IKEA Company’s Innovation and Success

Introduction

Ingvar Kamprad Elmtaryd Agunnaryd (IKEA) is one of largest companies dealing in retailing of furniture globally. IKEA sells furniture besides household items like pillows, rugs and lighting items. The corporation has 165 stores worldwide operating in 22 countries. Apart from this, 21 stores are run through a franchise operating outside IKEA company group. IKEA designs products while contracting much of production to 1600 suppliers in 55 countries. IKEA has a number of competitors including Mio which is leading Sweden furniture stores, Europa Mobler which is still a Sweden leading store, Bokoncept which is a Denmark chain and Bolia a Danish furniture designer among others (Globaldata, 2010 p.1).

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Profit, Income and Awards

IKEA has grown from a humble beginning of meager income of 1 million Euros in 1954 to a turnover of more than 22,700 million Euros in 2009, with an employee base of more than. The table below shows a summary of the overall turnover of the company from all the stores excluding sales tax from the year 2004 to 2009.

IKEA Turnover from 2004 to 2009

Year Turnover (Million EURO)
2004 13,570
2005 15,212
2006 17658
2007 20,685
2008 22,498
2009 22,713

Source: Inter IKEA 2010.

Following its contribution in the global market IKEA has received a number of awards. In the year 2004 and 2005 IKEA was awarded among the overall hundred best performing by the “working mothers” while in 2006 it was the 96th best company to work as revealed by the fortune’s hundred best companies award team. In 2008 IKEA was named among the Canadian’s top hundred employers by a survey that was conducted by mediacorp Incorporation (IKEA Canada 2010).

Innovation

Definition

Innovation can be described as the application of new ideas so as to develop a product, service or process. It is not only concerned with coming up with new ideas, but rather taking it to the market too and using it in a way that generate goods, services or processes that improve on previous quality. Innovation will comprise of technological and management restructuring. Use of new technology and encouraging new ideas to add value and bring about significant change in a given society is a character of innovation. Different types of innovations that exist include product innovations where new product is introduced into the market; process innovation which encompasses implementation of enhanced techniques and supply chain where there is improved sourcing and delivery of products (Shukla, 2009 p.1).

Open innovation

Open Innovation Chart
Open Innovation Chart. Source: Chesbrough, H. (2010).

Currently, open innovation is the most common form of innovation in most companies as the researchers are able to go beyond organizational boundaries as indicated by dashed lines in the above chart. Other companies that need to utilize the technique are supposed to be licensed first before they can take advantage of the new technology. Green lines show techniques licensed to other firms that would otherwise be idle and were not developed by firm but could be useful in an organization’s operations (Chesbrough, 2003 p.45).

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Importance of innovation to organizations

Innovation is and continues to be important to every organization and its significance is becoming evident as it becomes a key player in strategic planning. Innovation has been said to lead to enhanced earnings besides helping in continuous sustaining of organizations. In order to be important, most organizations are coming up with strong products or services. Companies are coming up with measures to sustain their innovation like development of dependable operating systems (Shukla, 2009 p.1).

Drivers of innovation

Upward trends in demand and rivalry among firms have been the major drivers for innovation. Rivalry leads to innovation and production while social expectations are playing a crucial role in innovation. Increased knowledge on social values, co-dependency concepts and a focused society with different ideas on technology are the social factors leading to innovation. Organizations are being forced to fulfill the conditions or be thrown out of business (Dearing, 2000 p.9).

Innovation strategy

Main idea behind IKEA’s innovations is to produce furniture of high quality and offer it at low prices. The company undertakes changes based on quality which is practical while at the same time being reasonably cheap. All the years, the company has made new products by use of innovative designs, better manufacturing and distribution techniques. Distribution process is innovative as they are based on cash and carry techniques. Customers get products from the warehouses, assume delivery and assemblage too. All this innovative ideas increase production as the company employs few workers. On top of this, IKEA has come up with technological instruments giving clients an opportunity to plan for products to purchase (China Daily, 2004 p.1).

Why IKEA”s innovations were successful

A fundamental consideration in any successful innovation is its uptake by the intended recipients. Lundrugen in 1956 realized the need to adapt IKEA’s products to customer’s needs by realizing that a table would not fit at the boot of his car. That started a successful branding campaign that have been a determining force in the company’s success. In overall, analysts see the success as emanating from the company’s branding; the whole branding aim is to satisfy the customers; IKEA ensures that when customers’ gets into its stores, they can only go out through one exit which ensures that they go through al the items in the stores therefore undergoing a unique IKEA customer experience. In addition, there is a sense of frugality in IKEA. Its founder, Kaprad , a frugal business man principles of humility, affordability and limited wastage were incorporated in the initial stages of the brand. The culture has been developed to the workers who have a sense of creativity and minimum wastage. Due to production of affordable goods, customers perceived the company as one that believed in quality and social equality, which endeared it to customers (CMR 2009: 1). The success in its innovation can also be attributed to other defining facts namely; affordability, adoption of similar store patterns and adapting to customer’s cultures.

Factors leading to successful innovation in IKEA

Employees

The Company has around 70,500 employees (Globaldata, 2010 p.1). Its culture has been built on recognizing importance of each employee. For instance, employees travel to assist during major events such as opening of large stores. The organization has used minimal number of workers by use of innovative production and distribution techniques. Products from IKEA are kept simple so that clients can assemble and deliver without help of employees (Oredsson, 2008 p.1).

Areas of operations

On inception, IKEA operated in Sweden only and in urban areas. It took initiative to expand later and today, it operates in 22 countries with 165 stores. It still has plans to open 130 more stores in North America, Asia and Europe in the next five years. This has enabled IKEA serve a wide number of clients with their innovative techniques (Reuters Research International, 2010 p.1).

Globalization

Under its global strategy, the organization has suppliers at low cost nations who have access to raw materials and can access a distribution channel that is reliable. The suppliers manufacture products of high quality which target global market making the organization enjoy economies of scale. IKEA does not only aim at integrating operations only and design products only but to also combine quality, cost and technology in manufacture of their products (China Daily, 2004 p.1).

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Conclusion

Innovation is often thought to comprise of creativity and flexibility. IKEA analysis has shown that having the idea to innovate is also necessary in addition to being in a position to deliver it in a manner that is in line with an organization’s mission. Equally to this is presence of a mission which finds its roots in an organizational culture. This is what IKEA has shown over the years as it furnishes houses in different parts of the world. Culture built by IKEA has made it hard for organizations to beat it in its operations. Innovation has always been based on how the products can be used, how cool they are perceived to be and how much they lead expectations (Denison, 2008 p.1).

Innovation involves introduction of new products, processes or services to the market. In order to increase earnings and to have a competitive edge than the rivals, an organization must develop a sustainable innovation by introducing strong products, services or processes. Rivalry and increase of customer base drives innovation in addition to social expectations. IKEA has taken the initiative of ensuring that the innovative strategy is a sustainable one. IKEA has over time improved on quality of products it offers and increasing quantity too. All the products come at cheap prices hence increasing loyalty of clients. Increased customer base by extending to other regions has also been a strategy of innovation adopted by IKEA. IKEA too has realized that a good culture is what contributes to a good innovation strategy and the company has built on this. The culture established by IKEA has proved hard to be beaten by other organizations. In all the years, the organization has delivered to its clients’ better products which complement their mission and culture. This is what entails innovation, meaning that IKEA is on the right path towards sustainable innovation (Denison, 2008 p.1).

List of References

Center for management Research (2009). IKEA-global Marketing strategy. Web.

Chesbrough, H., 2003. New imperative for creating & profiting from technology. Boston, Massachusetts: Harvard Business School Publishing Corporation.

Chesbrough, H., 2010. Open Learning, Web.

China Daily, 2004. IKEA outlines mainland expansion plan. Web.

Dearing, A., 2000. Sustainable innovation: drivers and barriers. World Business Council for Sustainable Development, Geneva.

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Denison, D., 2008. Creating a successful culture of innovation: 1% inspiration, 99 % perspiration. Web.

Globaldata, (2010). IKEA. Company summary. Web.

IKEA Canada 2010. IKEA Chosen as a top Employer for 2010. Web.

Inter IKEA, 2010. IKEA Facts and Figures, Web.

Oredsson, U., 2008. The secret behind IKEA lies in its employees. Web.

Reuters Research international 2010. IKEA. Web.

Shukla, A. 2009. What is innovation? Why innovation is important. Web.

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