This paper discusses IKEA’s corporate and business level strategy and how these strategies are best supported by operations strategies of IKEA. It also discusses how IKEA differentiated itself from its competitors. Paper highlights various operational trade-offs done by company. Paper, on later stage focuses on how supply network contributed to achieving company’s objectives and strategies.

1. Operations Strategy
Operations Strategies, Their
Alignment With Corporate & Business
Level Strategies, Tradeoffs, Process
& Technology Strategies Of IKEA
Submitted By:
Gagan Pardeep; Call no.102013
Submitted to:
Prof. Deepesh Jain
Indus World School of Business
Greater Noida
Date: 4th March 2012

2. Abstract
This document discusses IKEA’s corporate and business level strategy and how these strategies
are best supported by operations strategies of IKEA. It also discusses how IKEA differentiated
itself from its competitors. Paper highlights various operational trade-offs done by company.
Paper, on later stage focuses on how supply network contributed to achieving company’s
objectives and strategies.
Corporate and Business Level Strategies
Vision and Business Idea
IKEA’s vision is to create a better everyday life for the many people. The business idea
supports this vision 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 them1.
By communicating the content of this framework and encouraging customers to
experience the IKEA concept, it is building the IKEA brand. The IKEA brand is the sum
total of the emotional and rational values that consumers associate with the IKEA
trademark and the reputation of company. The brand image is the result of over 50
years work by IKEA co-workers at all levels all over the world.
What it does, what it says, the products it offers, the price it offers them at, the
presentation of its range and the information it provides IKEA’s customers all contribute
to its image. The overall task of IKEA marketing communication is to build the IKEA
brand and inspire people to come to the stores.
IKEA Operations Strategy
IKEA's mission is to offer a wide range of home furnishing items of good design and
function, excellent quality and durability, at prices so low that the majority of people can
afford to buy them. Founder Ingvar Kamprad's innovative strategy was to design
functional furniture that was easy and inexpensive to build, receive it disassembled at
stores, and display it on the showroom floor with detailed explanation tickets, making
sales person assistance unnecessary.
1
http://franchisor.ikea.com/showContent.asp?swfId=concept9
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3. IKEA customers typically spend more time in the store - as compared to the time they
usually spend in rival furniture retailers. IKEA distinguishes itself from the rest of the
competitors with the way it organizes its stores. Shopping in IKEA is an experience.
IKEA stores double as warehouses. They are built for browsing - the furniture was laid
out and showcased in the stores as it would be in a home setting. Shoppers are used to
seeing everything under one roof - from the kitchen sink to the soup bowl.
In that way, IKEA shoppers become Pro-sumers - half producers, and half consumers -
because most products have to self-assemble. Employees were available for questions
but the customers could choose, order, pick up, transport and assemble their own
selections.
IKEA is using a different operation strategy from their competitors. The operation of
IKEA has to cope with large volume because their products are highly repeatability and
specialization. The variety of products the operation needs to create is low to medium
as they offer standardized and well-defined products. The variation with which the
operation has to cope is low as the sales of furniture are steady over the year and can
be predictable. The degree of customer contact is low. Hence the operation strategy of
IKEA is focused to low cost, while the traditional furnishings position to high cost due to
low volume, high variety (some order-to-make), low variation but high customer contact.
IKEA is targeting at two groups of customers. The first target group is the young adults
from low to middle income family who may have or have no children. The other target
group is business customers and they are normally running small to medium size of
offices.
The characteristics of their target segments are composed of young, highly educated,
liberal in their cultural values and hence they can accept a totally different buying
behavior from the traditional furnishings. They are in different lifestyles and trust their
own judgment to mix and match their furniture from the stores. They view the modular
and self-assembly as an extension of self. As the target groups are within the low to
middle income class or small to medium size of offices, they are more price conscious
and demand different information, support and services.
The operation strategy of IKEA is compatible with its other strategies by linking with its
performance objectives. The performance objectives refer to quality, speed,
dependability, flexibility and cost, which directly or indirectly impact on the effectiveness
of the other strategies.
Although all furniture retailer operations may be similar in that they all transform input
resources into output products and services, they do differ in four important respects -
namely the volume of their outputs, the variety of the outputs, the variation in demand
for their output, as well as the degree of visibility or customer contact that they have.
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4. These four areas and illustrate what made IKEA the furniture retailer with a difference
are described as below.
The volume dimension
As IKEA is operating just like a warehouse, it produces a high volume of furniture
and products that could be self-assembled. The fact that IKEA can also be found
in other countries allow for economies of scale and hence, IKEA is able to bring
costs down with its high-volume production. The downside of this would be, as
one customer puts it: "I have something which everyone else in the world has.
This product is not unique." Despite having a high-volume business, IKEA has a
lean buffering capacity, with only a limited amount of stock bought to ensure that
the possibility of unwanted stock is reduced.
The variety dimension
IKEA's furniture is 'value for money' with a wide range of choice. It is designed to
be stored and sold as a 'flat pack' but is capable of easy assembly by the
customer.
The 'Swedish' design emphasizes bold colors, styles and functionality. The
company promotes products to be modular, allowing different variations of the
same basic product to be customized to produce greater variety. This allows
IKEA to provide greater variety for its products without holding large amounts of
stock.
Instead of having to wait for a sales personnel to service them, customers have
the flexibility to move around and pick up what they want. They are free to
browse through the showrooms and even pick up small items directly off the
display shelves if they like to purchase them. There is no need to waste any time
waiting for someone else to get it for them.
IKEA's philosophy is not to 'hassle' customers but rather let them make their
shopping decisions in their own time. Only if a customer wants advice will the
staff offer to help and guide them around the showroom.
The variation in demand
IKEA has a moderate variable demand pattern. Though there may not be any
significant factors (peak and off peak seasons etc) that will influence the demand
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5. for IKEA's furniture, but there are other certain factors that will vary this demand.
As IKEA stores are located away from the urban areas, it can be pretty
inaccessible to customers who do not drive. There may be fewer customers
during rainy seasons as customers may not feel that it is feasible to drive all the
way out of town to buy furniture, especially more so if they have to transport and
re-assemble them themselves.
For the same reason that IKEA is located in the sub-urban areas, many
customers may only patronize the stores during the weekends. Hence, the store
may be relatively quiet during the weekdays and highly packed with shoppers
over the weekends.
One problem in this is that customers who really want to shop at IKEA may be
turned off by the thought of crowding into a packed showroom with hundred other
frenzied weekend shoppers.
The visibility dimension
The visibility dimension means how much of the operation's activities its
customers experience, or how much the operation is 'exposed' to its customers.
In short, it refers to the amount of customer contact that the operation has. In the
case of IKEA, though it adopts the self-service concept in their stores, it actually
maintains a high level of contact with their customers.
To facilitate shopping, IKEA provides catalogs, tape measures, shopping lists
and pencils for writing notes and measurements.
Information and assistance to customers was offered through the free catalogue
which highlights the available range of the store's products, with related
illustrations and dimensions.
In addition, IKEA stores are designed to have a ‘family shopping experience’ with
customer services and facilities such as a restaurant, day care facilities and a
Swedish shop. Parents can leave their kids in a supervised play area, or keep
their children with them in pushchairs while they are pushing.
Car roof racks are available for purchase at cost and IKEA pick-up vans/mini
trucks are available for rental. Large car parks and loading areas were a feature
of their huge store sites, allowing customers to load purchases easily.
This desire to integrate social value into business practice is what differentiates
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6. IKEA from many traditional furniture retailers. IKEA's success in the retail
industry can be attributed to its vast experience in the retail market, product
differentiation and cost leadership. The company is perhaps, one of the world's
most successful multinational retailing firms operating as a global organization
based on its unique concept and operations strategy as illustrated above.
The key point about IKEA is that it is different to the rest of its industry.
Traditionally furniture retailing is highly fragmented and split between large
department stores and small independent outlets. It is generally held that
aesthetic tastes vary between regions, so what may sell well in Spain is different
from what sells well in Germany. Because furniture is heavy and bulky, it is
expensive to transport between manufacturers and retailers. Also in typical
furniture stores similar products are grouped together, one area will have all
tables, while another will have sofas and so on. In fact these items which are
displayed will represent only a fraction of what is available to the customer.
Variations in size and fabric coverings etc. will need to be ordered. The final
delivery of products to the customer may take several weeks. In some countries
there are large furniture retailers who are similar to IKEA but these rarely have
the strength of brand or the type of layout adopted by IKEA.
Trade offs and challenges
 IKEA's corporate philosophy is to provide goods at a reasonable price. However,
in providing products at a lower price than expected, then profit maximization is
reduced. This would be a possible threat on profit and the resulting growth for
IKEA. Thus IKEA compromised on that in order to achieve the vision of providing
wide range of well-designed, functional home furnishing products at prices so low
that as many people as possible.
 In a market where consumers view expensive goods as of a higher quality,
IKEA's low-cost operation strategy would backfire. If IKEA goods are seen as
cheaper than other furniture retailers, they may be seen as inferior quality. So
here IKEA is compromising on not serving the premium furniture buyers.
 To prevent their stock from becoming obsolete and to reduce costs, IKEA only
order items when they are low in stock. Such a lean buffering capacity and may
lead to IKEA encountering stock-outs where popular items have sold out quickly.
The distribution of products from a warehouse may also lead to increased
difficulty supplying the demand for more popular items. So it reduces the price for
customer by compromising on waiting time/lead time for customer. Customers
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7. who visit the shop based on what they have seen in the catalogue may be
disappointed if they have driven all the way to the IKEA store, only to realize that
it is out of stock.
 Because of IKEA's "anti-service" approach, it may give rise to many customer-
related problems. As customers are responsible for selecting, transporting and
assembling the furniture themselves, they may feel a great sense of frustration
and dissatisfaction should they fail to assemble the furniture correctly. IKEA is
compromising on the customers who want end to end solutions.
 As the IKEA brand becomes more established and is seen as a family shopping
experience, there may be the temptation to increase the level of services
available to the customers, continually improving on the Swedish shop and
restaurant concepts. However, these value-added services may add to operating
costs. The opportunity costs of using the resources for such added value
services may be re-deployed in providing lower priced goods or increasing the
image of the IKEA brand through advertising and marketing.
 A new competitor may emerge with the same strategic objectives as IKEA -
offering low cost goods yet without the added frills of family services such as
restaurant. The new 'me-too' company may gain market share from being
cheaper, yet, offering the same level of quality with the apparent unnecessary
family services.
Performance Objectives
There are various performance objectives (quality, speed, dependability, flexibility and
cost) which are prioritized by firm on the bases of customer’s requirements and
compactor’s strategies and thus lead to achieve a competitive edge for firm. For IKEA
these performance objectives can be described in following way -
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8. Quality •Meet the specifications
•Supplementary Services
Speed •Unique store
layout
Performance Objectives
•Automation
Market Competitiveness
(conveyor belts)
Dependabilit •Hub & Spoke
y model to ensure
availability
Flexibility •Global Sourcing to •Mix And Match to avail
adjust for volume large variation in offerings
changes
Cost •Tight inventory •Automation (less re-work)
•Self-Service (low OH cost)
•Flat-packs (less space)
Capacity Supply Network Process & Technology
Operations Decisions Shape
Competencies And Constraints
1. Quality
The operation of IKEA succeeds in achieving quality advantage to the company by
doing the things right. Their products are made to conformance to specification with
appropriate performance that fit for their customers’ purpose. The stores are designed
in unique, clean and tidy layout conforming to their brand identity. The staffs are low
contact with customers but they are friendly and helpful when required. Their supporting
facilities such as childcare, self-service restaurant and crèche also provide quality
service to their customers. Therefore, the customers perceive the products and services
as value for money with extra benefits.
2. Speed
The operation of IKEA is giving the company a speed advantage by doing things fast.
The store is designed in unique layout with warehouse and parking facilities. The
customers can locate the store fast from its bright yellow and blue identity. They can
park their cars without spending extra time on the six acres of reclaimed industrial land
of parking area. They can leave their children to the play area so that they can
concentrate on their purchase. After that, they can select their purchases fast from the
unique store layout with yellow plastic shoulder bags or on trolleys. The IKEA staffs do
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9. not bother them while they are selecting their purchase but they can ask for help from
the customer-contact personnel or from the information points. They can also use the
loan catalogues to screen out their preferences. All the stores stock about 10,000 of the
14,000+ items in the IKEA range allows immediate availability of goods. The modular
designs allow the products to be flat-packs with code number and the customers are
easy to pick up whatever they want from the warehouse. The customers can get
through the checkout fast as a large steeply ramped conveyor belt helps transporting
items through the cashier.
The every single operation helps a smooth flow of customers and also reduces costs as
there is less stagnation. It is compatible with the target group who demand different
information, support and service, as well as their concept of self-service and modular
design to create brand identity.
3. Dependability
The operation of IKEA is also giving dependability to the company by doing things in
time. The operation is dependent because IKEA has predictable opening hours. The
proportion of goods out of stock is kept to minimum by the simple reorder system. They
try to accelerate the arrival of new stock if stock-outs occur or review the buffer and
reorder quantities in case the sales pattern has changed. The operation tries to keep
reasonable queuing time, though it is expected to queue half-an-hour or more during
weekends and bank holidays. They also ensure that there is constant availability of
parking.
Dependability is compatible with the target group as they are those working groups who
require highly dependability to save their time and cost.
4. Flexibility
The operation of IKEA is able to change far and fast to customer requirements so they
have a flexibility advantage.
The operation allows product/service flexibility as they have ability to introduce new
products and services. The global sourcing strategy makes them more responsive to
the customers’ needs and wants. Their strategy of creative sourcing leaves much of the
design up to their suppliers and it is benefit to the fast introduction of new products.
The operation allows mix flexibility and is able to provide a wide range or mix of
products and services. The range of products is wide from home furniture to office
furniture and accessories, from childcare to self-service restaurant and crèche. Although
childcare, self-service restaurant and crèche are supporting facilities, the customers are
satisfied for these benefits. The idea of mix and match is successful in offering mix
flexibility. Storage units within a particular range have a range of sizes and colors, each
of which can be fitted with either glass or wooden shelves and doors. The units are also
stackable so that a variety of arrangements is possible. The office furnishings area
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10. offers different style of service and customers can pay on account and delivery is
provided automatically. There are also wheelchairs available and a lift so that disabled
customers have access to the upper floor.
The operation also allows volume flexibility as they are able to change its level of
output. The global sourcing allows the operation to adjust volume significantly rapidly. In
the stores, it is up to individual store management teams to determine stock levels of
each product. That means individual store is more responsive to the change of demand
in their location.
Lastly, the operation allows delivery flexibility as they have ability to change the timing
of the delivery of the products. The management may have to try to accelerate the
arrival of new stock if stock-outs occur.
The flexibility supports IKEA to provide their products with a wide range of choice. They
can also serve to the expectations from their target groups and are likely to response to
changing customers’ needs and wants.
5. Cost objective
Cost objective is to do things cheaply. The effectiveness of quality, speed, dependability
and flexibility directly affect the cost objective, as well as the operation strategy and low
prices strategy. High quality operation reduces cost and time to re-do things. Fast
operation reduces inventory and improve flow of customers, which can help to increase
sales and reduce cost of overheads. Dependable operation increases predictability and
operational efficiency. Flexible operation adapts to change and can adjust operations to
response to the customers’ needs and wants without extra costs.
The operation also achieves the cost objective by other approaches. The central
warehouse in Sweden is highly automation with only three employees and the self-
service concept requires less employees and this can sharply reduce costs. The global
sourcing reduces costs because no heavy investments required. The use of stock
control system can be used as management information systems to monitor the sales
pattern in order to react fast. Reacting fast means saving costs in arranging resources
in an unexpected circumstances.
Supply Network Strategy
IKEA has 46 trading service offices in 32 countries. IKEA also has 28 distribution
centres in 16 countries that supply goods to IKEA stores. In addition to having suppliers
of IKEA products all over the world, IKEA buys products from Swedwood. The
Swedwood Group is an industrial group owned by IKEA. Swedwood produces wood-
based furniture and wooden components and employs 13,000 people in 35 industrial
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11. units in nine countries2. Among the top five purchasing countries are China, Poland,
Sweden, Italy and Germany, China having top share of 20%.
It buys products from 1,300 suppliers in 53 countries. Co-workers in the trading service
offices monitor the production of IKEA products. This enables them to test new ideas,
negotiate prices and check quality while observing social and working conditions among
suppliers.
The rationale of IKEA’s relation with suppliers lies in the company’s business idea of
providing low price products in the socially responsible and environment friendly way.
All IKEA products are manufactured in accordance with a specially designed code of
conduct “The IKEA Way on Purchasing Home Furnishing Products” (IWAY), which also
provides a basic of the company’s relationship with its global suppliers. Prior to doing
business with IKEA suppliers have to fulfil IWAY standards. Representatives from
IKEA’s trading office continuously look after and mange relationship with suppliers as
stated in the corporate material of company “being close to our suppliers is the key to
rational, long term cooperation.”3
In many ways, this question gets at the heart of IKEA’s competitiveness and its ability to
be innovative. IKEA makes very few products internally and relies almost totally on its
network of hundreds of suppliers. These collaborative long-term partnerships with
suppliers are rooted deeply in IKEA’s corporate history, and the character of these ties
has become part of the culture. It is through the suppliers that IKEA has been able to
make innovative designs featuring environmentally responsible materials and an
efficient use of resources and translate them into bottom-line results. The key suppliers,
in turn, use links with IKEA as vehicles to stay innovative, because innovation is the
only choice if the supplier wants to retain this powerful buyer; IKEA is powerful enough
to be coercive, and “the giant” is not to be dismissed easily.
Another aspect to consider in this case is a process that starts with regulation, which
has prompted IKEA to work with key suppliers to meet the new requirements (pushing
them to do so at equivalent or minimally increased costs). They develop a higher-quality
product, which motivates IKEA’s competitors to match the design and materials
innovations as well as the economic efficiencies. Meanwhile, the supplier’s improved
skills and capacities make it more competitive, enabling it to expand its business with
old and new buyers. Consequently, the industry is stimulated to match and exceed the
IKEA example, the natural environment wins because waste or pollution is reduced or
eliminated, and the customer benefits by being able to purchase a better-quality
product.
2
http://franchisor.ikea.com/showContent.asp?swfId=facts3
3
IKEA Group Social and Environmental Report 2005
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12. ACTIVATES
•Exchange norms, values, Supplier A
IKEA
•Education (management, technology, logistics, etc.)
•Corporate •Evaluation (monitoring of behavior, control cost etc.)
•Personal bonding Supplier B
Purchasing
mangers on •Linking with other actors in n/w (new supplier contacts,
local market new customers)
Supplier C
•Local RESOURCES
employees Supplier:
•Financial – Knowledge – technology – contacts Supplier D
interacting
with IKEA:
suppliers •Reliable production process- consistent quality – speed-
cultural understanding- contacts Supplier E
Conclusion
IKEA has earned the name because of its unique business idea and serving to a
particular segment, its corporate and business level strategies which are different from
its competitors and are well supported by its operations strategies. Among various
performance objectives (quality, speed, dependability, flexibility and cost) which are
prioritized by the firms on the bases of customer’s requirements and compactor’s
strategies and thus try to achieve a competitive edge for firm, IKEA has chosen cost
and flexibility as its competitive edge. It has achieved edge on these parameters by
developing a strong supply network and investing in process and technology.
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