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Ikea Case Study

Ikea Case Study

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Published by: androobear on Jan 26, 2012
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02/18/2013

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1.IKEAs strategy in Sweden-What were the sources of IKEA’s successful entry in furniture retailing inSweden?During the post-war boom, young householders were looking for stylish and affordable furniture instead of the tradition hand-down furniture from the older generations. Kamprad saw opportunity when he saw that the cartel formed by both the Swedish manufacturers and retailers kept prices high causing the price to rise 41% faster than other household products. He then decided to enter the market by offering low-cost furniture to the majority of population while retaining style and function.As the furniture cartel knew that with the offering of stylish low-cost furniture by IKEA, Kamprad was a great threat to their business and profit. Hence Kamprad faced great resistance from the furniture cartel when he first participated inthe annual furniture trade fair in 1950’s. The furniture cartel first banned IKEAfrom selling direct to customer, and then banned them from displaying price during the trade show, and eventually cutting off his source of supplies in Sweden.Faced with all the resistances in Sweden, Kamprad began to source for alternative suppliers in Poland. Which to his joy, he managed to bring down his cost evenmore resulting in even lower-priced furniture.By year 1961, IKEA turnover was 80 times larger at over SKr40 million compared to an average furniture store. Kamprad being aware of the market trend and shopping habits was able to effectively capture the market. With the development of informative catalogs, knock-down kits and cash-and-carry concept. Along with targeting the middle to low income population, Kamprad is able to capture a much larger market as compared to the cartel formed by the Swedish manufacturer and retailers (see figure 1). With the economies of scale it allows Kamprad to price IKEAproducts lower. This in turn successfully reinforced IKEA’s market position and market share in Sweden as a low-cost furniture provider with stylish design.Figure 1 – Long Tail Graph2.IKEAs strategy while expanding internationally-How important was internationalization to IKEA?-What challenges did IKEA face while expanding internationally, and how did it overcome them?It is crucial for IKEA to continue to expand bigger so that they can have even larger economies of scale which can drives cost down and increase sales. In the early 1970’s, Kamprad saw the critical need for IKEA to expand internationally whenthe growth for the Swedish furniture market was stagnating.IKEA faced several challenges when it starts to expand internationally. One instance was when IKEA first entered the Switzerland market, where its furniture wasmade using dark wood, of traditional design and sturdy construction. On the other hand IKEA’s furniture was made using oaks or pinewood, of contemporary design and furniture in knock-down kits. In addition, IKEA stores uses self-service andcash-and-carry concept as compared to service-intensive which was a norm then. All these are a direct opposite of what the market in Switzerland is offering atthat time.IKEA overcome these challenges by distributing half a million of catalogs to create awareness along with the use of unconventional advertising to dismiss negative impression on IKEA’s and its products. IKEA managed to attract 650,000 visitorsin its first year.As IKEA expanded, competition among stores was tremendous. Even though with competition, innovative ideas was being generated. However it also leads to separation from the parent company identity. IKEA overcomes this by standardizing each and every store; from the goods being displayed at the showroom, down to the arrangement for each product.In order to overcome the challenges IKEA faced during expansion internationally,2 groups where form; Expansion Group and an Operations Group. This ensures thatIKEA expansion can be done smoothly and quickly. However in order to maintain t
 
he low-cost advantage that IKEA has; purchasing, designing and distribution waskept centrally controlled. This is because most purchasers are from Småland, whichare well known for their thriftiness.IKEA also faced the shift in its targeted consumers group, as the median age andincome raised; its original targeted market will be shrinking. IKEA overcome this by changing the company’s crazy Swedes image and shift it to quality image. IKEA also expanded into other market such as the office furniture to capture a larger market.
3.Organization capabilities of IKEA-What were the management processes by which IKEA coordinated and controlled its Europe-wide operations? How effective were they?The management process was very much driven by Kamprad and his view of life. Kamprad wants IKEA to move away from status and convention, and this will make employees more at ease. IKEA management also often stressed simplicity and attentionto detail. Kamprad also often mentioned that “Waste of resources is a mortal sinat IKEA”. The root of IKEA spirit is frugality and wants to spread this idea downto all its employees. IKEA management often hires younger, more open recruits asthis not only drives down cost. It also ensures that the employees are not immersed in another cultural so much so that they are unable to adopt IKEA strong and unique culture. With the use of IKEA ambassadors which are trained personallyby Kamprad, they are assigned to key positions to spread the company’s philosophyand values, and also to act as role models.However when it comes to the effectiveness of these processes, not everyone in the company will stand to benefit from it. With the moving away from status and convention, it puts pressure on management to perform as there is no security behind hierarchy or closed doors. The thrifty and spirit of frugality is also hardto maintain when IKEA has a turnover of billions each year, more and more employees are anxious to share the rewards.4.Organization values and Ingvar Kamprads vision-What was Ingvar Kamprads role in IKEAs development?As the founder of IKEA, Kamprad and his values very much drive the entire IKEA organization. Even when he is the chairman of IKEA, he was seen often bypassing the normal hierarchy and going down to communicate with the designers and managers that are five or more levels below him. This shows the entire IKEA organization that he is committed to move away from formality and status. Kamprad himself is a very good role model to his employees, in terms such as frugality and whatever he expects from his employees, he is practicing it himself.Kamprad’s vision of “To create a better everyday life for the many people” and business idea “To offer a wide range of well-designed, functional home furnishing products at prices so low that as many people will be able to afford them” still drives IKEA after more than 50 years. Coupled with Kamprad’s ability to forecast consumerneeds, he is able to turn difficulties into advantages and uses it to expand IKEA’s business. Kamprad himself play a significant and an indispensible role in theentire IKEA’s development over the years and what Kamprad’s envision more than 50 years ago is still very much applicable in today’s market. Results can be seen fromIKEA financial standing of an increase in sales of 7.7% to 23.1 billion EURO ascompared to year 20091.
5.Action plan for the future-What challenges lie ahead for IKEA?-Please recommend what course of action Anders Moberg should follow in order to deal with them.The challenges for IKEA would be to constantly keeping the growth of the companyhigh, which is what it has done for the past 50 years while keeping the cost oftheir furniture low. IKEA also faced challenges in terms of demographic differe

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