IKEA Business Strategy: Past Present and Future - Research Paper Example

Strategic Management – ‘IKEA WAY’ Introduction The global economy has passed the ‘tipping point’ in the transition from an industrial, goods – centered to an innovation, service centered logic and in the competitive world of business, dominant logic and innovative technologies, methods and concepts evolve in a particular way to create new product or service (Davenport, Leibold and Voelpel, 2006, p.22).1 Dyck and Neubert (2008, p.260) described strategic management in four step process which includes reviewing of mission and vision of the organization, analyzing the organizations external environment and internal resources, choosing and developing the appropriate strategy and implementing the selected strategy.2 Hence the present paper attempts to review the strategic management of IKEA while critically analyzing the relationship between mission, vision and values, the impact of its capabilities on international expansion and analyze whether there is a need to change the strategy or continue with the existing strategic operations. 1 (a) Relationship between mission, vision and values Businesses usually define their goals and objectives through mission statement and vision that are imprinted on the organizations product. According to Knapp (1999, p.75)3, mission and vision statements generally represent the purpose of the organization which is evident in the present case study of IKEA where IKEA’s mission is to “offer 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.” Whereas the vision is to provide better everyday life to all and IKEA formulates its strategies based on the mission and vision which aims to provide better life by offering its products at lower cost than in the market. Austin and Pinkleton (2006, p.19)4 mentions that mission statement sets out strategic focus for accomplishing long term outcome and vision conveys the long term ideal which is evident in IKEA’s scenario. Further vision shares the organizations values that are intended to support their mission. The seriousness of offering products at low cost is also seen its corporate values where the organization recruits employees who share the values developed by IKEA of togetherness, cost consciousness, respect and simplicity. The mission, vision and values are interrelated to each other as each one is developed by other and helps the organization the long term goal as in case of IKEA to provide better life to all by providing low cost products in the industry duly integrating with the values that promotes the involvement of customers in product designing. IKEA has been able to achieve considerable success strongly because of its values and it is essential that the values imbibed in the market for IKEA should be pampered and the organization should continue to operate in the same way as it has done until now generating good revenue and garnering customer appreciation from all over the world. 1 (b) Difference between company’s resources and capabilities According to Grant (2005, p.145) the strategy of any business is concerned with utilizing the firm’s resources to improve and increase the capabilities to grab the opportunities arising in the external environment. However both, resources and capabilities play vital role in the development of the organization and to identify their importance, they are distinguished hereunder with special reference to IKEA. Resources Capabilities It is the productive asset owned by the firm like tangible and intangible like financial, infrastructural, knowledge and human resource, etc. (www.csus.edu) It is referred to as company’s ability in performing its operation which it deals into. (www.csus.edu) They are used to support the capabilities Capabilities are assured through utilizing the available resources The main resource of IKEA is their human resources who according to the words of Steen Canter, IKEA Executive ‘are the core group of people …. who will fight World III for Kamprad’. Apart from reliable human resources, the company has financial freedom, infrastructure, and institutional mechanism. IKEA is able to produce uniquely designed products with the use of valuable human resources, innovation at every stage is encouraged, offers products at variety to its customers to low price as compared to its competitors and able to retain its values and principles even in the international market Another important resource, intangible, could be its mission, vision and value. These intangible resources have influenced the capability of IKEA to achieve its goal and objectives even in the international market. 2. Impact of capabilities on international expansion According to Lue (1999, p.26)5 the ability to survive and succeed in today’s turbulent international environment largely depends on the companies dynamic capabilities during international expansion that requires a capacity to learn and develop new capabilities from the existing resources. Similarly in the present case study, it is understood that the capabilities are influenced by resources that are deployed by the management in various activities to achieve the goals and objectives of the organization. As Harris et al (2003, p.185)6 mentioned strategic or marketing is mostly associated with offering uniqueness to the customers that can be seen in the IKEA’s business that has provided innovative way of services and at the same time reducing the costs. As mentioned in the case study, the capabilities of IKEA were mainly concentrated towards providing well designed home furnishing products at lower rates as compared to its competitors in the industry. The fact that IKEA was able to achieve success providing products at low cost was only due to its capability of utilizing available resources and through innovations at every stage. For.eg. the fourth employee of IKEA while loading the table in vehicle separated the legs and flat packed the product so that it could fit in the car. This innovative way of packing led the trend of flat packing system in IKEA that helped in reducing the customer costs in logistics. IKEA encouraged innovation at every level in the business which supported in the process of overcoming the boycott by local traders. However the IKEA decided to design its own products by identifying manufactures in low cost neighboring countries which started the process of internationalization with first overseas shop being opened in Oslo, Norway in 1963. The mission of providing low cost products to its customers led to the opening of number of shops outside Sweden. However the impact of the capability is evident from the fact that though the company’s growth was modest in terms of expansion, the profit rate was phenomenal. Further IKEA’s main aim was to provide IKEA experience to its customer that was well accepted in the international market like China, Russia and Japan. In spite of being a foreigner in Russia, the capability to offer products at lower pride even in the times when industry rates were comparatively higher garnered trust from various customers resulting in huge profits and sales which was equivalent to that in Sweden. According to the case study, the capabilities of IKEA has helped IKEA to achieve higher position in the industry segment with an average of 522 million customers per year, distributed 191 million IKEA catalogs in 27 languages and the website had turned into one of the world’s most popular sites. The revenues reached $27 billion in 2007, 14.5% increase as compared to 2006 out of which European market constituted 82% of the sales, North America (15%) and Asia/Australia (3%). Further IKEA opened 21 stores in 11 nations during 2007 while planning to launch 25 more stores worldwide. (Lief, 2008) The capabilities of IKEA to provide home furnishing products at low price and innovative designs supporting the flat packing system helped the organization to establish strong foothold in China, Russia and Japan which shows that the capabilities of IKEA resulted positive conclusions with regard to international expansion. Though the IKEA shopping experience has been adopted by its international customers, it is necessary to invoke customer relationship skills to the employee so that IKEA culture does not become obstacle in the company’s growth by hurting the traditional culture. It would be essential if the organization integrates the IKEA culture with the people’s culture so that a sense of belonging may arise among the customer which would help the organization to sustain the reputation and compete in the international market with the local companies like ‘100 Yen’ Store in Japan. Anyhow the company has been doing well nationally and internationally with good profits which is evident from Russian experience wherein the customers purchase products worth $85 each time they visit IKEA which is equivalent to Sweden. However it is suggested to increase the capability in offering products designed resembling the local traditional culture in modern way which may further increase the sales. 3 (a) IKEA’s vision and its support by values As mentioned earlier, IKEA’s vision is to offer better everyday life to all. This implies a meaning that the organization aims to support and help the people in their goals of life to lead a better life which is the ultimate aim of all the human beings in the world. However, it is important to note that mission statement is also based on the same thought which presents the organizations attitude in the making the vision a reality by offering the opportunity to people its products in home furnishing at lowest price than any other in the industry. The vision ‘offer better everyday life to all’ cannot be possible only with offering low cost products. The only way the world could turn into better place is through inclusiveness and togetherness. And the IKEA also works on the values of togetherness, cost consciousness, respect and simplicity. According Ferrell et al (2009, p.175)7, values form the foundation for a corporate culture that help the organization in realizing its vision and achieve its goals. This phenomenon is evident in case of IKEA where the company was able to gain huge success and trust from its customers from all over the world while not compromising with its goal of spreading the Sweden and IKEA culture all over the world. The term ‘IKEA way’ is an expression encapsulating the approach of IKEA in doing things in values based manner. The IKEA way states that doing wrong is actually the right way to do it. (Edvardsson and Enquist, 2008, p.7) Hogarth (2008, p.340) mentions that IKEA aims to attract customers who are looking for quality products at reasonable prices, but who are willing to assemble their furniture themselves and participate in a self service culture.8 The vision of IKEA could not have been achieved if it is separated from its core values of independence, thrift, freedom so that it could provide better life to all at the lowest cost. IKEA has been successful to realize its vision only through the integration of values of togetherness, cost consciousness, respect and simplicity as the customers were an integral part of product designing, and costs were ascertained keeping the affordability by every customer and respecting the consumers and providing customer satisfaction with simplicity not involving any complex issues. Thus the value of IKEA plays a vital role in the realization of vision and goals and has resulted in continuous growth and success of the company. 3 (b) How will IKEA’s values change, and what will be the change in strategy after Kamprad’s tenure? IKEA has achieved good success with the existing values which has resulted in realization of vision and mission. The consumer perception of IKEA is that it offers unique product with good quality at low cost that is affordable. Though various studies recommend change as an essential strategy for organizational development as mentioned by Persico and Morris (1997, p.9) as change is inevitable and necessity in order to survive in this competitive world and the change is so fundamental that new concepts are being invented every day.9 Ingvar Kamprad managed the IKEA’s operation for 43 years and his influence remained strong even after his retirement where he held the position of senior advisor to the firm. The ownership of IKEA was transferred to INGKA Foundation in the Netherlands which held 100% of INGKA Holdings BV, the parent of all IKEA companies. IKEA Services BV was the holding company of Sweden and Inter IKEA Systems managed the IKEA concepts and trademark which helped in managing the franchisee relationships with all IKEA stores. It was further looked into by the management that each store whether owned by IKEA group or franchisee negotiated its use of IKEA concept and the values of IKEA were strictly followed. Such type of complex and tax conscious ownership structure was designed to protect the firm’s independence and preserve Kamprad’s vision into the future. IKEAs private ownership allowed the company management to act on what it believed to be its duty towards the society, and to spread the core values of freedom, independence, egalitarianism and access to style. As mentioned in the case study, management has taken initiatives to safeguard the values of IKEA in the future after the complete retirement of Kamprad from the organization and when his successors take over the management. It is expected that the values of the IKEA will not change due its reported success throughout these years. And moreover the same values have resulted in trust and relationship and creating a sense of togetherness between the customers and IKEA. As the core mission of IKEA is to offer affordable products to the all to facilitate better everyday life. In view of Kamprad getting older, it is assumed that value might not change but is expected that value may be improved further to provide much better facilities as the children of Kamprad are at various operations and know the essential changes that may be better for the organizations growth. The values will be further influenced by the globalization to provide products not only in furniture but also in commercial products apart from only wooden or electronic, but also in other household products. This would also result a change in the strategy to achieve the goals and objectives set out in the new change in values. Therefore, the change in values and strategy will result in successful organizational growth but it is suggested that the changes should be implemented as pilot study in few specific areas and then based on their performance, decision should be taken whether to implement the changes and strategy in all the branches. Conclusion IKEA was ranked 38th by the Interbrand in 2007 which was possible due to increased customer trust in the IKEA products and innovative designs at regular intervals provided at lower cost so that all sections of the society could afford it in a bid to live better life. The core values and principles are the driving force of the IKEA and the management strives hard to instill the values of IKEA in the newly recruited employees locally and abroad and train them to work in ‘IKEA way’. IKEA’ values were sustained through its organizational form and legal sanctions which made it impossible to change the IKEA values in the future which mean IKEA will continue to provide products which will be based on the core values and principles of Ingvar Kamprad. According to the present case study, the organization has been achieving considerable success at national and international level and has able to spread the Swedish culture through IKEA stores. The resources of IKEA like financial, economic, infrastructure and human resources with good knowledge repository has been able to increase its capabilities in offering products with unique design and innovative flat packing technology simultaneously reducing the logistics cost. It is also revealed the vision, mission and values are interrelated as they form the basis for the formulation of strategy for future development. And moreover the vision is underpinned by the company’s value which aims to offer better living to all everyday which has been well supported by it values of togetherness and cost consciousness. Therefore in the event of the change of management, it is expected the values might not be erased but improved further with same vision but with increase in the variety of products in compliance to the mission statement of the organization. Reference 1. Davenport, T.H., Leibold, M and Voelpel, S (2006) Strategic management in the innovation economy: strategy approaches and tools for dynamic innovation capabilities, Wiley-VCH, Germany 2. Dyck, B and Neubert, M (2008) Management: Current Practices and New Directions, Cengage Learning, United States 3. Knapp, D.E. (1999) The Brandmindset, McGraw-Hill Professional, US. 4. Austin, W.E. and Pinkleton, B.E. (2006) Strategic public relations management: planning and managing effective communication programs, Edn, 2, Routledge, US 5. Luo Yadang (1999) Entry and Cooperative Strategies in International Business Expansion, Greenwood Publishing Group. UK 6. Harris, H, Brewster, C and Sparrow, P (2003) International human resource management, CIPD Publishing, UK 7. Ferrel, O.C., Fraedrich, J and Ferrel, L (2009) Business Ethics: Ethical Decision Making and Cases, Edn. 7,. Cengage Learning, US 8. Hogarth, A (2008) Continuing Case – IKEA Part Three: Mission Impossible; Daft, Kendrick M and Vershinina, N , Management, Cengage Learning, EMEA, Singapore. 9. Persico, J and Morris, P.R. (1997) The new business values for success in the twenty-first century: improvement, innovation, inclusion, incentives, information, Routledge, United States Read More