What is Ikea’s strategy? Porter’s three generic strategies
Porter had five generic strategies on business and they were Bargaining power of its customers, Threat from new entrants, threat from substitute product, bargaining power of suppliers, competitive rivalry within an industry.
Ingvar had a plan in mind very much like the Porter strategies E.g.: – Competitive rivalry within an industry. At the base of this strategy was his vision of his company and its image. He called it “our Identity” and he brought in essential products for the consumer home.
He wanted his consumers to have a stable prize of his 20, 000 products throughout the year, and this lead to his plan on delivering IKEA’s Vision to the consumers. First its was finding low-cost material for the product range , and in the early 1960 the trend to replace Teak a more expensive wood with oak was implemented and in turn pass on the benefit to its consumers who accepted it widely and the 1970’s. This helped give his company an edge over its competitors.
Secondly, they looked to have some of their product outsourced to manufactures, which had excess capacity in their production units and assured the manufactures to produce first and then they would look at selling the product, rather than produce on demand which was unusual for the way IKEA ran their business , who always had a high inventory. However In turn they saved on buying their own machinery and factories, it also provided customers with faster delivery.
It seemed IKEAS was not only concerned with its consumers but they took care of their suppliers as well both in terms of financially and technically, from assisting the suppliers in setting up factories to designing them and assuring a creditable amount of business. It seemed IKEA always maintained a high inventory to boost its commitment to its consumers as well as its suppliers.
IKEA also spend a lot focusing on its culture, strategy and organizational skills and in a way IKEA really ran its company based on Kamprad’s view of life and his vision, which were Cost Consciousness, their willingness to assist their customers, their humbleness and simplicity in their behavior.
What were the sources of IKEA’s successful entry into furniture retailing in Sweden?
Swedish manufacturer and its the retailer kept the pricing high and the consumer was been burdened by it even though that demand was growing, as a result furniture price rose to 41 percent. This lead to a lot of resentment among the consumers who were looking for a change from the pricing and the age-old tradition of Swedish custom-made furniture for something new. Ingvar found this situation as an opportunity.
He started participating in trade fairs and brought down his products so that a majority of the population could afford them. It appears that IKEA not only focused on its costing, but also focused more on the retailing stores to bring in customers frequently.
However, due to the growing resentment among the other competitors who pressured the manufactures to stop selling their services to IKEA, which forced IKEA to look for independent manufactures. This in turn helped IKEA bring down their prices even further, as the independent manufactures were far cheaper. IKEA always kept itself updated on market trends and new ideas on taking care of their customers changing needs
How important was internationalization to IKEA? What challenges did IKEA face while expanding internationally, and how did it overcome them?
Kamprad was a man with a future vision and his success in the Swedish market boasted his morals, at the time of expansion into Europe he had 15% percent of the Swedish market , however in the 1970’s Swedish furniture market was on the downsize , which forced IKEA to look for better business elsewhere.
To sustain itself IKEA realized that they must grow beyond the boundaries of Sweden and have the product go international.
“It is our duty to expand,” said Kampard once, ignoring the economic downturn in 1973 caused by the oil. He pushed through his expansion plan and fortunately it worked in his favor.
His overhead costs were really low. Due to its drive, on cost-cutting, he knew in Sweden his customers really appreciated the value for their money. He wanted to expand his business to the German-speaking countries, as they constituted the largest chunk of the furniture market, and with Switzerland been his first priority.
One of the challenges they faced was their competitors and when they set stores in the US. One company called Stor copied their products and store design in the exact detail, which promoted IKEA to take legal action. IKEA spend considerable time with the management on designs and purchasing to meet the country’s standards and requirements.
Other challenges were bringing the IKEA values and culture to the new staff. It seemed when they tapped the American market, even though the staff was more educated there were differences between attitudes of the Americans and Scandinavia. because of the job insecurity the American stall was always looking for guidance.and the IKEA way required them to be more open and willing to take responsibility towards their work and IKE’s future growth. Even though the training was provided, it still did not make way in bringing the whole IKEA value among.
The other challenge is when the ventured into a new country it was important the top-level management is ambassador of the IKEA way of business , and all non-Scandinavian were on their distribution services.
It did have a resentment among some of the top-level management, as they felt too much was been put into the IKEA or rather Kamprad ideology, he was obsessed with his own ideas. Kamprad and the top-level management also felt that most of their staff and especially senior executives came from the retail business and it was not in the IKEA interest to employees any furthermore. Installing the IKEA value and its way of life was proving to be difficult.
It seemed this was proving to be a bigger problem to IKEA is trying to push its concepts and idea across all its stores in different countries. For example the US market demanded space for the TV sets but the European markets were of books and IKEA was trying to sell the books shelves to the American people. IKEA was trying to sell its hometown concepts to the world and it didn’t seem to go well with some of the management’s staff. Who thought you cannot change a culture and if business must flourish, IKEA must adapt with the market trend.
Kamprad then had a lot of meeting with his lover level management and designers who actually were his front line staff driving the business.
What was Ingvar Kamprad’s role in IKEA’s development?
IKEA is the initials of its founder, Ingvar Kampard, his farm Elmtraryd and his country, Agunnard, In Smaland South Sweden.
At a young man Ingvar saw a potential in the furniture business and it was during the post–war boom, did the opportunity to raze IKEA to new standards. By taking advanced of his competitors who were selling their goods at a high value he minimized his price and looked at volume to beat them in the retail market.
He understood that the consumers market was large but due to the high pricing on home furniture, it was just catering to a smaller segment. This promoted IKEA to take part in trade exhibitions and get better coverage on their low-cost products.
It was in 1953 did Kamprad convert an unused factory into a warehouse cum showroom. From a sale turnover of SKr 3 million it grew to SKr 6 million in 1955.
He introduced the self-service concept and its distribution of informative catalogs along with the cash. Kamprad created a legacy in the way he ran his business turning it into an empire. For IKEA, Kampard took the company like a newborn baby and nurtured it to its adulthood having a vision of its future.
It was between 1965 to 1973 IKEA open seven large stores in Scandinavia and in the process having 15 % percent of the total Swedish market. It was his target audience of catering to the younger middle-class generations that seen IKEA reach a faster growth in Sweden.
He wanted the have the majority of the population by IKEA’s products by giving them low cost, high-value goods. That’s why IKEA became the world’s largest home furnishing retailer with a huge network of furnishing stores.
When he decided to expand even despite the fact that others thought, the furniture business was a local segment and would not do well abroad. Ignoring the economy down in the 1970’s he entered the European market opening a large store in the suburban market in Zurich.
With a heavy advertising budget, the stores attracted 650, 000 in the first year itself.He then realized that West Germany was one of the largest markets , however the German retailers used to hold less inventory and as a result the consumers had to wait for weeks on end , promoting Kampard to stock a large inventory and promising his customers immediate delivery.
Business grew for IKEA which lead the company to open 10 new stores in West Germany over a five-year period. But one of the key successes of IKEA was its unique style of running its business. He wanted to improve people’s lifestyle and he was known as a visionary. And he went into the micro-level management of his business and could operate at any level. He was in constant touch with all level management, including the designers and his purchasing group.
His focus on details kept the IKEA staff on their toes however he was against exaggerated planning and stuck to simplicity. He allowed his staff to express their views and ideas as he thought it was the foundation of what IKEA believed in. a good example was when the first IKEA store was opened and the store could not handle the rush. One of the Managers suggested that the customers directly go to their warehouse to pick their purchases; the result was faster service and cost-saving.
He focused on values and created a thesis called “Testament of a furniture dealer “which became IKEA culture and philosophy.
Kamprad spends a lot of time developing new ideas installing and reinforcing old ones and continuing with vigor and his vision. He had a working formula and he just insured when the company expanded his idea didn’t vanish with it. He ensured new young recruits in the organization educate them on his legacy.
What challenges lie ahead for IKEA?
It seems IKEA was growing rapidly and talks within the company were questioned about their phenomenal growth and if they could handle it. In the US they were opening 5 to 6 outlets compared to 2 to 3 a few years ago. They knew by the year 2000 income level of the middle class was expected to rise and they were looking for expanding into other segments, from modern-day office furniture and traditional designs for the older richer class and they had to keep up with the demand and other competitors. It also seemed when the profit grew there was a tendency of willing issues among the staff who wanted a share of the profit and were not willing to work for it.
There was another challenge IKEA was facing and that was if they could still maintain the quality and cultural values, that consumers first recognized in the company. The other concerns were its staffing and having an phenomenal growth needed them to recruit more staff worldwide. Most of the 13,000 were new and it kept mounting up to a 1000 annually. This staff needed to be trained in the IKEA way.
Having stores in different countries meant IKEA needed to think globally and not go into a shell. They had to keep on updating themselves with the latest trends and keeping close touch with their designers that would be the need of the hour. Under Kampard IKEA did employ their young staff in their management programs and not or try avoiding hiring management from outside the company. One of the benefits of inside growth among its staff would add as a motivational factor and the other is the staff are well aware of IKEA’s legacy.
IKEA did face another issue with its ideology and at times there was resentment on the way Kamprad forced his Ideas. Kamprad created an empire and was obsessed with the company and he wanted others to do it as well, which meant dedicated your life towards the company goal. Now when it was time for Kamprad to retire he faced a vacuum from within and who would be the driving force once he left.
One of the most important factors that would decide on the faith of IKEA is its ability to maintain its standard of operations and continue Kampard’s legacy. It’s also how much the company can adapt IKEA’s organizational and cultural status. The IKEA management must keep in mind and follow what Kamparad once advised that ideology is not the work of one man but the sum of many impulses from all the IKEA leadership.