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IKEA Business Model - Success Factors

The presentation analyses IKEA's Business Model as a cost leadership. How can IKEA win over other furniture competitors to become one of leading companies and distribute their products all over all world ? Let's take a quick look

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IKEA Business Model - Success Factors

  2. 2. PURPOSES • Understand IKEA’s business model • Investigate its sources of competitive advantage • Understand reasons behind IKEA’s success • IKEA’s main weaknesses.
  3. 3. ABOUT IKEA • Founded in 1943 in Sweden. • Is a multinational group of company that designs and sell ready-to-assemble furniture, appliances and home accessories. • Has more than 389 locations all over the world (2016). • Its concept is to offer wide range of functional, well designed and low cost home furnishing product
  4. 4. IKEA BUSINESS MODEL GENERIC STRATEGY - Cost leadership : involves becoming the lower cost organisation in the domain of activity. - IKEA’s cost drivers include :  Input cost: + Source component from widely dispersed suppliers located in different countries. + Improve its manufacturing techniques + Minimize the cost of inventory  High volume  Disassembled components
  5. 5. SOURCES OF COMPETITIVE ADVANTAGE – STRATEGIC CAPABILITY TANGIBLE • IKEA's supply chain management is one of its solid sources of competitive advantage.  1046 suppliers in 52 countries  32 distribution centres in 16 countries  345 stores 42 countries Ensure capability to meet customer demand Effective network for distributing products. Physical resources
  6. 6. STRATEGIC CAPABILITY – TANGIBLE RESOURCES • Financial resources:  Experienced a 15% sales increase between 1990-2005 Revenues: 29.29 billion EUR Ensure a positive cash flow for its operation activities  Invest to maintain and expand the business all over the world with continuous R&D activities.
  7. 7. STRATEGIC CAPABILITY - COMPETENCES • How the leaders of IKEA do their business with clear vision and mission, • Its continuous focus on the importance of both internal and external customers to ensure that these customers remain loyal to them • They motive, inspire, coach and support staffs. • Good relationship with suppliers • Good relationship with the government and friendly neighbour with community => Make the best use of available resources to bring value to customers and benefit for the company.
  8. 8. FREE ASSEMBLY FURNITURE Offers a larger choice Immediate delivery At a lower cost.  IKEA use its business models to turn customers as free laborers  Making them much more valuable and profitable
  9. 9. VRIO ANALYSIS Which of IKEA’s resources and capabilities add value ? - Style at low cost – desirable products - Enjoyable shopping experience - Inventory system – customer can take home furniture immediately - Experience with global expansion – necessary knowledge for successful launches in new market. To what extent are IKEA’s resources and capabilities Rare ? - Style at low price point is relatedly rare - Ability to take home furniture immediately is not so rare (Target, Home Depot) • Imitability : - Style is moderately imitable - Shopping experience maybe be copied by new entrants. - Experience (with strategic model, global operations) is difficult to acquire • Organisation - IKEA Group has an ownership structure that ensures independence and long term approach. => IKEA seems to control its key resource/capabilities.
  10. 10. WHY IS IKEA SUCCESSFUL ? • Solving the worst part of buying furniture As people used to see furniture as an investment for the next 20 years, they tended to be anxious and indecisive. IKEA brings a seminal change in home business • Hitting the right demographic - Clever target customers : young people
  11. 11. WHY IS IKEA SUCCESSFUL (CONTD) • Not expensive, but not too cheap • Stores are a destination - As e-commerce becomes more popular, shoppers need incentive to come into stores - IKEA has elaborate showroom and cafeteria - IKEA is a standalone store
  12. 12. WEAKNESSES • IKEA is not all customer focused - IKEA is mainly cost focused. - In 21st century, firms are more focused on customers’ needs, wants and preferences. • IKEA lacks product innovation - IKEA’s product strategy is so much obsessed with low cost price
  13. 13. WEAKNESSES (CONTD) • IKEA never took economic issues into consideration before being faced with the problem. Example: In US, the goods were priced in the Swedish kronor, which was strengthening against the American dollar. => Bring up an opportunity to be more profitable in the future. => Satisfy customers’ needs to remain their loyalty and explore new invested markets, make them more competitive.

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The presentation analyses IKEA's Business Model as a cost leadership. How can IKEA win over other furniture competitors to become one of leading companies and distribute their products all over all world ? Let's take a quick look


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