In this research paper we have tried to diagnose the case study of IKEA which covers the complete understanding of the business model used by the company and also the generic strategies which have been implemented by the management in the company. The main motive behind the study is to understand the ways in which such strategies are supporting the success of the business. The paper shall cover all the significant concepts and theories which are related to choice of strategy in the business and also the business models which can be worked upon by the company. We have also tried to cover the ways in which IKEA had been able to achieve the cost leadership and the ways in which it is different from the competitors in the market. The study also covers the understanding of the business model and also the drivers to its Internationalization. The hybrid approach of the company and the culture that is driven using personal values established by the founders are also the part of the study below. We have also tried recommending the changes in needed in terms of the roles of strategic leadership in the company.
The case study which is being analysed as the part of the study gives an insight on the business model which IKEA had been following and which has resulted in its Global success. The company is trying to produce furnishing products which are the price, much lower as compared to the pricing the market and this draws maximum attention of the buyers towards the company. The case also talks about the strategies of the competitors and the strategies being followed by IKEA. Also, it talks about the Globalization of the company and major reasons behind its success at International level. It has also stated about the leadership style which the company follows and ways in which it has been able to build its ground to reach large number of customers.
The excellence in terms of Business Process, excellence in manufacturing process and excellence in terms of Supply chain has helped IKEA in achieving cost leadership in the market. It has been seen that most of the companies globally are dependent on first designing the product, and then set up their prices based on the evaluation of the price being offered by the competitor and also keeping their own margin in mind. But in the case of IKEA things are quite different. IKEA had started with fixing the price of the product first and after that it develops those products which can match the price. The designers and the product engineers with IKEA ensure collaboration with suppliers to make sure of their involvement at the very beginning. The strategy is termed as early supplier involvement which supports the company in maintaining low cost. Also, the main focus of the company is designing efficiently without any kind of compromise on the quality of the product while the cost of kept low.
As the company is known for developing high standard products they are able to meet economies of scale and thus there is no wastage of time while making changes in equipment and machines. The Company ensures to use the raw material in the most efficient manner possible and it has a zero wastage and zero defect policy in place. It also applies best in class technical innovation to ensure that the cost of production is low. There may be a thorough process in the market that the company is using cheap labour but the company is known to operate 11 manufacturing units which are all established in Europe. The company is not using cheap labour instead it has less labour as they have high end automated production technology in hand. To make sure the logistics cost is low the company has various ready to assemble designs which let them utilize the flat pack transportation. This helps the company in reducing the cost of shipping as compared to its competitors. The company does most of the shipment through railways and due to unassembled furniture being transported the costing is quite low, also the risk of damage is reduced as well. The company also has strict supplier policy in place which is not only to maintain the quality but also to ensure compliance. Having a great network of suppliers and agile supply chain which is spread around the world the company generally never face any stock out. These are ways in which the company has been able to achieve cost leadership.
There are many ways in which the company is distinguished from its competitors and few of them have been listed below:
Sales and Profits: As per the graph presented by the company it has been shown that IKEA had been a great success in terms of profit between 1995 and 2001. This was because of high amount of promotion and also the new stores which had been opened around the globe.
The Market Environment: The Company is operating 231 stores in around 33 countries around the world. The products of the company have international reach and have been ableto target a large market. Due to its cost advantage over the competitors as well the company has gained a successful place in the countries across the world.
Competitive Environment: The strategic positioning for the company is really unique. The Company though is offering low customer assistance but it has created a large number of opportunities for its customers in terms of choice of transport and also the assembling units of the furniture, which helps the company to differentiate itself from its competitors.
The founders and entrepreneurs of the company have made IKEA one of the most recognized and systematic shopping experiences in terms of furniture business around the world. Based on the business routines and processes of Swedish companies IKEA has the capability to revolutionize the operations of the supply chain which in turn shall optimize the transport of the product in most time effective and cost effective manner. The founders have followed various defined strategies for making IKEA a well-established and lucrative brand. IKEA has found various ways of altering the designs for its furniture for saving on the manufacturing cost. This was done by the company using its packing designs, robust packaging and high quality transport system. The assemble it yourself mode is one of the best strategies that the company is following nowadays. Such improvements in terms of processes of logistics and production followed by IKEA has stated the philosophy which the company follows which includes providing cheap products through production which is enabled in a cost effective manner.
The Company to brand itself showcases the products in large yellow and blue outlets which look like maze and this makes the customer travel every section, resulting in a large amount of impulsive buying. The company has also offered an open warehouse system which is well known as a self-service approach system. In this customers are allowed to easily pick and choose the products and this concept gained a lot of acceptance in foreign countries.
Foreign Market Policy:The Company first had its focus on the European Market with the help of the same operational formulas and products which it used in Sweden. This helped them in building a great market share and improved the overall sales figures as well. IKEA then took the concept to other countries as well. As the concept was quite unique and had a Swedish touch to it the company was able to stand different from domestic, local competition.
While globalizing IKEA, the retailers were using the same kind of home base exploiting. The company has its own R&D, production, design and logistic units which follows the same format across all the regions. The company entered the Chinese market in the 1980s which happened as the result of Chinese industrialization and this led to increase in education, income and urbanization. These improvements that the country witnessed and also due to increase in demand for privately owned homes, there was a great increase in the needs of furniture. But it was a challenge for the company to establish itself in China due to its varied culture but its understanding around developing the network gave it a stand even in such tough markets.
The main reasons which led to easy internationalization of the Company includes the following:
-Supplier Network: The Company has outsourced its supply network to Eastern Europe. The company has its focus on the optimization of the supply chain management and product development at international level. The global expansion of the company also led to the increments in terms of efficient entry strategies and vertical FDIs. Also, it acquired Sweedwood Group for the National Production.
-Low Cost Strategy: IKEA is known to cut the cost by around 30 percent to match the prices being offered by the rivals in the international market. They did that by making rigorous changes in the product development. The management in the company has mentioned the importance of having relentless cost cutting and steely competitiveness for lowering the prices of the goods by around 3% each year.
-Routines: The Company has somehow streamlined the operations with their local suppliers for creating and developing a well-established supply chain and they also have offered flat packaged products in order to ensure decrease in cost of shipping to the international market.
Using the Hybrid approach the company has been able to simultaneously achieve differentiation and also offer a lower price as compared to the competitors, which has helped the company in achieving better volume. The company is known to counterbalance all its risk in terms of using generic competitive strategy by using cost leadership strategies.
It has also been seen that as the Company is able to opt for hybrid strategy they seem to present higher performance as compared to the ones following differentiation or cost leadership. The product differentiation which the company did helped it in fulfilling the needs of the customers and also involved tailoring of the services and products for the customers. This has allowed the company in capturing the market share. The strategy has been effectively implemented as the company has been able to provide superior and unique value to all its customers by ensuring quality of the product.
Such sense of differentiation has helped the company in developing strong brand loyalty which helped them in lowering the price sensitivity. This also helped the company in facing rivalry. Also lacking acceptable alternatives having comparable combination of cost and feature which the company offered, IKEA was able to dominate the market well.
The organizational culture of IKEA as has been defined by founder is as per the following principles:
-High level informality and simplicity: As has been witnessed humbleness while approaching the tasks and also the simplicity in terms of work performance have been stated as cornerstone in the IKEA culture. Like in IKEA US just a few of them are given business cards and the rest are working on a first name basis and people sit near each other at desks.
-The company values teamwork: People who wish to work as one man army are not entrained in the company and do not fit in the IKEA culture. The Company has made it clear that they want to ensure that they employ who have an appreciating behaviour for culture and share the values of the company as well. This is the reason that people who are the prospect hire in the company have to take an online test which is the combination of 10 questions that define different work based scenarios, to see their choice of action in all these situations. The test outcome helps the management in judging if the person is the right fit into the system.
Respecting diversity in the organization and ways of performing things: The Company has made it a policy to have 70% of all employees and also 40% of the management level employees to be women. The company has its complete support in terms of rights of the LGBT and employees to behave themselves. The company has also been targeting to increase the count of minority groups in the society in their workforce. The company even after being the largest retailer of furniture manufacturing front has a belief that it is important to recognise the differences in the employee’s contribution in terms of support and creativity, as it shall add to the growth of the business organization.
Frugality: The founder of the Company and a well known long term leader was known for the frugal money habits like driving his 1993 Volvo 240 GL approximately for two decades, getting clothes from some local flea market and having haircuts during the travel to some developing countries in order to save money. This level of frugality of the owner was well reflected in the culture of the company to a great extent, which made management maintain cost at all levels and in almost all the areas of business.
The organizational norms which had been setup by the founder has made the company find its place in the tough market and still survive with high levels of profits. Also, it ensures the level of satisfaction of employees to contribute at a better level and improve the performance of the company as a whole. The values are quite predictive of the culture which the company has in place and which has resulted in overall achievements of the company in the International Market. It also helped the company in standardizing their working culture around the globe which makes it easier for the management to track the progress around various areas of work.
It has been stated by experts that Strategic Leadership is potential for any management while they express the strategic vision of any organization or a part of it. This is a means to persuade people to acquire the vision. It is also a means for managing the employees at all levels. It is necessary to organize the members in the organization and also make all the probable changes. These strategic leaders are responsible for developing the organization structure and they are the ones who develop vision for the organization.
It has been seen that IKEA has been great at market performance while profit figures are concerned and even the working culture has been quite appreciated but the company needs to consider a few necessary qualities in their strategic leaders which can as below:
-Staying Up to Date: Any leader to remain efficient has to ensure that he stays updated in terms of all the happenings in the organization. They should have their reach to all the sources in the organization, to have regular updates and insights.
Great Perspective and longer term approach: These leaders are expected to have major levels of expertise not only in a few fields but in all fields in which the organization functions. It will help him in having a close look on all kinds of developments and weak areas in the system.
Motivating and staying Motivated: These leaders should stay motivated at all times and should have attachment to the system and not just money or domination. They should be goal driven and should target achieving goals through energy and will power.
Compassionate towards work: These leaders should be having great understanding of the viewpoints of people at work and should always make decisions by seeking advice and opinions of even the subordinates in the system.
It is very clear from the study above IKEA is one of the best business models that a company may opt for. The company follows customer satisfaction as the key to win strategy and thus it has been able to work on profit figures in a great manner through the years. The Management of the company is strong and people working with them rely on the management and founders as well. This helps in ensuring stakeholder’s trust in the brand which is the other big reason for success of the Company at Global level in all possible manners.
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