Free IKEA Case Essay Sample
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The case analysis is about a company known as Ikea, whose leader is the fourth richest man in the world. IKEA is a retail company with a wide network of stores equipped with furniture, and home furnishings. Ingvar Kamprad is actually the founder and the owner of the company. The company has been under operation by means of personal non-conformist style, which focuses on the design of furniture, as well as satisfaction of the potential customers (O'Mahony, 2008). The company has set up more that 220 outlets and operates in close to 33 countries in the world. Its major plans for expansion are geared towards setting up stores in the major cities of China, as well as Russia. The company’s approximate sales amount to an average of about 13 billion USD every year, although the company does not always disclose its financial sales revenues, being a private company. The company’s brands are well established in Europe more than any other location with most customers establishing a loyal relationship with the company (Lauren, 2011).
The umbrella foundation of the company is now based in Holland (Netherlands) with numerous branches operated by its leader, who now lives in Switzerland. He is a strategic leader with good management and sales strategies for the company. For instance, he has set up a sales catalogue for all the products available, which actually acts as a sales tool, to help customers to identify, and select various product combinations, and designs which suit their needs and requirements. The company has remained highly entrepreneurial, despite its global reach. Instead of relying on formal product planning and research, the company has continued to rely on designers from Almhult and management from Sweden, whose focus is on the company’s mission to offer a wide range of home furnishing items with good design and function; and at the same time, offer low prices which most the customers can comfortably afford. In summary, the company is well managed with good owner’s personality, quality products, affordable prices, good customers and supplier relationships (Lauren, 2011). These qualities are the ones behind the company’s expansion strategy away from Europe to become a global retailer in other countries like Germany, Scandinavia, Poland and West Europe. In 1970s, the company made its first entrance in North America, starting with Canada, and then in 1980s, extended its links to then United States of America. Since the company’s core culture was based on Swedish principles, it faced lots of challenges in the European and American countries (markets) (Lauren, 2011).
Reasons why Ingvar Kamprad was a successful entrepreneur for IKEA
Ingvar Kamprad was a successful entrepreneur for the company because; he employed entrepreneurial skills and qualities to enhance the growth and expansion of the company in other parts of the world. He made use of available opportunities to expand to Europe, North America, China and Russia in order to earn benefits for the company, in terms of economies of scale (O'Mahony, 2008). Although this plan encountered a lot of challenges with many stores making no profits, he did not give up, and instead, he took time to learn the strategies of the competitors, the economy, preferred product line and promotional tactics, which led to further expansion and improvement in performance at long last. Excellent brand promotion strategies by this leader, made the company’s brands of furniture to be well known in Europe (especially Sweden ad Switzerland), where it is believed that almost 10%c of the Europeans were conceived on IKEA beds. It is this outstanding brand name that made the company to succeed in the region and opt to extend its links to other regions of the world. His mode of operation and management of the stores was quite outstanding. Despite living in Switzerland, which was far distance from the location of other stores, he used world links like web network to access, coordinate, and manage all the franchise stores. This is very important since some employees like branch managers may develop bad leadership habits if the main leader is less concerned with the branch operations. The use of sales tools such as IKEA catalogue was another factor that led to the success of the company, since most customers could easily select the products they require via barcode system (O'Mahony, 2008). The success of the company was also enhanced by this leader through strategic plans, such as location of the stores on cheaper lands, to reduce expenses, and near roads with plenty of parking for customers. Introduction of after sale services to customers such as home delivery of products also contributed to success. In conclusion, his character as a person also contributed a lot to the success of the company. For instance, his charismatic character with family values, frugality and thrift contributed to the success of the company. His book, Testament of a Furniture Deal, helped to mould corporate culture where employees act like co-workers with no discrimination or class/status. He also encouraged togetherness and sharing of ideas; and organized seminars for training employees, that led to performance improvement and success of the company. Having put in place good leadership strategies with focus on the mission of the company, Ingvar Kamprad only insisted on Employee Corporation and hard work to make the whole company succeed in the European business market and other new markets or regions where franchise branches were extended to (Lauren, 2011).
Challenges seen in Ikea’s main markets, in Europe and North America
Expansion of the company to overseas markets was actually the beginning of challenges for the company. First, almost all the stores that were opened in Canada did not bear any fruits since they remained unprofitable. This is because, the shipping of products across the Atlantic Ocean (Trans-Atlantic shipping), and accompanying logistics, were realized to be among the major holdbacks. These stores were also unprofitable because of the exchange rate between the US dollar and the Swedish Kroner in the year 1985. At that particular time, 1USD was equivalent to 8.6 Swedish Kroner and this did not work in favor of the company. On the same note, in the year 1990, the Kroner 1USD = skr 5.8 (O'Mahony, 2008). However, the exchange rate movements in the Northern American become one of the major challenges that the company faced in its expansion plans. Another challenge that the company faced is that, in America, the retailing sector is normally led by retail chains that are company owned. This was quite a challenge to IKEA Company since its retail stores in the region were franchise managed and owned. For instance, an example of chains that are company owned was Wal-Mart which led most of the retailing in the United States of America (Lauren, 2011).
Another major problem that the company faced in North America concerned it product line, which was not in accordance with the market requirements. For instance, the company’s furniture was mainly made in line with the European metric design with depth, heaths and width measured in centimeters. In the same aspect, the spacing for beds, cupboards and suites were basically made to suit the smaller apartments and homes for Europeans rather than the homes, cottages and apartments in North American, which were large with wide and spacious windows, as well as larger ceiling heights. Considering kitchen appliances, the company was offering appliances that were not well suited for North Americans’ fast lifestyle, whose houses were packed with freezers and appliances; and their abundant fixtures, and a range of other kitchen equipments, among them being automated juice blenders, microwave ovens, indoor barbeques and high cost multiple bathrooms. Another challenge that was faced by Ikea in Europe and North America was competition. Companies that made their products based on European model were most preferred, since their products such as kitchen cupboards could suit kitchen appliances like stoves, micro ovens and dish washers. Customers preferred such furniture design compared to the Swedish furniture offered by Ikea (O'Mahony, 2008). The population in North American region was diverse in terms of ethnicity, language, cultural heritage, lifestyle, tastes and preferences. Meeting the furniture requirements of these diverse groups of people was quite a challenge to Ikea company stores. Exchange rates in North America was also another problem where by the dollar dominated the Swedish Kroner and this was only in favor of local suppliers, stores and chains, unlike Ikea company which was continuously subjected to shipping seasonality, due to closing of many North American ports in winter seasons (Lauren, 2011).
Ikea also faced other challenges which were mainly customer complaints concerning the quality of the products and out-of-stock occurrences in the stores. The employees also complained about the payment system of the company, claiming that the company does not reward or recognize individual efforts and hard work. The setting of the stores, and the customer care service in these regions, also contributed to lots of challenges for the company in terms pf competition, and loss of customers. For instance, the maze-like lay out of the company, too much clutter and little attention given to customers by the attendants, made it difficult for them to get what they wanted, despite knowing what they wanted. It became quite a challenge to get the customers back in the stores after such an experience (O'Mahony, 2008).
IKEA Company’s business model
The company’s business model is based on Swedish culture and design of products. Extension to other regions is first done with introduction of these designed products to the new markets. The company then adjusts to the preferred design and product line of the new markets. Therefore, the only companies that can copy IKEA’s business model are those intending to offer their services to one specific region. Otherwise, they will face a lot of challenges incase they opt for other new markets, just like IKEA did. IKEA’s operation model is very complex and difficult for other companies to copy. This is because the company’s business model focuses on its mission and not on what the market dictates. Since every company has different missions, it will be difficult for them to copy IKEAS business model (Harris, 2009).
Considering this case, I would recommend that IKEA Company changes it strategy, especially when entering new markets, to avoid running non-profitable stores during initial stages of branch set up. In this aspect, I recommend that the company’s planning and sales steam, collaborate and carry out a thorough market analysis, so that they can enter the new market with what exactly the market needs. This will help solve a situation where the products available can not suit in a certain culture or region (Harris, 2009).
I also recommend that, the management should focus on extending the company’s franchise branches to regions with better economic stability and where shipping processes are not seasonal. In economies such as China and Russia, the exchange rates are stable and the shipping processes are continuous, and this will help solve out-of-stock problems