ikea+assignment+2+ +chamara+amarasinghe+(ecu10201793)

Assignment 02 : IKEA STRATEGY IDENTIFICATION AND IMPLEMENTATION

ECU 10201793 | Chamara Sampath Amarasinghe 1



Executive Summary

The key intention of this report is to conduct a strategic analysis of IKEA’s business strategy,

organisational structure, organisational leadership style, the founders’ leadership style they

follow still and to identify the areas of the organisation where they need to reorganise. As a

market leader in all around the world IKEAs’ market is outsized. Due to that as identified in

the first part of the thesis the external and internal environment is covered by varies forces

that makes IKEAs’ business more complex.

This report has identified the current strategy of IKEA by using the appropriate theories and

models where I have consider about the data available in their web site also. As IKEA is a

very large company which deals with more than 410 million shoppers per year strategic area

that IKEA should improve in order to overcome the challenges they face in the market

currently have been identify using the SWOT and the PESTEL analysis of the previous report.

Being a company which manufacturer and retail furniture in a large scale, IKEA is directly

affect to the world reduction of the forest. Due to these reasons to make the brand image

positive in the customers mind, as a company IKEA has started number of projects to

protect the environment such as reduce the gas emission, using plastic and etc to make

furniture with wood and using public transport whenever they can.

As a company that has a unique concept, well trained employees, a challenging pricing

strategy, when analysing and identifying the IKEAs’ strategy I could identify that all the

factors for the growth of the company is in a positive side.

Nowadays due to the dynamic environment strategic management plays a vital role in the

successfully operating organizations. Further it plays an essential part of the organizations

to achieve their goal successfully. So after identifying and analysing the organisational

structure, system, business strategy and the leadership style, I have presented some

recommendations for the company to improve its operations further.



Table of Contents

1.0 Introduction ............................................................................................................... 5

2.0 Current strategies of IKEA ........................................................................................... 6

2.1 Does the organisation plan to grow? ....................................................................... 6

2.2 What products and services does it plan to produce? ............................................. 6

2.3 What customer and geographic markets does it plan to service? ............................ 6

2.4 What generic strategy does it plan to follow to position itself uniquely against

competitors? ..................................................................................................................... 6

2.5 What position does it plan to hold in the future? .................................................... 6

3.0 Issues of strategy implementation in IKEA .................................................................. 7

3.1 Appropriateness of the structure and systems in IKEA ............................................ 7

3.1.1 Organisational structure .................................................................................. 7

3.1.2 Organisational systems .................................................................................... 7

3.2 Appropriateness of the leadership style in IKEA ...................................................... 7

3.2.1 Levels of leadership ......................................................................................... 8

3.2.2 The qualities of successful leadership .............................................................. 8

3.2.3 Ingvar Kamprad’s leadership style (Appendix 08) ............................................. 8

4.0 Key success factors ................................................................................................... 10

5.0 Recommendation ..................................................................................................... 11

5.1 The positioning of IKEA ......................................................................................... 11

5.2 Strategic implementation ...................................................................................... 11

5.3 Change the organisational structure ..................................................................... 11

5.4 The winning wheel framework (Appendix 09) ....................................................... 12

5.5 Diversification ....................................................................................................... 12



5.6 The paradigm shift ................................................................................................ 12

6.0 Conclusion ................................................................................................................ 13

7.0 References ............................................................................................................... 14

8.0 Appendices ............................................................................................................... 15



1.0 Introduction

The main purposes of this assignment is to analyse and identify the IKEA’s current strategic

choices, identify the barriers and issues for implementing the strategies and recommending

some strategic initiatives and areas for improving the strategy implementation for IKEA.

This report is based on the information about IKEA (Appendix 01) in Helsingborg, Sweden in

2005. According to the information in the case study, IKEA has to face some critical issues

such as re-entering into the Japanese market, intensity of competition, keeping the core

founding values alive and the risk of drifting into the stuck in the middle situation etc.

As a management consultant, I have previously identified the strength, weaknesses,

opportunities and threats for IKEA (Appendix 02) by conducting a strategic analysis of IKEA’s

internal and external environment. With the use of that SWOT analysis, in this report some

new strategic initiatives will be introduced for IKEA to improve (Appendix 03), after

identifying the present strategy and the issues for implementing that strategy.

“Business strategy is the link between environmental demands (including customers’

desire), organizational capabilities and key stakeholders desires.”(Hubbard, 2008)

Where are we now, where do we want to be, how do we get there and how do we ensure

our arrival are the main problems in selecting the strategy. In the first (previous) report the

answer for the first problem was provided by conducting a situational analysis for IKEA and

generating a SWOT. In this report, the other areas also will be covered with the use of

models and frameworks such as Ansoff’s matrix, value chain, strategic clock etc and new

strategic options will be recommended for IKEA as the final outcome.



2.0 Current strategies of IKEA

Strategy is a match between the organisation and its environment. To identify the current

strategies of IKEA, the following five questions should be taken into account.

2.1 Does the organisation plan to grow?

Yes, IKEA is implementing almost all the growth strategies of Ansoff (Appendix 05) and their

vision and mission facilitate the growth (Appendix 01).

2.2 What products and services does it plan to produce?

Products: IKEA produce quality furniture at a lower cost.

Services: IKEA provides retailing service for furniture plus other household products.

The main objective is to provide an unmatchable service and product quality at an

unmatchable price. (Appendix 01)

2.3 What customer and geographic markets does it plan to service?

IKEA is a global organisation and it targets customers in every geographical market in all

over the world (Appendix 01). The type of their presence varies from market to another. In

one market they may operate their own outlets (e.g.: in US) whereas in another they may

appoint agents or they just export (e.g.: in Sri Lanka Don Karolis & Sons Co.).

2.4 What generic strategy does it plan to follow to position itself uniquely

against competitors?

IKEA was following the “cost leadership” as its competitive strategy sometimes back, but to

position itself uniquely against the competition, a hybrid strategy is followed at present

(Appendix 04). IKEA is trying to achieve the “best cost provider” status by lowering the costs

through value leveraging and increasing the value (Appendix 06) through differentiation,

simultaneously.

2.5 What position does it plan to hold in the future?

IKEA is trying to achieve the “best cost provider” or the “value for money” status with the

use of its hybrid competitive strategy. (Appendix 12)



3.0 Issues of strategy implementation in IKEA

To identify the issues of strategy implementation in IKEA, the corporate culture should be

taken in to account. The corporate culture of IKEA consists of the organisational structure,

systems and the leadership styles.

3.1 Appropriateness of the structure and systems in IKEA

3.1.1 Organisational structure

The organisational structure and systems play a vital role when it comes to successful

strategy implementation. The structure of an organisation is the way that its operations and

activities are arranged. Though it’s hard to determine whether the structure comes first or

strategy comes first, according to Alfred Chandler structure follows strategy as changes in

strategy lead to changes in structure.

IKEA has a divisional or product based structure at present (Appendix 07). Though it’ll help

to strategy implementation through efficiency, the effectiveness may be decreased due to

the competition among divisions for the centralised resources. Since providing more

resources for each department is unfeasible at the moment due to the cost reasons, the

current organisational structure can be identified as a drawback for the strategy

implementation in IKEA.

3.1.2 Organisational systems

In most organisations the route causes for many problems are the system deficiencies. IKEA

has to face the same situation as its control systems do not fit with its strategy. The IKEA

strategy encourages innovation while the control system discourages innovation, as control

and innovation are not mutually exclusive. Therefore the control system in IKEA is another

drawback for strategy implementation.

3.2 Appropriateness of the leadership style in IKEA

"Leadership is the art of getting someone else to do something you want done because he

wants to do it." (Eisenhower)

The leadership can be the path to success for an organisation whereas it can be the path to

failure for another. There’s no doubt that the leadership of Ingvar Kamprad was the key

success factor of IKEA, but it should be taken into account that the style of the leadership is



subjected to change when the strategy is changed, to facilitate a successful implementation

of the strategy.

The main leadership activities are direct action, managing people and managing

information, but there’s something special in IKEA, which is the leading by example. As an

example, at IKEA frugality is not limited to the organisation’s red tape. The top management

including the CEO is practising it in the real life to be examples for lower level staff members

to follow. “It helps that frugality is as deeply ingrained in the corporate DNA as the

obsession with design. Managers fly economy, even top brass.”

3.2.1 Levels of leadership

The CEO, board of directors, top management team and significant managers are the four

levels of leadership in IKEA. According to Collins, there are five levels of leadership in an

organisation and the contribution of each level is critical for the successful implementation

of the strategy. (Appendix 10)

3.2.2 The qualities of successful leadership

Having a strongly held vision

Communicating that vision

Converting that vision into reality

3.2.3 Ingvar Kamprad’s leadership style (Appendix 08)

Leadership by example

Highly task oriented

He considers wasting resources as a moral sin

More towards democratic leadership

Always goes for the economy class in flights

Writes both sides of the paper



He doesn’t have his own office room and he always stands out among other corporate

executives

Always think from both the employee and customer perspective before spending money

He always tries to go for the best deal possible when purchasing products and services

for the business as well as for his personal use

He also abided to the rules and regulations of his own company

His vision is one with no limits and he always dreams for more



4.0 Key success factors

Continues development of contemporary new designs

Continuous innovation is a key success factor for IKEA because innovation plays a vital role

when it comes to differentiation as well as cost reduction. Therefore superior innovation is

the number one key success factor for IKEA.

The hybrid strategy

IKEA’s hybrid strategy is the second important key to success. Though there’s a risk of

drifting into the stuck in the middle situation, successful implementation of the hybrid

strategy will allow IKEA to minimise the threats of new entrants as well as the threat of

other rivals in the industry.

Continuous reduction in costs and prices

IKEA’s value leveraging technique is another key success factor. Lowering prices across its

entire offering by an average of 2% - 3% each year, while having the best designers and the

latest technology, is something that their competitors can’t copy easily.

Flat packed furniture

Though many people criticize this as a weakness, still it’s one of the main key success factors

of IKEA. Because, though anyone can design flat packed furniture nobody can do it like IKEA.

Since IKEA is having the best designers with them, they can design that furniture in a user

friendly way than any manufacturer.

In store architecture

The IKEA store architecture is another key success factor for IKEA as it helps them to double

their sales. The ambience of the outlets also helps IKEA to add value to their products and

differentiate them from the competitors.

Technology

IKEA use the technology to the maximum level to minimise the cost of their products.

Though having latest technology can be copied by the competitors, it’ll be a key success

factor as it helps to slash the costs of production.



5.0 Recommendation

5.1 The positioning of IKEA

The current positioning of IKEA is the low price furniture, but since its generic strategy is to

achieve the best cost provider status through the hybrid strategy, the positioning should be

changed from low price furniture to value for money furniture.

5.2 Strategic implementation

With the use of triple loop learning model (Appendix 13) IKEA can adapt the recipe, Strategy

development, strategy implementation and corporate performance by identifying the

preferences of its customers, level of motivation of employees, financial stability of the

organisation and the effectiveness and efficiency in operations.

Since the timber is the only major weakness that IKEA has, it’ll be recommended to make

use of its biggest strength, the creative designing team to overcome the issue.

It’ll be recommended to provide the customers video recorded instructions with the

product and upload those instructions to social networking sites. Through that IKEA can

reduce the cost of advertising, printing and can increase the customer satisfaction by

identifying and satisfying their needs before the competitors. As the threats in the

ecological environment have the potential of becoming serious issues, it is advisable to use

the strength of the designing team to come up with suitable, feasible and acceptable

solutions beforehand.

It’ll be recommended to have backup plans if the company drifted into the suck in the

middle situation due to the hybrid strategy. But, do not try to change the strategy as it’s one

of the major sources of IKEA’s competitive advantages.

5.3 Change the organisational structure

The current divisional structure is a drawback for IKEA when looking at its disadvantages.

Therefore it’s recommended to implement the network structure instead of divisional

structure. Mckinsey’s 7s model (Appendix 11) will be useful when changing the

organisational structure, because all the other 6s in Mckinsey’s 7s model should be changed

along with the structure.



5.4 The winning wheel framework (Appendix 09)

When it comes to strategy implementation, IKEA should follow the elements in the winning

wheel framework such as balanced everything, adapt rapidly etc for a better and productive

implementation of the strategy.

5.5 Diversification

IKEA can diversified through backward integration and try to produce timber for themselves.

It’ll help them to reduce their raw material costs further as well as to get rid of the bottle

neck in timber supply.

5.6 The paradigm shift

If the loop 2 (Appendix 13) which is the strategy development is unsatisfactory, IKEA will

have to abandon the old recipe and adopt a new one. This paradigm shift should be based

on the cultural web elements (Appendix 14). The new paradigm will be based on the taken

for granted assumptions of IKEA.



6.0 Conclusion

The main purposes of this assignment is to analyse and identify the IKEA’s current strategic

choices, identify the barriers and issues for implementing the strategies and recommending

some strategic initiatives and areas for improving the strategy implementation for IKEA.

To identify the current strategy the five questions were taken into account. After identifying

the current strategy, the issues for implementation of the strategy were identified through

analysing the IKEA’s organisational structure and leadership styles. Some recommendations

were proposed after identifying the key success factors for IKEA, which will be useful for

improving the IKEA’s strategy implementation.



7.0 References

(n.d.). Retrieved September 26, 2010, from Profex:

http://www.profex.co.uk/images/pdf%20files/Foundation/44BOP04Specimen.pdf

About us. (n.d.). Retrieved 08 07, 2010, from www.ikea.com:

http://www.ikea.com/aboutus/

Eisenhower, D. D. (n.d.). What is leadership? Retrieved September 25, 2010, from Mind

Tools: http://www.mindtools.com/pages/article/newLDR_41.htm

Hubbard, G., Rice,J., & Beamish, P. (2008). Strategic Management: Thinking, Analysis, Action

(3rd ed.). NSW: Perason Education Australia.

Welcome to The Times 100. (n.d.). Retrieved 08 11, 2010, from www.thetimes100.co.uk:

http://www.thetimes100.co.uk/case-study--swot-analysis-sustainable-business-planning--

110-368-2.php

Suuronen, H. Z. (n.d.). Leader of the future. Retrieved September 27, 2010, from Henric

Suuronen: http://www.henricsuuronen.com/portfolio/leaderfuture.pdf

Zakomurnaya, E. (2007, April 03). Ingvar Kamprad, Founder, IKEA. Retrieved September 27,

2010, from Good 2 Work: http://www.good2work.com/article/3391



8.0 Appendices

Appendix 01 – About IKEA

IKEA is an internationally known home furnishing retailer. It has grown rapidly since it was

founded in 1943. Today it is the world's largest furniture retailer, recognised for its

Scandinavian style. The majority of IKEA's furniture is flat-pack, ready to be assembled by

the consumer. This allows a reduction in costs and packaging. IKEA carries a range of 9,500

products, including home furniture and accessories. This wide range is available in all IKEA

stores and customers can order much of the range online through IKEA’s website. There are

18 stores in the UK to date, the first of which opened in Warrington in 1987. (Welcome to

The Times 100)

Vision: The IKEA vision is to create a better everyday life for the many people. (About us)

Mission: 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. (About us)



Appendix 02 – SWOT Analysis

Strengths

The IKEA culture itself is strength for IKEA as it supports the IKEA’s competitive position.

The culture and the method of packing the furniture (flat packed) are huge strengths

which helps the company to reduce their operational costs (value leveraging).

The IKEA brand itself is strength for IKEA. It’s a world renowned brand for low price

quality furniture. “Awareness of our brand is much bigger than the size of our company”

– CEO, Anders Dahlvig.

When IKEA was leveraging value, all the costs were reduced except the designing cost.

IKEA increased the cost of designing rather than reducing it. Today IKEA has the best

designing team; they are the dominant factor of IKEA’s success.

Successfully implementing the hybrid strategy without drifting into a stuck in the middle

situation has created an unique strength for IKEA which can’t be easily imitated by the

competitors

IKEA’s price reduction strategy is strength for the company as the competitors cannot

beat the price of IKEA since it’s slashing off 2 – 3 percent from overall prices in every

year.

Weaknesses

The main row material, timber is the bottle neck in IKEA’s operations. Even the high

timber prices are also a huge issue for IKEA.

Niche market – the minimalist design doesn’t appeal to everyone.

Product and style selection is limited.

Opportunities

Low inflation rate will be an opportunity for IKEA as it’ll maintain constant prices for raw

materials.

Holding hands with EU will create opportunities for IKEA, as it allows the company to

buy raw materials and labour from members of EU without any extra tax.



Developments in machinery will be an opportunity as the improved machinery can

increase the productivity and reduce the unnecessary costs.

Since IKEA is having its own web site where the customers can do online shopping, the

preferences over online shopping activities will be an opportunity. It will also help IKEA

to reduce the cost of outlet maintenance.

Emergence of social networking sites such as face book and YouTube will create

opportunities, as it’ll help IKEA to cut down its advertising expenditure.

Low level of bargaining power of customers and suppliers will be an opportunity as IKEA

can retain them at a lesser cost.

Threats

High taxation can create threats for IKEA as it can increases the overall cost which

conversely affect the furniture prices.

Preferences over paperless processes can create a threat for IKEA, as the company is

giving the catalogues and furniture building instructions in printed form.

Deforestation will be a huge threat for IKEA as its main source of raw materials is timber.

Higher level of industry rivalry can be a threat for IKEA as they might have to sacrifice

their profit margins to beat the competition.



Appendix 03 – TOWS Matrix

Internal factors

External factors

Strengths (S)

Hybrid strategy

Latest technology

The brand name

Designing team

Weakness (W)

Poor timber supply

Targeting only value

conscious buyers

Limited options for

customers

Opportunities (O)

Low inflation

Holding hands with EU

Emergence of social

networking

Preferences over online

shopping

Use the technology to cater

the need of online shopping

and social networking.

Use the relationship with

the EU to increase the

timber supply.

Threats (T)

High taxation

Preferences over

paperless processes

Deforestation

Increasing competition

Use the designing team to

develop new styles that

consume lesser timber to

face the deforestation.

Identify new materials that

can replace the timber to

overcome the poor timber

supply and the

deforestation issue.

Figure 3.1



Appendix 04 – Porter’s Generic Strategies

Cost Leadership:

The product will be manufactured at a cheaper cost than the competitors. Only one firm can

be the lowest cost provider in an industry.

Differentiation:

The product is different from the competitors’ products. Product quality, brand name,

product innovation etc help organisations to differentiate themselves from the competition.

Cost Focus:

Cost based competitive strategy for small or niche market.

Differentiation Focus:

Differentiating the products for a small or a niche market.

Best Cost:

Combination of low cost and differentiation, but not lowest cost or highest differentiation.

Best Cost

Provider

Cost Leadership Differentiation

Differentiation

Focus Cost Focus

Competitive Advantage

Competitive

Scope

Low Cost Differentiation

Broad

Narrow

IKEA

Figure 4.1



Appendix 05 – Ansoff’s Growth Matrix

Market Penetration:

IKEA is running sales promotions to penetrate the market and customers are pretty

much attracted to those.

Many facilities are provided in IKEA stores to make shopping at IKEA a leisure activity

and through that the company is expecting more sales from the customers.

Cross trading also allows IKEA to penetrate the market by getting more from the existing

customers.

Market Development:

IKEA is continuously expanding to new geographical markets and there are 226 stores in

Europe, Asia, Australia and US, 19 are set to open in next year; 2006.

Product Development:

IKEA is continuously developing new products cheaper and cheaper to cater the needs

of their customers.

Diversification:

IKEA has diversified from the retailer status to the manufacturer (backward integration).

Market

Product

Existing New

Existing

New

Market

Penetration

Market

Development

Diversification Product

Development

Figure 5.1



Appendix 06 – Value Chain Analysis

Inbound logistics

Transportation of Timber to the

factory

Storing timber

Quality check

Operations

Machining timber

Assembling

Painting and polishing

Quality checking

Flat packing with installation

instructions

Outbound logistics

Transporting the flat packed furniture

to outlets.

Storing them in the warehouse

Updating the inventories

Marketing and sales

Labelling and positioning the furniture

in the outlets.

Pricing the furniture

Advertising and sales promotional

activities

Hybrid strategy

Services

Giving installation instructions

Changing and repairing faulted items

Handling customer complains

Inbound

Logistics

Operations Outbound

Logistics

Marketing

& Sales

Services

INFRASTRUCTURE

HRM

TECHNOLOGY DEVELOPMENT

PROCUREMENT Profits

Figure 6.1



Appendix 07 – Structure and Systems

IKEA’s organisational structure

IKEA is in the Shakeout stage, which is just before the maturity and it has a divisional or

product base structure.

Source: http://stevenclark.com.au/wp-content/uploads/2008/06/d.gif

Advantages of divisional structure:

Clear managerial accountability for each division as a profit/investment unit

Encourages sensitivity to region/product-specific demands and opportunities

Efficiencies and economies of scale available from centralised functions

Co-ordination available from centralised strategic planning and control

Org. Size

Org. Life

IKEA

Simple structure

Functional structure

Divisional structure

SBU structure

Matrix structure

Introductory Stage

Growth Stage

Shakeout Stage

Maturity Stage

Declining Stage

Figure 7.1

Figure 7.2



Disadvantages of divisional structure:

Potential fragmentation of overall objectives and markets

Potential conflict between central management generalists and divisional specialists

Potential competition between divisions for centrally allocated resources

Units may not be large enough to support managerial overheads

(Profex)

Mintzberg’s six structural components

Systems

Different types of systems in an organisation:

Operating systems

Information systems

Control systems

Financial & budgeting systems

Decision making systems

Reward systems

Figure 7.3



Appendix 08 – Leadership style of Ingvar Kamprad

Ingvar Kamprad uses the leading by example method. Kamprad has made it clear that

continuous cost cutting in all business areas and activities is a top priority. To underline the

importance of this activity and setting out an example for the staff Mr. Kamprad is known to

always fly economy class and also despite his considerable wealth drive around in a very old

Volvo car. As a result of this all IKEA managers are known to be very cots conscious which in

turn cascades to all levels throughout the organization. By setting an example Kamprad is

able to save millions in travel costs and unnecessary expenses. (Suuronen)

Kamprad's vision has always been the driving force of the IKEA's success. He believes that

the company exists not just to improve people's lives, but to improve the people

themselves. The core of the IKEA idea is "democratic design": the trinity of attractive form,

inexpensive production, and high function. That idea, combined with what Kamprad calls

"the underdog's obsession with always doing the opposite of what others were doing,"

propelled him along a path of constant innovation and experimentation.

"We are a concept company," used to say Ingvar Kamprad. IKEA's concept is articulated in a

document drafted by him in 1976: "a furniture dealer's testament." It outlines a set of nine

commandments including perpetuation of the "IKEA spirit" of enthusiasm, thrift,

responsibility, humbleness, and simplicity; and "always asking why we are doing this or that

. . . refusing to accept a pattern simply because it is well established."

Striving for being as egalitarian as his brand, Kamprad insists on flying economy class, taking

the subway to work, driving a 15-year-old Volvo and encouraging IKEA employees to write

on both sides of a paper. He also asserts that his home is furnished mostly with IKEA

products. Kamprad also has been known to visit IKEA for a cheap meal and to buy Christmas

presents in the post-Christmas sales.

Kamprad has been extremely shrewd in creating IKEA's organizational structure. In 1982 he

established an intricate system of foundations, trusts, and holding companies to avoid high

taxes and ensure that IKEA could not be broken up by family fighting. Rather than face the

prospect of watching his life's work destroyed by a succession battle among his three sons,

Kamprad split the company in three, restricting his children's ability to change his vision



fundamentally. He has repeatedly resisted pressure to take the company public, feeling that

it would slow its decision-making processes that have allowed its phenomenal growth.

(Zakomurnaya, 2007)

Appendix 09 – Winning Wheel

Concern for

People

Concern for

Task

Participative

leadership style

Team based

leadership style

Directive

leadership style

Ingv

ar K

am

pra

d

Figure 8.1

Figure 9.1



Appendix 10 – Collins’ five levels of leadership

Source: http://blogs.southworks.net/vfugante/files/2008/09/image16.png

Appendix 11 – Mckinsey’s 7s model

Source: http://www.valuebasedmanagement.net/methods_7S.html

Figure 10.1

Figure 11.1



Appendix 12 – Bowman’s Strategy Clock

Source: http://www.marketingteacher.com/image/content/bowmans_lesson.gif

IKEA

Figure 12.1



Appendix 13 – Triple Loop Learning

Paradigm

(Recipe)

Development

of strategy Implementation

Corporate

performance

Single loop

Double loop

Triple loop

Overall Change (Change the recipe)

Effectiveness improvement

Efficiency

improvement

Figure 13.1



Appendix 14 – Cultural Web

Source: http://www.mindtools.com/media/Diagrams/CulturalWeb.gif

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