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.