Ikea;_a_Global_Strategy

Report on “IKEA’s Global Strategy” Table of Contents Executive Summary 3 Introduction – Background on IKEA 4 1 – ‘DEPICTS’ Analysis of IKEA. 5 1.1 - Demographics: 5 1.2 - Economic: 6 1.3 - Partners: 6 1.4 - Innovation: 6 1.5 - Competition: 7 1.6 - Infrastructure: 7 1.6.1 - Physical: 7 1.6.2 - Technological: 8 1.7 - Political/Regulatory: 8 2 – Global Standardisation Approach. 9 3 – Opportunities and Threats. 10 3.1 - Opportunities: 10 3.2 - Threats: 10 4 – Competition within the US. 11 Conclusions 12 Recommendations 13 Bibliography 14 Executive Summary I was asked to draw up this report analysing “IKEA’s Global Strategy”. Within the report I will critically analyse IKEA as an organisation, their approach to globalisation, opportunities, threats and their competition within the North American market. On analysing IKEA I found them to stand up very well under the “DEPICTS” analysis tool. They adopt a standardisation approach worldwide; have great opportunities with their environmental policy, worrying threats with consumer confidence and strong competition within the United States market. I concluded that while IKEA is such an enormous organisation, with great efficiencies, there are areas in which they can improve, e.g. their logistics or environmental policy. Relationships between IKEA and their partners must remain well maintained in order for them to improve efficiency and give them opportunity for even more expansion. Introduction – Background on IKEA “How Swede It Is!” IKEA is the world’s largest furniture manufacturer with 276 stores in 25 countries. The word IKEA itself is an acronym which stands for Ingvar Kamprad Elmtaryd Agunnaryd. Ingvar Kamprad is the founder of the company which was incepted in 1943. Elmtaryd is the farm on which he was raised, while Agunnaryd is the parish of Småland, southern Sweden from which he hails. While IKEA is a furniture retailer, they’re also renowned for exporting Swedish cuisine around the world and selling it in their in-store restaurants. They own the biggest restaurant in Ireland – 557 seats. IKEA, who don’t publish any of their profit figures, have consistent annual revenues of roughly €15,000,000,000,000 yearly. They put huge emphasis on company culture, which is typically Swedish. IKEA put a very strong emphasis on the nine “IKEA values”, which all of their “co-workers” must know by heart. These values are laid out in a book called “The Testament of a Furniture Dealer”, written by Kamprad and given to every co-worker during induction. 1 – ‘DEPICTS’ Analysis of IKEA. DEPICTS is an analysis tool for businesses and organisations. It’s designed to provide a well-structured overview of the influential factors within the business’ environment. It consists of an overview of seven factors, which are: * Demographic. * Economic. * Partners. * Innovation. * Competition. * Infrastructure. * Political / Regulatory. In order to analyse IKEA and its’ environments efficiency, we need a good, strong overview of the above topics. Demographics: IKEA aims its globally standardised products at a huge demographic. It takes advantage of almost the entire market, comprising of anyone who requires household furniture of some sort. However, its main target demographic is young homeowners and renters from 18–30. The “Low-cost” policy that IKEA adopts is quite appealing to this demographic and is strengthened by the company-wide social ambition of: “selling a wide range of stylish, functional home-furnishings at prices so low that the majority of people can afford to buy them”. In essence, these policies provide IKEA’s demographic with both affordable furniture, which is paramount for most consumers within the target audience, as well as a style and function/quality which is of the utmost importance to them, as part of the “Generation Y” or “Millennial” demographic. Economic: IKEA is currently engaged in economic growth on a global scale, and has been since its formal inception in 1943. This is an extraordinary feat given the state of global economic affairs during the last three years especially. Both IKEA’s revenue and sales figures continue to rise despite the fact it’s operating within an industry displaying flat sales and little prospect for expansion beyond a national level, coupled with an economic crisis which has devoured some of the world’s largest organisations. IKEA’s powerhouse status within today’s economy is a result of two major factors. Firstly, their astronomical sales and turnover figures and secondly, and in my view most importantly, the “Low-cost” approach that it adopts. Cost-effectiveness is an attribute that IKEA wants its customers to feel post-purchase, but it also highlights and relays its importance to all 123,000 direct co-workers worldwide as one of the largest contributions to the success of the organisation. The flat-pack system itself typifies this. Partners: IKEA has a huge number of partners worldwide including many social initiative partners, like UNICEF. These partners contribute hugely to IKEA’s activity. The most notable contribution comes from IKEA’s suppliers. While the entire design process of all of IKEA’s products, as well as a small amount of the production occurs in its native Sweden, the supply and manufacturing process is largely an international operation. With over 1,600 suppliers in more than 55 countries, indirectly employing 76,000 people, the majority of production is sourced in Europe (roughly two thirds) with the remaining production coming from Asia (under one third) and North America. Innovation: IKEA sees itself as a hugely innovative company, and in many aspects, it is. However, innovation within companies becomes a more difficult prospect implementation-wise as companies grow. Therefore, most of IKEA’s innovation would be on local or national bases in a tactical manner, rather than a strategic one. The flat-pack “idea” itself is an innovation which was pioneered by Swedish designer Gillis Lundgren, who worked for IKEA. He broke the legs from one of his tables on the way to a furniture fair in Sweden, so he could fit it into his car, and re-assembled it on location. This idea greatly reduces so many of IKEA’s costs, including transport and storage as well as assembly. It‘s internally recognised as IKEA’s greatest innovation. Competition: While IKEA is recognised as the globes’ strongest furniture retailer, competition is constantly growing as there are always new entrants into the market. According to the Daily Mail (2010): “IKEA has come under increasing pressure from DIY retailers that are selling more home furnishings, as well as growing competition from supermarkets.” IKEA cannot simply ignore this growth of competition. It must be pro-active with the creation of strategies to ensure its own growth continues. Otherwise, IKEA will lose a lot of their market share and begin to suffer in an industry which is only becoming more competitive. There are no specific direct competitors with IKEA on a global scale. However, there are competitors in each of the segmented markets. This makes fighting off the competition very tough for a company which specialises in standardisation as its global approach. Infrastructure: Physical: IKEA describe their logistics challenge as: “Trucks, boats and trains are all needed to move products around. Coordinating these different means of transport to make the movement of goods as quick and efficient as possible is a real art!” The distribution of every single one of IKEA’s products is based around a web of transport from suppliers to distribution centres to the stores themselves while complying with all international trade regulations. Technological: The technological infrastructure within IKEA is vital, and, as a necessity, must be integrated on a worldwide basis to avoid any confusion. IKEA’s technology is introduced, integrated and implemented by a German IT company named DataCore. Using Dell servers worldwide, they have maintained a smooth operation. This is an extraordinary feat, given that we live through an age where ‘technical issues’ have almost become par for the course. Political/Regulatory: On a political front we know IKEA can be both tolerant and patient. They announced on January 26 2006 that they planned to enter the Irish market with two stores; one in Belfast, one in Dublin. The Dublin store was due to open a year and a half earlier than Belfast. However, due to political difficulties from An Bord Pleanala and the National Roads Authority, the opening of the Republics’ store was delayed by almost three years. Before Dublin, the opening of an IKEA store had never been delayed by more than two weeks. IKEA make a conscious effort to exceed their regulatory responsibilities. They globally recall any product if there have been five or more complaints about the product functionality, in exchange for a full refund. 2 – Global Standardisation Approach. IKEA takes a standardisation approach within all of its markets. In fact, the company prides itself on: “Creating a better everyday life for the many people 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”. IKEA’s product ranges, which they call, “Our identity”, are the exact same in all 276 stores. IKEA takes the view that as long as their products are affordable, functional and quality-oriented, they will appeal to “the many people”. This standardisation approach is enforced by the fact that all of IKEA’s products are designed in Sweden. This gives an even more synchronised element to the process with all of the designers working in the same location. IKEA’s approach to supply and manufacturing of their products is also standardised with each of their 1,600 suppliers having to meet criteria set out by IKEA to be contracted to manufacture. If there are deviations from these criteria IKEA almost always terminates the supplier’s contract. For example, in 2009 one of IKEA’s (now former) suppliers was found to be utilising child labour. The only aspect to which IKEA takes somewhat of an adaption approach is to marketing communications. IKEA is renowned for controversial advertisements and has had more banned advertising than any firm operating within the industry. An example of a controversial IKEA advert is the infamous “DOINK!” aired in the UK. IKEA’s advertisements are created by the marketing departments within the market that they are to be aimed at. The only exception to this is when there is only one store in a certain country, where they team up with the marketing department from the nearest country. This mix definitely suits IKEA perfectly. It provides IKEA with a cheap design and supply process for products that they can distribute on a global scale. However they can market these products slightly differently in each of the markets they operate within. This is a huge advantage within the industry. 3 – Opportunities and Threats. Opportunities: The main opportunity for IKEA in the future is capitalising on environmental policy. As consumers view environmental policy as hugely important and are set to feel even stronger about this in years to come, IKEA’s in a good position to market their already impressive green credentials. The organisation has begun a journey to an improved overall logistics policy. One of the improvements is the worldwide introduction of “Store Goods Flow” or “SGF Mobile”. This allows staff to maintain inventory on a computer based system as the old method involved paper and manually entering stock levels into the store’s computer system. SGF Mobile was launched in the Dublin store on January 25th 2011, the last store in the UK/IE franchise to “Go Live” and has been a success so far. It enables faster stock level updates and more accurate inventory levels. It is the first hurdle in the framework to bring IKEA’s logistics policy into the 21st century. This is the baseline for improvements to IKEA’s logistics operations and has set the company up in a good way for the future. They have begun an extension process for 70% of their in-store, self-service warehouses which will greatly increase stock capacities and availability for customers. It will ease the strain on their logistics at a worldwide level. Threats: The main threat facing the IKEA store is reduced consumer confidence and reduced disposable income. With that, customers tend to shop less and buy less when they do shop. This results in lower turnover and severely damaged margins. The company is managing its response to this well, and continues to market itself clearly as a good quality, value for money home furnishing retailer. This means that when customers do need to buy furniture they are more likely to go to the IKEA store to make their purchase. 4 – Competition within the US. While IKEA is the globes largest furniture dealer, it only possesses the second biggest market share within the United States, having risen from fourteenth in 2006. Today, IKEA lies only behind Ashley Furniture Home Stores. Therefore, based on sales and revenue figures IKEA’s biggest competitor within North America is a Wanek family business named Ashley Furniture Home Stores, headquartered in Arcadia, Wisconsin. It was founded in 1945. They, like IKEA, have a standardised approach to their organisation and take advantage of huge economies of scale. IKEA is operating within one of the most competitive industries on a global scale and as a result, there are many other firms with which they compete in the United States. IKEA’s next biggest competitors are Rooms to Go from Florida, Nebraska’s Berkshire Hathaway Furniture Division and Williams-Sonoma which is headquartered in California. All three of these retailers, as well as Ashley Furniture Home Stores have revenue figures which display steady growth. This is a good indication that these firms do, indeed have a strong foothold within the US market, and all signs point to these companies being IKEA’s strongest competition within North America for at least the foreseeable future. Conclusions Upon conducting this report, I have come to the following conclusions about “IKEA’s Global Strategy”: * IKEA is a company that knows exactly which demographic it wants to aim its products at and does so superbly well. * Keeping a low cost-base, vast economies of scale and a worldwide demographic are all factors in keeping IKEA’s status as a powerhouse in today’s fragile economy. * IKEA rely heavily on their worldwide partners and vice-versa and relationships are well-maintained. * As pioneers of the “flat-pack idea” IKEA has a hugely innovative history. * While enduring strong competition, IKEA is the world’s largest home furnishing retailer. * IKEA’s physical infrastructure is less than desirable, while their technological infrastructure is second to none. * IKEA are a company who endeavour to oblige the politics and regulations in any country in which they set up. * A standardisation approach is adopted by IKEA on a global scale in all aspects except for advertising. * Opportunities for IKEA come in the form of their environmental policy. * Threats include falling consumer confidence. * IKEA has a lot of competition from strong retailers within the US market. Recommendations Based on the above conclusions, I have the following recommendations for “IKEA’s Global Strategy”: * As IKEA’s targeted demographic has had a huge reduction in their disposable income, targeting their products towards consumers who are 50 years of age and above. These consumers are less likely to have a mortgage, and for the most part, have higher levels of spending power. * IKEA has the opportunity to strengthen within today’s economy even further. Expansion into the emerging African market would provide a huge new source of revenue. * Relationships between IKEA and all of its partners must remain well-maintained into the future. * With strategic innovation in decline throughout the company, IKEA’s Environmental Policy gives great opportunity for new innovations on a global scale. * IKEA must continue to emphasise their “Low-Cost Strategy” to consumers in order to differentiate them from the competition. * The path to much a much improved infrastructural system must be continued by IKEA. * A good relationship with the governments and regulatory bodies of every country they operate in must be maintained. * A standardisation approach is adopted by IKEA on a global scale in all aspects except for advertising. * IKEA must expand on their Environmental Policy. * IKEA must continue to market themselves clearly as a low-price, functional, quality-oriented organisation in order to thoroughly reengage consumer confidence. Bibliography FAQ". IKEA.com. 2008-02-11. http://www.ikea.com/us/en/customerservices/faq#faqAnswers3-17. Retrieved 07-03-2011. Leong, V. (2008) “IKEA’s Growth Strategy in America”. Available:http://www.vanessaleong.com/Academic_writing_marketing.pdf Newmarks Door. (2006) “IKEA uses economics more broadly”. Available:http://newmarksdoor.typepad.com/mainblog/2006/11/ikea_uses_econo.html The Local, Sweden. (2008) “Global economic woes hit IKEA”. Available: http://www.thelocal.se/11000/20080409/ "Ingvar Kamprad and IKEA". Harvard Business School Publishing, Boston, MA, 02163. 1996 "UNICEF's corporate partnerships". Unicef.org. Available: http://www.unicef.org/corporate_partners/index_25092.html. Retrieved 2010-12-26. Kamprad, I. (1976), The Testament of a Furniture Dealer. Kamprad, I. (1996), IKEA: A Little Dictionary. “Delivering infrastructure: a cornerstone of IKEA's stellar reputation is its unique DC strategy.(SUPPLY CHAIN)(IKEA International A/S)” Available: http://business.highbeam.com/410731/article-1G1-163704316/delivering-infrastructure-cornerstone-ikea-stellar DataCore. (2006), “IKEA -The World’s Leading Home Furnishings Retailer - Deploys DataCore Virtual Storage Solutions Globally” Available: http://www.datacoresoftware.com/downloads/dc_nr_ikea.pdf Daily Mail. (2010), “Competition cuts IKEA UK Sales” Available: http://www.dailymail.co.uk/money/article-1247373/Competition-cuts-Ikea-sales-UK.html Evening Herald. (2009), “Roadworks threaten to delay IKEA” Available: http://www.herald.ie/national-news/city-news/roadworks-threaten-to-delay-ikea-1766564.html Irish Times. (2008), “IKEA says M50 upgrade will delay Dublin Opening” http://www.irishtimes.com/newspaper/ireland/2008/0724/1216741027969.html Furniture Today. (2007), Top 25 US Furniture Retailers. Available: http://www.furnituretoday.com/article/39179-Top_25_U_S_furniture_retailers.php Furniture Today. (2011), Top 100 Furniture Stores. Available: http://furnituretodaystore.stores.yahoo.net/top100.html