosen two key issues in each dimension that should be managed through technocratic management and we have developed a personal judgment analysis, which you can meet below:! THEY ARE BACK Europe prevails and they are indeed a market opportunity again!! European Recession! People ! and goods mobility! Supplier Dependence! IKEA needs to make sure his suppliers are reliable! Safety! concerns! Internal Investment! IKEA keeps on expansion! Outsourced! Production! High! High! High! Fades ! away! High! High! AGAIN!! GET OUT ! OF EUROPE!! WHAT IS GOING ON?! INSTABILITY! The crisis seem to never end and the emigration rate keep on growing and growing! More austerity, more crisis. Someone is doing something terribly wrong.! Europe is afraid of a new relapse and mobility policies got tighter because of that.! HEY! THINK CAREFULLY! WHAT?! HOME PRODUCTION IS THE ANSWER?! BETTER WORK ENVIRONMENT = BETTER PRODUCT! Massive production seems to have no rules.! IKEA changes politics and looks for better solutions through home production! IKEA decides to produce in home to ensure safety policies! IN-HOUSE IS BETTER! KEEP ON MOVING!! BANKS ARE THE KEY! WHAT? ! I DO NOT BELIEVE IT! IKEA invests on in-house production! IKEA relies on banks for in-house production! IKEA goes public! Most probably Europe will reborn stronger than ever and IKEA will be able to get most of the its revenues from this market. However, they shall take some few more years of crisis with more and more people moving abroad constantly. On the other hand, a region that already does not seem to have any crisis but that lives with the instability of falling back and relapse again. One way or the other it does not look like the European crisis will stay longer and indeed IKEA does not have to be afraid of watching its business fall down in this region.! Looking at the micro environmental scenario, IKEA needs to be aware of what politics their suppliers are implementing in the work environment. The communities and ONG’s are aware of what is going on and they are ready to collapse a brand name like IKEA’s. The same history lived by Mr. Kamprad with the information disclosure about the Nazi Swedish group may come back again without a so lucky solution.! Regarding the firm environment, IKEA might focus on keep on growing with the same policies. However by getting more confidence from banks, is most likely to rely more in the financial institutions to make investments.! One way or the other, it does not seem likely to see IKEA going public in a near future or to start producing at home.! 38
  21. 21. Finally, after analyzing the sources of uncertainty that surround IKEA, the strategies that they take in place to manage uncertainty and possible scenario planning for the IKEA’s future, it is time to suggest few strategies that IKEA should take in order to keep on growth and overall success. For that you may take a look over the place below where the underline few strategies within the different strategic issues and uncertainty management dimensions: ! STRATEGIC ISSUE! STRATEGY! UNCERTAINTY MANAGEMENT DIMENSION! PRODUCT-MARKETS! - Launch more prototypes and custom made products choices! - Structural Management (core activities’ strength)! - Launch multifunctional furniture as mentioned on this report positioning! - Structural Management (core activities’ strength)! - Work on the brand image – nowadays IKEA should look more conventional and functional rather than a hard discounter! - Political Management (Institutional initiative)! DIVERSIFICATION! - Get in the home technology goods retail (TVs, sound systems, computers, etc.)! - Structural Management (diversification)! - Build up strategic alliances with home technology retailers! - Political Management (Strategic alliances)! VERTICAL INTEGRATION! - Start merging slowly for more in-house production in order get more margins from scale economies! - Technocratic management (scenario planning)! - Keep on aggressive supplier decision making policy! - Conventional management (statistical forecasting)! INTERNATIONALIZATION! - Start studying and creating roots on the African market! - Political Management (Institutional initiative; acquisitions or alliances)! - Start looking at south America with other eyes, it is full of opportunities and they have a similar culture to the western European countries! - Political Management (Institutional initiative; acquisitions or alliances)! IKEA UNCERTAINTY MANAGEMENT! 40
  22. 22. IKEA ORGANIZATIONAL CULTURE AND LEADERSHIP! IKEA! ORGANIZATIONAL CULTURE AND LEADERSHIP! COUNTRY’S NATIONAL CULTURE! GOVERNOR! Analytical, Rigorous, driven by processes, logical, risk averse, balanced, reliable! MR. INGVAR KAMPRAD – IKEA’S FOUNDER! SOCIAL! Popular, driven by people, communicative, creative! ENTREPRENEUR! Competitive, driven by goals, risk taker, challenging! GOVERNOR! Analytical, Rigorous, driven by processes, logical, risk averse, balanced, reliable! S-E-G! Mr. Kamprad was indeed a very people driven person. He started selling small things to his neighborhood at the age of seven. ! At the age of 17 he started to build a business from the scratch, with an innovative concept and business plan. ! However, he never lost the north and he always took special attention to margins and cost efficient production.! 42
  23. 23. IKEA ORGANIZATIONAL CULTURE AND LEADERSHIP! MIKAEL OHLSSON – IKEA’S CEO ! SOCIAL! Popular, driven by people, communicative, creative! GOVERNOR! Analytical, Rigorous, driven by processes, logical, balanced, reliable! ENTREPRENEUR! Competitive, driven by goals, risk taker, challenging! S-G-E! IKEA ! SOCIAL! Popular, driven by people, communicative, creative! GOVERNOR! Analytical, Rigorous, balanced, reliable! ENTREPRENEUR! Competitive, driven by goals, risk taker, challenging! FURNITURE INDUSTRY ! GOVERNOR! Analytical, Rigorous, balanced, reliable! SOCIAL! Popular, driven by people, communicative,! Creative.! Company Values:! - Humbleness and Willpower! “We respect each other, our customer and our suppliers. Using our willpower means we get things done”.! - Leadership by example! “Our managers try to set a good example, and expect the same of IKEA co-workers”.! - Daring to be different! “We question old solutions and, if we have a better idea, we are willing to change”.! - Togetherness and enthusiasm! “Together, we have the power to solve seemingly unsolvable problems. We do it all the time”! - Cost-consciousness! “Low prices are impossible without low costs, so we proudly achieve good results with small resources”.! - Constant desire for renewal! “Change is good. We know that adapting to customer demands with innovative solutions saves money and contributes to a better everyday life at home”.! - Accept and Delegate Responsibility !! “We promote co-workers with potential and stimulate them to surpass their expectations. Sure, people make mistakes. But they learn from them”! "When I showed an interest in doing something new, the company was prepared to let me do it."! Guy Labrecque,! Operational support,! France! "In the 29 years I have been here, the business has changed a lot. It is growing year on year and getting better and better."! Ingeborg,! Sales,! Canada! "I will never forget my first steps into the IKEA store. The manager wore the same uniform as everyone else."! Sara Ahlberg,! Process development,! Sweden! "I’m responsible, but not the center of the universe."! Pär Sundqvist,! Store distribution manager,! Sweden! S-G-E! TESTIMONIALS: ! Mr. Ohlsson start at IKEA around 30 years ago at the carpet department in an IKEA store. According to him he never planned to become CEO. His working style has always been the same, which makes him say that he does not see big difference between being a CEO and being a sales assistant. He defends that people should do what makes them feel good. He seems against career planning.! As a CEO he did not change anything behind the IKEA’s culture. He recognizes that technology plays a big role in the nowadays environments. He asks for the need of sustainability and assume that IKEA will do everything to keep cutting on water and energy waste.! He is a very precise person, taking great attention to numbers, logical thinking and rigor. It is a key way he finds to keep the business moving on in the cost-cutting department.! Nevertheless, he looks to stand as an entrepreneur buy projecting the “IKEA neighborhood” concept that is going to be finalized next year (2014).! S-E! 44
  24. 24. BIBLIOGRAPHY! BIBLIOGRAPHY! h*p://www.forbes.com/fdc/welcome_mjx.shtml h*p://www.reportlinker.com/ci02168/Furniture-­‐and-­‐DecoraFon.html h*p://www.worldfurnitureonline.com/PDF/WFR-­‐Magazine.pdf h*p://www.theglobeandmail.com/news/naFonal/welcome-­‐to-­‐ikea-­‐land-­‐ furniture-­‐giant-­‐begins-­‐urban-­‐planning-­‐project/arFcle2388705/page1/ h*p://en.wikipedia.org/wiki/IKEA h*p://www.ikea.com/ h*p://www.researchtodayonline.com/data/FT_ConsConts.pdf h*p://furniture.about.com/od/buyingfurniture/tp/dec_trends.htm h*p://www.reportlinker.com/ci02313/Furniture-­‐Manufacturing.html h*p://shazeeye.com/value-­‐proposiFon-­‐and-­‐posiFoning-­‐ikea-­‐case-­‐study h*p://franchisor.ikea.com/FF2012.pdf h*p://www.slideshare.net/riddhimachopra/ikea-­‐case-­‐study h*p://www.ikea.com/ms/en_GB/pdf/annual_report/ ikea_group_sustainability_report_2012.pdf h*p://www.ikea.com/ms/en_US/pdf/yearly_summary/ Welcome_inside_2011.pdf h"p://www.consumerreports.org/cro/home-­‐garden/bed-­‐bath/home-­‐ decora6on/upholstered-­‐furniture/sizing-­‐up-­‐the-­‐stores/index.htm h*p://www.metro.lu/news/ikea-­‐ceo-­‐mikael-­‐ohlsson/ h*p://www.ikea.com/ms/en_CA/the_ikea_story/working_at_ikea/ our_values.html h*p://www.palgrave.com/business/white/docs/White%20-­‐%20PDF%20file%20-­‐ %20blue%20chapter%202.pdf 46
  26. 26. APPENDIXES! 50 EXECUTIVE MANAGEMENT OF THE IKEA GROUP! EXECUTIVE MANAGEMENT OF THE IKEA GROUP! INTERVIEW WITH MIKAEL OHLSSON BY METRO NEWSPAPPER! “What ma*ers are your values, not your educaFon” In every corner of the earth, IKEA symbolizes cheap, trendy living. Metro travelled to IKEA’s home country to meet CEO Mikael Ohlsson – in an IKEA store of course. Ohlsson, a down-­‐to-­‐earth Swede who favors sweaters over business suits, started his IKEA career selling rugs. In fact, he says, educaFon doesn’t ma*er much. Instead, success comes from being honest and creaFve. We’re in the midst of a global economic downturn, and people are having to get used to lower living standards. Does IKEA, as the world’s leading budget furniture retailer, benefit from recessions? Economic downturns are never good. I lived in Spain unFl 2009, so I’ve seen how the recession affects people. Everyone, regardless of where they live, wants to have a good life, but people are definitely becoming more value-­‐conscious. When that happens, IKEA becomes an even stronger opFon than otherwise. We’re responding by lowering our prices even though prices on raw materials are going up. And right now we’re talking with several ciFes and governments about opening more stores in their countries, which will obviously create new jobs. For example, we’ll speed up our expansion in Spain, Italy and the UK. We’re doing this interview in a sofa in an IKEA store, not in a corner office. Is that part of your leadership style? It’s part of the IKEA style. Of course we have offices, but they’re usually pre*y informal. We want to meet reality, and part of that is going out and meeFng people, from our store employees to our suppliers to people in remote villages. Of course I’m totally insufficient – I don’t have Fme to meet everyone, but I spend most of my Fme doing it. So do our other execuFves, and then we share our impressions. Based on that we form our strategy. Our strategy is 5-­‐10 years, which is someFmes frustraFng because we feel things are going to slowly, but it also gives us power and security because we don’t do things ad hoc. This philosophy seems to become more common among other companies as well. What’s your recipe for success? How did you become CEO of IKEA? I never planned to become CEO. My working style has always been the same, so I don’t think there’s a big difference between being CEO and being a sales assistant. We have many people who have started on the shop floor and risen through the ranks because they share IKEA’s values. One mustn’t complicate things. Do a good job, do a li*le extra and be a good colleague. Then you’ll be promoted – if you want to. But most importantly, do what you enjoy. I’ve never believed in career planning, doing something now because it will be useful in the future. If you don’t have a good Fme doing your job, the result will be crap. Ingvar Kamprad started IKEA as a teenager. Bill Gates didn’t have a college degree when he launched MicrosoP either. Is university educa6on overrated? What ma*ers is the type of person you are. At IKEA we try not to use the standard format for everything. There’s always a risk with trends – whether it’s university educaFon or corporaFons using consulFng companies – that everyone has to do the same thing. Instead we try to find people who are innovative. We never really look at what kind of educaFon a person has. If you learn something by a*ending university, it’s obviously good, but a university educaFon that’s staFc doesn’t have much value. We don’t really put any value on whether people have a*ended university or not. Some of our top execuFves have degrees, while others have learned their skills on the labor market. Where do want to take the company? My focus is people who lead regular lives, have regular incomes and relaFvely small homes. They have dreams, too, and want to create a cozy home for themselves. Today technology plays a big role at home, but how can we make our homes beauFful even though we have lots of cords floaFng about? Sustainability another area people care strongly about. Our new water taps use 30% less water, and now we’re making a big push with LED lightbulbs. LED bulbs use 85% less energy than regular bulbs and last for 20 years. Of course, our challenge is making the LED bulbs as cheap as possible. Natural resources are another important area. We have over 100,000 co*on farmers involved in a new pilot project with WWF, where they use 50% less water and 30% less ferFlizer and pesFcides – and they sFll get a be*er harvest. Our goal is to soon have all our co*on grown that way. And we’re looking at ways of mixing fibers with co*on.
  27. 27. APPENDIXES! 52 How long does it take you to assemble IKEA furniture? The sofa you’re sijng in took me five minutes to put together. 95% of my furniture at home comes from IKEA, and I’ve always assembled it myself. It’s a fun thing to do, and it’s interesFng to see what we as a company could do be*er. It’s like tesFng my own company at home. I want IKEA furniture to be fast and easy to assemble; someFmes IKEA furniture is simply too complicated. How will people live in 2021? The basis of our work is being in touch with society and how it influences regular people. Our task is to meet people’s changing lifestyles with our products. Right now people’s wallets are gejng thinner. Climate change is having an impact on society. Environmental concerns are becoming more important. Technology is changing people’s home lives. People are gejng more concerned about health – what we’re eaFng, and the materials that exist in our homes. We’re trying to let all these changes inspire us. But in 10 years, what will my home look like? There’s a huge difference between different markets. We just opened our second store in Shanghai, and in China there’s an enormous change happening, with rapid urbanizaFon across the country and people having their fist big, modern apartments. People’s incomes are increasing dramaFcally. Then you have Spain, where young people are moving in with friends or their parents, since living expenses eats up such a large chunk of their incomes. People are becoming more value-­‐conscious, and home life is becoming more important. We’re using our Scandinavian roots to show people how they can improve their living. It has to be good for everyday life, funcFonal, good for kids, and above all not wasteful. You started your career at IKEA as a shop assistant and have moved up the ladder. How do you spot a poten6al leader? Our corporate culture is the basis of our success. Our roots are in [the Swedish region of] Småland, where simplicity, entrepreneurship and community are very important. People who thrive here are moFvated by that combinaFon, so it’s natural that IKEA execuFves spend most of their Fme out in real life, not in an office. I visit stores and suppliers, I talk to our employees. They know what works and what doesn’t. We try to minimize status and presFge. Back to your quesFon: we recruit based on those values. We want down-­‐to-­‐earth, engaged, honest and innovaFve people. We recruit people solely on values, not experience. The person, not his or her CV, is the most important part. Then you can learn and develop on the job. It’s about being the same person at work as you’re at home – simple as that. A company as a caring environment, that sounds a bit old-­‐fashioned… When I started we had 4,000 employees. We now have 130,000, and we keep adding more. But we like to see ourselves as a caring employer, a company where people like to spend their enFre career. But we recruit outsiders at many different levels as well. We bring in 40-­‐ and 50-­‐year-­‐olds. The most important thing is that you share our values. What about women? The majority of our 17,000 execuFves are women, and 40% of our top 200 execuFves are women. We don’t do top-­‐down management, and I think our environment encourages women who otherwise would not have pursued a career as execuFves. We try to model posiFons within the company to the life stages people go through, including offering people horizontal moves – new countries, new departments — if they don’t want to climb the corporate ladder. That’s a good way of retaining employees, regardless of their gender. And we expect our employees to take individual responsibility, which is also a good moFvator for most people. We have a new vice-­‐president here in Sweden who used to be a store manager in Holland. When she had her children, she split her job with a co-­‐worker. Now that her children are older, she’s able to climb the career ladder. But of course we’re conFnually frustrated. There are so many things we want to do, and we always feel we have too few resources to do them all. So how do you address mistakes? Only people who are asleep don’t make mistakes. We try to have an environment where you can say “sorry, I made a mistake” and then we fix it. Of course, you shouldn’t make the same mistake many Fmes, but you shouldn’t be afraid of making mistakes, or try to cover them up. That’s when the problems begin. Have you changed other products that turned out to be failures? Not failures, exactly, but we’re improved our transportaFon. We hate to transport air, but we used to transport a lot of it. We have flat packages, but countries have weight limits that you mustn’t exceed, so we sFll have to transport air. Add to that the growing concern about natural resources. What we’re trying to do now is to mix the wood contents in our furniture. We’re mixing low wood density with high wood density so the furniture is both durable and a bit lighter. As a result, we’re using 25-­‐30% less wood and make the furniture lighter to transport both for our trucks and for our customers. What’s the most important thing you’ve learned from your mistakes? Don’t be afraid to take the iniFaFve. If you make a mistake, own up to it and try to fix it. Fear of mistakes prevents a companies, and people, from developing. And it creates bureaucracy and insecurity. As a leader, one should try to inspire people to use their skills. But people hold their skills back if they’re afraid of making mistakes. The only area where I’m very strict about mistakes is ethics.