IKEA Case Study
IKEA is a Swedish furniture organization that was founded in 1943 by Ingvar Kamprad. Initially, the founder sold watches, pens and wallets using a door-to-door approach. The ban on local suppliers meant that the founder had to explore alternative ways to carry out business. From such humble beginnings the entity grew into a vast company that expanded into Europe, the US and other countries. The retail outlet operates approximately in 154 stores in 22 countries. It serves more than 286 million customers a year. The company’s strategy and mode of operations appear to be headed in the right direction.
In order to attain great success, the enterprise applied several basic principles. In order to get to its position, the company has distinguished itself in a number of ways. A notable differentiating factor of IKEA is the low price for its products. After a failed attempt to replicate its business model in the US, IKEA decided to customize its products on the basis of local needs. For instance, the demand for bigger closets and beds in the US was taken into consideration. In addition, while becoming more relevant in the US, the company set its stores in suburbs. Current paper reviews the case of IKEA in reference to its leadership and management.
According to Taylor’s scientific approach, there is ‘one best way’ of doing things. Hence, the company’s leadership worked on identifying the best way of achieving results before transmitting it to the workers who put it into use. In particular, IKEA began by designing its furniture, bringing raw materials, and creating its individual exhibitions. It is noted that obedience to laws and regulations are important markers of IKEA as an ethical and strong-cultured organization.
Cost-consciousness is one of the most conspicuous values of IKEA (Vendemiati, 2010). The enterprise started designing its own low-priced furniture in 1951, barely eight years after its formation. The company later adopted a design for flat packaging. The system led to reductions in price and reduced transport/ shipping costs. Thus, more items of furniture could be shipped in one truck. It required less storage space, decreased labor costs, and led to reduced instances of damages or breakages of furniture.
IKEA employees were reminded to conserve energy by switching off unnecessary lights and computers that were not required or being used. Senior managers were required to use public transport in buses and coaches rather than taxis. In the design of its products, the company was guided by cost-effective procedures without compromising on quality. The result was that the company’s products became cheaper due to reduction of the costs of production.
Employees of the company have to follow the policy and value cost efficiency. The design team knows well that their designs have to be cost-effective. The choice of materials is guided by the company values. Managers who desire to travel have to abide by the cost-cutting policy by not using taxis. Company employees have to adhere to the rules and regulations. They should be guided by the company values. Therefore, in the course of their employment duties, employees are required to embrace the values and rules.
The values adopted by IKEA are aimed at ensuring sustainability of the company operations. By embracing measures that limit wastage of resources, the company would be able to cut on costs of production (Walsh, 2003). The price of the company products would be lower compared to those of competitors. Consequently, the company products would generate a substantial demand and thereby lead to increased earnings to the enterprise. The employees would be compensated adequately for their services. Their motivation would be high, which would lead to impressive performance. Employees would learn to appreciate the values of the company since they benefit from them.
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Simplicity is another value embraced by IKEA. At the retail outlet stores, required components of furniture are stored unassembled. This allows customers to select their own choices for assembling. The retail stores also have an allowance for children playroom and a Swedish café. The furniture at IKEA is also delivered unassembled. All the foregoing provisions allow for simplicity. Many customers are reported to be pleased with such arrangements that enable flexibility in choice. The system of flat packaging also allows customers to transport their furniture from retail outlets to desired locations easily (Berezin, 2010).
The employees are affected by the system adopted. They are to be guided by the value of simplicity in performing their duties. During design, selection, and packaging, simple and flexible approaches are to be embraced. The aim is to make shopping experience easy for customers. Acker (2012) indicated that customers prefer easy and flexible procedures. Therefore, by adopting easy procedures the company would be able to draw many customers and thereby earn more in revenue from sales.
IKEA’s corporate culture is based on cost efficiency, respect, simplicity and unity. The culture began as soon as the enterprise began its operations. It started as a strategy to offer low-priced household items. It then changed into manufacture of low price furniture. The strategy to manufacture furniture of low prices was guided by the need to beat competition in the market. According to the law of demand, the higher the price, the lower the demand and vice versa (Berezin, 2010). IKEA, well aware of the foregoing fact, adopted the culture of integrating designs that allow for low prices of final products. Ever since then, the company has embraced values that are core to its operations. That is how the corporate culture began.
IKEA’s corporate culture was also influenced by market dynamics. Pressure from competitors made suppliers to boycott IKEA. This prompted the company to design its own furniture and formed the basis for future growth. It subsequently led to innovative design and improved function at lower prices. Then, an employee chose to dismantle the table so that it fits into the car to avoid transport damages. From that point, the company began to think of flat packaging. This led to further price reductions and convenience during shipping.
IKEA has been able to maintain its corporate culture all along through regular briefings to its employees on its core values and culture (Romer, 2005). Employees are constantly reminded on how to save energy. New employees are trained on company values and culture. To maintain the culture, a new product development process at the company is overseen by a product strategy council that consists of senior managers charged with establishing priorities for IKEA’s product line-up. Once the product is complete, the company conducts a market survey to establish the prices of competitors. The company then sets it price at 30-50% lower than the rivals. That implies that the products of the company are cheaper than the competitors’ are.
Another strategy that has helped the company maintain its corporate culture is applied when IKEA establishes the target retail price for a proposed product. The company would begin selection of a manufacturer to produce a product. With the many suppliers in more than fifty countries, IKEA contracts affordable suppliers through competitive bidding. In the process, the company saves on labor and production costs. The result is that the products of IKEA are cheaper than those offered by competitors.
During the design process, the company’s engineers strive to attain designs that are cost-effective. The company uses high quality materials on furniture surfaces that are visible and likely to undergo stress. Low quality materials are used on surfaces that experience low stress and are less visible to consumers. Such a strategy ensures that the products achieve the desired objectives. Structurally sound and aesthetically impressive, the products create substantial demand in the market (Romer, 2005). The fact that the products are designed cheaply and fashionably would enhance their desirability.
Another strategy that has been used in the maintenance of the corporate culture deals with the price. After a manufacturer is identified and the materials are decided upon, the actual design process would start. The company would use internal competition to select a designer. All the designers would be asked to provide the product brief. It would include product price, function, materials to be used, and the manufacturer capabilities. In addition to the poll of designers, at IKEA freelancers would also be included in the competition. After that, the best design would be selected.
New products at the company would also be redesigned if such a need exists. It is not unusual for IKEA to redesign a product several times. The purpose of such process is to maximize the number of products that can be squeezed onto a shipping pallet. This constant focus on shipping frugality means that with each redesign, a product’s retail price will remain stable over time or even decline as its shipping costs drop. The cost of transporting goods is a component of the final price of goods. By reducing such costs, the price would fall. Low prices would draw demand for the products. High demand implies that more sales are made and thereby the company has higher earnings (Dixon, 1988). The foregoing are the ways through which the company has maintained its corporate culture over time. It is worth to note that low cost and innovative approaches have been embraced during the production process, which has led to affordable products.
IKEA, a leading retail furniture outlet boasts a substantial share of the market in the furniture industry. The company’s values are based on cost effectiveness, respect and simplicity in its operations. The company employees are supposed to adopt the policies and embrace the company culture. Given that the values of the company would be beneficial to employees in the long-run, makes it easy for them to accept the values. It is also noted that the company embraced a strategy that relies on innovation to produce low cost furniture. IKEA also has a procedure that ensures that all its products are fashionable and create a huge demand in the market. As a result, the company has registered an impressive performance in its operations.
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Acker, D. (2012). Developing business strategies. Hoboken: John Wiley and Sons.
Berezin, M. (2010). Emotions and the economy. In N. J. Smelser & R. Swedberg (Eds.). The handbook of economic sociology. Princeton: Princeton University Press.
Dixon, H. (1988). Unions, Oligopoly and the Natural Range of Employment, Economic Journal, 98, 393, 1127–1147.
Romer, D. (2005). Advanced macroeconomics. Boston: McGraw Hill.
Vendemiati, A. (2010). In the first person, an outline of general ethics. Rome: Urbaniana University Press.
Walsh, E. (2003). Monetary theory and policy, 2nd edition. Cambridge: The MIT Press.