1. Identify where (in its value system) and how IKEA have achieved cost leadership. 2. Identify how IKEA have achieved differentiation from their competitors. 3. Explain how IKEA tries to ensure that their hybrid strategy remains sustainable and does not become stuck-in-the-middle. 4. How would you explain IKEAs business model in terms of value creation, configuration and capture? Our business
1. Identify where (in its value system) and how IKEA have achieved cost leadership.
2. Identify how IKEA have achieved differentiation from their competitors.
3. Explain how IKEA tries to ensure that their ‘hybrid’ strategy remains sustainable and does not become ‘stuck-in-the-middle’.
4. How would you explain IKEA’s business model in terms of value creation, configuration and capture?
‘Our business model is to offer 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.’
This was the headline in IKEA’s yearly summary report for year ending 31 August 2015. 1 It reported a revenue increase of 11.2 per cent to €32.7bn (£26.2bn, $42.5bn), 2 profits of €3.5bn and share gains in most markets. IKEA continued to be the world’s largest home furnishings company with some 9500 products in 375 stores in 28 countries. 3 The company had 172,000 co-workers (of which 40,000 were in production and distribution).
The home furnishings market 4
By the late 2000s home furnishings was a huge market worldwide with retail sales in excess of $US600bn in items such as furniture, household textiles and floor coverings. More than 50 per cent of these sales were in furniture stores. Table 1 compares the geographical spread of the market and IKEA sales by region. IKea’s competitors
The home furnishings market was highly fragmented with competition occurring locally rather than globally and included competitors of several types:
• Multinational furniture retailers (like IKEA) all of whom were considerably smaller than IKEA. These included, for example, the Danish company Jysk (turnover €2.9bn).
• Companies specialising in just part of the furniture product range and operating in several countries – such as Alno from Germany in kitchens.
• Multi-branch retail furniture outlets whose sales were mainly in one country, such as DFS in the UK. The US market was dominated by such players (e.g. Bed, Bath & Beyond Inc. with revenues of some $US12bn).
• Non-specialist companies that carried furniture as part of a wider product range. In the UK, the largest operator was the Home Retail Group whose subsidiary Argos offered some 53,000 general merchandise products through its network of 840 stores and online sales. It was number one in UK furniture retailing. General DIY companies such as Kingfisher (through B&Q in the UK and Castorama in France) were attempting to capture more of the bottom end of the furniture market. • Small and/or specialised retailers and/or manufacturers.
These accounted for the biggest share of the market in Europe. In 2014, it was estimated that the UK market was about £10.2bn7 of which IKEA had £1.7bn share (16.7 per cent). IKea’s approach IKEA had been founded by Ingvar Kamprad in 1943 in the small Swedish town of Älmhult and opened its first furniture store 1958. The company’s success had been achieved through the now legendary
IKEA business approach – revolutionary
in the furnishing industry of its early years (see Table 2 ). The guiding business philosophy of Kamprad was that of improving the everyday life of people by making products more affordable. This was achieved by massive (more than 20 per cent) reductions in sales prices vs competitors which, in turn, required aggressive reductions in IKEA’s costs.
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Exploring Strategy Text and Cases
Authors: Gerry Johnson, Richard Whittington, Patrick RegnÈr, Kevan Scholes, Duncan Angwin