IKEA's Secrets - Case Study Example

IKEA Order No. 232435 No. of pages: 8 Premium 6530 Introduction: IKEA is the of a Swedish home furnishing company, established in 1943, by the legendary Ingvar Kamprad, a Swede. Like most successful entrepreneurial stories, the IKEA brand too, started out as a small scale home operation, from a humble farm in the south of Sweden. The initials ‘I’ and ‘K’ are taken from the name of Ingvar Kamprad, and the next two letters ‘E’ and ‘A’ are from the name of the farm and the village where he grew up called Elmtaryd and Agunnaryd. Ingvar Kamprad started his business with the avowed mission and innovative strategy of providing home furnishing products with maximum functionality and good designs at low and affordable prices. Having been born in a small village in the Småland province of southern Sweden, hard work and frugality were ingrained in him since childhood. The harsh environment with limited resources, endowed him with the capacity to make the most of the resources available. Ingvar Kamprad realized early on that there was a huge market of low to middle income families, with higher aspirations, who could not afford the exorbitantly priced furnishings that were available. So he targeted this class of people to be his customers and they have been faithful allies of this company ever since, because it promised to fulfill their aspirations of a high lifestyle. Ingvar has once been quoted to have said that “The vast majority of people don’t have six figure amounts in the bank and don’t live in enormous apartments…it is for just such people that I created IKEA. For everybody who wants a comfortable house in which to live well - A need that crosses all countries, races and religions”. (Ingvar Kamprad) IKEA stores worldwide has more than 130 million visitors per year, which is almost one percent of the world’s population (Hopkins 1998) and this supports Ingvar Kamprad’s theory that comfortable living at moderate prices is the dream of all. The entrepreneurial streak of Ingvar Kamprad showed up at a very young age when he began selling match sticks and ball pens. In 1948 the first range of stylish modern furniture was introduced and marketed and by the year 1951, IKEA published its first catalogue of items, distributed free of charge even to date. The IKEA catalogue is only second to the Bible, as the most widely distributed publication. IKEA opened its first showroom in 1953 in Almhult, where customers could compare items and prices before deciding on the purchase. The company soon began designing its own furniture, using local materials, diversifying slowly into self-assemblage products. IKEA kept up with the changing times, by re-modeling its business practices, through buying from local producers, modifying designs to suit particular tastes, countries and environments, from designing for baby boomers to their children. Ingvar Kamprad was emphatic that to be a leader in your chosen field, diversification and globalization was a must –As Kamprad puts it, “It is our duty to expand; Those who cannot or will not join us are to be pitied…A glorious future” (Ingvar Kamprad) Any individual would rather be highly motivated than be mandated or dictated to, and the Employees of IKEA are no exception. This essay is going to look into the nitty- gritty’s of the motivational factor of this global furnishing group and analyze what makes it tick or what makes it a household name, even though it has travelled internationally. The essay is going to make comments on all those areas that address the question and try to form a few conclusions of the how’s and the why’s of this company’s success. A strong futuristic vision and sheer perseverance and hard work from the inception of the company by Ingvar Kamprad and his dedicated team, went a long way into making this company the global giant it is today. This vision is reflected into the kind of strategies utilized by this company to keep their employees highly motivated at all times and thereby ensuring that they are greatly committed to what they do. One of the areas we would be examining is the area of cost effective reduction and the impact it has on the company’s culture and policies. Also how the workforce’s emotional commitment is highly proportionate to the kind of motivation meted out by the “front- line leaders of the company and how this affects or has repercussions on the sales quotient of the company. One such vision was by adopting the “proud to be thrifty” attitude or culture among the employees. This vision not only had a positive theme, but it also communicated a highly noble cause or purpose. Cutting costs or keeping them low at all times through reduction in head count, outsourcing and bonus cuts was the way to go. As Ingvar of IKEA stated “waste of resources is a mortal sin.”(Ingvar Kamprad) Keeping an eagle eye or marshalling these approaches on a regular basis, helps to nurture a sense of pride within the employees to keep costs low throughout the time and this culture would in turn become an integral part of the company. A 2006 study from Towers Perrin-ISR 4 (Engaged Employees Drive the Bottom Line, 2006) showed that over a period of one year, companies with highly engaged employees increased net income by thirteen percent, while those with less engaged employees showed a four percent decline. A recent research study carried out on IKEA, gave us good insight on how IKEA had lent itself globally and the impact it has created on its organizational performance. The productive system relationships are two dimensional- technical and social. The technical relations involve the functional inter- linkages between all the areas of production, together with exchange of technical know-how and other information. The social aspect includes good personal relationships among all sections of employees in the system. These would also include the different interests and objectives of both individual and groups which help to solve conflicts which in turn leads to “the system’s ability to accomplish its objectives and to achieve operational and dynamic efficiency. Andrews, E. (2000) The resounding success of IKEA is rooted on the motivation and dedication of its workers all over the world. Their collective effort and individual involvement in every aspect of the company has contributed greatly to the progress in sales and production. The key maxim at IKEA is “Decentralization” which is fully exploited by the experts who form the core of the system and deal with the key areas of the company by cutting costs and keeping the prices low. Some of these expert groups are: IKEA IT – Maintenance, support and development of all IT solutions. IKEA Communications: Makes the IKEA catalogue and is responsible for the internal and external communication for IKEA. Modul Services: Functions as whole sale for fittings and other components. IKEA Family Services: Offers services, products and activities for all the family members at IKEA. Besides these, there is the IKEA Indirect Material & Services, the IKEA Raw Material, IKEA Food Services, etc. At IKEA, they make sure that they do not just fill jobs, but recruit people who are unique in personality and share the same values. The ideals they promote are common sense, efficiency, simplicity; respect each other, togetherness and cost- consciousness. The leaders motivate their workers and always encourage them to do things in a better manner. Since their work is less structured than many of the organizations, the emphasis is laid on values. Another great motivational factor of IKEA is listening and lending support to all its workers. They help individuals to identify and fulfill their ambitions according to their capabilities. In December 1976, Kamprad stated "What is good for our customers is also good for us in the long run.” (Kamprad, 1976) Kamprad also motivated his workers by encouraging them to take up responsibilities and including them to take part in all the decision making of the company and soon they began to adopt a corporate culture. With this vision in mind, the CEO of IKEA Anders Moberg, wrote, "Once and for all, IKEA has decided to side with the majority of people: to create a better everyday life. Therefore, it is our responsibility to do what we can to contribute to a better environment. "(Anders Moberg, Feb. 24, 1993) Some of the simple strategies of IKEA are: Involving a great number of people to create awareness. Aligning environmental work with a business vision. Communication must be simple and understandable. No departmentalization- environmental issues should be imbibed in the line of organization. Visible actions that offer concrete results. Employ a “champion” to focus on key issues. Encourage employees in volunteer activities and behavior changes. Every successful business enterprise is a result of dedication, hard work, sincerity, motivation and adaptability. IKEA, under Ingvar Kamprad has integrated these values in its business practices, enabling it to become one of the most widely recognized brand names in the world. Ingvar Kamprad has helmed the company since its inception and continues to do so till date. His hard working, frugal lifestyle is a model which employees of the company look up to. He is insistent that good leadership “is to give a good example” and that he is the one who has “to do so for all IKEA employees”. The management style of Ingvar Kamprad is a down-to-earth approach, within an environment of openness, in which human values and employee satisfaction is one of the items on top of the agenda. Never one to shy away from making mistakes, Ingvar Kamprad believes that the way to realize successful business models is through adopting and adapting to newer models and challenges. An important factor that can be attributed to the success of IKEA is that the company never lost sight of its original customer base “young low to middle income family.” Inspite of making inroads into all segments of furnishings, IKEA has remained the preferred choice for the young middle-class population. IKEA has also expanded into children’s furniture as well as re-modeled its basic Scandinavian design to cater to different tastes in different countries where it operates. A very important attribute for the success of IKEA is that it has never let down its suppliers, however small they are. Thus, if a small supplier in a country hit by recession faces trouble, the central authority at IKEA diverts work from the bigger factories, to at least enable the beleaguered company to help them sustain operations. This builds brand loyalty among the suppliers. Time management is one of the keys to the success of any enterprises which Ingvar Kamprad recognized, and he says that “Time is your most important asset”, and something which should not be frittered away. IKEA is a close family owned company, which seems an anomaly in the modern age of public limited company. Ingvar Kamprad has been wary of listing his company on the bonuses, because any company which is answerable to its shareholders has to pay attention, more to quarterly sales figures, at the expense of the core values which are its strengths. A centralized administration under a single leader helps in making decisions free from constraints of public opinion. Ingvar Kamprad’s fierce dedication to hard work is made evident here, when he says that the mantle of running the company would belong to that son of his who shows the most capability, and not necessarily the eldest one. This sense of democracy is ingrained in the company’s ethos. A rags - to - riches story may seem like a miracle to ordinary folk, but in the amazing success story of Ingvar Kamprad, we learn that the old fashioned values of hard-work, honesty, frugality, and the aim of giving quality services are the cornerstones on which success is achieved. References: Engaged Employees Drive The Bottom Line, ISR-Towers Perrin, July 2006 Andrews, E. (2000) Germany Says Wal-Mart Must Raise Prices’, New York Times, September 9. IKEA / facts & figures – how IKEA is organized. www.ikea.com/ms/en_US/about_ikea/facts_figures/ikea_is_organized.html Kamprad, I., "Testament of a Furniture Dealer," December 20, 1976. IKEA Values www.ikea.com/ms/en_JP/jobs/join_us/ikea_values/index.html Anders Moberg, Feb. 24, 1993 from Introduction of IKEA and the Environment. IKEA www.ortns.org/documents/IKEA.PDF Read More