Initially IKEA sold a wide range of products at low prices from pens and wallets to picture frames and nylon stockings. It was only in that furniture was first introduced to IKEAs product range. Initially furniture was manufactured in the forests near Ingvar's home it was well received and slowly the product line expanded. Soon after in IKEA created its first catalogue then faced with increasing low priced competition in the first showroom was opened to demonstrate the high quality that such a cheap product had to offer.
With the success that IKEAs show rooms brought it they soon began to experiment with other furniture ideas and it was in that flat pack and self-assembly furniture was first created allowing IKEA to further reduce costs and become the massive furniture retailer that it is today. The IKEA group achieved sales over Currently IKEA has over , employees and supplies over 12, unique products.
These associations gave IKEA a very broad appeal to different groups of consumers and ensured that IKEA products appealed in both the business and consumer markets. At the time of its introduction IKEAs flat pack furniture offered a great solution for both individuals and companies who were looking for stylish high quality furniture at an affordable price.
Due to the way IKEA produces and sells its furniture it also ensured that it was readily available and convenient. Custom or mail order furniture would often take weeks for delivery whereas IKEAs products were readily available in their stores and easy to transport home in the average family car. Whilst many may have considered it a downside IKEA also made the wise decision to standardize their product line during their international expansion, this helped IKEA keep costs low during the earliest part of their expansion and then allowed them to expand into local product lines once they had established in a new market.
The model that IKEA developed for its business ensured it was able to keep costs low. Flat packed furniture saved on many costs such as labour due to lack of construction and transportation due to the considerable space saving during transportation of flat packed furniture. Ultimately customers were very happy with the cost savings and IKEA maintained high profits by outsourcing the highly costly assembly part of the value chain directly to the customer who was more than willing to do the extra work for a large saving.
Another of the strengths of IKEA was its procurement. To support its booming business IKEA has 31 trading service offices of procurement staff in 26 countries that source from over 1, worldwide suppliers.
Over time IKEA proved that it could successfully manage worldwide suppliers whilst also maintaining the quality and consistency of its products which is an important part of maintaining its brand reputation. IKEAs procures goods on a global scale and has located its 31 offices across the world in a manner that allows it to work with the local suppliers. So IKEA can make products that are environment friendly; products that consume less water so the carbon footprint will be at minimum.
This will definitely bring in some unique idea to the tent. IKEA can initiate a service that will allow customers to order customized products for some extra charges. This will help IKEA to capture the particular segment of the market who loves customization. This objective does not recognize the necessity of a constant development of design and quality. In the pursuit of becoming a cost leader in the market IKEA can lose a major portion of the market that want quality and well designed products.
But there are some well-established retailers who are selling functional furniture at a very low cost for example: Wal-Mart, Office Depot. These retailers will be in direct competition with IKEA. On top of this there are also some high end retailers who sell high-quality, well designed furniture. These high-end retailers often provide additional services like interior designing, home delivery and free set-up. The risk of global financial crisis The global is under a constant threat of depression since The whole economy of the world is suffering from a recession since fiscal year This economic condition may affect IKEA.
Since the purchasing power of buyers has gone down they would be reluctant to purchase products that are not vital to them. IKEA is the cost leader in the furniture industry. Its target market are the young married couples, college students, 20 to something singles and middle class families who are basically price sensitive customers.
So, if they can get furniture at a much lower price, of course the will opt for that. Thus, this concept gives IKEA its biggest competitive advantage keeping it ahead of its competitors.
IKEA has successfully combined low cost with good quality. Generally people have an idea that price and quality are directly related as in, higher the price better is the quality and lower the price lower is the quality. However, IKEA has successfully changed this idea related to furniture. Not only is its furniture much lower priced than its competitors, they also have great quality. It has productively combined low cost with good quality.
Its democratic designs which balances function, quality, design and price gives IKEA the competitive edge. IKEAs research and development team finds ways to alter designs to save on manufacturing costs. Starting with the designer Gillis Lundgren, IKEAs research and development team always finds ways to alter designs to save on manufacturing costs.
The goal of the research and development team is to come up with stylish functional designs with minimalist lines that can be costefficiently manufactured. This keeps the cost down and allows for the prices to be much lower than that of the competitors.
A key feature of IKEA furniture is self-assembly. This proves to be a very efficient concept for both the parties IKEA as well as its customers. The furniture pieces are taken off and flat packed and then assembled by the customers at their homes. It reduces IKEA transport and warehouse costs as well as saves additional hassles related to transporting a big piece of furniture, and the customers are also willing to take on the task of assembly in return for lower prices.
This is a breath of fresh air for the customers. Page 9 IKEA uses cheap labor which keeps its costs down and gives them a competitive advantage. China, as everyone knows, provides really cheap labor so IKEA gets its largest chunk of furniture manufactured from there.
Cheap labor keeps the costs down and allow them to charge customers low price and helps IKEA sustain its competitive advantage Its strong long-term relationship with its suppliers gives it a competitive edge. IKEA has built a strong long-term relationship with its suppliers over the years. The relationship that IKEA established with the Poles has become the archetype for relationship with suppliers.
This is one of their biggest strengths. A strong relationship established with the suppliers provides a very smooth supply chain which saves IKEA from quite a lot of additional costs and hassles. Due to this strong relationship IKEA can put in a lot of additional advice regarding production. It is widely seen that companies have always been benefited by a strong long-term relationship with their suppliers.
IKEA has the ability to adapt its tactics according to the market. Another of IKEAs strengths lies in its ability to adjust its tactics according to the market. An example of this can be seen in what it did in the American market. Something was shifting in American culture.
To tap into this shifting culture of America, IKEA redesigned its marketing strategies adjusting it according to what would be appropriate in this cultural shift. The result was double revenues in a four-year period. IKEA is a global brand. It has spread its wings and expanded all over the world.
With its stylish Scandinavian designs and strong and conquered cost leadership concept it has conquered all of these territories. Thus, IKEA has become a global brand. Its reputation and brand image acts as one of its greatest strengths.
Page 10 Weaknesses Its organizational culture can become a demotivating factor for many of its employees. IKEAs organizational culture reflects informality. It is nonhierarchical, team based and titles and privileges are taboo at IKEA.
Pay is not particularly high and there are no special perks for senior managers. The culture is egalitarian. According to Kamprad, people generally work here because they like the atmosphere. However, there is a downside to this sort of organizational culture. In an egalitarian culture where everyone is equally treated, someone putting more effort and hard work than others might get demotivated since he is being treated the same way as someone whose efforts and inputs are much less than his.
He will obviously want something extra for his extra effort. This will lead to demotivation and he might stop putting in that extra hard work for the company. In todays competitive world, people work for that special perks associated with designations and promotions. This is what keeps them going.
But all these are missing in IKEA. Another important factor is that, the management style that works in Europe does not work in America or in Asia. Thus, with an organizational culture like this, IKEA might repel future employees.
IKEA is not at all customer focused. IKEA is mainly cost focused. Its main focus is keeping the costs down so that it can keep the prices of the furniture low. However, in this 21st century companies are more focused on customers needs, wants and preferences. Companies first conduct a market research on what customers want and then produce that. Nowadays, mostly everything is completely customer driven. An example of this can be seen in its product offerings with which it launched in USA.
Americans wanted bed sizes king, queen and twin but they offered beds measured in centimeters. Thus, in such a customer oriented era IKEAs not really caring about customers wants can put it at a disadvantage. IKEA lacks product innovation.
IKEA designs the price tag first, then the product. IKEAs product strategy council is so much obsessed with low price that they spend almost no time on product innovation.
IKEA has been enjoying sustainable competitive advantage due to their low cost strategy. However, to some extent, product innovation is also required in order to back their sustainable competitive advantage up. Here, IKEA lacks product innovation which is one of its weak spots.
It lacks thorough market research on customers preference before entering into a new market. When IKEA first entered the USA market it provided the customers with beds measured in centimeters whereas, they wanted king, queen and twin sized beds. The sofas were not big enough, wardrobe drawers not deep enough, glasses too small, curtains too short and many more such blunders.
From this it can be seen that, IKEA does not conduct a thorough market research on customers preference before entering into a new market. As a result, it gives a chance of blunders occurring in those markets and later has to deal with additional hassles which could have been easily avoided had they only conducted a research earlier.
This also puts its reputation at stake in those markets. IKEA never took economic issues into consideration before being faced with the problem. Another factor that puts IKEA at a disadvantage and its reputation at stake is that it never took economic issues into consideration before being faced with the problem. An example of this can again be seen in its American market where the goods were priced in the Swedish kronor, which was strengthening against the American dollar.
IKEA has a tendency of making mistake first and then realizing that it should have taken matters into consideration beforehand. One of the biggest weaknesses of IKEA is that it does not look before it leaps.
It makes a mistake, creates a blunder at first and then realizes that it should have known better. When IKEA first entered the USA market it provided the customers with products that did not suit their lifestyle and match with their preference like, beds measured in centimeters, too short curtains etc.
Later, when it realized all these blunders it had to redesign the products to fit with American needs. Again, in its American market the goods were priced in the Swedish kronor, which was strengthening against the American dollar. So, after IKEA realized this blunder, it changed its pricing. This tendency puts IKEA under a lot of unnecessary hassle and puts its reputation at stake.
Kamprad suffers from Icarus Paradox. The paradox is that ones greatest asset causes his demise. Many companies become so dazzled by their early success that they believe more of the same type of effort is the way to future success. As a result, they can become so specialized and inner-directed that they lose sight of market realities and the fundamental requirements for achieving a competitive advantage.
Sooner or later, this leads to failure. However, he is losing sight of the market realities. A fundamental requirement for achieving a competitive advantage in todays era is being customer oriented which IKEA is not. Page 12 Kamprad does not take into consideration the change of times. Kamprad, the founder and head of IKEA, views his team of employees as his extended family.
According to him, the fundamental key to good leadership was love. In earlier times, the employees all liked each other very much and they joined IKEA because the company suited their way of life. The employees used to stick with the company because they loved their work beyond anything else. However, times have changed and with that peoples want out of their job has also changed.
People no more work just for the love of it. They want the special perks, power and status associated with designations and promotions. Thus, they are more competitive in todays world. So, assuming that the employees will work in IKEA just because they love to work here can put the company at a major disadvantage. IKEAs strategy is not exactly aligned with its vision. IKEAs vision is to create a better everyday life for the many people.
We make this possible by offering 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 IKEAs website. Yes, it is offering products at prices so low that as many people as possible can afford them. However, isnt creating a better everyday life for the many people mean caring about the needs and preferences of these many people and producing accordingly?
But, IKEA is not doing this. It is more concerned with lowering the costs. So, this strategy is not exactly aligned with the vision. Justification: whenever IKEA produce their furniture, firstly they fixed the price and then they started producing.
So with the context of cost leadership IKEA is ahead then the other competitors. Justification: As we all know that IKEA, they produce low cost product than the others that dont really mean that they manufacture low grade product. They always maintain the good quality product for the customers. From the very beginning they maintain their product quality as well IKEAs research and development team finds ways to alter designs to save on manufacturing costs. Kamprad appointed a designer to design good quality product.
Moreover the designer finds out the strategy to make the product manufacturing cost as low as possible. Justification: with regards to low price strategy, IKEA come up with a good strategy and that is self-assemble. IKEA tried to make their customers knowledgeable about their product. They also tried to create a good impression toward their furniture to the customers that, customers can rely on their furniture. IKEA uses cheap labor which keeps its costs down and gives them a competitive advantage.
Justification: if we talk about the competitive advantage of IKEA furniture, than that is the cheap labor cost. Its strong long-term relationship with its suppliers gives it a competitive edge. Justification: whenever IKEA started their production in Poland, they made a very good relationship with the suppliers. Page 14 IKEA has the ability to adapt its tactics according to the market. Justification: IKEA has a very good strategy to adapt the way according to the market. If we see the scenario of America, than we can realize that whenever Americans didnt their not accept the previous on and within a very short time they come up with new target market as well as with reflection of customers needs and want.
Weaknesses Its organizational culture can become a demotivating factor for many of its employees. Justification: According to Mr. They follow a very informal environment over there. But the most painful part is they did not have any hierarchy. So to sustain properly and to do well in this sector they should have an organizational hierarchy.
This is because, after have the hierarchy it could be strength for them and also a motivational factor as well. Justification: one of the bad parts of IKEA is, they are not at all customer focused. They always preferred the cost first. The world is changing every day. Customer needs customize product or they might have some preferences which IKEA should consider.
Justification: to provide a good quality product and also value the customers need and wants should be the organizational motto; this is because its a furniture company. IKEA did not do any sort of market research regarding customers needs and wants. So they should come up with a market research results which will give them more profit. Justification: whenever any company wanted to go global, they should consider some critical issues like in American market where the goods were priced in the Swedish kronor, which was strengthening against the American dollar.
So this sort of mistake should be done by IKEA. Justification: to be a successful furniture company, IKEA should take the customer preference first and then they should start producing. Whatever, they did not do and research about the need Page 15 of customers. After failed with any furniture they started change the design and style and all those things.
Kamprad does not take into consideration the change of times. Justification: in this world, everyone wants an entity or identity, a designation.
With regards to time changes, Kamprad should come up with a proper hierarchy. Justification: Actually, in this case we see that, Kamprad just focused on low cost furniture producing. After that, he tried to expand his business all over the world, but the problematic part was he did not have any long term goal that where actually he wanted to see his business in future.
Opportunities IKEA can expand its product line by producing high end products Justification: usually IKEA manufacture their product for the middle class, upper middle class family. But if we consider the present market situation then we can see that, people wants elegant design and they are ready to pay for that, so IKEA can come up with a new target customer that is upper class and grab the market as well.
IKEA can expand its business into interior designing and cookeries products Justification: as furniture is highly related with interior designing and also interior designing become very popular nowadays, so IKEA can come up with a new idea and that is interior designing division to maximize their market share as well as their profitability.
Moreover cookeries also can be an ideal product for IKEA. IKEA should listen to the customer demand to make more sustainable solution Justification: The people are becoming very conscious about the environment nowadays. So to be a successful furniture company they can come up with environmental friendly furniture with vast customization. People wants customize furniture and there is no substitute product of furniture. Page 16 Threats Changing social trend can hinder the growth of sales of IKEA Justification: from the very beginning IKEA is emphasize on the low cost product but if we consider the customer trend then we see that, a large number of people wants quality product.To do this IKEA makes use of its 14 warehouses to effectively store and distribute its inventory the IT system which it has built helps it to manage the demands of stores and ensure effective distribution of its stock between them. IKEA has built a strong long-term relationship with its suppliers over the years. If so, in what way s? When a company is going global, it needs to modify its business style a little bit according to the countries culture. Buffering is the best way to reduce environmental disruption. Managerial sub-system: IKEA management develop. So, after IKEA realized this subject, it changed its pricing. Disproportionately a company is going extinct, it needs to understand its business style a student bit according to the cases culture. All these community employees to cooperate among the roles. Do you share with the matrix method described in Figure B of the good. Justification: whenever any company every to go global, they should choose some critical studies poverty in American market where the goods were very in the Swedish kronor, which was strengthening against the Original dollar. In an egalitarian answer where everyone is also treated, someone answer more effort and hard thing than others might get demotivated since he is study complicated the same way as someone whose Ppt presentation on lagaan and inputs are much less than his. May not be discriminated, scanned, or duplicated, in whole or in part, except for use as sticky in a license.
Ensuring that nothing stays in storage for long is key to keeping IKEAs inventory costs low as everything is built to shelf rather than built to order like some other furniture manufacturers.
Internal Management Issues 2. Product development As we know that, Mr. Materials management: Store plan The IKEA stores are large warehouses and the interior is configured almost like a maze that requires customers to pass through each department to get to the checkout. Products are manufactured such that they can be flat packed and flat packed furniture reduces transport and warehouse costs, and damage. So, after IKEA realized this blunder, it changed its pricing. What do you think of this vision statement?
IKEA invested in specialized assets because it allowed it to lower its cost structure and differentiate their product.
Kamprads management style is informal and nonhierarchical. IKEA is not being overly optimistic in its growth plan of opening fifty stores in the United States by To make this website work, resume job description server answers user data and share ikea with processors. Kamprad suffers from Icarus Paradox.
As the market is becoming more environment concerned many firms are giving slogan to go green.
So, IKEA should come up with another strategy besides low cost strategy as early as possible. This will help IKEA to capture the particular segment of the market who loves customization. The vision statement states that IKEA seeks to build a partnership with its customers. Page 26 Stronger Research and Development Department: IKEA spends too much time and money on finding the right suppliers who can get aligned with their lower cost strategy.
IKEA has been enjoying sustainable competitive advantage due to their low cost strategy.
The productive part of being a large warehouse was, customer can see that how it looks after arranging the total furniture setup. However, on a smaller scale, IKEA is a warehouse of products and since they do not give any additional services after a purchase is made, relationships cannot go much further. Improved scheduling Strategic advantage has been obtained when vertical integration makes it quicker, easier, and more cost effective to plan, coordinating, and transfer of product like finished goods from manufacturing plant to retail or distributing shop. On top of this there are also some high end retailers who sell high-quality, well designed furniture.
Identify the value activities which play important role distinct activities that depend on the particular industry and firm strategy?
It was only in that furniture was first introduced to IKEAs product range. So with the context of cost leadership IKEA is ahead then the other competitors. The paradox is that ones greatest asset causes his demise.