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Coursework Front Sheet

Module Title: Strategic Management

Date: 29th March 2015

Word Count: 3271

Coursework Title: Strategic Management IKEA Student: Anastasia Pahl

Table  of  contents  

1. Introduction ......................................................................................................... 3  

2. IKEA´s vision ...................................................................................................... 3  

3. Strategy definition ............................................................................................... 3  

3.1 IKEA´s strategies .......................................................................................... 4  

3.2 Prescriptive approach definition ................................................................... 4  

3.2.1 IKEA´s long-term strategy ..................................................................... 4  

3.2.2 Suppliers ................................................................................................. 5  

3.2.3 Financial changes ................................................................................... 5  

3.2.4 International markets .............................................................................. 5  

3.2.5 Sustainability .......................................................................................... 6  

3.3 Emergent approach definition ....................................................................... 7  

3.3.1. IKEA´s short-term strategy ................................................................... 7  

3.3.2. Stores ..................................................................................................... 7  

3.3.3. Sustainability ......................................................................................... 8  

4. SWOT Definition ................................................................................................ 8  

4.1 Strengths ........................................................................................................ 8  

4.2 Weaknesses ................................................................................................... 9  

4.3 Opportunities ............................................................................................... 10  

4.4 Threats ......................................................................................................... 10  

5. Organisational structure .................................................................................... 11  

5.1 IKEA´s organisational structure .................................................................. 12  

5.2 IKEA organisation ...................................................................................... 13  

6. Impact of current strategy on organisational structure ...................................... 14  

7. Conclusion ......................................................................................................... 15  

8. Bibliography ...................................................................................................... 16  

9. Reflective Diary ................................................................................................ 19  

9.1. Introduction ................................................................................................ 19  

9.2. Concrete Experience (Kolb, 1984) ............................................................. 19  

9.3. Reflective Observation (Kolb, 1984) ......................................................... 19  

9.4. Abstract Conceptualisation (Kolb, 1984) ................................................... 19  

9.5. Conclusion .................................................................................................. 20  

9.6. Bibliography ............................................................................................... 20  

1. Introduction

This is a report investigating and analysing the vision and strategy that is currently

pursued by IKEA. An evaluation of the prescriptive and the emergent approach

were subsequently explained and a SWOT analysis in relation with its competitors

was carried out. The impact of the current strategic direction on the organisational

structure of IKEA was critically assessed and reviewed in comparison with

academic literatures.

IKEA is an internationally known home furnishing retailer, recognised for its

Scandinavian style. Since its foundation, by Ingvar Kamprad, in 1943, it has

grown rapidly to a global business. (The Times, 2009)

2. IKEA´s vision

The global furniture retailer IKEA has a clear strategic positioning and three

distinct features: function, quality and low prices. (Fill, 2013) Therefore it targets

young furniture buyers who want style at low cost (Porter, 1996) and provides a

wider range of products, which can serve a variety of their needs. The IKEA

vision “to create a better everyday life for the many people” puts the concern for

people and the environment at the heart of the business. (Thompson & Martin,

2005)

What turns this marketing concept into a strategic positioning is the tailored set of

activities that make it work. (Porter, 1996)

3. Strategy definition

Strategy is the direction and scope of an organisation over the long term: which

achieves advantage in a changing environment through its configuration of

resources and competences with the aim of fulfilling stakeholder expectations.

(Johnson, Scholes, & Whittington, 2009)

Strategic management is a field that deals with the major intended and emergent

initiatives taken by general managers on behalf of the owners, involving

utilization of resources, to enhance the performance of firms in their external

environments. (Reasearchomatic, 2013-2015)

3.1 IKEA´s strategies

Following all of Porters generic strategies, IKEA´s mission statement indicates a

cost leadership strategy. However, the company is also applying an indirect

differentiation strategy due to its unique way of incorporating the customer in the

value chain. Therefore it can be said that this combination indicates a focus

strategy. (Dahmann, Mohamed, Adel, Sameer, & Dahman, 2011)

3.2 Prescriptive approach definition

The prescriptive approach view considers the process of strategic planning more

formal. It considers that the future can be predicted, and decisions can be made for

the long term. Setting the direction of the company, and then strict adherence to

those decisions by the top management is the only way to achieve success in

strategic planning. It ensures the direction of the company is towards its achieving

the mission and goals set earlier. (Reasearchomatic, 2013-2015)

Such an approach usually starts with an analysis of the outside environment and

the resources of the company. After developing the objectives of the organisation,

strategic options in order to achieve these objectives need to be chosen for

implementation. (UK Essays, 2015)

3.2.1 IKEA´s long-term strategy

IKEA is undoubtedly driven by a strong mission oriented focus. Mission-driven

organisations, like IKEA, possess strong normative beliefs and entrepreneurial

traits. Thus a comprehensive plan needs to take multiple, often complex systems

that must interact. Therefore, in contrast, at various levels IKEA also possess

uniqueness in terms of experience in handling different situations, leading to a

long-term approach. (Söderman, 2012)

3.2.2 Suppliers

IKEA believes in creating long-term partnerships with its suppliers in order to

achieve its goals. By committing to buying large volumes over a number of years,

IKEA can negotiate lower prices. However this also benefits the suppliers because

they enjoy the greater security of having guaranteed orders. (Business Case

Studies, 2015)

Moreover the Swedish retailer also has an IWAY, which is the ‘IKEA way’ of

purchasing home furnishing products from suppliers and is based on a code of

conduct, which incorporates international conventions on relationships between

IKEA and its suppliers. (Griffiths & Stuart, 2010)

3.2.3 Financial changes

Starting in 2008, facing rising prices and a global recession, IKEA set out on a

new strategic path. While other businesses concentrated on cutting costs by laying

off people or cutting back on capital expenditure, IKEA differentiated itself by

rethinking its practices and undergoing structural changes. The retailer started

offering even lower processes to consumers, while positioning itself for long-term

growth. IKEA accomplished this through focusing relentlessly on separating

productive investments from unnecessary expenses. Furthermore IKEA invested

100% of its net savings on building up the essential qualities of its business or

lowering the price of its products. The results to date show an impressive annual

growth by 10% and stable margins, despite the ongoing price reductions and

economic pressure of the past few years.

However IKEA does not change its strategic directions very often. It tends to

build on their strategy helping a lot with alignments. (Caglar, Marco, & Kleiner,

2012)

3.2.4 International markets

Due to the fact that IKEA is an international business that works all over the

world it also has a market driven approach. This approach is based upon changing

existing conditions by developing unique internal business processes to shape the

market structure, to lead customers and to offer them completely new value

prepositions. (Tarnovskaya, 2009)

IKEA had to make a number of changes to its marketing strategy in the US and

China. The company had to customise its products based on local needs.

American customers, for instance, demanded bigger beds and bigger closets while

Chinese customers had smaller apartments than the European market and thus

demanded smaller furniture. (Chu, Girdhar, & Sood, 2013)

Further is to say that the establishment of department stores, after careful analysis

of buying patterns and purchasing power, including perceived consumer values,

are, and will remain, important for the global retailer. (Söderman, 2012)

Whether those strategies are long term or emergent is up for discussion, as

emergent approaches are slightly to become prescriptive.

3.2.5 Sustainability

Due to the increase of customer awareness and their demand for more sustainable

products, tougher legislation and limits in resources, companies have started to

embrace environmental sustainability. Consequently there are long-term financial

and non-financial benefits for companies that adopt sustainability initiatives.

However, sustainability has been an important issue for IKEA in many aspects,

but recently it is considered as the forth cornerstone, besides people, growth and

costs, in IKEA´s business, to be integrated in long term strategies. (Komassi &

Pal, 2013)

The Swedish retailer has an ongoing commitment to sustainability programs that

impact its business while leading its customers in good environmental practices.

Considering the changes worldwide such as climate change, IKEA intends to

become energy independent with 100% renewable energy. Furthermore IKEA

anticipates owning its own zero carbon electricity generation as part of its long-

term financial strategy as well as a value-driven sustainability strategy. (Waghorn,

2013)

3.3 Emergent approach definition

The emergent approach is a set of certain consistent actions that form an

unintended pattern that was not initially anticipated or intended in the initial

planning phase. (Business Dictionary, 2015) It is more experimental, a strategy

that is constantly adjusted in the light of operational reality. This implies a more

short-term tactical approach to planning. (Kaplan & Norton, 1996)

However, the emergent approach to strategic planning provides a truly sustaining

competitive advantage by contending todays organisations ability to learn and to

adapt. (Reasearchomatic, 2013-2015)

3.3.1. IKEA´s short-term strategy

The Swedish furniture giant IKEA was founded by entrepreneur Ingvar Kamprad

in 1943. He began by selling pens, wallets and watches by going door to door to

his customers. When he started selling his low-priced furniture, his competitors

did everything to stop him. Local suppliers were banned from providing raw

material and furniture to IKEA, and the company was not allowed to showcase its

furniture in industry exhibitions. IKEA had to make constantly new decisions and

therefore innovated to stay in business. It learnt how to design its own furniture,

bought raw material from suppliers in Poland, and created its own exhibitions.

Today, IKEA is the world's largest furniture retail chain and has more than 300

stores globally. (Chu, Girdhar, & Sood, 2013) Part of IKEA´s culture is grounded

in performing activities differently from its rivals. It managed to differentiate

itself from the competitors by experimenting with new approaches. (Porter, 1996)

Starting out as a short-term strategy, IKEA constantly had to change its directions

in the first years of existence. However it is possible to say, that the decisions that

were made in the past have lasted for a long period and were continuously

developed through the terms of existence, turning IKEA´s strategy into a

prescriptive approach.

3.3.2. Stores

IKEA is empowering its co-workers to make decisions by keeping the centre of

the company relatively lean. The company tries not to make too many decisions

centrally that would be better made in stores or factories close to customers and

suppliers. This approach allows stores and factories to be more flexible. (Caglar,

Marco, & Kleiner, 2012)

3.3.3. Sustainability

IKEA´s strategy in short term is focused on finding critical products using

sustainability assessment tools. In order to measure sustainability and classify the

products in two groups of more sustainable and less sustainable products, IKEA

of Sweden (IOS) developed the tool SPS Sustainability Product Scorecard.

(Komassi & Pal, 2013)

4. SWOT Definition

A SWOT Analysis is a strategic planning tool that helps a business to focus on

key issues and to reach its objectives. Strengths and weaknesses are internal

aspects within the control of the business. They may refer to aspects of marketing,

finance, manufacturing or organisation. Opportunities and threats are external

factors that are outside the control of the business. These may include the

environment, the economic situation, social changes or technological advances.

(Business Case Studies, 2015)

4.1 Strengths

Quality and low prices

IKEA´s strength could be found in its provision of highly functional, quality

furniture at affordable prices. In comparison to its competitors which either sell

expensive high quality products or cheap low quality products, IKEA was able to

find a niche market that meets the amends of its customers. Though operating in

many cases, under a franchise arrangement in some countries, the uniformity in

terms of product design and quality across the world has enhanced the company´s

strength and its dependability among consumers. (Ayodele, 2015)

Efficient value chain system

While typical furniture stores deal with third party manufacturers to produce their

goods, IKEA designs most of its own low-cost, modular, ready-to-assemble

furniture to fit its positioning. (Porter, 1996) Therefore the company has a very

efficient value chain system which is constantly reviewed toward ensuring clients

get highly competitive services for the majority of its products, providing IKEA

with a competitive advantage in the industry. (Ayodele, 2015)

Ownership of retail stores

In contrast to its competitors IKEA owns all of its buildings and land, all retail

stores are custom built and designed for efficiency and sales potential to increase

a long-term growth. (Caglar, Marco, & Kleiner, 2012)

Sustainability approach

IKEA´s concern for people and the environment encourages it to make better use

of both raw materials and energy. This keeps costs down and helps the company

to reach its green targets and have an overall positive impact on the environment

in the industry market.

Despite creating the same products from fewer materials with new lower costs for

customers, IKEA also recycles the leftovers of already produced products by

creating completely new ones. Furthermore by introducing flat packaging they are

able to ship more items in a single trip. (IKEA, 2011) (Business Case Studies,

2015)

Extra services

IKEA offers a number of extra services that its competitors do not. In-store

childcare is one; extended hours are another. Those services are uniquely aligned

with the needs of its customers. (Porter, 1996)

4.2 Weaknesses

Low level of customer service

Many trade-offs reflect inflexibilities in machinery, people, or systems. The more

IKEA has configured its activities to lower costs by having its customers do their

own assembly and delivery, the less able it is to satisfy customers who require

higher levels of service. (Porter, 1996)

Quality and low prices balance

IKEA´s vision to provide as many people as possible with low cost furniture

needs to be balanced against producing good quality. Competitors, who offer

more expensive goods, do not have to reduce their quality to stay in the same

price margin. (The Times, 2009)

4.3 Opportunities

Greener products

IKEA may identify opportunities in providing greener products for its clientele

and further educating the public in waste reduction in the area of furniture usage.

By offering a service like taking in old furniture in exchange of buying new one,

IKEA would follow an excellent example that is already practiced by a lot of

competitors. (Ayodele, 2015) (The Times, 2009)

Demand for low priced furniture

A growing demand for low priced furniture could become a bigger trend in the

current financial climate. Therefore customers may be trading down from more

expensive competitors. (Business Case Studies, 2015)

Expansion into emerging markets

Another opportunity lies in the company’s expansion into the emerging markets

and the developing world where it has an untapped customer base that can be

leveraged for effective profitability. (MSG, 2013)

4.4 Threats

Unexpected events

Threats to IKEA include the downturn economic recession experienced

throughout the United Kingdom and Europe. This has affected the consumers

purchasing power and in turn, general sales in the industry. (Ayodele, 2015)

More competition

More competitors are delving into the home and office furniture industry equally

providing budget cost downturn pricing, thus penetrating considerably into

IKEA´s market share. (The Times, 2009)

IKEA’s low cost business model has been imitated and copied by its rivals, which

means that the company needs to constantly innovate if it wants to stay ahead of

the competition. For instance, several regional and local companies have caught

on to the DIY bandwagon and are also focusing on costs, which means that to stay

nimble and agile, IKEA has to come up with newer strategies. (MSG, 2013)

Hypermarkets and DIY retailers – companies such as Wal-Mart and B&Q, are

increasingly challenging IKEA. In addition, supermarkets such as Tesco of the

UK are expanding outside their core areas, while dedicated home furnishing

groups such as Conforama of France are developing a regional presence.

(Griffiths & Stuart, 2010)

Resource scacrcity

As resource scarcity is a massive issue worldwide, IKEA needs to concentrate on

working with proper suppliers by expanding renewables in its supply chain.

(Waghorn, 2013)

5. Organisational structure

Structure is an essential part of an organisation and it is closely linked to strategy

formation. In order to make optimum use of resources, organisational structure

must be taken in to consideration while formulating a strategy. Thus is essential to

match the strategy with the organisational culture. (Essays, 2011)

5.1 IKEA´s organisational structure

IKEA´s present organisational structure can be defined as highly functional with a

global market strategy. This way IKEA is able to maintain centralised control

over functional activities and at the same time take advantage of low cost and

enhanced quality from international suppliers. On top of that, control over

strategic direction is improved and functional lay-offs are minimized. In order to

ensure efficiency in the logistics process, the organisation has integrated

purchasing and distribution processes under a one-umbrella function. (Dahmann,

Mohamed, Adel, Sameer, & Dahman, 2011) (Loeb, 2012)

IKEA remains a private company, which owns all of its sites. (Thompson &

Martin, 2005)

However, IKEA´s organisational structure differs greatly from other companies. It

only reinvests profits toward new or existing stores, charitable purposes through

the IKEA Foundation or financial reserves for future investments in the business.

IKEA Group's financial principal is to grow using its own resources and earning

money before it is spent, enabling the business to make long-term investments for

the future.

Through his unique approach of avoiding dependency on financial institutions,

Kamprad has expanded the IKEA brand of more than 9,500 products across North

America, Asia, Australia and Europe, which boasts two-thirds of total production.

(Toren, 2015)

5.2 IKEA organisation

Figure 1 (IKEA, 2014)

Ingvar Kamprad, the IKEA founder, created an ownership structure that stands for

independence and a long-term approach. Therefore IKEA Group has been owned

by a foundation in the Netherlands.

• Stichting INGKA Foundation is the owner of INGKA Holding B.V. Its

purpose is to hold shares and reinvest in the IKEA Group and to fund

charity through the Stichting IKEA Foundation. (IKEA, 2014)

• Stichting IMAS Foundation manages financial assets on behalf of the

Stichting INGKA Foundation. (IKEA, 2014)

• Stichting IKEA Foundation is the philanthropic arm oft the Stichting

INGKA Foundation. It funds programmes that for example improve rights

of children in the developing world, enabling them and their families to

have a better future. (IKEA, 2014)

• INGKA Holding B.V. is the parent company of the IKEA Group of

companies. Its purpose is to support and manage the IKEA Group. Ingvar

Kamprad is senior advisor to the supervisory board. (IKEA, 2014)

• IKEA Industry is a group of companies manufacturing furniture and

wood-based boards and panels, which include development of production

capacities and new strategic business to support IKEA´s growth. In total

IKEA Industry has around 18,000 co-workers in 11 countries. (IKEA,

2014)

• Franchise structure: The IKEA Group franchises the IKEA retail system

and methods from Inter IKEA Systems B.V. in the Netherlands. Inter

IKEA Systems B.V. is the owner of the IKEA Concept and the worldwide

IKEA franchisor. (IKEA, 2014)

Today the company sources its products from about 1800 suppliers in more than

50 countries and contracts for capacity rather than a set number of items from its

manufacturers. In some instances IKEA has taken ownership positions in factories

that supply it with furniture and household goods. In other cases it acts as a

financier, especially in Eastern Europe. IKEA also operates about 28 distribution

centres worldwide. (Albaum, Duerr, & Strandskov, 2011)

6. Impact of current strategy on organisational structure

As IKEA continues to expand overseas, the importance of centralised strategic

direction will increase. The rapid internationalisation triggers a range of

challenges imposed on the headquarters in Sweden e.g. increasing difficulty of

responding to national needs and cultural nuances, impact of emerging

demographic trends forcing IKEA to broaden its focus strategy to respond to

varying nation-level consumer groups.

These changes can influence the maintaining of IKEA‘s global organisational

structure. The solution for the problem is to find the proper balance between

country level autonomy and centralised intervention through increasing

subsidiaries and franchisee autonomy. (Dahmann, Mohamed, Adel, Sameer, &

Dahman, 2011)

As IKEA Group grows bigger it will become harder to remain “quick, lean and

simple” leading to bureaucracy and slow reactions to consumer change.

(Söderman, 2012)

With logistics complications and long lead times, IKEA is forced to maintain high

control levels over its suppliers. The long-term relationship with suppliers

guarantees high quality, technology transfers and economies of scale and prevents

potential suppliers from trying to integrate forward and produce competitive

products for IKEA's local competitors. Without

IKEA's centralised logistics system it could lead to severe store shortages.

(Dahmann, Mohamed, Adel, Sameer, & Dahman, 2011) Moreover a big company

as IKEA will probably have to face challenges in periods of generational change

when Ingvar Kamprad eventually leaves the scene. (Söderman, 2012)

7. Conclusion

In conclusion there is to say that IKEA is a well-known global brand with

hundreds of stores across the world. The founder Ingvar Kamprad broke the

tradition pattern of furniture design and distribution. (Söderman, 2012)

However, the Swedish retailer has strategically designed its products to cater its

target market, the younger generational families, while further reducing costs

streamlining operations with local suppliers. Additionally it has pursued a global

expansion strategy of primarily entering countries going through periods of high

GDP growth. (Harapiak, 2013) In order to improve performance, it must assess its

external and competitive environment. (The Times, 2009)

Future research should be investigated into IKEA´s strategic goals in entering

emerging markets. (Harapiak, 2013)

8. Bibliography

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Export. Pearson Education.

Ayodele, A. (2015). Strategic analysis of IKEA and the the future. Retrieved

March 21, 2015, from

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IC_ANALYSIS_OF_IKEA_AND_THE_FUTURE

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Retrieved March 20, 2015, from

http://businesscasestudies.co.uk/ikea/swot-analysis-and-sustainable-

business-planning/strengths.html#ixzz3VRWLy6C4

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http://www.businessdictionary.com/definition/emergent-strategy.html

Caglar, D., Marco, K., & Kleiner, A. (2012, May). How Ikea Reassembled Its

Growth Strategy. Retrieved March 20, 2015, from http://www.strategy-

business.com/article/00111?pg=all

Chu, V., Girdhar, A., & Sood, R. (2013). Couching tiger tames the dragon.

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expand-in-china/1/196322.html

Dahmann, J., Mohamed, T., Adel, A., Sameer, S., & Dahman, Y. (2011). IKEA´s

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Essays. (2011). Essays 24. Retrieved March 22, 2015, from Strategic

Management: Ikea Case Study: http://www.essays24.com/print/Strategic-

Management-Ikea-Case-Study/28623.html

Fill, C. (2013). Marketing Communications. Harlow, United Kingdom: Pearson.

Griffiths, A., & Stuart, W. (2010). Economics for Business and Management.

Pearson.

Harapiak, C. (2013). IKEA´s International Expansion. South Korea: MPRA.

IKEA. (2011). IKEA continues to focus on sustainability with regard to life a

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Ward_Quote_release

IKEA. (2014). About the IKEA Group. Retrieved March 23, 2015, from

http://www.ikea.com/ms/en_JP/about-the-ikea-group/company-

information/

Johnson, G., Scholes, K., & Whittington, R. (2009). Exploring Corporate

Strategy. Essex: Pearson Education.

Kaplan, R., & Norton, D. (1996). The Balanced Scorecard: Tranlating Strategy

into Action. Harvard Business School Press.

Komassi, E., & Pal, R. (2013). Investigating short term strategies in product

sustainability index implementation, a case study at IKEA. Sweden:

GCSM.

Loeb, W. (2012). IKEA is a World-Wide Wonder. Retrieved March 22, 2015, from

http://www.forbes.com/sites/walterloeb/2012/12/05/ikea-is-a-world-wide-

wonder/

MSG. (2013). SWOT Analysis of IKEA. Retrieved March 21, 2015, from

http://managementstudyguide.com/swot-analysis-of-ikea.htm

Porter, M. E. (1996, November). What is Strategy? Retrieved March 20, 2015,

from https://hbr.org/1996/11/what-is-strategy

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March 20, 2015, from http://www.researchomatic.com/Prescriptive-And-

Emergent-Strategies-115610.html

Söderman, S. (2012). Football and Management. Sweden: Stockholm University

School of Business.

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sourcing network in two developing markets. Retrieved March 21, 2015,

from http://noe.virtass.ru/images/imp/conference/past/071115-

HSE/163/files/FP-TarnovskayaV.pdf

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9. Reflective Diary

9.1. Introduction

In my last class of Strategic Management I received the task to write this report as

an assignment for our Bachelor Program. In this report I investigated, analysed

and presented information that I thought was relevant for the assignment topic.

9.2. Concrete Experience (Kolb, 1984)

During my research for this report I realised how complex strategic management

can be. Before I searched for information online I decided to consult my

management books and do some research in my library. After reading the IKEA

case study, my class had received with this task, I was able to collect enough

essential information to analyse and evaluate for this report.

9.3. Reflective Observation (Kolb, 1984)

When I first started my research on the predetermined topic I encountered

difficulties to find the proper kind of business sources. Another relevant issue that

occurred during my research was to collate the whole information that was

provided with from several resources.

After receiving my grade for my last assignment in European business

environment, I realised that I had to improve myself and my work. I started

revising my report consecutively and in several stages to prevent the same

mistakes I had done in my previous assignment.

9.4. Abstract Conceptualisation (Kolb, 1984)

For my next assignment I have to be able to manage my time more appropriate.

Also I think it is very important to use more professional sources in books rather

than online. According to my difficulties understanding a topic I also realised, that

I should contact my supervisor or professor rather than asking my classmates. I

hope to improve my English to a higher level and provide a text that flows in itself

and is conjoint.

9.5. Conclusion

Having discussed this topic in my assignment, I feel good prepared for my group

presentation in this subject. I have now improved not only my Business English

skills and knowledge on this subject, but am also more confident in writing my

next report.

9.6. Bibliography

Kolb, D. (1984) Learning is the process whereby knowledge is created through the transformation of experience. New Jersey: Prentice Hall