Ikea Strategic Management

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Date Submitted: 11/07/2011 04:52 AM

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Pāvels KuzĦecovs Andrejs Dzedons RBS Professor, Strategic Management Case Study: IKEA Overview IKEA is one of the very few companies to develop from a small privately-owned firm into a multi-billion retail giant in just 4 decades! What is even more impressive is the fact that IKEA managed to generally preserve its ownership format, and grew without going public. I believe that there are several elements of IKEA’s strategy that allowed developing and sustaining of significant competitive advantage: 1. Cost Leadership has been the key objectives by IKEA from the very beginning of furniture operations. IKEA’s initial production cost advantage vs. Swedish competitors was reflected in very affordable prices, which generated high sales volumes and allowed for substantial economies of scale. Economies of scale have further become the biggest source of cost advantage. IKEA is very consistent with its effort to minimize cost per unit for every item in every market via: - Optimization of production processes - Logistical optimization - Search of alternative suppliers - Integration of suppliers 2. Product quality, design and innovation. I do not think that quality and design are distinctive attributes for IKEA products; I rather think it is a general point of parity with competition. However, given the pricing advantage of over 60%, a solid “above average” quality of IKEA ensures an unmatched value proposition to customers. Therefore I believe that the high quality standards have always been a part of strategic focus for IKEA. On the other side, innovative product solutions such as self-assembled furniture, helped IKEA increase cost/price advantage even further. 3. Retail Strategy. It is extremely rare for furniture manufacturers to expand its business into retail of hyper-market format for 2 main reasons: (i) sales volumes need to be very high in order to justify heavy investment and (ii) portfolio of goods must be very wide. IKEA has obviously succeeded with both. The...