On the basis of information provided concerning Ingvar Kamprad and IKEA, the organizational theory underlying IKEA will be identified. Associated behavioral problems with IKEA's development will also be discussed. Questions were formulated and are addressed in order to more fully delineate IKEA's organizational strategy and development. Assumptions made will be identified throughout discussions. The questions guiding the discussion are as follows:
What organizational theory served as the basis for IKEA's successful emergence within the furniture retailing industry in Sweden and internationally?
What strategic management principles are evident within Kamprad's efforts?
What barriers/behavioral problems existed and how did IKEA overcome them from a strategic perspective?
Ingvar Kamprad largely developed and created sustained growth in IKEA through an organizational philosophy based on strategic management. From the earliest days of IKEA, Kamprad displayed a commitment to seeking out and utilizing strategies for responding to the larger environment which he recognized could either inhibit or further facilitate the company's growth.
Strategic Management Principles
When reviewing some of the principles that have long been associated with strategic management, the assumption that Kamprad largely developed IKEA on the basis of strategic management can be further established. In reviewing Michael Porter's principles concerning long-term strategies leading to the development of core-competencies, it can be determined that Kamprad clearly followed these premises as he built IKEA. These strategies include:
Achieve overall low-cost leadership in the industry
Market products that are differentiated
Focus on market segments for growth in cost and/or differentiation (Bartol & Martin, 1993).
Following these principles, Kamprad adhered to a cost leadership strategy which placed extensive emphasis on efficiency within the company in order to reduce the overall costs of products delivered to customers. As well, he mixed this strategy with a number of efforts to market products that were differentiated. Overall, his goal was to attract those within the furniture market who had not previously had access or resources to purchase furniture. Kamprad's emphasis in terms of a cost leadership strategy was to design functional furniture that was easy and inexpensive to build while marketing products that were differentiated by relying on simplicity in catalogue displays as well as retail outlets, utilizing a self-service approach rather than an intensive salesperson approach, and engage in cash and carry practices. Ultimately, cost savings earned by IKEA were passed through to customers in lower prices.
As evidenced within the case information on IKEA, Kamprad also adhered to Porter's strategy of focusing on market segments for growth in cost and/or differentiation in developing the company's core competencies. Young and low-to-middle income families represented the market segment which Kamprad was committed to attracting.
As Kamprad had indicated in the early days of the company, he was and remained interested in ensuring that the majority of people had the opportunity to afford quality and functional furniture and home furnishings at affordable prices.
Furthermore, Kamprad's utilization of strategic management in establishing and sustaining IKEA is evident in the manner in which he incorporated and served as a visionary of cost leadership. This is best demonstrated in consideration of the steps identified by Michael Porter as necessary for applying cost leadership. These steps included:
Create a good product
Draw advantage from many sources
Study the competition
Make cost a part of corporate culture (Bartol & Martin, 1993).
Kamprad established Ikea on and generated his philosophy throughout the company of these principles in number of ways. He maintained his commitment as the company expanded internationally in creating a quality product that was based on efforts to utilize a variety of sources that represented further low cost advantage for the company. He studied the competition and responded by applying low-cost logistics and large simple retail outlets in suburban areas in order to attract IKEA's targeted market. Through Kamprad's ongoing efforts to maintain close contact with and control over company operations, he was able to effectively incorporate low cost leadership into the organization's culture. Simplistic storefronts/buildings, employees in casual dress, and Kamprad's and other administrator's ongoing presence in stores fulfilling retail functions came to represent symbols of IKEA's persistent philosophy and commitment to lost cost leadership. Through an adherence to these strategies, Ikea was successful in demonstrating that cost leadership can represent quality in products, services and growth.
One of the problems that IKEA has consistently faced is the challenges presented by efforts to expand. From its' earliest period when efforts were initiated to block the company's growth in Sweden up until IKEA's current and ongoing efforts to expand internationally, the company has had to develop new strategies to respond to the problems at hand. Ultimately, IKEA's organizational structure created on the basis of a philosophy and practice of cost leadership has provided for creative management and enthusiasm amongst all levels of employees. The combination of employee freedom and anti-bureaucratic management fostered by Kamprad has fashioned an environment that is valued by employees and has led to ongoing employee contribution in producing positive results for the company when obstacles emerged. Kamprad consistently encouraged employees to look towards the use of "creative common sense" in alleviating the seeming threats and dangers posed by new environments as the company expanded.
Another challenge faced by IKEA was developing a strategy to continue to deliver low-cost yet high-quality products consistently on an international basis. In response to this problem, IKEA again developed a creative strategy by establishing purchasing offices around the world who focused their attention on identifying potential suppliers. When suppliers were identified, the emphasis remained on controlling and designing for low cost and ease of manufacture. Thus, when necessary, IKEA would actually purchase the manufacturing companies machines, redesign their buildings and implement other processes to increase the production of products that were low cost.
As well, IKEA recognized the potential for the company's management and operation philosophy to be lost as it continued its' immense expansion efforts throughout the world. Thus, it developed a strategy for insuring that this did not happen by maintaining a homogenous core management group that was familiar with and knowledgeable of IKEA's philosophy and practices. Regardless of what country expansion efforts were initiated in, the management remained Scandinavian or those who had brought up and trained throughout the ranks of the company. Management staff served as role models and engaged in efforts to training new employees and regional managers in the IKEA model. Furthermore, Kamprad organized his expansion efforts by developing two separate expansion groups - an expansion group who was sent in to ensure that initial planning and establishment of operations followed the IKEA model, followed by the operations group who served the role of further ensuring that the international stores continued to operate on the premises and values that had made the company successful.
A further challenge is evidenced by questions that have begun to emerge as to whether IKEA will survive the eventual loss of Kamprad and whether IKEA can continue to adhere to models of Scandinavian designed furniture that may not be appealing in some areas of the world.
However, on the basis of the company's history, it would appear that an ongoing commitment to strategic management will allow the company to continue to adapt to problems and challenges that may emerge as the company continues to grow, even without the presence of Kamprad. IKEA has demonstrated even under a new CEO that it can continue in its' commitment to provide the world with a much-needed supply of affordable, high-quality furniture. It has continued to seek out new ways of maintaining its emphasis on cost leadership while adhering to those aspects of its retail philosophy that draw customers into stores and facilitates their ease in viewing and purchasing. In spite of the changing environments in which the company has found itself, it would appear and can be assumed that…