Harvard Case - What IKEA Do We Want?
"What IKEA Do We Want?" Harvard business case study is written by Juan Alcacer, Cynthia A. Montgomery, Emilie Billaud, Vincent Dessain. It deals with the challenges in the field of Strategy. The case study is 34 page(s) long and it was first published on : Jun 16, 2020
At Fern Fort University, we recommend that IKEA implement a multi-pronged strategy focused on digital transformation, sustainable innovation, and strategic expansion to maintain its competitive advantage in the evolving furniture market. This strategy will leverage IKEA's core competencies in cost leadership, product design, and global supply chain management to address the changing customer needs and market dynamics.
2. Background
IKEA, a global furniture giant, faces a complex landscape of challenges and opportunities. The company's traditional business model, built on low prices, self-assembly, and showroom experiences, is being challenged by changing consumer preferences, rising competition, and the growing influence of e-commerce. IKEA needs to navigate this evolving landscape while maintaining its brand identity and value proposition.
The case study focuses on the internal debate within IKEA regarding its future direction. The protagonists are:
- Jesper Brodin, CEO of IKEA, who advocates for a cautious approach, focusing on strengthening the existing business model.
- Peter Agnefj'll, CEO of Ingka Group (IKEA's largest franchisee), who argues for a more aggressive approach, embracing digital transformation and new business models.
3. Analysis of the Case Study
To analyze IKEA's situation, we can utilize several frameworks:
A. Porter's Five Forces:
- Threat of New Entrants: High - Online furniture retailers and start-ups are entering the market, leveraging technology and direct-to-consumer models.
- Bargaining Power of Buyers: Moderate - Consumers have access to a wide range of choices and can easily compare prices online.
- Bargaining Power of Suppliers: Low - IKEA has a strong global supply chain and negotiates favorable terms with suppliers.
- Threat of Substitute Products: High - Consumers can choose from a wide range of furniture alternatives, including secondhand furniture and DIY options.
- Competitive Rivalry: High - The furniture market is highly competitive, with players like Amazon, Wayfair, and local furniture retailers.
B. SWOT Analysis:
Strengths:
- Strong brand recognition and customer loyalty
- Cost-efficient manufacturing and supply chain
- Global presence and network of stores
- Strong focus on design and functionality
- Commitment to environmental sustainability
Weaknesses:
- Reliance on physical stores and showroom experience
- Limited online presence and digital capabilities
- Challenges in adapting to changing consumer preferences
- Difficulty in competing with fast-growing online retailers
Opportunities:
- Growing demand for home furnishings and interior design
- Expanding middle class in emerging markets
- Increasing adoption of technology and digital solutions
- Potential for new business models and product offerings
Threats:
- Increasing competition from online retailers
- Economic uncertainty and global market volatility
- Rising costs of raw materials and logistics
- Environmental regulations and sustainability concerns
C. Value Chain Analysis:
IKEA's value chain can be analyzed by examining its primary and support activities:
- Inbound Logistics: Efficient global supply chain, cost-effective sourcing of materials.
- Operations: Large-scale manufacturing, focus on cost optimization and standardization.
- Outbound Logistics: Extensive distribution network, efficient delivery to stores and customers.
- Marketing and Sales: Strong brand marketing, focus on affordable prices and self-assembly.
- Service: Customer service, assembly instructions, and after-sales support.
- Firm Infrastructure: Strong organizational structure, focus on cost control and efficiency.
- Human Resource Management: Focus on employee training and development, fostering a culture of innovation.
- Technology Development: Investing in technology to improve efficiency and customer experience.
- Procurement: Negotiating favorable terms with suppliers to ensure cost competitiveness.
D. Business Model Innovation:
IKEA's traditional business model is being challenged by the rise of e-commerce and changing customer expectations. The company needs to explore business model innovation to adapt to these changes. This could include:
- Expanding online presence: Investing in a robust online platform, offering a seamless digital experience.
- Developing new product offerings: Introducing more personalized and customizable furniture options.
- Introducing subscription services: Offering rental or subscription-based furniture options.
- Partnering with other companies: Collaborating with tech companies to develop innovative solutions.
4. Recommendations
IKEA should implement a multi-pronged strategy to address its challenges and capitalize on emerging opportunities:
1. Digital Transformation:
- Invest in technology and analytics: Develop a comprehensive digital transformation strategy, including investing in AI and machine learning to personalize customer experiences, optimize pricing, and improve supply chain efficiency.
- Enhance online presence: Develop a user-friendly online platform with advanced features like virtual reality showrooms, 3D product visualizations, and personalized recommendations.
- Embrace omnichannel strategy: Integrate online and offline channels to provide a seamless customer experience, offering click-and-collect options, in-store pickup, and home delivery services.
- Leverage social media and digital marketing: Utilize social media platforms to engage with customers, build brand awareness, and drive online sales.
2. Sustainable Innovation:
- Focus on circular economy principles: Implement practices like product reuse, recycling, and upcycling to minimize environmental impact.
- Develop sustainable product offerings: Design and manufacture furniture using eco-friendly materials and sustainable manufacturing processes.
- Promote responsible sourcing: Partner with suppliers committed to ethical and sustainable practices.
- Engage in environmental advocacy: Advocate for policies and initiatives that promote environmental sustainability.
3. Strategic Expansion:
- Expand into emerging markets: Target high-growth markets with a focus on market segmentation and product differentiation to cater to local preferences.
- Explore new business models: Consider mergers and acquisitions to expand into complementary sectors like home d'cor, kitchen appliances, or smart home technology.
- Develop strategic alliances: Partner with other companies to leverage their expertise and reach new customer segments.
- Focus on value creation: Develop products and services that offer a unique value proposition to customers, exceeding their expectations and building long-term loyalty.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: The recommendations leverage IKEA's existing strengths in cost leadership, product design, and global supply chain management while aligning with its commitment to affordability, functionality, and sustainability.
- External customers and internal clients: The recommendations address the evolving needs and preferences of customers, while also considering the needs and aspirations of IKEA's employees.
- Competitors: The recommendations aim to position IKEA to compete effectively against both traditional and online furniture retailers, leveraging its unique brand identity and value proposition.
- Attractiveness ' quantitative measures: The recommendations are expected to generate positive returns on investment, measured through increased sales, improved profitability, and enhanced brand value.
Assumptions:
- The furniture market will continue to grow in the coming years, driven by urbanization and rising disposable incomes.
- Consumers will increasingly value convenience, personalization, and sustainability.
- Technological advancements will continue to disrupt the furniture industry, creating new opportunities for innovation.
6. Conclusion
IKEA needs to embrace a bold and strategic approach to maintain its leadership in the evolving furniture market. By focusing on digital transformation, sustainable innovation, and strategic expansion, the company can leverage its strengths, address its weaknesses, and capitalize on emerging opportunities. This will require a shift in mindset, a willingness to embrace change, and a commitment to long-term vision.
7. Discussion
Alternatives:
- Maintaining the status quo: This option would involve focusing on strengthening the existing business model, relying on physical stores and traditional marketing approaches. This approach carries a high risk of falling behind competitors and failing to meet evolving customer needs.
- Focusing solely on digital: This option would involve abandoning physical stores and focusing entirely on online sales. This approach could alienate existing customers who value the showroom experience and might not be feasible in all markets.
Risks:
- Technological disruption: The rapid pace of technological advancements could render current strategies obsolete.
- Economic uncertainty: Global economic instability could impact consumer spending and affect IKEA's sales.
- Competition: New entrants and established competitors could erode IKEA's market share.
Key Assumptions:
- The recommendations assume that IKEA has the resources and capabilities to implement the proposed strategy.
- The recommendations assume that consumers will continue to value affordability, functionality, and sustainability.
- The recommendations assume that IKEA can successfully navigate the challenges of globalization and cultural differences.
8. Next Steps
- Develop a comprehensive digital transformation strategy: Define specific goals, timelines, and resource allocation for digital initiatives.
- Invest in technology and analytics: Identify and implement appropriate technologies to enhance online presence, personalize customer experiences, and optimize operations.
- Develop a sustainable innovation roadmap: Define specific goals, timelines, and resource allocation for sustainable product development and manufacturing processes.
- Expand into new markets: Conduct thorough market research, identify target segments, and develop tailored marketing strategies for each market.
- Monitor progress and adapt strategies: Continuously evaluate the effectiveness of the strategy, make adjustments as needed, and ensure alignment with evolving market dynamics.
By taking these steps, IKEA can position itself for continued success in the evolving furniture market, maintaining its leadership position and creating long-term value for its stakeholders.
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Case Description
In 2018, Swedish furniture maker IKEA was undergoing a significant transformation. Challenged by the rise of online shopping and changing consumer behavior, and mourning the death of its founder, the Company's top executives knew they had to step out of their comfort zones and embrace new strategic initiatives to stay relevant. But which initiatives, executed where, when and how, would enable IKEA to achieve its goals in a way that was profitable while creating an IKEA they would want to pass on to the next generation of co-workers and customers?
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