Introduction
Founded some 75 year ago in the remote rural village of Älmhult in Southern Sweden, IKEA has become a global furniture giant, with more than 392 stores world-wide, 183.000 employees and 35 billion Euros in annual sales. Around 783 million people visit IKEA stores annually. Its world-known annual sales catalogue was most recently printed in 208 million copies, and in 29 languages, even more than the Holy Bible (Torekull, wikipedia).
The astonishing saga of IKEA is a story of success against all odds. Founded by a 17 year old boy of modest means, it is a story of overcoming adversity and pursuing a simple vision: that attractive home furniture need not be expensive, and that quality can be sold at modest prices.
To understand IKEA´s success one must also understand the role of corporate culture and of innovation, Mr. Kamprad pioneered a series of innovations, which, taken together, constituted a revolution in the furniture business. In our discussion, we have in fact identified more than thirty innovations. Furthermore, these novelties have been configured together into a powerful consumer concept. Thus, taken together the IKEA concept would indeed represent what Christensen characterizes as disruptive innovations. Two general issues should be raised at this point:
The contribution of all of these innovations, “adding up” to an impressive disruptive innovation, would represent a formidable barrier to new competitors. While clearly some of these innovations might be copied, perhaps even relatively easily, it would definitely be very hard (at best) to copy most or all of these, as well as to put them together in a meaningful way. Thus, the competitive position of IKEA is indeed strong.
We shall see that most of the various specific innovations are evolving. They tend to be further developed and refined, on a more-or-less ongoing basis: “good must always be done even better”! The IKEA culture is never self-satisfied, it is always humble and striving for even better results. This creative restlessness represents another important barrier to entry vis-à-vis potential competitors.
Let us now discuss some keys to IKEA´s success:
1. Ingvar Kamprad´s personality and personal philosophy
He has a deep respect for the customer. He is modest and unassuming in his ways. He is genuine – “walks the talk” and consistently resists what he considers irrelevant status-features (too materialistic, too theoretical, too “academic”), etc. He is frugal and informal.
Ingvar Kamprad has a versatile personality and has the people- and business-skills that have enabled him to manage all the phases of IKEA´s growth, from small start-up to mega-concern. How then could one describe Ingvar Kamprad´s unique personality and leadership style? Here are some observations:
Ingvar Kamprad clearly sees the “big picture”, while still maintaining a keen interest in details! For instance, even an incorrect or missing price tag would not escape his attention. He inspects IKEA stores on both announced visits and unannounced visits. He is reported to personally have inspected every new store, before its first opening, for at least 8 hours each – at least until recently.
He can be “sentimental”, inspiring and charismatic, but also a very tough business leader – leading top management meetings with intensity.
He can be both stingy and very generous; he is frugal, but pragmatically so. He does not mind spending handsomely when specific business’ considerations justify this.
He might be seen as a restless innovator, always creative/willing to experiment/try out new ways. Yet he understands the strength of the IKEA concept, and thus insists on discipline to follow established routines (even manuals)/standardized approaches.
He is local and global. Few people have been more attached to Smaaland and Sweden, and yet more international in orientation. IKEA has stayed true to Swedish design, to its origins. Yet few have pursued global sourcing and sales to such an extent as IKEA.
2. The Business concept and Store concept
IKEA furnishings are to be assembled by the customer him/herself, guided by clear specific, well-documented step-by-step instructions. One standardized screw design was introduced throughout, with an octagonal screw-head. The benefits: Both a sense of pride and achievement by being able to complete the task of assemble a specific piece. Also, significant cost savings, by having the customers in effect undertaking a significant part of the assembly.
The items were provided in components, all in “flat” cardboard containers. This led to less expensive transportation, and also with less breakage.
The goods were warehoused in the store, with the customers picking the goods they would want themselves, from storage racks, according to an easily understood marking system. Ingvar Kamprad thus pioneered the concept of the warehouse as part of the store – and that the customer themselves transport their goods home! The customer always gets the instant gratification of finding and getting his or her goods immediately.
The concept of “full-fledged show rooms” on display such as complete bedrooms, living rooms, children’s rooms, bathrooms, kitchens, etc. This not only “helps” potential customers to “visualise” more complete solutions involving a multitude of different pieces of furniture, but also helps bring across the strengths of IKEA’s relatively light, modern Swedish design.
The overall flow logic in the stores had been carefully developed, based on accumulated experiences regarding customer’s purchasing behavior: small/inexpensive items and larger/more expensive item are mixed. Often-needed products and more seldom bought products are placed together. Thus, even though a customer might not chose to buy a large ticket item on a given visit to an IKEA store, the chances are large that they at least buy something. The IKEA store experience creates and reinforces positive shopping experiences from start to finish!
Innovative Pricing strategy and conscious display of price policy: for instance, each furniture category would have products in different price brackets, but all with a strong price-value relation. Also, each category (i.e. kitchen, living room etc.) has at least one, relatively smaller item at an incredibly low price. These products are called “Hot dogs” internally at IKEA. Examples of these “hot dogs” are napkins in the kitchen section, a vase in the living room section, a shoehorn in the entrance section etc.! Furthermore, high-margin, well-selling products are displayed prominently, and at several places, to enhance “impulse sales” here! Should the customer be dissatisfied, there are generous possibilities for returning goods.
IKEA also charges as little as possible for the food in its restaurants. On rainy days, IKEA reduces the prices for umbrellas. Why? To further bond with customers and strengthen their brand position as the preferred place for value-for-money furniture! An additional aim is to create an excursion destination for the entire family out of visiting IKEA stores, often with long visits. There are also ball-bins for the children. Every store has its own ball-bin play area for youngsters, thus again making IKEA a destination for the entire family.
The store location. Initially the focus had been on locating these on relatively inexpensive grounds somewhat outside city centers – it would be cheaper overall that the customers would travel! Good parking was provided, and often also public transportation, normally for free! Later the store locations tended to move closer to the city centers, where customers’ preference for not having to spend time on travel would count relatively higher.
A well thought out catalogue. Initially this was for post-orders. The catalogue evolved into a vehicle to precondition potential customers to plan for potential needs at home, and thus also be attracted to the stores. A large number of catalogues were distributed, with new editions each year, rivaling even the Holy Bible in volume. (This part of the strategy, however, might not stand the test of time, given today´s digital reality, but up until now, print catalogues have been highly effective.)
Food in store. As noted, IKEA was the first furniture store to include restaurant facilities in their stores, because “Empty stomachs do not buy many sofas”, according to the founder (Torekull, 2011, p.17). The menu always includes typically Swedish dishes, such as meatballs with lynogn berries (IKEA is the largest exporter of meatballs in the world, and IKEA food sales total over 1,7 billion Euros annually). The Swedish brand culture is again underscored.
3. High Speed, Moderate Risk
In order to be able to move fast, with high speed, and to adapt even more effectively, Mr. Kamprad and his family (and later his foundation which he largely controls) kept full ownership of IKEA. No Board of Directors nor senior management committee were in position to dissent from Mr. Kamprad. Thus, he was in the unique position, among CEO’s of large companies that he was able to make truly rapid changes, when he felt that such might be called for. This ability by IKEA to move very fast was clearly a key advantage, not being hindered by often slow, political or bureaucratic processes. Furthermore organization culture was homogenous – pragmatic, no-nonsense, and infused with a sense of purpose – all obviously contributing to higher performance.
Focus on design, marketing and sales – not production. In the beginning all production was outsourced to external suppliers. Contracts were often long-term in nature. As IKEA grew, some internal production became insourced, thus creating healthy completion among internal and external suppliers.
Mr. Kamprad drove international expansion hard. However, he never let IKEA expand faster than what the company´s own cash flow could afford. Most stores were to be owned by IKEA (or IKEA companies). Thus, IKEA is both a furniture giant and a real estate giant. There was some experimentation in ownership, as well. Some stores were joint venture’s, some franchises, some located in larger shopping malls (particularly in Japan). Thus, IKEA´s expansion was thus rapid and robust!
The design team was centralized in Älmhult, supplemented by influential free-lance designers, mostly Scandinavian. Good functional design, with uses of new materials when appropriate, and with a relatively “light” Scandinavian design was practiced, of course also with full adherence to cost control, maintaining the flat packaging concept, etc.
4. Culture and values
Let us consider the IKEA store in Lausanne, Switzerland. There was a large flood there just before Christmas 1980. One result was a practical collapse of the garage for the customers. No people lost their lives, but many cars got lost, or were trapped. It was thus difficult for many customers to return home from the IKEA store! The IKEA organization’s reaction was to immediately to attempt to offer tangible support to these customers – free meals were distributed, all available mattresses and blankets in the store were made available, and so on. When the Swiss TV then interviewed a senior IKEA executive he was asked if they were concerned about the resulting loss of Christmas sales revenues. He answered: “This is the last of our concerns. All that we are thinking about is to offer support for each person that had been affected by this accident”. IKEA got a lot of good-will from this response, a good illustration of how media coverage might lead to a strengthening and not a loss of good-will!
IKEA´s values can be seen as traditional, based humility, thrift, modesty and discretion. It expounds simplicity and value. The design focus Swedish and Scandinavian, with, lighter colors, less ornamentation, and more wood is also key! The firm´s culture embodies Swedish values and promotes creativity, a “can do” attitude, speed and pride in being part of a team, a mission to deliver high quality at a reasonable price. While IKEA is a global mega-concern, its spiritual home is still Älmhult, Sweden. It is to here the firm´s executives from all around the world travel. It is here one finds the IKEA museum, an IKEA hotel, and IKEA senior executives conference centers. And it is here one finds Ingvar Kamprad!
While it is hard to emulate another person´s personality, or the specific success formula of IKEA, I wish to draw forward three areas from which we all can learn from IKEA and Ingvar Kamprad:
a) Innovations:
As business leaders we might sometimes feel that our innovations are too small and insignificant. The IKEA story shows that no innovation is too small, and that configured together a series of innovations can create a formidable barrier to entry and lasting business concept!
b) Corporate Culture:
The IKEA culture shows how shared values can lead to employees and teams to achieve extraordinary results. Such a culture also shows how values can underpin a brand, which in turn resonates deeply with the customer.
c) Leadership style:
Scandinavian leadership is based on consensus. However, consensus without a clear leadership vision at the top, often leads to average results or group think. My view is that Scandinavian leadership functions best when there is a healthy dynamic between leadership vision at the top and consensus building through the organization. In my view, Ingvar Kamprad´s leadership style is here a prime example and source of inspiration!
In conclusion, we have a lot to learn from Ingvar Kamprad and from the robustness of the IKEA concept. Perhaps his personal modesty can also give us reason to reflect upon what is important to us in our lives. And perhaps the IKEA growth story can make us ask how our businesses can even better improve the quality of life in society.
POSTSCRIPT One question I have asked myself is how IKEA might face the challenge of online retail. Could a pure-play online retailer also offer attractive furniture, at low prices, for home delivery? Could an online retailer out-compete IKEA on price, given the costs IKEA runs for its stores and vast logistics system? Personally, I think it will hard for competitors to compete on price – even without the cost of IKEA´s enormous store and logistics operation. However, online retail will definitely entail slippage, in my opinion. Lastly, one must not forget that IKEA has a highly competitive online strategy in place. Indeed, IKEA.com has over 2,1 Billion visits annually to its website. And IKEA offers home delivery or pick-up at hubs, if the consumer desires. The 75 year history of the firm has demonstrated the versatility and robustness of the concept – adapting to many changing tastes and trends over these decades!
References
Christensen, D. (2008), The Innovator´s Dilemma, Harvard Business School Press. Torekull, B. (2011), The IKEA Story, Liber.
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