1.1 Executive summary
IKEA is a worldwide enterprise of selling self-assembly furniture and household decorations company rooted in Scandinavia, providing an inexpensive and high-quality style of furniture with extremely diversified categories of furniture. The president of IKEA, Ingvar Kamprad, utilizes his unique business intelligence by adding different values into the IKEA’s operation, such as warehouse-showroom display, entertainment zoo. His specific and unique customers segment targeting and measures become the symbols of changing of the furniture retail industry, alongside with his expansion plan all over the globe, which implies his courage and strategic focus on global customers.
Internally, IKEA also adopts measures to contribute better environment to its employees, as well as shaping a positive organizational culture and climate to them. Ingvar achieved the aim by showing his empathy and consciousness to them with politeness and warmth, making IKEA as a vibrant workplace in the Scandinavia.
IKEA as a company with its mission of using low price, self-assembly oriented, furniture with simplicity design, and swift delivery, had gained acknowledgement around the globe, Therefore, the below case analysis will provide comprehensive evaluation of IKEA’s operation, according to the aspect of Human Resource Management, Service management, Supply Chain Management, and IKEA’s strategy analysis.
2.1.1 IKEA’s strategy assessment.
Unlike the ordinary furniture retail outlets, IKEA didn’t rely on selling whole and complete furniture products with high price difference, in contrast, IKEA keep the cost low and practice itself a sense of “cost consciousness” all over its furniture retail with little price fluctuation and difference. Also, Ingvar also created brand new concept to IKEA like warehouse display and opened IKEA in some of the suburban area of some metropolitan cities. “Waste free” and efficient utilise of resources are also the mission of IKEA.
Mentioning about the design of IKEA, IKEA doesn’t stress too much on the fancy, glamorous designs, but rely much on simplicity and ample spaces. Ingvar was sensitive with the shopping habit of Swedish families, that they usually purchase by driving automobiles, therefore, the location of IKEA, in the early stage located in the suburban, flat land area which provided sufficient parking slots to the customers, which eventually become the cost leaders of Sweden, for more than 15% of the Swedish furniture market.
IKEA also stressed on the aggressive advertising tactics, in each season, IKEA published all-rounded and beautifully decorated catalogues introducing the latest product displays on the coming season, distributing 500 million books, with humorous message introducing simple but high-quality IKEA product, the catalogue’s distribution has become the widest in the world.
2.1.2 Evaluation of IKEA’s strategy
The strategy IKEA is proved to become a great success, for the advertising campaign, the aggressive and overspreading catalogues, left a great impression to the customers, attracting 650,000 stores after the first opening of IKEA, due to the advertising strategies of catalogues, the purchase decision criteria changed from prior visiting the other store, to the information presented in the advertising catalogue, it is proved that the catalogue advertising tactics are efficient for spreading market influence of IKEA, as well as contributing strong purchasing influence like “mouth-to-ear” among the customers.
IKEA includes multiple themes and topics like materials used in IKEA, quality, sales concept of IKEA with fun and humorous quotes from the advertisement, also IKEA adopt humorous irony and sarcasm but not malicious slandering to the competitors like Switzerland manufacturing companies. This tactic is highly appreciated and able to project the distinctive merits of IKEA to the customers by the comparison.
Concerning the cost-consciousness of IKEA, the strategy of locating IKEA in the suburban area and strategies of providing the low cost is proved to be rationale. The strategic location guaranteed low cost will result since the remote area will lower the land rent and costs eventually, prevent the geographical confinement of displaying limited products if IKEA is in the CBD, this strategy also become the assisting force of IKEA to keep the price low to the customers. Therefore, The suburban warehouse design of IKEA complied with the retail selling of self- assembled products, directly satisfied the needs of Scandinavian families with automobiles, by providing large areas of parking slots, the interior warehouse design ensured huge flow of customer flows and efficient to increase customer retention eventually, breaking the limitation of narrow and stiff store environment.
To end with, with the illustration of porter’s generic strategies matrix, IKEA is categorized as the cost leadership style, by focusing a relatively large customer segment (young, low-to-middle income level, relatively high educational level), and providing low-cost furniture. The strategic positioning of IKEA as a cost leadership fully guarantee its profits and market shares by establishing barriers of entrants, and able to withstand the bargaining power of the supplier due to thin profit margins. The cost-consciousness measures also ensure IKEA for enjoying economies of scale. Low- price products and sophisticated and simple Scandinavian design also increase customer retention by the appreciation of product appearance and benefits of the discounted price.
2.2 The supply chain management of IKEA
IKEA kept its low cost by strategically located its warehouse-outlets by eliminating additional rents and decoration costs. The distinctive supply chain of IKEA is another indispensable factor for shaping IKEA as cost leadership.
IKEA adopts a unique inventory system across the supply chain networks, flat boxes are used to store furniture which is fragmented and delivered to the end-users, that is used to assemble themselves to build up the end products. IKEA also dedicate to reduce inventories and promote “just-in-time delivery” throughout its logistics network. IKEA also practice the democratization design process by combining the quality, form, function and sustainability into the product and into the supply chain. IKEA as the largest producer and exporter, practising mass production and directly shipped from factories to the IKEA warehouse, holding minimal inventories with efficient transport logistics chain.
Moreover, IKEA developed long- term contracts with the suppliers, IKEA even financially and intellectually support manufacturers to co-develop products with an innovative way, and remain steady flow of mass products. IKEA also made the best use of capabilities, by offering contracts with diverse manufacturers, as to achieve a similar aim above.
2.2.1 Evaluation of the supply chain management
The approach of IKEA driving the cost into the minimal level by flat boxes prove to be the biggest help for having mass and steady flow of assembling and products, flat boxes are efficient to save places by filling in as many places as it can in a container, this could effectively pull down the cost of transport to avoid additional or unnecessary transportation frequency of IKEA, by driving the shipping costs downwards, it is believed that IKEA supplier can manufacture products in a huge flow and ship around the globe.
IKEA’s inventory strategies which eliminate the use inventories by shipping and transporting the products directly. This also helps to cut down the cost of inventory and ensure swift delivery of customer’s ordered products to the customers. The abovementioned democratic process which linked quality and low price and other domains together, avoid the deterioration of products as well as eliminating the risks of holding excessive inventory costs.
The mass production resulted from steady and stable flow of IKEA products prevent the imitation of competitors due to a closed, interdependence supply chain networks. Long term supplier relationship of IKEA implied the co-development of new and innovative IKEA products, in other words, the supplier and the retailer designed the products together, creating a highly interdependence network ranging from designing, manufacturing to shipping. Comparing with the other IKEA competitors that they rarely have co-development connections with supplier, and don’t manufacture and ship the way that IKEA is practicing. Complete changing of all process is needed if the competitors insists of imitating IKEA. This reveals that IKEA success on leveraging the contingencies between supplier relationship and co-development tactics.
2.3.1 Service management of IKEA
IKEA is not just a warehouse display outlet, it is also famous for its customer-friendly features. The customer-oriented policies is stemmed from the influence of the personalities of Ingvar Kamprad, as an empathetic, passionate, caring leader of IKEA, offering warmth and proper encouragements to his colleagues, to give credit to the merits of Ingvar, IKEA offers detail-minded and meticulous facilities to the customers with all the needs covering with all age groups, just like Ingvar showed his care with all of his employees from all walk of lives.
Tremendous internal competition results in more innovative ideas developed in IKEA, in-store cafeteria selling Swedish gourmets like meatballs, hotdogs, pastas and snacks are provided in low-price, large play areas filling in a pool of red balls with parents able to supervise their children, baby changing room, information centres are also observed in every corner of IKEA outlets. These kinds of extra services coming along with in- store child care, substantively align the needs of IKEA’s customers.
The display methods of IKEA also seem to be the iconic throughout the furniture retail industries, IKEA focuses more on the display architecture, designing the in-store display room, displaying a simulate furniture and interior house design with their best-selling products. IKEA also adopt special traffic to take the customer as a tour in travelling IKEA into different floors and sections with no repetition, this kind of room-like designs maximizes the product variety for customers to choose. To sum up, IKEA offers selling service in a joyful environment for customers with variety of visual experiencing.
IKEA also introduced self- service concepts with high customization of customers desire on different products mixes and designs, salesperson with casual dress with jeans and sweaters help to escort customers and helped ordering furniture delivery as to fulfil the promise of IKEA, which is immediate customer order fulfilment.
2.3.2 Evaluation of Service management of IKEA
Addressing the decoration outline of IKEA, it effectively provides a low- pressure and fruitful experience on their visiting, the showroom offers an entertaining and thorough understanding of how different furniture can be combined and co-existed together to project customer with full understanding of IKEA’s product utilise method, which maximise the impression of IKEA’s simplicity design.
The traffic of bringing customers into an IKEA tour also transform the visiting concept of customers compared with ordinary shop travelling. This tactic may help IKEA to boost their saes revenue by projecting psychological effect on customers to buy more products which they may not necessarily attempt to buy, for example, a person may eventually buy a bunch of products, but he initially just wants to buy a light bulb before entering IKEA.
On the other hand, the self- service concepts also help to minimise additional costs of recruitment and align the low- cost concept of IKEA, since the ambassadors of IKEA only helps with dealing customer orders, no product introduction and briefing, or closed personal services are required on each customer, the self- service effectively prevent additional hiring and training costs on additional employees hired, which helps to keep the product in IKEA keeps selling at a low price.
Consequently, the casual dressing of the ambassadors, the providence of cafeteria, playgrounds, child-caring facilities show the awareness and conscious of IKEA for accommodating the needs of its customer targets. IKEA sells “hard” services like the furniture to the customers, and also “implicit and soft services” like psychological benefits like politeness and sense of fulfilment of customers after using this in-store facility. This indicates IKEA has done a great example on the domain of CRM.
2.4.1 The Human Resource Management of IKEA
Ingvar stresses on the concept of simplicity in IKEA’s organizational cultures and believes that complication has nothing done to improve the internal climate of IKEA, complex rules and guidelines are absence in the operation, in contrast it is advised the employee of IKEA to act in common sense and with simplicity. The culture of enthusiasm, responsible and humbleness become the main elements in its cultures. This generates the inheritance of Scandinavians’ organization cultures with people-oriented, non-hierarchical, discrimination- free climates in IKEA.
IKEA treat the employees with loose controls and low authoritarian control, informal yellow shirts with jeans and sweaters become the icon of IKEA’s officials, working in stress-free office and open-space environment. For defending the Scandinavian cultures, the management group are largely comprised with North European peoples. Ingvar also restructure the organizational structures into centralized control of himself, with simplified structure of different regional manager and headquarters. Responsibilities shifted constantly with high work flexibility, implying high confidence of IKEA’s employees work tackle abilities.
IKEA recruit personnel with young and able to amplify enthusiasm to the company, hardworking and respectful, and the essential thing is having the awareness of spreading the spirit of IKEA, however, peoples who have already immersed with other cultural streams are not considered. The recruited personnel will go through trainings by week-long seminars’ education on history and strategies of message delivery.
2.4.2 Evaluation of IKEA’s HRM
Thanks to the enlightened leader of Ingvar, IKEA able to transform into customer-caring enterprise by a group of passionate employees. The transformational leader is an appropriate description to Ingvar’s management style, embodies with a vision to guide IKEA into an inspirational change and committed to his member with his empathetical care. As it is mentioned Ingvar provides warm greeting with employees, the organizational culture was effectively shaped partly due to the influence of Ingvar, and become the cornerstone of IKEA’s This indicates the importance leadership style in shaping the organizational climates.
Stress- free working environment also linked with the labour productivity, according to the two-factors theory, IKEA has a diverse “hygiene factors” which has been attained like job environment and protection, IKEA also does his great efforts on consolidating the motivational factor-like recognition on one’s contribution and sense of importance, which provides positive personal growth resulted from intrinsic satisfaction of the job itself. IKEA sensibly notice the awareness of psychological growth and job satisfaction of the employee, learning that labour productivity highly linked with the surrounding environment and encouragements, resulting in the internal IKEA relaxing and joyful working environment.
The concept of IKEA aware of spiritual inheritance is also highly appreciated, seminars are not only taught about the routine operations and ordinary story-telling of IKEA’s history, it inculcates the message of appealing newly recruited employees to spread the message of IKEA’s ideas of simplicity, democratic process of buying, warmth etc, these core values of IKEA to them, fully practising a vivid and energetic organizational culture through customer interactions and spread its core influence of IKEA by “mouth- to -ear”
2.5 Conclusion
In the perspective of the abovementioned domain, it is proved that IKEA has practised splendid examples in delivery, customer interaction, service planning and internal culture shaping. IKEA also engage in intensive global expansion to other places, this reveals the ambitious of IKEA and practiced its venturous spirits, however, problems like misfocusing of customer segments, the delusion of IKEA’s core values, consumer cultural conflicts and the gradual dissolution of cost-conscious due to increasing in average cost brought by rapid expansion, starts to float in the IKEA’s expansion stage. Moreover, the recent death of Ingvar market the danger of discontinuance of Ingvar’s spirit in IKEA leads to the risks of the IKEA’s future prospect led by the new leaders. In this downturn, IKEA perhaps needs a turning point or alternative strategies to cope with these crises immediately.