Ikea Case Analysis

MGMT 5120 Managing Organizational Design and Change

Case Analysis – IKEA

Bharathi Aravamudhan

Managing an organizational environment is a crucial task for any organization, especially when it enters global market. As stated by Gareth Jones, an organization’s environment is a major contingency for which an organization must plan and also adapt to control the uncertainties associated with it (2013). In compliance with this statement, despite having faced challenges with respect to discrepancy of culture, demography and markets, IKEA has learned its way to sustain and adapt to the environment that it was exposed to. IKEA  has had huge success around the world, by providing tailor-made products and services in different countries, according to the needs of different customers. For instance, IKEA always located their retail stores in less expensive areas with their products being a DIY kind. But they were willing to change that in order to cater the China market, which was a huge success (Kulshreshtha, 2016).

IKEA has not only impressed their customers with affordable and high quality furnishings, but also focussed on their competitors and companies around the world. They are especially known for their unique supply chain and inventory management techniques, such that, each of their store holds more than 9500 products (Lu, 2014).

Some of the key factors that have led to the success of IKEA in a global environment would be their sustainable relationships with their suppliers, combining retail and warehouse processes, in-store logistics. Although they negotiate prices, check quality and foster competition among the suppliers to ensure best prices and materials, they also sign long-term contracts with them to sustain business relationships and ensure low-price bargain. IKEA suppliers are dependent on them and are also under direct financial debt, since IKEA paid for their assembly of their supplier’s machinery (Kulshreshtha, 2016). Also, they keep an eye on their supplier’s social and working conditions. Additionally, the IKEA Way of Purchasing Home Furnishing Products (IWAY) code of conduct developed by them, has rules and guidelines which help in impacting the environment that their suppliers operate (Lu, 2014).

Global recession as an economic factor, favored IKEA’s low pricing formula, especially when there was significantly less number of first-time buyers. Their quality attracted both low level and high level consumers, and they sustained their brand name to be recognized for lowest retail price in the furniture sector (Kulshreshtha, 2016).  

Another interesting fact to note about IKEA’s global environment management techniques would be their entry mode into different countries; they choose to Franchise. Their trademark and concept is formally owned by Inter IKEA systems. All IKEA stores, pay 3%  of their profit to this system. All stores operate in same agreement that the suppliers are required to have a long term contract with IKEA and need to lease equipment from the parent system, while they reserve the rights of exclusion and low prices (Kulshreshtha, 2016). They outsource their manufacturing to low cost countries to help their low cost strategy (Essays UK, 2013). They have also initiated a project to concentrate on the shortcomings of supply chain and enhance the performance in terms of delivery, service and cost. They are also concentrating on global planning for mutually integrated planning processes, centralize planning the organization, focus on data quality and use advanced software support.