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Introduction: A Comprehensive Analysis of IKEA's Business Model and Growth Strategies
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The study is based on the business model used in IKEA. IKEA is one of the most famous companies who sell wooden furniture all over the world in economic pricing. They strive to provide stylish furniture to the customers especially belonging to the lower and middle class buying power. Further, this study has been furnished with a proper structure in accordance with the case study provided and the questions in it have been appropriately answered.
Key elements of Business Models in IKEA
The key elements in IKEA Furniture include the set of activities which it performs and operates for delivering the products and services to the market. The key elements of the model of business followed by the company can be explained in a better and clarified manner with the consideration of the value chain analysis (Ft.com, 2021). This has been done for a more vivid and systematic understanding of the key elements. Further, the elements which can be considered for the explanation of the elements can be divided into two categories, Primary and Secondary.
In accordance with the value chain analysis model, the key elements of the business model in IKEA have been further discussed with the consideration of the primary and secondary elements.
Primary Activities
Operations: The Company operates and depends upon timber and forestry for its raw material. These raw materials go through sawmills for the processing of the timber to be made into furniture.
Inbound logistics: The Company has more than 1000 suppliers. IKEA offers suppliers enough support of technology and finances. The company has had 90-95% of the objectives of the service level. Therefore they must maintain good relations with the suppliers.
Sales and marketing: The organization mainly targets the younger families and people belonging to the lower or middle-class income. The organization further focuses on an extreme consciousness of cost for providing their target customers with good quality and stylish furniture within a reasonable price.
Outbound logistics: The organization has retailers all around the globe. It has more than 280 stores, almost the size of warehouses in about 26 countries.
Services: The Company traditionally has big and out of the town warehouses which sell the products directly to the customers. Moreover, they began with an online service, 19 points of pickup and new smaller stores of about 12.
Secondary Activities
Management of human resource: The workers in the organization are encouraged to help others themselves. They are allowed to wear casuals like jeans and sweaters and tops. Team spirit is the main system in their workers’ hierarchy (Ft.com, 2011). Everyone is considered a coworker; they are often called to the headquarters in Sweden for training.
The infrastructure of the firm: They have online stores and offline stores. However, their online stores are not too advanced. The offline stores were mostly on the major roads on the edge of the town in suburban sites which had plenty of space for parking cars.
Procurement: The Company has often faced issues in their insatiable appetite for timber and raw materials.
Sustainability of the sources for competitive advantage
The methods used by the company to gain competitive advantage have been evaluated in this section for deriving if the success will sustain (Theguardian.com, 2004). The sustainability of the success of any organization is necessary for its future growth. The sustainability has been evaluated with the consideration of the congruence model of business for a better understanding. The congruence model has four elements to it for determining the potential rate of success of the company. The elements are as follows:
Task: The organization sells good quality and stylish furniture at a reasonable rate. This can be sustained with the consideration that furniture is always needed by the people. However, their stores are mostly offline. The online stores are not effectively infrastructure. This might cause them to lack sustainability in the future. Besides, the demand for wooden goods might increase but the timber is decreasing due to the unavailability of forests.
Figure 1: Congruence model
(Source: Ft.com, 2021)
People: The workers in the organization given enough training and equity are maintained among them. This is done with the consideration of all the workers as “co-workers”. This is a positive side for maintaining the business (Ft.com, 2021).
Culture: The influences like the attitude of the customers have been mostly to the positive side. It can be assumed that this will be sustained as they have loyal customers the organization provides good socialization for the goods they need.
Structure of the organization: The vision of the organization is to provide stylish furniture to customers at a reasonable price. They are, therefore, there to stay, expecting their inadequate online store.
The strategy of growth for IKEA
In the case of IKEA, the application of the 7S model is found to be effective in their growth within the competitive market. As the 7S suggests, the factors are as follows:
- Strategy: IKEA uses its market strategy which is completely based on customer and market research. IKEA focuses on customer requirements; as a result they prefer sending design experts to people’s homes to know the requirements of the people and hence providing feedback (Telegraph.co.uk, 2010). IKEA focuses on products prices, product positioning and creating channels for marketing communication.
- Structure: IKEA follows a hierarchical structure that reflects the massive size of their business controlling 422 IKEA stores within 50 markets (Ikea.com, 2021). All companies operate under the IKEA trademarks; as a result, all IKEA franchises run independently within the IKEA group.
Figure 2: McKinsey 7S framework
(Source: Created by author)
- Skill: IKEA is one of the top global furniture enterprises, focusing on the key skills that are required for the employees to have for working in IKEA. Technical skill is one of the major skills that are required which includes experience, knowledge to take over a particular task.
- System: IKEA holds systems consisting of 3 core systems: Franchise, range and supply. They aim to provide the best positions by implementing their concepts and creating a strong platform for improving.
- Shared values: IKEA focuses on the key values of creating better everyday life for people by offering well designed furnished products at a low price.
- Style: IKEA follows autocratic leadership, management believes in showing support and participating in leadership. Managers in IKEA show interests in employees well being providing a homely environment for the employees.
- Staff: Around 155,000 workers work under the organization covering more than 43 countries. They maintain a 50/50 gender ratio providing equal possibilities for both men and women (Ft.com, 2017).
Effectiveness of online business strategy in IKEA
IKEA has big competitors in markets like Amazon and Alibaba (Coursehero.com. 2021). The company has not invested much in its online stores which are needed for its future survival. They had done an experiment in the contemporary market to match the invention of newer technology. However, the customers are not satisfied with their web page as they have not invested much in it. They need to have access to advanced technologies for their company’s web page and it has to be kept updated. The investment can be justified with the Cost Model for improving their online store.
The overall cost that needs to be incurred needs to be divided into various steps like segmentation of the expenses like auto filter, high-graphics and auto-updation. Moreover, they can depend on the drivers of costs and then focus on the total cost of ownership to improvise their web page. Following this the company should allocate the costs.
The strategic indicators for the organization’s success
The company has tried to develop the online platform for the customers to respect the invent of the advanced technology. Moreover, as the company sells wooden furniture at a reasonable rate it needs timber in a high quantity (Ft.com, 2011). Therefore, an assessment of R & C or risk and Criticality has been done to understand its potential of achieving success and being unsuccessful. According to the R & C assessment, the impact of not having a highly advanced online platform for sales will be that it might lose customers who are highly professional and live in remote places.
Hence, it can affect the sustainability of the business in the future. In a similar manner, the unavailability of timber due to the decrease in forest reserves and the increase in price of wood might cause a risk in maintaining their quality of goods. The inability of maintaining good quality or the price to remain economic will cause the middle class customers to be deviated from the loyalty they have towards the company.
Conclusion
The above study is based on the case study provided on the business model of IKEA. The study contains several sections which are the key elements of the business model in IKEA. This section has been explained with the consideration of the value chain analysis model. In addition to this, the study has been followed by the sustainability of the resources used in the organization which has been explained with the congruence model. This has been followed by strategies of growth ion IKEA, the effectiveness of their online platform and the strategic indicators aimed at the success of the business in IKEA. These sections have all been justified with several models like 7S Model, Cost Model and R & C assessment.
References
Coursehero.com. 2021. He is the world’s 4th richest man, Dennis Ellam, Sunday Mirror, April 13 2008. Available at: https://www.coursehero.com/file/pg54knh/From-Small-Wares-to-Furniture-Kamprad-noticed-that-one-of-his-biggest/ [Accessed on: 6th March, 2021]
Ft.com, 2009. IKEA abandons efforts to invest in India, Kazmin, Amy, Financial Times, June 11 2009 29. Available at: https://www.ft.com/content/f1829d4a-569a-11de-9a1c-00144feabdc0 [Accessed on: 6th March, 2021]
Ft.com, 2021. Financial Times, December 7, 2016 Hanna Murphy. Available, at: https://www.ft.com/hannah-murphy [Accessed on: 6th March, 2021]
Ft.com, 2011. Wrappers come off Ikea structure. Available at:https://www.ft.com/content/7ee670ce-297d-11e0-bb9b-00144feab49a [Accessed on: 6th March, 2021]
Ft.com, 2017. Ikea looks for further deals after TaskRabbit purchase. Available at: https://www.ft.com/content/79661ccc-ada0-11e7-aab9-abaa44b1e130 [Accessed on: 6th March, 2021]
Ikea.com, 2021. IKEA Store. Available at: https://www.ikea.com/gb/en/customer-service/faq/ikea-store-pubb334ebb1 [Accessed on: 6th March, 2021]
Telegraph.co.uk, 2010. An empire built by self-assembly, William Langley, The Sunday Telegraph, October 10 2010. Available at: https://www.telegraph.co.uk/lifestyle/interiors/8052996/Ikea-an-empire-built-on-self-assembly.html [Accessed on: 6th March, 2021]
Theguardian.com, 2004. The miracle of Älmhult, Oliver Burkeman, The Guardian, June 17 2004. Available at: https://www.theguardian.com/lifeandstyle/2004/jun/17/shopping.retail [Accessed on: 6th March, 2021]
