IKEA: Furniture Retailer to the World - Case Study Example

IKEA: Furniture Retailer to the World Case Study Introduction IKEA is one of the most successful retailers in the world. Its roots are in Sweden and were founded in 1943 by a 17 year old Ingvar Kamprad. Since its inception, it has dealt in various products including matches, fish, Christmas magazines, seeds and furniture. Its nature of business is mainly furniture which is quite affordable to many. IKEA has had many competitors in the furniture industry in Sweden. This industry was one of the most expensive and IKEA’s low prices created a good market for their products. It has a wide market base with 300 superstores in 35 countries. It has a customer base of 583 million in 2007. Its customer base consists of mainly the middle class who are able to afford the furniture. It has had some significant changes in terms of their market and customer base. It dealt in various products when starting but changed to furniture which was very expensive in Sweden at the time. There was also a significant change in terms of their designs and manufacturing. These changes came about due to the pressure from their competitors. Their competitors were losing market to them due to their low prices and quality products (Dahlvig, 35). Company Structure and Ownership Ingvar Kamprad is the founder and head of the company. Like many other companies, IKEA started small by selling products from the family farm. The name IKEA came from an acronym where I and K were his initials; E stood for Elmtaryd which was the name given to the family farm and A was for Agunnaryd which was the Southern Sweden village where the farm was located. Their first employee was Gillis Lundgren, a 22 year old designer. The management at IKEA was informal and its founder led by example the low cost tradition. With Kamprad at the top, his management was non-hierarchical and informal. It was more of team based and his team would not spend extravagantly (Stenebo, 40). The management team comprised of young people who had not been employed by other enterprises before. This was because the more educated and elite could not adapt well with the work at IKEA. The business grew from a single store in Sweden to 285 stores in 35 countries. There were different challenges experienced in starting up these stores but they were overcome by the good team at IKEA. The employee base also grew from the founder who was joined by the designer and later the different managers at the different branches and other employees. The employee base stood at 127,800 in 2008 with a product range of 9500 products (Dahalvig, 45). As at 2008, IKEA had 1,380 suppliers in 54 countries. This shows how wide their market base was. IKEA’s revenue grew as they expanded. Though met by some challenges, they quickly adopted and kept their revenue flowing. No definite figures are provided in terms of revenue but as at 2008, the sales stood at € 21.2 billion. From its trend, it is clear that the revenue grew as it grew. This was largely contributed by the fact that their products were of good quality and low priced compared to its competitors. They also offered transportation solutions for their customers which made things easier increasing their customer base (Stenebo, 51). The ownership of the company was with Kamprad for a long time. All his three sons joined him as part of the managerial team. There was no chain of command as everyone was encouraged to be creative and even the managers would load goods for their customers. Ties and suits were not a common thing and this gave them a relaxed working atmosphere. The ownership of the company as not going to stay with Kamprad since he was going to die someday and needed to find a way forward after he that. His fears were that his sons would not take good care of the company or they would fight over its ownership (Stanzma, 56). Another fear Kamprad had was that if he was to enlist the company on the stock market it be under unnecessary pressure that would not be good for it. These thoughts gave rise to the transfer of ownership to Stichting Ingka Foundation, a Dutch based charitable foundation. It is a non-profit legal entity that is tax exempt and owns Ingka Holding. The establishment is managed by a five component committee chaired by Kamprad. Its trade mark and concept were also transferred to another related company based in Luxembourg. The beneficial owners of this company are not clearly known but are believed to be relatives of Kamprad (Stenebo, 60). Key Problem The company faced many problems including failures in countries like Japan and the need for change in designs like in America. Other problems faced by the company were the constant thrashing by their competitors, transportation problems and finding suppliers. Their major problem was maintaining their good quality at affordable prices. Most of the furniture retailers were very expensive and were found in high end streets leaving the middle class with no option. IKEA’s entry into the market came with a solution for that and offered good quality products at much lower costs (Dahalvig, 65). Business Response IKEA’s business responded to the various challenges very well including their major challenge. According to market trends, good quality products will always carry the day regardless of their price. The high priced furniture from their competitors was of good quality and good designs. However, they were affordable to only a few. In order to join the market and be successful Kamprad had to come up with a solution to the high prices and maintain good quality. This proved to be quite easy as seen in the history of the company (Boundless, 23). The main aim of the business was to provide good furniture at the lowest price possible for the person with a low income budget to afford. In order to solve the problem Kamprad hired a designer who came up with cost effective designs and later even incorporated machine produced designs. There was another challenge though, transportation. Some of the furniture would be damaged while on transit to the customers and this called for a quick solution. Since there was ready market for his products, providing another solution would increase the customer base (Dahalvig, 72). IKEA came up with designs that provided for customer assembly of their furniture. This brought transportation costs down since they were easier to transport while not assembled. This made the overall cost lower pausing a greater threat to the competitors. In order to further reduce the costs, Kamprad opted to remove the middlemen and sell directly to his customers. He did this at exhibitions and home furnishing fares in Sweden. This did not go well with competitors like in any other business. In the business world, a competitor will always try to locate a technique of staying in front and that is what IKEA’s competitors did (Boundless, 26). IKEA was accused of copying designs and people were discouraged from buying their staff. In order to handle with this predicament and stay afloat, IKEA decided to come up with designs and found a manufacturer in Poland. This attested to be a good budge as their products became even cheaper and of better quality than that of their competitors. IKEA’s response to their major problem was to maintain good quality at a relatively lower cost. Their merger with Poland enabled them to grow their customer base outside Sweden (Dahalvig, 78). Successful Aspects and Failures of the Response The successful aspect of their response was that they discovered furniture manufactured in Poland was 50% cheaper than that of Sweden. This meant that their prices would go lower. Their established relationship with the Poles also provided them with future suppliers. Their move to link up with Poland paved way for them to enter other markets. There was also a publication that indicated the high quality of IKEA’s products, giving people more confidence in them. The failure encountered was that not all markets were the same and as the company grew, changes had to be made (Stenebo, 69). For a company to prosper, it has to satisfy a specific need of the people it seeks to serve. Different markets require the same products but in different forms. The American market was quite different from the market IKEA was used to. Changes had to be made to designs and the way issues were managed to maintain the customer base and success. The failure did not last for long since changes were made to suit the market and sales rose again. This showed the flexibility of the company which is an important factor in any business (Boundless, 30). Success, Failures and Measures IKEA like any other business had its share of success and failure. Its success was in the fact that they were able to maintain good quality products at a much lower price and kept increasing their customer base. Their consistency enabled them to attain a huge share of the furniture market. Its success also comes from the leadership allowing every employ to be creative and work as a team. Research has shown that team work is better than working as an individual. This is because different ideas are brought together and issues are looked at from different angles (Boundless, 33). The major failure was venturing into markets outside Europe with the assumption that they were the same. This led to low sales and took some time to pick. From this comes the lesson of research. It is important to do a thorough research on prospective markets in order to go in prepared. Good measures were taken to deal with the various problems that arose and kept IKEA at the top of the rank in the furniture industry. There were many attempts by competitors to bring it down but instead they helped it grow (Stanzma, 58). The findings from this are that is that it is significant to be conscious of the market trends and know where to venture in. It would have been possible for Kamprad to join the market with equally high prices but he found a way of joining with lower prices but with high quality. It is also important to provide a good working environment for the employees since they are th main contributors to the success of the company. If they do not produce good products, there will be no sales. Another important thing is that problems ought to be tackled rapidly to steer clear of huge losses (Stanzma, 67). Findings and Recommendations Research is also an important factor since it gives a clear view of what different markets want and how they want it. There various changes I would formulate at IKEA and they include the customer base and the managerial arrangement. The customer base is quite good considering that the middle class are many compared to the rich. On the other hand, it would also be excellent to have products that the rich would also consider buying and not just have furniture that is meant for the middle class. This will increase the customer base and in return increase sales and profits (Stenebo, 69). The managerial arrangement pauses a small challenge in that there is no chain of command. As much as that gives people the freedom to interact freely and work as a team, there is the need for a chain of command. The reason for this is that decisions made are sounder. It may take a little supplementary time but better decisions are made. It also provides for smooth running of the business since there is a flow of command and an orderly way of doing things. It would also be easier in case an issue is launched by a customer, it would be easier to solve. The manager’s dress code would also need some change. This is because their appearance matters a lot especially if the company is to attract the rich (Boundless, 46). After sales service is another important aspect in a business. Companies that offer this tend to have more customers and higher sales. IKEA did a superior job in solving the transport issues. However, I would ensure that every branch has at least three vehicles that can transport furniture to the customers location with a small fee included in the cost. I would therefore recommend these few changes. Works Cited Boundless. Mnagement. Boundless. New York. 2013. Print. Dahlvig, Anders. The IKEA Edge: Building Global Growth and Social Good at the World’s Most Iconic Home. New York: McGraw-Hill. 2011. Print. Stenebo, Johan. The Truth About IKEA: The Secret Success of the World’s Most Porpular Furniture Brand. Gibson Sqaure. 2010. Print. Stanzma, Derek. Mnagement: Your Complete Guide to Understanding Mnagement and How to Manage Teams Effectively. Amazon Digital Service. Kindle Edition. Read More