IKEA has become one of the most famous and affordable furniture shops in the world. Since 1943, IKEA has been known for its modern pieces that are inexpensive and easy to assemble. Their vision is to provide a wide variety of modern and affordable home appliances. IKEA pieces combine functional structure, quality, design, and price. Contemporary and affordable home appliances are their main product, and the overall goal of IKEA is to help consumers create a better everyday life at home (Capell et al, 2005). The company’s business model and executive leaders’ culture, values , and objectives are commendable and have helped IKEA succeed. The research focus on this paper is on the challenges, and general functional structure of the company.
External challenges facing IKEA
One big challenge facing the organization is that IKEA’s board of directors is mostly Swedish businessmen. When members are introduced to the culture, this arrangement may not be as useful or beneficial to the organization as it extends to other parts of the organization and leads to poor group decisions (CNN 2013). To reduce IKEA’s cultural barriers to global development and performance, the organization needs to use a collaborative strategy that allows a board of directors that can provide people with different artistic ideas for adoption in other areas of the environment (Capell et al, 2005). In doing so, it will bring cultural beliefs to the forefront, thereby leading to an increased, more effectiveness, and cost-effectiveness global strategy (Capell et al, 2005). While other parts of the world struggle with all cultural perspectives that fit the IKEA’s size, such as the Asian market (Japan and China), one of the essential cultural perspectives is the high production percentage from the United States (CNN 2013).
Another challenge is supply-chain control. With more than 1,300 distributors in more than 50 countries, the IKEA distribution network lost control, making it expensive. Not only are supply lines too broad – and it can cause problems in the long run – but IKEA also has problems with supply chain quality (CNN 2013).
IKEA also addresses issues related to globalization. Many problems arise from the company’s standard products that are associated with cultural differences around the world. The King-Size, Queen-Size, Double Size, and Narrow Bed American Bed Variant are two examples of Asian markets (Capell et al, 2005). Concerning American beds, IKEA uses centimeter measurements, which does not make sense to American consumers regarding bed dimensions. In Asian markets, foundations and other materials produced by the company are much larger (Capell et al, 2005).
Another problem to be solved is the language barrier between different product naming needs, which scares some consumers from pronouncing Swedish words (Capell et al, 2005). Adding product names in languages that fit the company’s performance in the market increases profits (Business Today, 2014). This concept is not unique, however. The market, over the years, has attracted many non-English speaking customers.
Economic Factors Simple + Unstable
– supply-chain control is unbalanced
Social Factors Simple + Stable
– board of directors is mostly Swedish businessmen
– language barrier between different product naming needs
Technological Factors Complex + Unstable
– Using innovative technology to reduce costs
Legal Factors Complex + Stable
– Government funding
Environmental Factors Complex + Stable
Life cycle model
At IKEA, the new product starts life by choosing its lowest price. All subsequent design steps were designed at a low cost (Capell et al, 2005). To achieve this, the product development team is very diverse to bring in new ideas. IKEA’s priority in choosing a supplier and manufacturer is cost savings. To this extent, IKEA has a separate office that has maintained this relationship for over two decades (CNN 2013). Besides, IKEA has strict policies that suppliers and manufacturers must follow to save costs. Once the price is set, suppliers and manufacturers compete and win the lowest cost contracts (Business Today, 2014). Shipping is an integral part of IKEA’s cost-cutting policy. Its strategy in this regard is to avoid the shipping wind (Capell et al, 2005). As a result, products are subject to multiple iterations to optimize their shipping capacity. When a product is in store, its performance is significant. Instead of being placed on racks like traditional stores, IKEA creates an environment where the customer wants to buy it. These five product development stages are summarized at the end of this document.
IKEA resources are created by a large network of freelance designers, constantly creating new designs (Business Today, 2014). By using freelance designers instead of a permanent employee base, IKEA can provide new and innovative ideas for their designs (Capell et al, 2005). In addition, IKEA is looking for attractive designs worldwide – which not only lead to fun and international aesthetics, but also reduce production costs by standardizing the model with multiple SKEs (Capell et al, 2005).
Strategy of IKEA
IKEA competes in a wide range of markets by targeting a wide range of customers. Despite being comfortable and innovative, Porter’s distinctiveness and low-cost leadership strategies have led IKEA to pursue its affordable furniture pieces . As part of a different approach, the company seeks to differentiate its products and services from others. In contrast, the low-cost leadership strategy aims to increase market share by reducing costs compared to competitors (CNN 2013). However, the company adopts a diverse approach by promoting creativity and innovation and placing a high priority on customer loyalty . Like Porter’s Differential Strategy under Miles & Snow Typology, IKEA focuses on innovation, risk-taking, search for new opportunities, and adheres to a growing future strategy (Capell et al, 2005). In a rapidly evolving and changing world, the design has always been central to IKEA. Over time, IKEA has made many innovations in technology, products, services, strategy, and architecture to grow the business. The company focuses on sustainability, focus on detail, and delivery of lifestyle solutions (CNN 2013).
Structure of IKEA
Concerning IKEA’s international strategy, there is a great desire to establish itself globally. To make this a success, three main methods depend on the group. An export strategy is a strategy (Business Today, 2014). This strategy is integrated with IKEA’s business plan. This strategy aligns the export activities with the day-to-day operations of the group. This includes ensuring that domestic and international activities never overlap. IKEA believes that products that perform well in the domestic market can succeed in the global market. Since the company plans to export directly, it must adopt time management and an approach to domestic operations for this project to be successful (CNN 2013).
The second primary strategy on which IKEA relies is the contract strategy. This strategy increases the promotion of the company suppliers’ products and some companies operating on a contract basis (Capell et al, 2005). The third strategy is an investment strategy. Capital valuation is a central IKEA hub in the global market. The company equates its operations with other tie-up company goals.
To give customers a reasonable price, IKEA must have an operating model that minimizes its cost – from sourcing, manufacturing, shipping to selling end products to customers (Business Today, 2014). After collecting raw materials from suppliers, IKEA manages each step of this supply chain, providing easy and transparent communication between stages, avoiding the bulwark effect, and having greater control over production, cost, quantity, and other factors (Capell et al, 2005). By maintaining a network of over 1,800 suppliers in 50 countries, AKEA is reducing its resource and raw material costs.
Culture of IKEA
IKEA has solid values that help create a healthy, admirable organizational culture established through value-based leadership (CNN 2013). The company’s founder described IKEA as “simple, cost-effectiveness, humble, ground-to-earth, with simplicity, willpower, creativity, honesty, common sense, realism, and enthusiasm”. Compared will remain associated with IKEA even after retirement (Capell et al, 2005). From their employee functional structure and organizational design, IKEA promotes an environment where all voices are heard. Equally, problems are resolved appropriately, and employees are treated appropriately in all ways. Primarily focusing on employee participation and satisfaction is IKEA’s cultural culture, which leads to a more outstanding commitment to the organization. IKEA operates under a unique business model that provides a framework for their day-to-day operations (Business Today, 2014). Owned by a private Dutch parent company, they work on a complex functional structure that allows for tax deductions, advertising, and acquisitions, all of which are subject to IKEA values (Capell et al, 2005). Following the hybrid architecture, the company moves towards a more flexible learning organization, prioritizing organic design with horizontal contacts. IKEA promotes partnership activities and empowerment.
At IKEA, employees are referred to as “family” and “colleagues” in the corporate hierarchy regardless of their actual title or status (CNN 2013). In the command network, IKEA has a silent range . C.E.O.s are separated from store cashiers by just four levels, trying to make everything look equal and valuable. The company participates in a week in which executives participate on the sales floor, gain knowledge, and develop that coworker mentality. Shops and offices do not get high allowances, and coaches also can travel on business trips.
Specific changes that IKEA should consider
Two things need to be considered. First, the amount of space available is in line with IKEA’s exceptional store design. Second, operating costs, rent, and utilities also affect how they divide profits (Capell et al, 2005). This is important because high operating costs are contrary to the basic philosophy of the organization. IKEA must have a global-matrix functional structure to take advantage of the geo-cultural differences and the benefits of product optimization. By integrating this structure, IKEA can provide customized products to suit the cultural characteristics of different countries without violating cultural preferences and rules (CNN 2013). The results increase customer satisfaction, reducing customer confusion, increasing revenue, increasing brand reputation worldwide, and increasing market satisfaction . Global geography allows IKEA to adopt cultural standards, give managers autonomy in a particular field, and reduce cultural differences between the organization and customers.
Do you think IKEA will be successful in the next five years? Explain your argument.
I believe that the organization will be successful in the next 5 years if some methods are followed to the letter (Business Today, 2014). IKEA’s business practices are a model of a custom business model that does not change core values.. In any country trying to expand IKEA, it would be suitable for the organization to realize that sticking to IKEA alone is not the best policy (Capell et al, 2005). IKEA methods should be developed following the local climate. IKEA should create a national brand unit to reach customers who need or want high-priced branded goods. IKEA had to disassemble the wardrobe design for the U.S (Capell et al, 2005). Such examples demonstrate the fact that IKEA’s target market is diverse to study, so IKEA has an existential risk in the market when it does not understand consumer preferences. When closed, IKEA is always about the people (Norton, Mochon & Ariely, 2012). At the heart of the mission and values, IKEA finds a way to “integrate” with its culture because the people who work for IKEA have a culture around them. Managing an existing company structure is the way to go for the IKEA Group (Business Today, 2014). By controlling the current hierarchical organization structure, the company will reap many benefits to help it achieve its international strategy (CNN 2013). Authority ladder, expert managers, clear paths, and departmental loyalty are some of the critical features. These benefits play an essential role in ensuring that the company achieves its international strategic goals. The company is in good standing, primarily when employees work together for the common goal they want to reach.
Functional structure, culture, strategy, market, product, knowledge, resource, production, innovation, effectiveness
Capell, K., Sains, A., Lindblad, C., Palmer, A. T., Bush, J., Roberts, D., & Hall, K. (2005). IKEA: How the Swedish retailer became a global cult brand. Business Week, 14.
Business Today. (2014). How IKEA adapted its strategies to expand and become profitable in China [ONLINE]. Available at: http://businesstoday.intoday.in/story/how-ikea-adapted-its-strategies-to-expand-in-china/1/196322.html. [Accessed 09 September 2014].
CNN. (2013). IKEA – World’s Top Employers for New Grads [ONLINE]. Available at: http://money.cnn.com/pf/jobs/newgrads/2013/snapshots/24.html. [Accessed 09 September 2014].
Norton, M. I., Mochon, D., & Ariely, D. (2012). The IKEA effect: When labor leads to love. Journal of consumer psychology, 22(3), 453-460. Norton, M. I., Mochon, D., & Ariely, D. (2012). The IKEA effect: When labor leads to love. Journal of consumer psychology, 22(3), 453-460.
. Ikea’s product development process.