IKEAS’S BLUE OCEAN STRATEGY

IKEA’s Blue Ocean Strategy

GB580: Strategic Management

Ray Kalinski

Matthew M. Bennett

May 21, 2013

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Table of Contents
Abstract ......................................................................................................................................................... 3
Entry in furniture retailing ............................................................................................................................ 3
International Challenges ............................................................................................................................... 4
Coordinated Management Processes ............................................................................................................ 5
Ingvar Kamprad’s Role ................................................................................................................................. 5
Anders Moberg Succession........................................................................................................................... 6
Conclusion .................................................................................................................................................... 7
References ..................................................................................................................................................... 8

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Abstract

IKEA is a privately held Dutch company of Swedish origin that has grown into one of the

biggest furniture retailers. It has also made its founder Ingvar Kamprad one of the richest people

in the world (Christie, 2013). IKEA blue ocean strategy mainly found in its cash-and-carry

retailing, cost cutting philosophy, unique simplicity, and corporate culture. The following

discusses how IKEA entered a saturated market, transformed its original market, expanded into a

variety of different market cultures, and succeeded under new management.

Entry in furniture retailing

IKEA was initially successful because of a change in culture and post-war boom; the family

history of handing down custom furniture was fragile in a war torn society. New families had
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both a want and a need for new furniture. This created a new blue ocean strategy using customer

productivity, simplicity, convenience, and a unique brand image.

The barriers to entry were largely synthetic between inter-association supply contracts and

contract agreements between manufacturers and retailers (i.e., a monopoly). As a result of the

monopoly, furniture prices rose 41% between 1935 and 1946 – faster than prices of other

household goods (Barlett, Nanda, 2013, p.1). IKEA could create exceptional utility with the

innovation of cash-and-carry, self-service, and increased parking lots.

“A disproportionately large part of all resources is used to satisfy a small part of the

population… IKEA’s aim is to change this situation. We shall offer a wide range of home

furnishing items of good design and function at prices so low that the majority of people can

afford to buy them.”

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Ingvar Kamprad

This mentality of bringing quality furniture to the masses drove the convenience in the buyer

utility map because it forced IKEA to focus on younger buyers often looking to furnish their first

apartments. Once IKEA saturated this market space it moved into international territory that also

caused it to adapt to other pressures.

International Challenges

IKEA’s move into Switzerland and other European countries introduced IKEA into different

– highly fragmented – marketplaces. IKEA focused on the second tier of Switzerland’s non-

customer base opening a large store in the suburbs of Zurich representing only 20% of the

country’s consumer purchasing power (Barlett, Nanda, 2013, p. 2). In 1974, IKEA opened near
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Munich into the highly organized market where retailers acted as an extension of manufacturers,

carrying little-to-none inventory. Using its successful blue ocean business model IKEA used the

idea of cash-and-carry, self-service, and increased parking lots to create a new immediate

shopping experience.

The cost and risk of developing an innovative idea are borne by the initiator, not the follower

(Kim, Mauborgne, 2005, p. 126). IKEA had created a proven way to gain market share in

Europe’s largest and best organized furniture market: imitators began to mushroom. As a result,

Germany’s trade association brought legal proceedings because of unfairness requirements of the

Swedish Furniture Institute: stating the quality of the furniture manufacturing was below quality

of West Germany and neighboring countries (Barlett, Nanda, 2013, p. 3).

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Coordinated Management Processes

IKEA put its faith in its suppliers creating long-term relationships. This process allowed

IKEA to maintain a 90%-95% service capacity that was needed to promote its cash-and-carry

and mail-order model. A buy production capacity model is a lead strategy and is risky because

IKEA must sell the inventory or incur high storage costs. This production strategy turned a profit

because of the inclined growth during the initial phases of the product cycle in gaining market

share.

The manifestation of IKEA’s management philosophy created distinctive stores with constant

innovations. However, whereas this changed the face of furniture retailing the company later

recanted and created standardization guidelines –likely to preserve the brand image. This is still

in line with the Swedish philosophy of cost consciousness as the company kept considerable
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savings. As the company grew, it evolved into “non-Scandinavian” business groups: The

Expansion Group that consisted of a construction team and a build-up team and the Operations

Group that took over the new store after one-year (Barlett, Nanda, 2013, p. 7).

Ingvar Kamprad’s Role

President and founder Ingvar Kamprad’s role in the development of IKEA surrounded

transparency and creating an open platform. Routinely he would bypass formal structures that

created an environment that put pressure on management to perform. Kamprad stated,

“Complicated rules paralyze!” It seems Kamprad tried to run the entire company through

statistical sampling. As one executive stated, “In a group of 600 items, he will ask about a

particular product, know its price, its cost and its source, and he will expect you to know it too”

(Barlett, Nanda, 2013, p. 3).

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Kamprad’s Swedish philosophy manifested itself in business process: meetings, cost

consciousness, and humility. Kamprad had written, “The fear of making mistakes is the root of

bureaucracy and the enemy of all evolution” (Barlett, Nanda, 2013, p. 5). This philosophy is the

main reason IKEA preferred not to recruit higher educated potentials or persons already

employed by another cultural stream. Similarly to the long term relationship of its suppliers

using the unique production model of buy production capacity Kamprad thought it best to hire

younger employees and develop them.

Anders Moberg Succession

Anders is more committed to systematization, and he delegates much more than Ingvar

(Barlett, Nanda, 2013, p. 10). The challenge that lies ahead for IKEA is to keep its culture.

Culture change within a company normally trickles down from the top and with collective
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agreements made there could become a cultural backlash that results in poor productivity.

Employees at the store level are pushed to be independent under Kamprad; under Moberg a

change to systemization has already taken place resulting in cost decreases but novelty decrease

as well.

IKEA’s senior management remained predominantly Scandinavian after the succession.

As one executive put it, “They instinctively follow the Scandinavian management philosophy.”

Moberg has told employees, “I would advise any foreign employee who really wants to advance

in the company to learn Swedish” (Barlett, Nanda, 2013, p. 9) This is a direct way to keep the

same management philosophy in place but can also create overt discrimination, especially with

creating standard business processes (which is common in large organizations).

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Conclusion

A recommended course of action is to allow each region to adapt to its own culture where

it seems reasonable, such as expenses. The Scandinavian culture values can be pitched as

universal and do not require employees to learn and engulf the national culture. This could be a

lawsuit in the future if it is required to adapt to a certain culture instead of putting a definition

and weight on the values the company represents.

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References
Barlett, Christopher A.; Nanda, Ashish. Ingvar Kamprad. Havard Business Publishing. Revised

July 22, 1996. Accessed May 20, 2013.

Christie, Les. Who’s Really The World’s Richest? CNNMoney.com. Published April 6, 2004.

Accessed May 21, 2013.

http://money.cnn.com/2004/04/06/news/newsmakers/worldswealthiestupdate/

Kim, W. Chan. Mauborgne, Renee. (2005). Blue Ocean Strategy How to Create Uncontested

Market Space and Make the Competition Irrelevant. Harvard Business School Press.