Ikea Case Study

BMGT 272

Case 3: IKEA

1. From the start it was determined that IKEA would be a price leader, offering sleek well designed furniture at nearly 50% of the cost of its competitors. As the strategies succeed, IKEA grew into international markets. With each additional stage in growth, IKEA had to reevaluate the way it did business. What I believe allows IKEA to be successful is the speed and flexibility with the company adapts. IKEAS strategy is emergent, as it is the result of unpredicted change that was necessary for the company to flourish in new markets. Although, IKEA has been flexible in the manner in which it operates it has stayed true to its planned strategy and ultimately values of offering well-built furniture at low price which was able to be afforded by most people, oft referred to as “democratic design.

2. The Swedish furniture industry was largely fragmented during the 1950’s; dominated by small retailers who were not able to take advantage of economies of scale. The direct result of this was many manufacturers offering expensive items to retailers, who then further marked up the products so that they could turn a profit. This business model appears to have been present in many of the nearby European markets.

Due to the enormous expense of furniture during this period in time, many pieces of furniture were passed down from generation to generation. To change the price structure Kamprad designed sleek functional furniture which was able to be produced on machines and thus cheap to assemble. Furthermore, he utilized factories and workers in Poland which offered a 40% savings over production within Sweden. This pricing strategy allowed nearly unhindered growth for the furniture giant within countries of what I would consider the European Union. As growth continued, IKEA took advantage of the fragmented furniture industry within the Western European furniture markets. Instead of offering high end expensive furniture in boutiques which was often not immediately available, IKEA offered cheap, just as well built furniture which was immediately available.

3. IKEA has focused itself toward cost leadership as its business level strategy. To fully employ this strategy IKEA seeks out suppliers whom are able to offer the most cost effective solutions to its needs. This concept is supported further by the cost saving culture found within the organization. For example Kamprad, the founder, never flies first class, and takes the subway to work. Furthermore managers are not paid a high wage, are expected to fly coach and share hotels rooms when traveling. By displaying this cost cutting strategy at the top, IKEA promotes its culture from the top-down.

4. Due to the enormous success of initial stores and the fragmented furniture industry within Western Europe. IKEA was able to expand its operations almost without hindrance. IKEA did become