The case study of IKEA

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    Business
  • Document type:
    Assignment
  • Level:
    Masters
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    3
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    1994

The case study of IKEA

CORPORATE VENTURING

ASSIGNMENT 1

Intrapreneurial Organization: The case study of IKEA

Student ID: 17647237

Student Name: Shengjiang Jia

Lecturer: Michael Wildenauer

Table of Contents

3Introduction

4IKEA’s background

4IKEA’s innovative process

4Innovative logistic

5Service innovation

6Multiple suppliers

6Own designs

7The IKEA’s lessons and success

8Difficulties

9Conclusion

10Bibliography

Introduction

An organization is supposed to identify customer needs and tailor their production to meet customer requirements and ensure that value is attained. According to Heaven (2012, p. 25), value is one of the factors that must be considered in production, and traces back to the ancient times. In order to achieve value creation, organizations must work hand in hand with their customers and innovate. In the opinion of Moreno (2016, p. 296), organizations should resort to value creation and innovation in order to achieve differentiation in the marketplace.

The best and most efficient way to factor in and embrace innovation is to view it as an activity that brings about change (Ivarsson and Alvstam 2010, p. 740). This implies that an organization should aim at improving its products, services and ways of business operations by channeling resources into effective business ideas. However, many at times, many organizations fail to implement this idea, an idea that enables them obtain a competitive advantage, besides achieving substantial growth in business operations.

IKEA has, for long, been innovative in its business operations (Lindqvist 2009, p. 50). Established in 1943, the company has experienced massive growth and is now a big multinational company boasting of operations in more than 42 nations globally. IKEA is known for its innovation strategies ranging from introduction of new cheap customer tailored furniture to its ability to effectively manage its wide span of business operations and a complex chain of suppliers to mention but a few. This report therefore aims at establishing IKEA’s innovation strategies, their success and failures and why other organizations might not succeed in implementing IKEA’s innovation strategies.

IKEA’s background

IKEA is a privately owned, multinational company that designs and sells furniture, which includes beds, desks and other home appliances. In fact the company is ranked as the world’s largest company that retails furniture. The company was founded in 1943 in Sweden by a 17 year old boy called Ingvar Kamprad. In fact, the name IKEA is said to comprise of the founder’s name initials (Ingvar Kamprad) and the place where he grew up the (Elmtaryd) (Edvardsson and Enquist 2011, p. 536). Since 1943, IKEA as grown into a big multinational company boasting over 1800 suppliers and well established operations in more than 42 countries (Edvardsson and Enquist 2011, p. 536). IKEA is an innovative business venture and has adopted a number of innovative strategies which has made it successful and enabled it to obtain competitive advantage

IKEA’s innovative process

How IKEA displays innovation

Innovative logistic

An innovative strategy adopted by IKEA is one that allows customers to individually assemble their furniture because the furniture is sold in pieces from the warehouse (Ganesan et al. 2009, p. 87). The designed pieces are put into flat packages in order to reduce on transportation cost because the technique utilizes less space and ensures that many products are packed and shipped. Similarly, the packaging saves on space in the warehouse, therefore allowing more furniture to be stocked to eliminate stock-related costs, especially, the cost of being out of stock (Hellström and Nilsson 2011, p. 640). Therefore, the savings made by the company in terms of fuel and reduced stocking costs are transferred to the customers.

Service innovation

Introduction of new goods

IKEA, initially, or rather originally, dealt with small items like pens, picture frames, wallets, watches and a number of other small items, usually at a lower price (Rask, Korsgaard & Lauring 2010, p. 397). However, in 1948, an innovative idea came in mind and IKEA introduced another product, furniture, into their line of goods. The furniture was locally produced and its production grew. Therefore, the introduction of new products into the production to cater for customer needs is one of the innovative strategies employed by IKEA.

Catalogue application

Another innovative strategy is its ability to sell furniture though a catalogue. For instance, in 2013, IKEA launched an application known as the catalogue app which allowed users to have a wider view of the company products and further allowed them to have a clear preview of how selected furniture would appear in their respective homes. This mode of innovative selling really improved on their sales (Ikea: Not Sweden’s only quality company 2006, p. 6).

Display store

It is worth noting that IKEA was not the only company manufacturing and selling furniture. In fact, there was a price war with IKEA’s competitor (Ikea: Not Sweden’s only quality company 2006, p. 6). However, with an aim to beat up its competitors, IKEA decided to open up a display store near Almhult to enable its customers to view their products. With this innovative idea, IKEA was in a position to demonstrate how its products are of high quality and lowly priced. This therefore allowed customers to obtain value for their money.

Multiple suppliers

One of the innovative ideas IKEA has developed is the establishment of a good relationship with its suppliers and the fact that communication is enhanced and maintained (Ganesan et al. 2009, p. 89). This has enabled it to strike better deals with its suppliers, in terms of good prices. IKEA, being a big company, buys products from 1800 suppliers, in more than 42 nations (Edvardsson and Enquist 2011, p. 538). However, to enhance and to effectively manage the company-supplier relationship, IKEA has established more than 42 offices globally (Jonsson, Rudberg, and Holmberg 2013, p. 340). This therefore gives room for price negotiations with suppliers whilst ensuring that high quality materials are obtained.

Own designs

An innovative move that has been adopted by IKEA is to design its products in a unique way, allowing it to incur reduced costs in terms of manufacturing, transportation and stocking, whist ensuring that quality and environmental impacts are observed. For instance, 50% of IKEA’s products are manufactured from recycled products, indicating that IKEA observes on environmental issues whilst ensuring that products produced are of high quality (IKEA has the last laugh 2014, p. 17). Similarly, IKEA aims at ensuring that fewer raw materials are used in furniture making without making a compromise on quality and product durability. Therefore, by ensuring that few materials are used, IKEA reduces transportation costs because of reduced fuel and labour cost.

The IKEA’s lessons and success

The Innovative lessons learned from success or failure

Strengths

IKEA’s innovation strategies have enabled it to be one of the best performing companies in the world. Firstly, implementation of innovation strategies has enabled it to develop a very strong brand name which attracts a lot of customers because customers are assured of good quality products. Secondly, IKEA has developed very strong market concepts that have enabled it understand customer needs and the need to develop a variety of products (Edvardsson and Enquist 2011, p. 536). Lastly, IKEA has developed strong democratic concepts and designs which have enabled it strike a balance between price, quality and properly functional products.

Weaknesses

IKEA has registered a number of successes which can be owed to its innovative strategies. However, the innovative moves have led to a number of failures. Firstly, owing to the fact that IKEA deals with more than 1800 suppliers and operates offices in more than 42 nations, the size of its business operations makes it difficult to maintain and control quality (Edvardsson and Enquist 2011, p. 537). For instance, rules and legislations to control working conditions are not implemented in some countries where IKEA products are made and sold (Roberts 2012, p. 2520). Secondly, since they are aiming at manufacturing high quality yet cheaply priced furniture, it proofs hard to strike a balance between low price and high quality.

Why these lessons have made the organization successful

Manufacturing furniture at low costs has enabled IKEA to enjoy economies of scale (Lindqvist 2009, p. 50). This reduced cost lowers the cost of production in the long run through the introduction of new products and the introduction of new technologies. Similarly, IKEA’s move to produce and sell cheaply has enabled it to enjoy competitive advantage, therefore putting up entry barriers for small companies.

Why it would be difficult for another firm to adopt some of this organization’s success factors and how these difficulties could be overcome by other firms

Most of these innovative strategies adopted by IKEA are unique on their own and there are chances that they might not be used by other firms and enjoy the same benefits IKEA is enjoying. Firstly, the introduction of new products usually proofs difficult, especially for small companies whose turnover are small (Sayeau 2009, p. 495). Secondly, IKEA introduced a catalogue, an application which enabled their customers gain access to the company’s inventory at all times. This idea is expensive to manage and most firms can’t handle it, especially in cases where orders are made and delivered online. Lastly, IKEA’s operations are wide and expansive and if other small companies try the same approach, it might prove operationally fatal for them. Similarly, IKEA has established a strong structure which enables it to effectively manage its suppliers.

Difficulties

How the above difficulties could be overcome

In order for other firms to overcome the above difficulties, a number of recommendations should be implemented in and organizational.

  1. Establish a strong team whose role is to hear from customers and recommend to the management the kind of products to be introduced to meet customer needs.

  2. Develop strong structures that ensure that an organization keeps in close contact with its suppliers.

  3. Develop and implement guidelines that ensures that an organization expands its operations and that the organizations activities are well coordinated

Conclusion

Innovation plays a vital role in achieving organizational objectives and subsequent success in the long run. However, more often, many companies fail to properly implement innovation strategies which then turn out to be operationally fatal for them. Evident from the above analysis, a Company’s innovation strategy can lead a company to either succeed or fail, making innovation a keen yet necessary move to make.

References:

Edvardsson, B and Enquist, B 2011, ‘The service excellence and innovation model: Lessons from IKEA and other service frontiers’, Total Quality Management & Business Excellence, vol. 22, no. 5, pp. 535–551.

Ganesan, S., George, M., Jap, S., Palmatier, R.W. and Weitz, B 2009, ‘Supply chain management and retailer performance: Emerging trends, issues, and implications for research and practice’, Journal of Retailing, vol. 85, no. 1, pp. 84–94.

Heaven, D 2012, ‘Robot learns using IKEA-style instructions’, New Scientist, vol. 216, no. 2886, p. 24-26.

Hellström, D. and Nilsson, F 2011, ‘Logistics‐driven packaging innovation: A case study at IKEA’, International Journal of Retail & Distribution Management, vol. 39, no. 9, pp. 638–657.

IKEA has the last laugh 2014, Strategic Direction, vol. 30, no. 3, pp. 16–18.

Ikea: Not Sweden’s only quality company (2006) Strategic Direction, vol. 22, no, 5, pp. 5–7.

Ivarsson, I. and Alvstam, C.G 2010, ‘Upgrading in global value-chains: A case study of technology-learning among IKEA-suppliers in China and Southeast Asia’, Journal of Economic Geography, vol. 11, no. 4, pp. 731–752.

Jonsson, P., Rudberg, M. and Holmberg, S 2013, ‘Centralized supply chain planning at IKEA’, Supply Chain Management: An International Journal, vol. 18, no. 3, pp. 337– 350.

Lindqvist, U 2009, ‘The cultural archive of the IKEA store’, Space and Culture, vol. 12, no. 1, pp. 43–62.

Moreno, S.G 2016, ‘The value of innovation under value-based pricing’, Value in Health, vol. 19, no. 3, p. A296.

Rask, M., Korsgaard, S. and Lauring, J 2010, ‘When international management meets diversity management: The case of IKEA’, European J. of International Management, vol. 4, no. 4, pp. 396-398.

Roberts, T 2012, ‘from “new materialism” to “mechanic assemblage”: Agency and affect in IKEA’, Environment and Planning A, vol. 44, no. 10, pp. 2512–2529.

Sayeau, M 2009, ‘IKEA modernism and the perils of innovation’, Modernism/modernity, vol. 16, no. 3, pp. 493–495.