IKEA is the largest furniture retailer in the world. This privately held, Swedish company sells a variety of easy to assemble furniture, appliances, and other home goods at an affordable price. The company was founded in 1943 by 17-year-old Ingvar Kamprad. He started by creating a small retail store in Älmhult that sold various household goods. It wasn’t until 1948 that the Ingvar began to sell furniture in his store. The company gets its name from an acronym composed of the initials of the founder’s name, Ingvar Kamprad, the farm where he grew up, Elmtaryd, and a nearby village, Agunnaryd (IKEA Concept).
The first IKEA catalog was created in 1951 to reach a larger audience due to the rural location of the store. Initially, many people were skeptical about the quality of the products because of the low prices in the catalog. This prompted Ingvar to create the first IKEA showroom in an old workshop. This space allowed potential customers to view products before purchasing them.
In 1956, the company pioneered the idea of flat packing and self-assembly. This came after taking the legs off a table to reduce shipping costs of large, bulky items (IKEA Concept).
IKEA has the vision “to create a better everyday life for the many people.” The company does this by offering “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” (Vision and Business Idea).
Updated Information and Current Events
The case reports that in 2012, IKEA had 330 stores in 38 countries across the world with 140,000 employees and 33 billion euros of revenue.
When the company was first created and started expanding, they were using an international strategy. They started by expanding to different countries in Europe. This allowed the company to sell products with little adaptations. Eventually, IKEA switched to global-standardization strategy when they began to expand into countries across the world.
The IKEA Concept is owned by Inter IKEA Systems B.V. The structure of IKEA operates through franchises and divides the company into sections. Each section is responsible for franchises in different territories. There are 11 different groups that are owned and operated under the Inter IKEA Systems B.V. with INGKA being the largest section over Europe and the United States.
There are mixed reports about how many IKEA stores there are. According the IKEA Group 2017 fiscal year summary, the company has 355 stores in 29 countries. A second IKEA Group article reports there being a total of 313 stores in 38 countries (About). Other sites report there being 403 stores in 49 countries as of 2017 (Bloomerg, 2018., Statistica, IKEA Highlights).
As of 2017, IKEA employed 194,000 people around the world. During this year, the company was able to bring in 936 million shoppers to their stores and 2.3 billion visits to their website. At the end of their fiscal year, IKEA had 38.3 billion euros of revenue, not excluding consumption taxes (IKEA Highlights). In January of 2017, Ingvar passed away at the age of 91.
Discussion Question 1
IKEA faces a variety of internal and external challenges. The PESTEL framework can be used to identify external challenges that the company faces. This refers to the political, economic, sociocultural, technological, ecological, and legal factors that can influence a company.
IKEA can experience political and legal challenges when entering in to a new country. The company can face various laws and regulations that differ between countries. This can include areas such as tax rates or hours and working conditions of employees.
The company can also face economic challenges when expanding into new countries. Here, IKEA must focus on growth rates, interest, rates, levels of employment, price stability, and currency exchange rates.
Sociocultural challenges can influence the design of products that IKEA sells. These factors “capture a society’s cultures, norms, and values” (Rothaermel, 2015). The company must look at demographic trends in each country and determine who is likely to buy their products and what style is popular among the groups.
Another external challenge that IKEA can face deals with technology. This can influence their production techniques. Since the company can mass produce their products, they need to ensure that their machines create uniform cuts on the wood for it to fit into the furniture designs.
The final external challenge that the company can face involve ecological factors. These deal with the environment and the ways that a company uses resources. For IKEA, this is a major factor. Wood is an important resource for IKEA when creating products. The company faces deforestation due to the importance of wood cutting in its production. Cutting down trees also opens the company to lawsuits from environmentalist groups who are trying to conserve forests and ecosystems in different countries.
IKEA can also face a variety of internal challenges. One problem would be a lack of infrastructure that is used for cutting and processing wood. The company could also face a lack of human resources needed to run production. A lack of both resources could lead IKEA to outsource production activities to other countries.
A second internal challenge that the company can face is that since the founding of the company, no decision has been made without the input of Ingvar. In 2013, he officially stepped down as chairman, leaving the company to his three sons. This change in leadership could have in impact on decisions that the company makes in the future and the way it operates.
A third internal challenge the company could face is finding capital to create new stores. IKEA is privately held which creates the challenge of constraints in accessing large sums of capital needed for rapid global expansion.
IKEA’s ecological challenges pose the greatest threat to the company because this could influence the company’s global expansion as well as impact their resources. Environmentalists could protest the company which would impact their sales and production. Large amounts of deforestation by IKEA and other companies reduces the resources that IKEA must use for production.
In order to address this challenge, IKEA could increase the funds that their research and development department have. With these extra funds, the company could find an alternative to resource for their products. They could also engage in activities that give back to the Earth. This could include planting new trees in areas that have already been cleared. Although they would still be using wood for their products, this is one way the company could show that they also care about the environment.
Discussion Question 2
Leadership is a key component of the way a company operates and succeeds. A change in leadership can be a challenge for the both an incoming leader and the company’s dynamics. There needs to be communication and a plan of action to create a smooth transition for all parties involved.
In the 75 years that the company has existed, they have had various leadership changes. The company’s founder, Ingvar, stepped down from his position as CEO in the late 1980’s, but remained on the board and provided guidance throughout the years. His youngest son, Mathais, stepped into this position after his father. In 2013, Mathais became chairman of the board of the Inter IKEA Group. That same year, Peter Agnefjall, who has been with the company for over 22 years, became CEO after Mathais stepped down.
Within the past year, the IKEA Group has had a leadership change as Jesper Brodin became CEO in September of 2017, replacing Peter Agnefjall. Brodin, who has been with the company for over 20 years, worked his way up to be the head of IKEA of Sweden before accepting the promotion.
The case compared IKEA’s leadership change to that of Walmart’s after Sam Walton stepped down. Although there will be challenges during the transition of leadership, I do not believe that it will be as difficult as Walmart’s transition. The company will be able to learn from Walmart and the challenges that the company faced.
Unlike Walmart, IKEA is a privately held company. This allows the people impacted by the company’s decisions to be more centralized. IKEA must still think about employees, customers, suppliers, and other stockholders. However, as a private company, IKEA does not have to worry about stockholders who could sell their stock if they do not like the new management’s decisions.
Discussion Question 3
It is not surprising that the United States is one of the fastest growing international markets because it is a huge market that is already established. However, it is surprising to learn that China and Russia were also among the fastest growing international markets for IKEA considering these economies are still emerging. The United States has a much different culture than China and Russia, which is why it is also surprising that they all purchase from the same furniture company.
The company could compete even better if they personalized their products according to target markets based on their culture and geographical location. IKEA is privately held, and this arrangement provides benefits in terms of tax exposure, but also creates constraints in accessing large sums of capital needed for global expansion. If IKEA is unable to find a way around these issues, then they will not be able to live up to their strategic intent of doubling their yearly openings.
The fact that IKEA is rapidly growing in both developed and emerging markets poses a threat to the company. The number of competitors that sell furniture at low prices is growing as IKEA expands into new markets. Rapid expansion could also create a bottleneck in production. If the company does not have an adequate supply chain and infrastructure to keep up with the growing demand of products, this would slow down how fast the company can deliver their products.
Discussion Question 4
IKEA’s showrooms, catalogs, flat packing, and low cost has allowed them to grow and maintain a global presence. However, there are still steps the company can take in order to continue growth.
IKEA can continue with their strategy of selling basic style furniture but implement adaptations in order to be more favorable to each culture. Overall, the company has succeeded in becoming a global presence after expanding into Norway. Now, they must try to adapt designs to fit the needs that the expanding markets are asking for.
A great direction for IKEA to go in is to find a low-cost replacement for wood, which will make the appeal of the company grow enormously. The issue of deforestation is a major reason that some markets are not open to buying IKEA furniture. By finding new alternative resources to wood, it could allow larger expansion for the company in the future
Discussion Question 5
Corporate Social Responsibility (CSR) is a framework that helps a firm recognize the expectations and responsibilities that it has to society regarding the environment and social impact. CSR requires a company to ensure their policies and activities are following the law and ethical standards of society.
The company currently has three focus areas: sustainable life at home, energy and resources, and people and communities. Over the years, IKEA has been able to implement various social responsibility initiatives such as working with the World Wildlife Foundation (WWF) and the IWAY code of conduct.
Although IKEA has some social initiatives already in action, there are still ways the company can continue to enhance its impact. The company should be most sensitive to the issues involving the environment and their workers.
The operations of IKEA have the potential to create a significant impact on the environment because of their demand for wood and production of furniture. The company needs to ensure that their operations do not harm the environment. They can do this by creating plans and policies that decrease wood, water, and energy use while increasing recycling and properly disposing waste.
Since IKEA operates on a global standardization strategy, they can select different locations around the world to complete their operations. The company could choose a location that has few labor laws and saves money on operation costs. However, IKEA should strive to create clean and safe working conditions despite the location of the operations. They should also create an environment so that employees are able to have a work-life balance. The company does a good job of addressing this issue by using their IWAY code of conduct. This is a set of standards that states the minimum requirements the company has about child labor, working conditions, and environment protections. IKEA places these requirements on all its suppliers to ensure that they are not buying from suppliers that go against their policies and beliefs.