Introduction

IKEA Group, a Swedish company founded in 1943 by Ingvar Kampard, is a

multinational operator of a chain of stores for home furnishing and furniture. It is the
world's largest furniture retailer, 75 IKEA stores owned and run by franchisees, in 19
countries, which specializes, in stylish but inexpensive Scandinavian designed furniture.
IKEA focused on younger buyer and provided Unique designed functional, high quality
yet low priced furniture. Initially Swedish furniture retailer created hurdles and left no
stone un-turn to seize their business. IKEA took these problem as opportunities and
created new way of sales for example taking down customer details contacting after
world ,finding new raw material produced from Poland which actually benefited IKEA
as it reduce their cost. Ingvar Kamprad’s vision was very well carried by its
management, through creating a unique culture which actually strengthens its way to
success. IKEA developed many new concepts and practices like Self-service,
Informative catalogs, large parking lots, Cash and carry concept etc. IKEA hoped to
reach a turnover of SKr 19 billion by 1990 and three times that amount by 2000 through
rapid expansion. The future concerns for IKEA are middle age and low and middle
income level would be shrinking; now they have to cater to old age people too. The
biggest concern was whether the rapid growth and increasing geographic spread would
make it difficult to retain company core culture. There was a difference in the attitudes
of the American and European markets which was a big constraint in their core design
furniture.. The concern was how far and rapidly could IKEA push its common sense and
simplicity concept of culture across all stores as global expansions.

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 CSR and IKEA

“To create a better everyday life for majority of people”

It prescribed standard in-store facilities including baby changing rooms, a supervised play
area for children, information centers and café, family outing destination that can compete
with the entertainment park and the zoo for the family time. 1

IKEA’S PHILOSOPHY

The philosophy of IKEA was to have distinct organizational culture, reduce cost; finding
lowered priced material, innovative employees and differentiated product range.
• Distinct organizational culture
The IKEA operated very informally and it was reflected in casual dressing, relaxed
office atmosphere, and the way of addressing each other. The IKEA management
process stressed simplicity and attention to detail.
• Cost consciousness/ Cost leadership
It was strong part of management culture. IKEA was the low cost leader. IKEA followed
many practices to reduce its cost like
 travel expenditure (Travelling for IKEA)
 continuous search of low cost raw material (inexpensive pinewood
furniture)
 search for creative and inexpensive solutions (simple and common-sense
style of management)
 long-term relation with supplier (Designers working 2-3 hours ahead of
current products)
• Employment
The average age of IKEA managers was 34 year .Highly educated, status conscious and
rigid person are not suitable for IKEA .The characteristics of IKEA employees were Simple,
hardworking, straightforward and young who absorb in culture of the company.

1
Source: Ingvar Kamprad and IKEA 9-390-132 HBS page no 3 and 7

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• Product range /product differentiation
It had a range over 20000 products. Standardization of all design ,quality ,assortment
across the globe .44 % of customer prefer IKEA for their low price and 78 % customers
make their purchasing decision after viewing IKEA catalog.

DELTA MODEL
Level of Dissatisfaction *Vision*Credible Process =Cost of Change
LOW *High *High = LOW

• Level of Dissatisfaction
IKEA employee’s level of dissatisfaction was low because the vision, way to achieve the
target and result properly communicated .IKEA Ambassador were selected to convey
the vision down to each worker. Due to informal management style the employees were
more committed and devoted to their work.
• Vision:
o To create a better everyday life for the majority of the people.
The remarkable personality of Ingvar Kampard could be described as ‘walk a talk’
reflected from his actions like: travelling for IKEA, working late nights and coming
early to the office, dinners with the staff etc.
Competency: The ability of Ingvar Kampard could be determined through his
successful achievements in this industry; his thesis Testament of a Furniture Dealer
became an important mean for spreading the IKEA philosophy throughout its expansion.
His statement reflects the best of what he was and wanted the IKEA to be:
“The true IKEA spirit is founded on our enthusiasm, on our constant will to
renew, on our consciousness, on our willingness to assume responsibility and to
help, on our humbleness before the task and on the simplicity in our behavior.”

• Credible Process:

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 The IKEA management was so participative that every employee knows what is
happening in the firm, making every process transparent. So they have trust on Changes
made by the leader.
• Cost of Change:
This cost was low because employee knew what is expected out of them how to achieve
the target.

THREE Essential Tests

1. Attractiveness: Before starting operation in any country, management considered
Ingvar thesis and general objective whether that can be achieved in respective
country or not. Make an informal test about market size, consumption pattern,
customer trends and competitors.
2. Cost of entry: IKEA start with single showroom in a country when market response
was positive they establish another showroom and so on. It helped them in saving
their finance so that it doesn’t stick in any country and have favorable return.
3. Better Off: IKEA had not diversified in any unrelated business, since they were
established as a furniture maker; they entered in kitchen, bathroom and office
furniture.
DIAMOND MODEL
Factors of Production
• Labor: In IKEA is not suitable for highly educated and status oriented persons. So,
labor was available to IKEA, who can carry the core values of Ingvar’s Vision.
• Land: All IKEA showrooms were located on outskirt of the city which was
beneficial for two main reasons low cost of land and large area. This strategy they
maintain both at local and international level.
• Capital: IKEA rely on their own resources and to have large resources for
investment they emphasis on low cost wherever possible for example low cost of
raw material and land, labor ,traveling even they have maintained Head Quarter in
Denmark and Ingvar and Kampard himself lives in Switzerland to avoid the heavy
taxes of Sweden. IKEA franchises pays franchises fee and its show room pays
royalties which are transferred in IKEA charitable Foundation.

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 • Entrepreneur: Ingvar Kampard is opportunist, creative, flexible and have a vision,
due to all these characteristic he achieved global success.

Firm Strategy and Rivalry

• IKEA strategy was to make high quality furniture for low and middle income class.
As this class is shrinking they have also diversified in other product lines such as
office, kitchen, bath etc.When IKEA became a recognizable brand in world it started
targeting elite class and locate its showroom in urban areas where possible.
• IKEA introduced a unique concept in furniture industry like cash and carry, self
selection, catalog, knock-down kits ,large parking lots and off city showrooms,
showrooms a sort of a place for family outing etc.
• Self service and no home delivery are sources of cost saving
• IKEA after gaining competitive advantage in furnishing, it diversified in related
market (office, kitchen, bath) to gain market share and economies of scale.
• IKEA faced competition from the day one from its native furniture maker to foreign
establish brands. To keep itself distinct from other they have focused on their
product line and service. There imitation is not possible, one retailer did and was
faced a law suit.

Demand Conditions
Demand for high quality and less expensive furniture was high in Sweden after 1930 and
kept on rising as prices of traditional furniture were increasing. IKEA first met this demand
and then tap other potential markets which were statured by respective country traditional
furniture industry.

Related Industries
In start when IKEA have strong long term relationship with its supplier it help them in
establishment and designing of their industries, buying, machines and setting operation. So

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 they toghather save cost. For production of their products they select those suppliers who
want to meet its capacities so IKEA get its price lower.

PORTER FIVE FORCES MODEL

I. POWERFUL SUPPLIERS AND BUYERS

a. Relationship with suppliers

i. Supported the suppliers with the technically and financially even to the point
of designing their factories, buying their machines and setting up their
operations.
ii. Maximum production achieved through capacity of unconventional
supplier’s i.e. individual contracts for single raw materials with different
suppliers like table manufacturers and cushions.
iii. Fixed high volumes orders, encouraged the suppliers to invest and drive
down manufacturing costs.
i. As the designers worked two or three years ahead of current products.
iv. Low cost and high inventories lead to low margins to the suppliers as the
maximum capacity of production of suppliers was held constant.

II. Relationship with buyers

i. Buyers do have an influence over the furniture price decisions, as they were
demanding for new and inexpensive furniture, which IKEA was successfully
meeting at every continent.
ii. Provided faster services, which attracted a large number of customers to the
warehouses to select their product independent of any sales-man.

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III. Substitute Products

i. The substitute products for IKEA’s were not easily available as they had over
20,000 product offerings, and many of these products received special
attention.
ii. Once the California-based retailer imitated the concepts of IKEA, but he had
to abandon it after legal proceedings.
iii. IKEA was increasingly improving their price-performance trade offs with the
industry’s product.

IV. Threat Of Entry

i. Economies of Scale: it was not easy for the new entrants to make their
position in the industry as there were already powerful giants running the
market share. IKEA had highly innovative workforce and research and
development, who were devoted towards bringing new products and ideas.
They had a keen eye on the demands, that’s why the cost was lowered and it
was not possible for the new emerging company to keep at this level. They
cost was kept fixed by reaching maximum capacity at manufacturing level.
There was an increasing revenue and geographical expansion, which caused
barriers to the new entrants. IKEA had an increasing market share in the
furniture industry.
ii. Product differentiation: the imitation and the new concept of catalogs,
department designs and warehouses helped IKEA to maintain a strong brand
image, which was not easy to be competed.
iii. Government policy: the government regulations had an important part in
this industry, like the legal proceedings against Stor Company and legal
proceedings against IKEA for using the seal that was proved to be illegal and

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 retailers initiated legal actions challenging the IKEA’s aggressive
advertising. There was a major thrust of entrance in the Eastern bloc
countries, due to their low reliability and poor quality image, political and
economic reforms.
iv. Capital Requirements: the new entrant had to invest a large amount in the
research and development, buying suitable locations for stores and
warehouses and promotion activities. IKEA whereas, had cut down its prices
to maintain market share of huge markets and had a wide excess capacity by
having strong reinforcing activities.
V. Rivals

Intense competition in markets likes in Germany, America, and England with traditional
furniture retailers competing for the share.
Competitive analysis of IKEA:-
• Ingvar Kamprad focused on the human aspect. His motivation was not the profit
but improving the life of people. He boosted the morale of employees by personally
meeting and appraising them. He consistently turned problems into opportunities.
• IKEA was lucky enough for not having first mover disadvantage when all furniture
dealers were making traditional furniture, Ingvar took a step ahead and introduced
simple, inexpensive and low cost furniture.
• IKEA had a strong innovative, empowered workforce that helped in switching
customers from traditional furniture to new introduced furniture such as, office,
kitchen, living room, bath room furniture, which increased its share in market.
• To sustain its low cost competitive advantage, IKEA helped its supplier technically
and financially so that the maximum capacities could be utilized.

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 OLI MODEL

Location Advantage
Strong Weak
Ownership Export OUTWARD
Strong
advantages FDI
Weak Inward FDI Imports

1. HIGH----OWNERSHIP ADVANTAGE

I. Entrepreneurial skills
Kamprad had potential to turn problems into opportunities when it saw that people are in
troubled due to high price and traditional design of furniture he took it as opportunity, with
his creative mind made unique designs, low price and easy assortment furniture. Kamprad
conveyed his vision throughout the organization by making people “IKEA Ambassador”
and his thesis “Testament”.
II. Production technique
i. IKEA has long term relation with his supplier to maintain its low cost it helped its
supplier in establishing their firms ,do maximum production to meet supplier
production capacities and keep inventory in its own store.
ii. IKEA is in continuous search of low and quality raw material keep on experimenting
on this.

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III. Trademark
IKEA logo, product design and show room are so unique that if anyone imitate, he has to
face penalty .e.g Stor Case. To overcome such problems IKEA had registered all its unique
elements.
VI. Economies of Scale & Scope
Due to large product range IKEA has achieved economies of scale and scope, as waste of
resources is a sin at IKEA. It provides a secure delivery system to its supplier this way it has
achieved economies of scope.

2. WEAK---Location Advantage

• Access to Raw Material: IKEA sourced raw material from Poland, which
reduced their cost as compare to buying material from Sweden.
• Taxes: Taxes were high in Sweden to avoid these Kamprad shifted to Switzerland
and IKEA head office was shifted to Denmark.
• Labor: IKEA employees are not very educated but very hardworking, on status
conscious and Odmjukhet: which means humility, modesty and respect for one’s
fellow man.
3. Strategy
IKEA has high ownership advantage but low location advantage so they should do
Outward FDI.

CORPORATE STRATEGY
i. Portfolio Management: IKEA had never diversified in any other business.
ii. Restructuring: When Ander Mober became President ,IKEA was restructuring on
functional lines as Formation of Supervisory Board , ,executive were based in Head
Quarter in Denmark ,introduction of formal budgeting and planning process ,3 year
corporate plan, A class site of showrooms.
iii. Transferring Skill: the recruited employees were delegated responsibilities earlier,
they were rotated frequently and rapid promotions for high performers. The

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 discussions with the senior management and trained IKEA ambassadors helped in
transferring skills within the company.
iv. Sharing Activities: IKEA has achieved economies of scope and scale by sharing its
activities with supplier

GLOBAL CORPORATE STRATEGY

1. Demand:
There was a sophisticated demand for furniture with low cost and high quality for young
generation. They targeted young professional who initially started their life and furnish
their first apartments as mention in Exhibit 3.
2. Access for Resources:
They have access to resources in Poland which helped them in reducing cost. Designers
also replace traditional teak with less costly oak material. They also implement Just In
Time (JIT) system in their stores which differentiate them from other traditional store
system prevailing in German and European market.
3. Opportunity:
The IKEA successfully met sophisticated in other countries by opening their stores with
standardized product and appearance where people can shop easily and by providing
facilities like baby centers and restaurants, people preferred shopping at IKEA.
4. Expansion:
Kampard struggled in international expansion of IKEA because Swedish furniture
market was stagnating opening market for it.
a. Internal Expansion:
Initially they were providing furniture only for homes but they expanded it by
introducing new product line for office furniture.
b. External expansion
They moved globally opening stores in Europe and in West German, expanded their
business by sustaining the same culture worldwide.

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Level of FIT AND SUSTAINABILITY

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 IKEA
CULTURE
Ant bureaucrat
week
Awards,
promotions Attention to Testament of
Retail a furniture
dealer

Creative Leadership
Solutions Style

Customers Suppliers
Young
buyers Maximum
production

Management Product
Method Range
Informal and
common sense Catalogs
style WarehouseKnock-
down kits

Strategic fit among activities is fundamental not only to competitive advantage but also to
the sustainability of that advantage. The culture of IKEA is to enthusiastically work for

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constantly renewing the products, on cost consciousness, focusing on quality, to assume
responsibility and to help in tasks and brining simplicity in the behaviors. To achieve this
culture, IKEA has integrated all the activities to achieve the simple consistency between
them, the optimum efforts could be reached by reinforcing the activities.
There was an increasing demand for the inexpensive furniture, while the prices were high;
this was a social problem yet a rising opportunity for the business. To place itself in the
industry it focused on activities like layout of warehouses, relationships with suppliers,
meeting demands of young buyers, providing a wide product range, appreciating the
creative solutions, paying attention to retails, a smooth leadership style that will be passed to
the generations developing leaders in the company and moreover their management style
that is the key to every activity.
Keeping the information of the customer’s buyer behavior helped IKEA to change its
strategy accordingly to provide products and services that show care for them.
Exhibit 3 shows that customer’s primary determinant of purchase was through the Quality
which was 44% and their criteria for choosing store were Quality 90%. Their purchase
decisions were based on the information provided in the catalogs which was 78%. IKEA
was able to positions itself as the industry’s low-price leader. It developed attractive
warehouses where the new creative solutions like: buying products by self-selection from
knock-down kits increased cost saving and faster service. They recruited employees that
were highly creative and were easily absorbed into the IKEA culture resulting in low cost.
By providing informal environment it was able to bring the trust and loyalty among the
company and the employees. The wastage of resources was determined to be the sin so it
helped in reducing the cost and increasing efficiency of the company and the workforce.
They worked devotedly and bring inexpensive solutions to every problem, for which they
were awarded and promoted. They presentment information on the products through
catalogs which increased the customer awareness about the products, their prices and the
space it would take in their homes. The management style as discussed was unique, informal
and most of all the leadership style required by the IKEA was discussed in the thesis
Testament of a Furniture which passed the philosophy of the company to the generations
so that the leaders know their role in formulating the strategies for the company after Ingvar
Kampard has left the company. Retail was given the special attention as it was reorganized

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into four geographical regions; purchasing, distribution and design functions that were
headed by regional managers. It increased standardization and integration among retails
both locally and internationally. By recruiting the right people it enabled the company to
achieve its sustainable competitive advantage.

VALUE CHAIN ANALYSIS OF IKEA

VALUE
Cost Reduction
Product

Differentiation

Primary Activities
 Inbound Logistics: IKEA designer are in continuous search of less expensive and
good quality raw material in result of which they could find oak material instead of
traditional teak wood.
 Operations: They help their supplier financially and technically to maintain their
competitive advantage of low cost.

 Outbound Logistic: IKEA store inventory in its own warehouses as per

commitment with supplier and to meet its 90% to 95 % service level objective on
catalog.

 Marketing and sales: IKEA marketing mostly depend on its Catalog in 1988 its
annual distribution was of 44 million in 12 languages and 27 editions accounted for
half the company’s marketing budget.2

 Service: IKEA customer has to use their own transport to carry the knock-down kits
and assemble themselves.

Secondary Activities
2
Source :Ingvar Kamprad and IKEA 9-390-132 HBS Page No:06

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 Infrastructure of Firm: Firm use central decision making and use informal
management style its culture focuses on human aspect and common sense and simple
style.

 HR Management :Young employees adjust in firm culture very easily ,quickly

responsibilities given rotation among departments ,promotion to high performer and
they are also low cost .management is informal ,major decision are made with Ingvar
permission ,Anti bureaucrat week were celebrated every year ,IKEA ambassador
conveyed the vision to every employee by acting as role model.3

 Technology Development: IKEA that technology which help to reduce its cost and
improve quality.

 Procurement: IKEA purchased material from 1500 supplier from 40 countries.

Value
Cost Reduction & Product Differentiation: IKEA has achieved both cost reduction and
production differentiation through efficiently managing its supply chain.

3
Source :Ingvar Kamprad and IKEA 9-390-132 HBS Page No: 05

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