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
• Understand IKEA’s business model
• Investigate its sources of competitive
• Understand reasons behind IKEA’s
• IKEA’s main weaknesses.
• Founded in 1943 in Sweden.
• Is a multinational group of company that designs and
sell ready-to-assemble furniture, appliances and home
• 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
IKEA BUSINESS MODEL
- Cost leadership : involves becoming the lower cost
organisation in the domain of activity.
- IKEA’s cost drivers include :
+ Source component from widely dispersed suppliers located in
+ Improve its manufacturing techniques
+ Minimize the cost of inventory
SOURCES OF COMPETITIVE ADVANTAGE – STRATEGIC CAPABILITY
• IKEA's supply chain management is
one of its solid sources of competitive
1046 suppliers in 52 countries
32 distribution centres in 16 countries
345 stores 42 countries
Ensure capability to meet customer
Effective network for distributing
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
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.
FREE ASSEMBLY FURNITURE
Offers a larger choice
At a lower cost.
IKEA use its business models to
turn customers as free laborers
Making them much more valuable
Which of IKEA’s resources and capabilities add
- Style at low cost – desirable products
- Enjoyable shopping experience
- Inventory system – customer can take home
- Experience with global expansion – necessary
knowledge for successful launches in new
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
- IKEA Group has an ownership
structure that ensures independence
and long term approach.
=> IKEA seems to control its key
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
IKEA brings a seminal change in home
• Hitting the right demographic
- Clever target customers : young people
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
• IKEA is not all customer focused
- IKEA is mainly cost focused.
- In 21st 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
• 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.