First/Resit FIRST
Semester: 1
Level: 6
Weighting: 50%
IKEA
A discussion of IKEAs current replication mode may usefully begin from the
distinction between IKEAs Idea Concept and a Concept in Practice. This distinction
reflects how IKEA explicitly thinks of replication as a hierarchical process, in which
some features (embodied in the Idea Concept) must stay fixed, while other ones
(embodied in the Concept in Practice) are allowed to be more flexible. The need for
such flexibility stems from variation in local markets, as well as the need to modify
the format for replication under the impact of new learning.
The IKEA Idea Concept contains the guiding principles, vision, and culture that
management wants to underpin IKEAs operations and development, including its
process of internalization. An IKEA manager explains that the
IKEA concept has evolved over more than 50 years as a result of serious
opportunities and experiences, both large and small in many different areas. The
result today is a strong, tried and tested concept, which has proved that it is
possible to combine global business ideas with local business opportunities.
The Idea Concept is described as the unique asset that differentiates IKEA from the
competition.9 A manager at Inter IKEA Systems elaborates on the nature of the Idea
Concept:
[It] outlines how we shall offer products for the many people, our business idea,
how to work with low prices, etc. There are certain eternal truths that will never
change. This is the starting point for all that we do. y The Idea Concept is
something that we will never adjust. For instance, we shall always offer the
lowest price, we shall serve the many people, etc.
The Idea Concept is a set of overall guiding principles that, while replicated across
the IKEA network, offers only general instructions on store design, HR management,
etc. As a manager at Inter IKEA Systems explains:
Everything shall not be clear and in detail. Because then it will not move. We are
an organism that takes the opportunity. If we should have clear definitions, then it
would turn into a lubricated machine and it would not be IKEA any more.
As this suggests, flexibility and a commitment to continuous exploration are at the
core of IKEAs self-understanding. While the guiding principles of the Idea Concept
remain unchanged, the Concept in Practice that is, the current embodiment of the
Idea Concept in terms of product offering, store design and location, pricing policy,
and so on is frequently modified. In the words of another IKEA manager:
The Concept in Practice relates to our latest proven solutions regarding how to
run an efficient home furnishing business, the size of the stores, range, etc. All of
those things need to change over time but it has to be in line with the Idea
Concept.
In general, IKEA thinking on the Concept in practice stresses its process and
learning aspects. Kamprad consistently emphasizes the importance of maintaining
the entrepreneurial spirit, and the necessity of always questioning proven solutions.
According to IKEA lore, for Kamprad the worst situation would be one in which co-
workers did not make mistakes. In fact, one of the ten explicit values in the IKEA
culture stresses that making mistakes now and again is the privilege of the dynamic
co-worker they are the ones who have the ability to put things right.
Still, the components that constitute the Concept in Practice are ordered in a
hierarchical manner, depending on how much they are allowed to change and vary.
IKEA considers the product range as fairly fixed over the short to medium term.
Whereas some products, such as the BILLY bookshelves or the KLIPPAN sofas,
have been present in the product offering for a very long time, other products may
be replaced after just a year. Pricing is also fixed, but only over the 1-year period
covered by the IKEA catalogue. Prices are set at the country level, but must follow
the Idea Concept guideline that IKEA shall offer low prices for the many people.
However, a store manager has the authority to lower a price immediately if a similar
product is being offered by any competitor at a lower
price.
In addition to the overall Idea Concept, which is supposed to be replicated across
the whole IKEA network, the (current) format for replicating IKEAs retail part may
be described in terms of a set of variables, the key ones being the product range,
pricing, store format, store design, standard operating procedures, and local HRM;
the variables are allowed to vary within more or less well-defined ranges.
Product range
The number of products has obviously increased since the founding of the first IKEA
store in 1958, but over the last decade has reduced to approximately 9500
products, a significant part of which comprises ready-to-assemble furniture pieces.
A persistent feature of IKEAs replication process since the first expansion beyond
the Almhult location in the beginning of the 1960s is that any store, wherever it is
located, must carry the core product range (e.g., the BILLY bookcase and the
KLIPPAN sofa). Beyond the fixed product range that any store must carry there is
considerable discretion for each store and each market with respect to selecting
from the overall product range. This means, for example, that a store in Japan may
choose to sell smaller sofas than a store in the US. The basic idea with a core
product range is that the consumer should be able to recognize the IKEA store and
IKEA products no matter whether he or she visits a store in Sweden or in Japan.
Having one core range, of course, also implies possibilities for economies of scale
and lowering costs. The product range and price is part of the Idea Concept, and
viewed as holy to the business idea. So rather than adapt the product range to local
markets, it is the product offering that is adapted to fit the taste and homes of that
markets consumers.
Pricing
IKEA stores follow a fixed basic format. The size of an IKEA store has increased
over the years.
Currently the smallest standard stores that are built are 32,000 square meters and
the largest are 45,000 square meters. Having standard stores is also in line with the
general cost-efficiency goal. As land is expensive to buy in some markets, IKEA has
currently developed buildings with several floors, with parking lots both in the
basement and on the roof. This is an example of how the Concept in Practice needs
to be adjusted to meet local peculiarities. A selection of furniture is displayed in
room-like settings, adjacent to which is the self-service warehouse section, with the
ready-to-assemble furniture placed in boxes on pallets. All stores also follow a traffic
flow that takes customers through the store in a manner that maximizes the
exposure of IKEA products in different settings. All stores have a restaurant with
essentially the same menu (IKEA is Swedens largest food exporter), in-store child
care in the form of supervised play areas and ballrooms, hot dog/hot sausage
stands, and food markets with traditional Swedish food near the exits, etc. As
stressed, the characteristic blue and yellow facade emerged in the mid-1970s, and
has been an IKEA fixture ever since.
Another goal set out in the document is that in 2010 IKEA will have a new
generation of home grown managers, building an even more trustful and motivating
working climate, sharing knowledge across the organization and bringing IKEAs
business and culture forward. The organizational mechanisms that are deployed in
the service of IKEA-wide knowledge sharing are: dedicated organizational units;
standard operating procedures for gathering, codifying and disseminating
experiential knowledge; documents (manuals, internal journals); values; and the use
of expatriates.
Another formal, organizationally embedded routine for identifying new ideas and
gathering experiential knowledge from lower-level IKEA units, notably local stores,
is the commercial review. This is, first and foremost, an internal audit to ensure that
the IKEA concept is followed (specifically, whether the stores adhere to the
manuals). However, it is also a means of identifying new best practices and new
business opportunities. Those best practices or proven solutions, sometimes
referred to as examples from reality, explored in the review process are published
on the intranet or in the manuals provided by Inter IKEA Systems BV, such as
Range presentation in the store the IKEA way or How to improve childrens
furnishing. Inter IKEA Systems BV is responsible for identifying, evaluating and
sometimes improving certain solutions (i.e., best practices) found in different
markets, as well as for sharing this knowledge with the rest of the IKEA network. A
set of manuals is provided to each store manager, and all other IKEA employees
receive a light version of these manuals in a booklet called Basic Knowledge.
Postscript: in September, 2016 IKEA reported sales of 28.8 billion. 12 new stores
had been added in the previous 12 months and new stores in India and Serbia are
planned for 2107. IKEA aims to increase sales to 50 billion euros by 2020.
Assignment Tasks
You have been promoted to the position of International Management Consultant at
IKEA and have been requested, by the Senior Vice President for International
Strategy, to prepare a report that addresses the following tasks:
Answer all tasks in your 3,000 word report
1. Identify and assess the business model that has enabled IKEA to develop
from a local Swedish furniture business into the worlds leading home
furnishings company. Pay particular attention to IKEAs core competencies.
20 marks
2. Prioritise the market entry methods open to IKEA in either China, or the USA
using a suitable framework that may be used to evaluate costs, risks and
return involved in each method 30 marks
Credit will also be given for innovative or original suggestions, if relevant or justified
in terms of their potential value to an organisation.
Marking Guide
Task 1
Critically evaluate IKEAs original and present KFS with respect to its success in
international markets
Task 2
Outline the contemporary corporate global strategy that Zara operates within
Task 3