IKEA CASE STUDY –QUESTION 1

THI HANG VU

PURPOSES

• Understand IKEA’s business model

• Investigate its sources of competitive

advantage

• Understand reasons behind IKEA’s

success

• IKEA’s main weaknesses.

ABOUT IKEA

• Founded in 1943 in Sweden.

• Is a multinational group of company that designs and

sell ready-to-assemble furniture, appliances and home

accessories.

• Has more than 389 locations all over the world (2016).

• Its concept is to offer wide range of functional, well

designed and low cost home furnishing product

IKEA BUSINESS MODEL

GENERIC STRATEGY - Cost leadership : involves becoming the lower cost

organisation in the domain of activity.

- IKEA’s cost drivers include :

Input cost:

+ Source component from widely dispersed suppliers located in different countries.

+ Improve its manufacturing techniques

+ Minimize the cost of inventory

High volume

Disassembled components

SOURCES OF COMPETITIVE ADVANTAGE – STRATEGIC CAPABILITY

TANGIBLE

• IKEA's supply chain management is

one of its solid sources of competitive

advantage.

1046 suppliers in 52 countries

32 distribution centres in 16 countries

345 stores 42 countries

Ensure capability to meet customer

demand

Effective network for distributing

products.

Physical resources

STRATEGIC CAPABILITY – TANGIBLE RESOURCES

• Financial resources:

Experienced a 15% sales increase between 1990-2005

Revenues: 29.29 billion EUR

Ensure a positive cash flow for its operation activities

Invest to maintain and expand the business all over the world with continuous

R&D activities.

STRATEGIC CAPABILITY - COMPETENCES

• How the leaders of IKEA do their business with clear vision and mission,

• Its continuous focus on the importance of both internal and external customers

to ensure that these customers remain loyal to them

• They motive, inspire, coach and support staffs.

• Good relationship with suppliers

• Good relationship with the government and friendly neighbour with community

=> Make the best use of available resources to bring value to customers and

benefit for the company.

FREE ASSEMBLY FURNITURE

Offers a larger choice

Immediate delivery

At a lower cost.

IKEA use its business models to turn customers as free laborers

Making them much more valuableand profitable

VRIO ANALYSIS

Which of IKEA’s resources and capabilities add value ?

- Style at low cost – desirable products

- Enjoyable shopping experience

- Inventory system – customer can take home furniture immediately

- Experience with global expansion – necessary knowledge for successful launches in new market.

To what extent are IKEA’s resources and capabilities Rare ?

- Style at low price point is relatedly rare

- Ability to take home furniture immediately is not so rare (Target, Home Depot)

• Imitability :

- Style is moderately imitable

- Shopping experience maybe be copied by new entrants.

- Experience (with strategic model, global operations) is difficult to acquire

• Organisation

- IKEA Group has an ownership structure that ensures independence and long term approach.

=> IKEA seems to control its key resource/capabilities.

WHY IS IKEA SUCCESSFUL ?

• Solving the worst part of buying furniture

As people used to see furniture as an investment

for the next 20 years, they tended to be anxious

and indecisive.

IKEA brings a seminal change in home

business

• Hitting the right demographic

- Clever target customers : young people

WHY IS IKEA SUCCESSFUL (CONTD)

• Not expensive, but not too cheap

• Stores are a destination

- As e-commerce becomes more popular,

shoppers need incentive to come into stores

- IKEA has elaborate showroom and cafeteria

- IKEA is a standalone store

WEAKNESSES

• IKEA is not all customer focused

- IKEA is mainly cost focused.

- In 21st century, firms are more focused on customers’

needs, wants and preferences.

• IKEA lacks product innovation

- IKEA’s product strategy is so much obsessed with low

cost price

WEAKNESSES (CONTD)

• IKEA never took economic issues into consideration before being

faced with the problem.

Example: In US, the goods were priced in the Swedish kronor, which

was strengthening against the American dollar.

=> Bring up an opportunity to be more profitable in the future.

=> Satisfy customers’ needs to remain their loyalty and explore new

invested markets, make them more competitive.