IKEA Business Model - Success Factors

The presentation analyses IKEA's Business Model as a cost leadership. How can IKEA win over other furniture competitors to become one of leading companies and distribute their products all over all world ? Let's take a quick look

1. IKEA Case study – Question 1 Thi HANg Vu

2. Purposes Understand IKEA’s business model Investigate its sources of competitive advantage Understand reasons behind IKEA’s success IKEA’s main weaknesses.

3. About IKEa Founded in 1943 in Sweden. Is a multinational group of company that designs and sell ready-to-assemble furniture, appliances and home accessories. Has more than 389 locations all over the world (2016). Its concept is to offer wide range of functional, well designed and low cost home furnishing product

4. IKEA Business Model Generic Strategy Cost leadership : involves becoming the lower cost organisation in the domain of activity. IKEA’s cost drivers include : Input cost: + Source component from widely dispersed suppliers located in different countries. + Improve its manufacturing techniques + Minimize the cost of inventory High volume Disassembled components

5. Sources of competitive advantage – Strategic capability Tangible IKEA's  supply chain management is one of its solid  sources of competitive advantage .  1046 suppliers in 52 countries 32 distribution centres in 16 countries 345 stores 42 countries Ensure capability to meet customer demand Effective network for distributing products. Physical resources

6. Strategic capability – Tangible Resources Financial resources: Experienced a 15% sales increase between 1990-2005 Revenues: 29.29 billion EUR Ensure a positive cash flow for its operation activities Invest to maintain and expand the business all over the world with continuous R&D activities.

7. Strategic capability - Competences How the leaders of IKEA do their business with clear vision and mission, Its continuous focus on the importance of both internal and external customers to ensure that these customers remain loyal to them They motive, inspire, coach and support staffs. Good relationship with suppliers Good relationship with the government and friendly neighbour with community => Make the best use of available resources to bring value to customers and benefit for the company.

8. Free assembly furniture Offers a larger choice Immediate delivery At a lower cost.   IKEA use its business models to turn customers as free laborers   Making them much more valuable and profitable

9. VRIO Analysis Which of IKEA’s resources and capabilities add value ? Style at low cost – desirable products Enjoyable shopping experience Inventory system – customer can take home furniture immediately Experience with global expansion – necessary knowledge for successful launches in new market. To what extent are IKEA’s resources and capabilities Rare ? Style at low price point is relatedly rare Ability to take home furniture immediately is not so rare (Target, Home Depot) Imitability : Style is moderately imitable Shopping experience maybe be copied by new entrants. Experience (with strategic model, global operations) is difficult to acquire Organisation IKEA Group has an ownership structure that ensures independence and long term approach. => IKEA seems to control its key resource/capabilities.

10. Why is IKEA SUCCESSFUL ? Solving the worst part of buying furniture As people used to see furniture as an investment for the next 20 years, they tended to be anxious and indecisive. IKEA brings a seminal change in home business Hitting the right demographic Clever target customers : young people

11. Why is IKEA SUCCESSFUL (Contd) Not expensive, but not too cheap Stores are a destination As e-commerce becomes more popular, shoppers need incentive to come into stores IKEA has elaborate showroom and cafeteria IKEA is a standalone store

12. Weaknesses IKEA is not all customer focused IKEA is mainly cost focused. In 21 st century, firms are more focused on customers’ needs, wants and preferences. IKEA lacks product innovation - IKEA’s product strategy is so much obsessed with low cost price

13. Weaknesses ( Contd ) IKEA never took economic issues into consideration before being faced with the problem. Example: In US, the goods were priced in the Swedish kronor, which was strengthening against the American dollar. => Bring up an opportunity to be more profitable in the future. => Satisfy customers’ needs to remain their loyalty and explore new invested markets, make them more competitive.