IKEA

Question 1

What is IKEA’s 3 Roads Forward strategy?

Answer 1

1. Affordability
   - -> needed to work with supply chain, smarter construction
2. Accessibility
   - -> new markets, multi-channel shopping
3. Sustainability
   - -> positive impact on society + planet, climate neutral and circular by 2030

Question 2

IKEA Operations in brief

Answer 2

revolves around running their stores

Question 3

IKEA operations in detail

Answer 3

• stores built to drive volumes up, keep costs down
• shopping in a sort of warehouse with a showroom
• stores deliver a consistent experience
• added restaurant and smaller items to make people buy things when they realized that people would come without buying anything (want impulse purchases)
• maze-like store (this makes impulse purchases more common since have to walk through everything, 60% of purchases were unplanned)
• stores mostly outside city centre, people willing to drive to the store
• stores designed for you to spend hours in them
• price of items are determined before things are made
• 14 designers based in Switzerland, external design consultants
• self-service stores
• –> lower cost for labour, shorter waiting time
• store-set-up:
• -> maze promotes impulse purchases
• -> adding smaller items, restaurants, increases purchase
• -> daycare increases time spent

Question 4

IKEA supply chain management

Answer 4

• standardized products–> more efficient, lower costs
• IKEA products sold in flatpacks
• everything driven by final price–> supply chain is price driven
• established good relationships with suppliers (had long term relationships, avg 11 years)
• 1000 suppliers in 51 countries
• supply chain geographically dispersed
• sourcing of materials dependent on where lowest cost is
• –ex. US supplied by Switzerland since not worth it to have suppliers there
• high volume, low prices
• -> high volume allows IKEA to put downward pressure on suppliers
• highly rational, mass production, specialized supply chain that reduces costs by 20 to 30%
• —> this is what drives the high volumes, low prices
• offers suppliers technical and financial support to help upgrade factories with modern tech, achieve safety, and tech standards
• unconventional suppliers–> ex. shopping cart company
• high volume
• -> advantage of economies of scale –> competitors can’t compete
• –>creates barriers to entry
• bought production capacity rather than product quantities
• outsourcing:
• -> design is core activity–> this is done in house
• -> can reduce cost (manufacturing), which is needed when products are price driven
• ->with growing volume/demand, IKEA doesn’t have to keep investing capital
• 2000 new products annually into a product portfolio of 9500 items (IKEA range)

Question 5

IKEA distribution

Answer 5

• at first, furniture industry/distribution was based on catalogues
• showrooms to show quality after price wars decreased quality
• IKEA used big blue box stores
• stores in 53 countries, may be able to get to know suppliers better
• adjusting items for different markets hurts IKEA business model since they are based on standardization, mass production
• adusting items de-risks IKEA
• –> multiple different markets
• vast distribution network helps economies of scale
• –>can place larger orders, sell across border lines

Question 6

IKEA marketing and sales

Answer 6

• consistency and design of store
• ->consistent brand image, being upsold by smaller products
• focus on accessibility–> low cost
• brand perception is increasing –> particularly in western countries
• strong brand identity
• -> big blue box, an experience rather than just shopping
• revenue is increasing

Question 7

IKEA follow-up service

Answer 7

• relatively weak
• call center
• limited because of cost reduction strategy
• -> business model depends on do-it yourself
• tried to cut this as much as possible
• redesigned recently so that products can be disassembled and reassembled (the snapping in place tech)
• different geographic markets have different demand for follow-up service

Question 8

IKEA HR Management

Answer 8

• strong company values and culture (almost a religious belief)
• ->frugality and honesty are key
• informal hierarchy–> team-based, non hierarchical
• co-workers, not employees
• a family, refer to people by first names
• leader visits often
• senior management team is required to work a week in the store
• ->doesn’t get too distant from store
• CEOs have been at IKEA for a long time
• -> promote internally
• hire people who first IKEA culture; kind, not egocentric
• unified, keeps good talent–> more loyal (retention)
• save money on travel, hotels
• strong working culture gives them common values
• intrinsic motivation makes better service
• –> customer experience and consistent employee values enforce brand image
• lower turnover costs
• higher retention
• avoid unionization
• –>creates less flexibility for company when unions exist
• keeps employees happy

Question 9

IKEA Finance

Answer 9

• privately-held
• ->makes them independent
• since they are frugal, likely have to take on less debt
• “save for the rainy day”
• ability to spend when changes are necessary
• tax savings by moving headquarters to Netherlands, and franchise system
• ->also owned by two non-profits

Question 10

Management IS

Answer 10

• *Weakness
• poor IT systems
• -> 500 systems intertwined–> have caused problems with stock
• need to streamline IT operations
• expensive to change though

Question 11

IKEA core competencies

Answer 11

• store operations
• strong culture/HR management
• supply chain management
• “we have a good track record of taking costs out, a great sense of pride”
• cost advantage–> committed to this
• ->high volume, low prices

Question 12

external trends

Answer 12

• rise of e-commerce
• -> empowers customers
• -> drives prices down
• -> can put small brick and mortar places out of business
• customers increasingly prefer delivery
• –>convenience
• -> increases competition (Amazon)
• increased income and standards of living among customers
• car ownership decreasing
• environmentally conscious consumers

Question 13

Threats against IKEA

Answer 13

• Wayfair
• -> greater selection (14M items from 11 000 suppliers) compared to 9500 items from 1000 suppliers (IKEA)
• lower prices of competition
• ->IKEA 52% more expensive
• Alibaba (in China)
• Amazon
• slow down of visitors + sales in physical stores
• decreased driving
• shifting away from DIY culture

Question 14

opportunities for IKEA

Answer 14

• Latin America
• China, India
• ->numbers, growing economy/middle-class
• expansion in current markets
• smaller, urban stores
• –> population growing in large cities
• leader in sustainability (potentially)
• rental market/renting furniture
• selling used furniture

Question 15

what’s IKEA’s goal

Answer 15

• reach 3B customer-base globally (from 1B to 3B)
• want “thin wallets” since it’s 1.8B/3 they want
• ->but wants them because the middle market is more competitive, those with middle-income have more choices

Question 16

describe the more affordable part of IKEA’s strategy

Answer 16

• looking at supply chain to cut costs
• simpler product line for specific geographic market since this generally hurts economies of scale
• smaller range to allow economies of scale
• could also use different materials
• renting furniture
• seek out local suppliers
• need to revise supply chain management
• need to revise marketing, change perception

Question 17

describe the “more accessible” part of IKEA’s strategy (without detail on e-commerce)

Answer 17

• boosting digital capabilites/e-commerce
• more city stores/ new store formats
• ->affects distribution, HR, finance, follow-up service
• ->inconsistent with cost leadership strategy
• -> customers love it
• -> smaller, mostly delivery or pick-up points (more expensive for IKEA because of rent, shipping, more employees)
• more after-market services
• ->assembly, delivery
• investing in more big blue box stores
• ->this is the low-cost retail operation
• ->93% of business is coming from stores
• ->”role of the store needs to be re-positioned”

Question 18

describe IKEA’s e-commerce strategy with regards to its “more accessible” tactic

Answer 18

• right now only 7% of IKEA sales are online
• need streamline IT systems, inefficient right now
• –> about 500 systems= “spaghetti”
• have launched app recently
• IT projects are very complex, expensive, and take time
• can gain better customer knowledge if re-structuring is effective
• ->”with data, we are able to manage the value differently, we are much more adaptable to consumers; we understand much faster whether the range is selling”
• challenging because they have very underdeveloped delivery infrastructure
• -> not hard to do delivery, but hard to make it profitable
• not the most consistent with cost leadership strategy

Question 19

describe the “more sustainable” part of IKEA’s strategy

Answer 19

• increase product life
• ->where parts click with each other
• cost benefit
• ->”always wanted to do more with less raw materials”
• -> if recycle, less dependent on prices of commodities (circular model)
• facilitating and centralize a secondary market for IKEA products, furniture leasing services
• restructure supply chain management
• ->designs
• address follow-up services
• -> recycling, renting
• operations
• -> reducing carbon footprint

-in-short term not as consistent with cost leadership strategy but in the long term, consistent with cost leadership strategy

Question 20

what is the worst thing IKEA can do?

Answer 20

inaction