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Contents
Introduction .................................................................................................................................................. 2 About IKEA .................................................................................................................................................... 2 The IKEA WayIs there a better way? ........................................................................................................ 3 The External Environment ........................................................................................................................... 4 Task Environment ..................................................................................................................................... 5 General Environment ................................................................................................................................ 5 The Internal Environment ............................................................................................................................ 6 IKEAs Organizational Structure ................................................................................................................... 7 IKEAs Innovative Approach ......................................................................................................................... 7 Technology ................................................................................................................................................... 8 Power and Conflict ....................................................................................................................................... 9 Organizational Culture and Leadership ..................................................................................................... 10 Proposed Organizational Structure ........................................................................................................... 11 Conclusion .................................................................................................................................................. 11 References .................................................................................................................................................. 12

Introduction
When you mention taking a trip to your IKEA, you will typically solicit one of two responses. Either, excitement rains and thoughts surround an all-day event browsing literally thousands of home furnishing products and gathering endless ideas for decorating or frustrations are abound over the thought of an all-day event peering over cheaply constructed furniture, with the only highlight being the onsite restaurant for a fulfilling meal of Swedish meatballs. (Edmonds, 2008, p. 1) In this report, I have studied, IKEA as one of the global leaders in the home furnishings business and how the company has grown from humbled beginnings into the largest furniture retailer in the world. The purpose of this report, is to analyze the objectives, strategies used in dealing with power, conflict and other major issues that the company might face as they look to strengthen their position as the worlds largest furniture retailer. This report will discuss how the companys organizational culture has helped in dealing with the internal and external environment and should leave the company poised to continue increasing revenues over the long term.

About IKEA
IKEA is the worlds largest privately held, international furniture retailer. The company has pioneered the way furniture is sold by creating a unique flat-box concept and working to constantly improve the furniture they sell and drive prices lower for the consumer. Ingvar Kamprad founded IKEA in 1943 as a mostly mail-order sales business. A short five years later the company began to sell furniture and moved quickly to provide families with low cost furniture designs through the convenience of catalog sales. In 1964, IKEA introduced their first warehouse store, eliminating an entire step in product distribution by allowing warehouse container pickup by customers. (Daft, 2013, p. 579) As of 2014, IKEA employs approximately

135,000 co-workers and there are 355 IKEA stores in 44 countries, with most locations in Europe and North America. (IKEA Group, 2013, p. 32) Over the past several years IKEA has continued to grow revenues and shown resistance to the struggling global economy. For the 2013 fiscal year, IKEA generated 28.5 billion euros in revenue. (IKEA Group, 2013, p. 32) According to companys website, IKEA focuses on the following vision: To create a better everyday life for the many people, while offering a wide range of well designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them. (IKEA Group, 2013, p. 3) With a long history as a solid leader in the home furnishings industry, IKEA is well positioned to continue as the leader in the home furnishings business.

The IKEA WayIs there a better way?

IKEA constantly asks: Is there a better way? Thats how IKEA remains unique and how they try to make everyday life better for everyday people. From the companys beginnings, IKEA has concentrated on making continuous improvements, specifically around cost reduction both from the standpoint of product distribution and lowering the cost of products for sale. The cost leader strategy has been instilled into the culture at IKEA as executives fly coach and employees are encouraged to bring up ideas that can save the company money. As founder Ingvar Kamprad wrote in his autobiography, The Testament of a Furniture Dealer: A Little IKEA Dictionary, Wasting resources is a mortal sin at IKEA. Expensive solutions to any kind of problem are usually the work of mediocrity. We have no respect for a solution until we know what it costs. (Kamprad, 2007, p. 13) As a company, IKEA has expressed a clear mission strategy which revolves fundamentally around creating a better life for people. If we peel back the layer of the onion a bit and look at the fundamental cost saving strategy IKEA employs, it really revolves around maintaining a cost

leadership strategy over its competition in the home furnishings marketplace. IKEA outsources nearly all of its manufacturing, choosing rather to form strong, long term partnerships with suppliers, promising long production runs. This in turn reduces the inventory on hand for IKEA and allows the company to quickly adjust for demand, and does not leave IKEA with tremendous amounts of unsold inventory. Costs are lower by not having to pay a manufacturing firm to build already constructed furniture for sale, which is not only most costly to ship and store, but makes is also harder for the customer to transport home. Another way IKEA pushes prices southward and controls costs is by not hiring sales persons to assist the customer on the sales floor. IKEA chooses rather to setup furniture as if it was already constructed and placed in a customers home which allows the customer to imagine what the furniture will look like and drives additional sales of accompanying products. Lastly, a large part of what keeps IKEAs operational costs low is the expectation that customers will transport their newly purchased furniture themselves, circumventing the need for IKEA to employ delivery drivers. Utilizing this low cost strategy and constantly looking for ways to lower costs, allows IKEA to offer home furnishings at lower prices so that as many people as possible can afford to buy them. The company says, We are single-minded about cost reduction, and we are never satisfied with where we are on that journey.

The External Environment

The external environment is made up of everything outside of the organization that has potential to effect all or part of the organization. (Daft, 2013, p. 148) In the case of IKEA, this means things like the industry including competition, suppliers that provide the raw materials from which furniture is made, technology and considering the international scale of IKEA, this also includes the economic conditions throughout the global marketplace. We can typically analysis

the external environment by breaking it into two sub-sections, the task environment and the general environment.

Task Environment
The task environment includes those areas that can have a direct effect on a companys ability to achieve its goals and objectives. (Daft, 2013, p. 148) These sectors include, industry, human resources, international and raw materials. IKEA has done an exceptional job of positioning themselves as the industry leader for home furnishings. It is safe to say that business spikes when it comes time to decorate college dorm rooms in the spring and fall, simply because when a consumer thinks about affordable home furnishings, IKEA jumps to the front of mind. IKEA will need to continue to practice the continuous improvement methods around lowering costs to ensure that competition is unable to take market share. Within the human resources sector, IKEA will need to continue strong negotiations with labor unions in certain locations to ensure that employees do not gain the upper hand on the company. As IKEA continues to grow, international expansion into emerging markets to take advantage of the growing retail sector, should fuel expansion opportunities for the company. There are opportunities for IKEA to expand into Brazil, Mexico, Indonesia and Malaysia. ("IKEA SWOT analysis 2013 | Strategic Management Insight", 2013)

General Environment
The general environment includes those are that might not have a direct impact on daily operations but will indirectly influence it. (Daft, 2013, p. 150) These sectors include economic conditions, technology and sociocultural. IKEA has maintained a commitment to the wise use of natural resources and a stewardship of the earth. Company leadership is working to improve the companys efficiencies around energy utilization by installing solar panels and eliminating

wooden pallets. IKEA is in a very unique position to handle the slowing economy. The company has seen an increase in profits over the past few years even as the global economy has slowed. It is no surprise that over the past few years, consumers have looked for ways to cut spending, including home furnishing costs, yet IKEA was able to increase profits each year. Porters lowcost leadership strategy describes IKEAs business model and their voyage to lower prices for customers. Another area of the general environment that IKEA might look to take advantage of is the technology area as the company continue to expand. Investments toward enhancements to their ERP system and ensuring an even tighter integration with the supply chain can help IKEA lower costs outside of the traditional ways the company has looked to cut costs. IKEA might also benefit from investing further into their e-commerce platform in order to grow online sales.

The Internal Environment

The old Swedish proverb, Behind the mountain there are people too (Daft, 2013, p. 579), really tells you everything about the culture at IKEA. From the companys founding in 1943, Ingvar Kamprad, has focused his mission on providing low cost home furnishing that a majority of people can afford. IKEAs internal environment is relatively strong. The culture that was once described by Kamprad using words such as informal, cost-conscious, humbleness, down to earth, and simplicity, (Daft, 2013, p. 580) is still in place today at IKEA. Frugality can even be seen when it comes to travel and company offices. All employees travel economy class and look for lower priced lodging and the company does not maintain expensive offices, positioning costconsciousness at the forefront of everything IKEA does.

IKEAs Organizational Structure

IKEAs organization (figure 1.1) is the epitome of flat, with only 4 layers between the CEO and a cashier. (Daft, 2013, p. 581) The structure seems to be working form IKEA in their current state. According to Michael E. Porter's competitive strategies, companies can make an organization more profitable and less vulnerable by adopting either a differentiation strategy or a low-cost leadership strategy. (Daft, 2013, p. 62) Without the formal structure employed by many other organizations, IKEA is able to stay closer to the co-worker and in turn closer to the customer. Employees are encouraged to give feedback and reinforce creativity that can help the company spawn innovative ideas. This freedom and open communication chain gives IKEA the ability to capitalize on both a differentiation strategy and a low-cost leadership strategy. The IKEA corporate structure is divided into two main parts: operations and franchising. Most of IKEA's operations, including the management of the majority of its stores, the design and manufacture of its furniture, and purchasing and supply functions are overseen by Ingka Holding, a private, for-profit Dutch company. Every IKEA store, pays a franchise fee of 3% of the revenue to Inter IKEA Systems. The IKEA Group of companies has an ownership structure that ensures independence and a long-term approach without reliance on financial institutions. (Inter IKEA Systems B.V. 1999 - 2012, n.d.) This allows IKEA to make decisions without taking into account what an outside ownership group might want leadership to do.

IKEAs Innovative Approach

The IKEA concept starts with the idea of providing a range of home furnishing products that are affordable to the many people. It is achieved by combining function, quality, design and value always with sustainability in mind. IKEA uses innovation every step of the way and throughout every part of the company. Starting with design all the way through distribution, the company

looks to innovate with the ultimate goal being to provide a better life for people through home furnishings. It is product innovation that has allowed IKEA to remain a leader in the furniture industry and it is product innovation that is at the forefront of the company's furniture design process. Ever since 1955, when an employee came up with the flat box idea, through the need to disassemble a table so that it would fit in a customers car, IKEA has been looking for newer ways to continue revolutionizing the furniture industry. IKEA has embraced continuous change, which is change that occurs frequently with fewer and shorter periods of stability, as part of the design process. The company relies on R&D to help with designing thinner and lighter weight products, resulting in lower prices for the consumer and fewer carbon emissions and lower costs when transporting products to the hundreds of stores and distribution centers worldwide. This innovative culture has trickled down through the entire organization which has resulted in design teams working closer with suppliers to ensure that new products won't disperse supply lines and has allowed IKEA to expand to partnerships with ski and manufactured home builders to continue innovative influence outside of furniture manufacturing. Embracing continuous change allows for companies to strategically position themselves over competition. At IKEA, product enhancements are welcomed if the result is a product with a lower cost or advanced innovation leading to a better consumer product.

Technology
IKEA is heavily involved in product design and their product designers stay as close to their suppliers as possible and even work in the factories where products are being produced. Implementing cutting-edge product design technology and using it hand in hand with the suppliers helps lower the cost of manufacturing furniture by making the final product more

efficient to produce. (Caglar, Kesteloo, & Kleiner, 2012, p. 2) Design engineers are also able to start early in designing the right amount of packaging for the end products. IKEA leadership says, We hate transporting air, which provides insight into how IKEA is constantly trying to find better ways ship their products, which in turn saves money. Tighter integration between the Computer Aided Design (CAD) systems and the supplier manufacturing systems will give IKEA the best ability to continuously make cost cutting adjustments within the supply chain. Another area where IKEA has traditionally fallen short is customer service. The hands-off approach IKEA has taken when dealing with customers, has trickled down to customer service and needed to be addressed. IKEA has rolled out a solution called iSell, which is an internal inventory and merchandising system that is integrated with their iTower solution, which is customer facing and allows scheduling of delivery dates, review of shopping lists and can even assign a contact at IKEA to the customers specific issues. Linking such systems to the integrated information network to will IKEA to stay focused on customer service and tap into feedback to drive higher customer satisfaction.

Power and Conflict

With the power of the company so tightly controlled by the Kamprad family IKEA might run into struggles as the company continuous to expand internationally. As the company grows and natural attrition occurs, members of the family may have different strategies they try to employ. Currently, power is centrally focused amongst Ingvar and his immediate family. If change to the organizational structure occurs because of Ingvars death or otherwise, the company may find it is tough to continue without his guidance and influence. Financial stumbles might also cause harm to the company.

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Another issue the company will need to address is the fact that there are not enough like-minded managers to manage all of the companys stores. (Albarrak, 2011, p. 10) One option to address this shortcoming is to promote successful managers from various countries to expatriate jobs in other geographies. This would ensure that IKEA was building strong managers globally that could fulfill jobs as they become available. (Albarrak, 2011, p. 10)

Organizational Culture and Leadership

IKEAs most advantageous attribute in winning the furniture war is the companys long-standing culture. As Ian Worling, Global Business Controller at IKEA said, Lowering costs is part of our cultural DNA. Its ingrained in everybody from day one that we dont waste resources or money. I dont think you could take a senior position in this company if you didnt believe wholeheartedly in that. (Caglar, Kesteloo, & Kleiner, 2012, p. 1) Culture is one of the most important aspects and something the company has integrated and successfully established since the beginning. It starts day one, when new employees are hired, IKEA quickly educates those employees on the IKEA way. This ensures that employees truly live by the standards the company has set around cost consciousness and that they want to be with the company to share those longstanding values. Continuous improvement takes an entire organization to believe in not only what IKEA has been able to build but to also want to ensure the company maintains its leadership position in the furniture business. The company believes in short periods of celebration for a job well done and quickly moves on to an area of needed improvement to ensure that a disappointment or shortfall is remedied quickly and strives to never let it happen again.

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Proposed Organizational Structure

IKEAs organizational structure has worked as the company has grown from a small one man show in a very small Swedish town into one of the worlds most recognizable brands. Their organizational structure is tried and true, but will need to change as the company continues to expand globally. The fact that companys structure has been the same for so many years, is a testament and a curse. IKEA has long built on what is in place, rather than shaking things up. The company exemplifies the saying if it is not broke, do not fix it. IKEA has too many of the same type of employee working within the company. IKEA needs to diversify their employee base by looking to bring in some fresh faces that can help the company begin to think outside of the box.

Conclusion
IKEA is well positioned to continue growing the company over the long term. As one of the global leaders in the home furnishings business the company has grown from its humbled beginnings into the largest furniture retailer in the world. Establishing a strong foundational culture, IKEA has been able to navigate using proven strategies to strengthen their position as the worlds largest furniture retailer. This report discussed the strengths of the companys organizational culture and how it helped in dealing with the internal and external environment and why the company is poised to continue increasing revenues over the long term.

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References
Albarrak, O. (2011, December 28). IKEA Strategic case study & analysis. Retrieved April 10, 2014, from http://www.slideshare.net/OsamaAlbarrak/ikea-strategic-case-study# Caglar, D., Kesteloo, M., & Kleiner, A. (2012, May 7). How Ikea Reassembled Its Growth Strategy. Retrieved April 10, 2014, from http://www.strategybusiness.com/article/00111?pg=1 Daft, R. L. (2013). Organization theory & design (11th ed.). Mason, OH: South-Western Cengage Learning. Edmonds, M. (2008, July 8). "How Ikea Works". Retrieved April 10, 2014, from http://money.howstuffworks.com/ikea.htm IKEA Group (2013). IKEA Group Yearly Summary FY13 (FY13). Retrieved from http://www.ikea.com/ms/en_US/pdf/yearly_summary/ikea-group-yearly-summaryfy13.pdf IKEA SWOT analysis 2013 | Strategic Management Insight. (2013, May 17). Retrieved April 12, 2014, from http://www.strategicmanagementinsight.com/swot-analyses/ikea-swotanalysis.html Kamprad, I. (2007). The Testament of a Furniture Dealer A Little IKEA Dictionary. Inter IKEA Systems B.V. VBulletin Solutions, Inc (2008, September 12). IKEA: Ownership structure. Retrieved April 12, 2014, from http://www.spug.sg/forums/showthread.php?94624-IKEA-Ownershipstructure

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Figure 1.1