Case IKEA 1. What are the core competencies and end products of IKEA? How are they linked with each other? The most important core competencies of IKEA is their ability to design furniture and interior products with a strong focus on a nice and appealing design combined with the lowest integral costs. IKEA uses its open warehouse and self-service approach as a USP (unique selling point), while at the same time it reduces space requirements and thus costs. Their unique level of core competencies enables IKEA to use their formula Europe – and even worldwide.
IKEA developed the recombination ability via learning by doing. If necessary, IKEA redesigns its products to local habits and demands and is also able to adapt its routines. For example, for the Chinese market, they even offered assembly services, because the labor costs are that low over there. The IKEA concept of form, function and price is unique. Especially their consequent attitude that all their products in all aspect meet their requirements. For example, if it is not possible to fit a design product to pack it efficiently in a box, it has to be redesigned, or canceled. . How did IKEA diversify? IKEA did diversify both product wise as well as expanding globally. The company decided to focus on special target groups, for example children and Young families. IKEA diversified also by introducing a new line of kitchen appliances. Their global difersification was made posiible by Ikea’s strategy of trusting the intuition of its (local) staff (decentralization with the ability to even adapt product to local requirements), combined with their extensive internal training programs. They even gave up on central, internal budgeting.
The locals only had to meet a fixed ratio of costs to turnover. A key factor for Ikea’s international success is also the founding of Inter IKEA Systems BV. They introduced a personal interest from the local managements by making them franchisees. Doing this IKEA initiate a strong internal competition. IKEA succeeded in diversifying while they retained their focus on low-cost strategy. 3. How did IKEA expand internationally? How has the firm maintained a focus on core competencies while simultaneously adapting to local needs in host countries?
IKEA started to expand internationally in 1963, opening its first international store in Norway. It focused in the 1960s and 1970s on the European market. In its European expansion, IKEA used the same products and the same operational formulae. In Europe it was not necessary to change to adapt to local needs. However in America did the lack of adaption to the local market caused serious problems at the beginning. Some of the products did not appeal to American customers. For example, many Americans use bedroom chests to store sweaters, but the IKEA chests were too shallow.
They maintained on core competencies because IKEA stuck with its low-price focus even when they were adapting to the local market. For instance they reduced marketing and logistics cost by concentrating several stores in the same area. In the US, IKEA started with four stores in the Philadelphia/ Washington DC/ New Jersey area to facilitate shipping products from the central warehouse to these stores. 4. Can you provide an update on IKEA’s core competencies, using materials available on the web? (http://www. b2binternational. om/publications/white-papers/differentiation/ ) According to Michael Porter you can see how the core competencies ‘network’ with each other by creating an activity-system map. This is illustrated below in an activity-system map for Ikea. ‘’In the case of Ikea, for example, it may be that the principal segment are customers who like the convenience of being able to drive to a store, park, make their choice and drive away with their furniture. However, there may be others who do not value these competences but who like the simple Scandinavian designs sold by the store.
They may not want to drive out to the store and therefore eschew the core competence of the self selection at the store. Market research can be used to map out customers’ and potential customers’ needs so that they can be compared and aligned with the supplier’s core competences. The second group of customers could potentially be satisfied by an online offer or a telephone service which helps them make their choice’’ This is a quote from the same internet-site b2binternational.
IKEA still has the low manufacturing costs and also the limited customer service as mentioned before. Other core competencies are that they still have the self-selection by customers, but it depends on the customer if they like this concept or not. There are also a lot of people who like the simple Scandinavian design sold by IKEA. IKEA’s core competencies actually are still the same as a few years ago but a change is that customers can also be satisfied by an online offer or telephone service which helps them make their choice.