Furnishing the World – IKEA – Surviving the Techstorm

FURNISHING THE
WORLD - IKEA

IKEA is one of the largest furniture companies in the world, and through 373 stores in 47 countries, the group will reach a turnover of 30 billion EUR in 2015 and is aiming for 50 billion EUR in 2020. The company was founded in 1943 by Ingvar Kamprad and is still privately owned through an intricate foundation structure with the aim of preserving the business for generations to come.

Ingvar Kamprad, founder said: “I decided early that the stock market was not an option for IKEA. I knew that only a long term perspective could secure our growth plans and I didn’t want IKEA to be dependent on financial institutions.”

Like all Swedes, and many other people around the world, I have a long lasting relationship with IKEA. Also, our family business was, for a long time, a supplier to IKEA, and we were home to the IKEA office in Romania for almost 10 years in the late 1980s and early 1990s. This means I have followed the development of the company, both through close contact with its operations, and as a customer, sometimes struggling with the assembly of purchased furniture.

From a strategic perspective, IKEA is interesting and impressive in many ways. Still privately owned after more than 70 years in business, still inspired by the thrifty values of its founder, Ingvar Kamprad, and still showing a total dedication to bringing affordable furniture and home decoration to the masses.

IKEA is not risk averse, actually thriving in an environment of risk, uncertainty and ambiguity. Being comfortable with uncertainty and ambiguity is a very valuable competitive advantage. Here is a classic comment from Ingvar Kamprad when an employee argued that a specific project involved a high level of risk: “Yes, I understand, but imagine the possibilities.”

IKEA’s perspective on time, timing and uncertainty is also very interesting. With a cash reserve of US$15 billion, it can afford to take the long perspective in terms of its investments. Imagine IKEA’s entrance into the Russian market in the 1990s, when the economy was in a downward spiral and the political risk was enormous.

IKEA is not risk averse, actually thriving in an environment of risk, uncertainty and ambiguity. Being comfortable with uncertainty and ambiguity is a very valuable competitive advantage.

According to chairman Lars-Johan Jarnheimer, it is relatively simple to enter a new country, and two perspectives are crucial to consider:

1) What long-term potential do we see in the country? Russia, for example, will be a very good market with a large growing middle class population. Here, IKEA also sees it as its mission to offer good quality, affordable furniture to people that need it.

2) How do you provide large-scale economics in your infrastructure, both in the country as well as in a global company perspective?

It is interesting that IKEA often enters a new country through production facilities, meaning that it can grow to understand a local market and culture before establishing stores.

When it comes to technology, IKEA is a rare example of being at the technological forefront, while at the same time working hard to simplify the customer experience and avoiding displaying all the advanced processes that are needed to make it work.

IKEA is pioneering environmental technologies, not (only) as a marketing ploy, but mainly to create a sustainable business and lead where others can follow. With solar panels on the roofs of all its stores, the company will soon be selling energy back to the grid, and the company is also rolling out charging stations for electric vehicles in its car parks all over the world.

Despite all the advanced technology behind the scenes, the company seldom develops its own systems or innovations. At the same time the company has no plans to change its business model other than the obvious and inevitable move from mail order to e-commerce.

From a global perspective, IKEA is shaping the furniture industry, but its adjustments to local market conditions and customer behavior is more like an adopting strategy. That said, it is a fine balance, because too much local adjustment will harm the IKEA brand as well as the global cost leadership through its vast procurement organization.