EQUIPE TROIS: IKEA

Outline

Introduction IKEA Value chain IKEA Current strategy Alternative strategies Recommended Future Strategy Conclusion

IKEA: Introduction.-

IKEA Facts and Figures

IKEA founded in 1943 First store opened in 1958.

First stores outside Sweden were opened in Norway (1963) and Denmark (1969).

The 1970s, spread of stores to other parts of Europe.

As of May 2010, the chain has 313 stores in 37 countries, most of them in Europe, North America, Asia and Australia.

2006: opening of 16 new stores. A total of at least 15 openings or relocations are planned for 2010.

The only two Asian countries that IKEA group owns stores are in Japan and China.

IKEA financial performance

Years

Sales (billions $)

Success factors

High quality furniture that reasonably priced and readily available(cos leadership)

Emphasing simplicity, durability

and safety Its standardized strategy of

internationalizing minimized costs Marekting mix (catalogues, stores…) excellent international procurement excellent supply chain management and IT

infrastructure

The Traditional Value Chain Model

R&D

Production

Sales & Marketing

Distribution

Customer Service

Primary Activities

Secondary Activities:Infrastructure; Logistics; H.R;Technology and Information

systems.

IKEA’s Hybrid Value Chain

IKEA’s value chain is characterised by it’s adaptation of

traditional primary and secondary activities:

Research & Development

Procurement/Supplier activity

Human Resource Management and Logistics

Company and Store Infrastructure

Role of the customer

1.Research and Technology Development

In-house design team with high degree of independence from H.Q. control.

Always searching for cheaper materials; suppliers chosen in international markets because of their proximity to exploitable resources:

driving down costs, increasing chances of competitor advantage.

Research into competitor products .

Technology transfer to suppliers.

2. Suppliers, Production and Procurement

Strong relationships and control over suppliers allows for rapid and adaptive production.

Customers become part of the production process, they are suppliers of transportation, assembly, information and labour.

Select sites for international expansion based on the location of suppliers, raw materials and low cost supply chains in host nations.

Sourcing from long term suppliers, (30-50% cost reductions). Standardization of products across international markets =

economies of scale. Flat pack production = low shipping costs from suppliers to

stores.

3. Human Resources

Education of employees: frugality

Engrained in corporate DNA.

Smaller in-store staffing levels.

Centralized control of all

subsidiaries

and firm control over long term

suppliers.

4. Logistics

Year round stocking = ample on-site inventory.

Warehouses adjacent to stores.Very low shipping and transport costs (flat packs and self-assembly).

Locations for subsidiaries are chosen due to their proximity to local supply channels and natural resources.

Centralization of management ensures efficiency of logistics process: umbrella control.

Differentiated store layout to aid customers: o Wide aisles for high volumes of traffic,

o Circular layout with marked path to guide customers to see all products,

o Crèche service,

o Restaurant at centre of store.

5. Store Design & Customer Service

Limited in-store staffing.

Self-selection by customers.

Suburban locations with ample car

parking space.

Roof racks for sale with promise of

refund upon next visit.

Reference catalogues and internet

inventory service.

Ease of transport and assembly

i.e. flat pack, modular design.

The IKEA Hybrid Value Chain

R&D and forecasting

Product design

Internal Suppliers

External Suppliers

Bids, competition and production.

Distribution Centres; efficient supply channels

Stores Customer

IKEA of Sweden

IKEA of Sweden

Supply Chain(under the control

of IKEA HQ)

IKEA H.Q. managed

inventory system

Marketing

Dept.

Store Adaptation & Customer

Service

Transfer of

Tech.

H.R.Umbrella Control

Efficient

Logistics

CUSTOMERIKEASUPPLIER

Value

Value

The IKEA Value Chain’s Core Adaptation?

Answer: Integration.

Cost Advantage Activities

Integration of the customer into the value chain. Customer is a supplier of: time, labour, information, transportation.

International subsidiaries placed in ‘low-cost’ nations.

Self-service customer model: limited staffing.

Self-assembly by customer = lower production costs.

Warehouse adjacent to show room.

Flat pack, unassembled products – lower national and international shipping costs.

Sourcing from long-term suppliers = greater bargaining power.

Standardization of products across international markets = benefit from economies of scale.

Use of inexpensive materials, innovation in design and R&D.

Differentiated activities R&D: complete autonomy of design teams from central HQ: encourages

total innovation to produce unique, quality, stylish designs.

Conversion of suppliers into ‘customers’. They are recipients of: Technology Equipment Information

The integration of the customer into customer service/ production/supplier activities.

Adapted customer service and store facilities: Limited staff Crèche. Restaurant. Wide aisles for high traffic levels. Easy transport and assembly. Circular store design, marked path through store.

Analysis of IKEA’s International Expansion

IKEA: The Global Standardization Strategy

Differences in Customer Preferences

American tastes:

European tastes:

Bold colors vs subdued colorsBeds measuresShort curtains

European Dining Habits

Hispanic families in America

Dining tables , sofas for morethan 2 personVases instead of glasses

IKEA New strategy:

T

Cost efficiency

Locally response

IKEA relies on Standardization of products with global production and distribution, but also has new designs for local markets.

Transnational Strategy

Comapany Mission/Vision

Evaluation of strategic option

Strategic Choice

Which Strategy Would We Recommend. Why?

External Analysis

Internal Analysis

1. External and Internal Analysis

Competitors:IKEA’s furniture

competitors’ offers different styles and

functionality e.g. Pier 1 and Target in the U.S.A.

But no one matches IKEA on style.

MEDIUM THREAT

Power of the Buyers – IKEA’s low prices and quality make them the first choice for consumers. Little bargaining power.LOW POWER

Substitutes:Very hard to substitute IKEA products. IKEA can copy any new style at a lower price.LOW THREAT

Power of Supplier :Suppliers have little bargaining power, IKEA is their biggest market.LOW POWER

New Entrants: A new entrant would require:-low-cost strategy -vast supply chain -a unique brand name.Opportunities:small towns and small or midsize cities with smaller storesLOW THREAT

Porter’s Five Forces Analysis

P.E.S.T.L.E. AnalysisPolitical It depends on country cultures

such as in the case of China: pricing , high duty rates

and PRC bureaucracy

Economic  The recession  Globalization (integration) and

national responsiveness ( differentiation ) such as in China case

Economies of scale such as buying bulk at cheaper unit costs

Social  Creating opportunities for

employees

Support for charities such as the World Wildlife Fund, UNICEF and

Save the Children

Technology Quality technology  Communication

Legal  Applicable laws and regulations

applied through factories inspections

Environment  Environmental activities  Responsibility to environment

Strengths

• Cost Leadership

• Brand Reputation

• Suppliers located in Low Cost Nations

• Strong marketing mix

• Strong procurement and value chain

Weakness

• 90% of the stores based in Europe

• low level of customer service

• Limited style

• Weak Market Analysis

• Emphasis in cost-saving

Opportunities

• Growing Markets .

• Economy of scales

• Low wages in some countries

• Costumer Services

• Demand Greener Products

threats

• Competition

• No owned factories

• Confrontation with nature protecting organizations

SWOT for Current Strategy

Comapany Mission/Vision

Evaluation of strategic option

Strategic Choice

2. Strategic Options and Evaluation

External Analysis

Internal Analysis

Possible Alternative Strategies

Backward integration: create its own factories for tighter control.

Alliances: greater emphasis on joint ventures and strategic alliances represent possible vehicles to further build on IKEA's focus strategy.

Organizational Re-structuring:

A new transnational oriented organizational structure would further provide the necessary infrastructure needed to support the company towards true internationalization. This in turn would impact on the present homogenous Scandinavian culture and introduce new values, ideas and perhaps broaden IKEA's core competencies.

Improved Expansion: keep on expanding in USA and Japanese markets and start adapting more locally responsive strategies in new emerging markets (e.g. Latin America etc.)

Backward Integration

pros•tighter control and• gain better brand

image

cons•very expensive•Allocate new

managers•Training problems

Alliancespros•better sharing of

resources, skills•Existing know how

cons• partner might become a

competitor•Difficult to Exit•Lose control• poor integration plan

Organizational Re-structuring pros•decrease pressure of

controlling•Better understanding of

different markets

cons•against the IKEA concept

(based on heritage) •Difficult to manipulate •Difficult to Re educate the new

managers•Time consuming

Improved International Expansion

pros•cheaper•more feasible

cons•competition+ consumer

behavior market+ more marketing needed

•Cost pressure verses VS local responsiveness

Comapany Mission/Vision

Evaluation of strategic option

Strategic Choice

3. Our Strategic Choice

External Analysis

Internal Analysis

Strategic Choice. The Verdict:

Keep on expanding in the U.S. and Japanese markets, whilst beginning to adapt a more locally responsive strategy to enter new emerging markets such as Latin America.

...The American Market

Strategy Implementation in...

1. Correct Placement of Stores

Select cities in middle America and the East Coast instead of focusing only on California . E.g. Denver, Colo., Austin, Texas, and Atlanta and Georgia.

Concentrate more on college areas, especially metropolitan colleges and universities.

2.Strong integrated marketing Communications plan

The integrated marketing plan needs to be bold, clever and innovative

Encourage consumers to use their furniture as a fashion or style statement – this mindset will bring consumers into IKEA who want both function and form, which are two of IKEA’s strengths.

This will also encourage consumers to change their furniture or home accessories, as the styles and fashions change.

Using catalogues targeting the American customer preferences

Implementation in…

…the Japanese market

Japanese market Change the behavior of the Japanese in the

furniture market, making them willing to accept the IKEA concept, i.e. education.

Gather market knowledge, especially market specific knowledge, i.e. do surveys in order to understand customers and cultural pattern of the Japanese.

Home delivery and ‘at-home’ assembly service, (extra charge).

Select the appropriate furniture for Japanese consumers.

Japanese market continued…

proposing the new ways of decorating houses in order to suit Japanese taste even they needed to

Adapt packaging and advertising to the Japanese consumer behavior

Providing customized catalogues

suiting the Japanese tastes and preferences

Focus more on quality and production of goods to suit small spaces.

The Russian Market

Possibilities:

• Russia is one of the markets

with the biggest potential : very

little competition.

• Moscow is a fast growingmetropol where more and

morepeople can afford IKEA

furniture.

• Any foreign brand is considered

luxury.

Russian Market continued…

Constraints: Administration is very inflexible; to

open a new shop takes time. Prices for sites are very high. Duty for imports are about 25-80%. Inflation in Russia is over 15% a year. The future economic development of

Russia is very insecure.

Russian Market continued…

Russian consumers are price sensitive: wages are low.

Access to raw materials needed, (wood, oil, steel). Because of the high inflation and the

unpredictable economic future, IKEA should find franchise-partners to open new shops.

Conclusion

Dear IKEA,

Keep doing what you’re doing...but do it better!

Yours,

Équipe Trois Consulting, Lille.