History of IKEA Essay

Ingvar Kamprad founded IKEA in 1943. The name IKEA is formed from Kamprad’s initials (I.K.) plus the first letters of Elmtaryd (E) and Agunnaryd (A), the farm and village where he grew up (1). IKEA originally sold pens, wallets, picture frames, table runners, watches, and jewelry and nylon stockings. Known today for its furniture, IKEA did not start furniture sales until 1948. Kamprad saw opportunities for selling furniture on a large scale, distributing the first catalogue in 1951. In 1955, in the midst of a fierce price war with a competitor, Kamprad took his company a step further by opening the first store showroom. The concept behind this was that customers could now touch and look at IKEA home furnishings before they purchased, showing that quality did not have to be sacrificed for lower prices. With this being a success, Kamprad opened the first store in Almhult, Sweden in 1958. At its opening, the 6,700-meter store was the largest home furnishings store in Scandinavia (1). Kamprad retired as IKEA Group’s president in 1986, with Anders Moberg becoming his successor. This brought about many other changes for IKEA. Starting in 1990, IKEA took interest in corporate social responsibility (1). The IKEA Group developed an environmental policy that would ensure the company and its co-workers take environmental responsibility for all activities conducted within its business. Since then, they have become more energy efficient by generating their own renewable energy. They also work with their suppliers to inspire them to do the same. One example of this is each of their facilities is fully equipped with solar panels on the roof. They also take into consideration where and how they get their raw materials. Raw materials most important to the business and those that have the highest potential environmental or social impact are wood, cotton, palm oil, leather and food (3). Taking wood, they are continually looking for ways to get the most out of the wood they use by designing their products to minimize the amount of material needed and increasing the effici ency of manufacturing. They also only use wood that comes from responsibly managed forests in an effort to safeguard wood supplies to protect the future of their business, prevent deforestation, and to support the livelihoods of those communities. In order to make sure these efforts continue IKEA hired a fulltime forestry manager to secure sustainable use of forest resources (3). Upon Anders Moberg leaving IKEA in 1999, Anders Dahlvig became the President and CEO of the IKEA Group. This brought about more changes for the company by writing out a Code of Conduct. This code of conduct called â€Å"The IKEA Way on Purchasing Home Furnishing Products (IWAY)† defines what suppliers can expect from IKEA and specifies what IKEA expects from its suppliers in terms of legal requirements, working conditions, active prevention of child labor, external environment and forestry management (1). In addition, IKEA also introduced â€Å"The IKEA Way on Preventing Child Labor† in order to ensure that their suppliers and their sub-contractors use no child labor (1). IKEA has grown rapidly since its founding. As of August 31, 2012, the IKEA Group has operations in 44 countries, including 30 service-trading offices in 25 countries. T hey also have 33 distribution centers and 11 customer distribution centers. The IKEA Group had 298 stores in 26 countries. They employ 139,000 co-workers, 99,000 in Europe, 18,000 in North America, 11,000 in Asia and Australia, and 11,000 in Russia. They send out over 212 million catalogues, which has increased their foot traffic into the retail setting to 776 million visits. As technology use increases, so has their internet and app traffic with 1.1 billion visits to their website and over 5.7 million app downloads. With these increasing numbers, they have been able to open another 18 stores around the world in 2012 (5). IKEA’s vision and business statement paraphrased is to provide quality furniture products at a low price for all. Their product has always been furniture and over the past few years, they have grown to a company that is well known among all ranges of income from, broke college students to wealthy senior executives of companies. They do provide quality products whose function and style rival all other products in their industry. With those rival products, they also have prices that are lower than any of their competitors can afford to rival. How do they do it? IKEA is a very cost conscience company, where other companies will spend large sums of money on employee accommodations, IKEA does not. They tell of an instance where employees were at a conference and instead of paying for them to stay in the one and only hotel in town, an overpriced Marriot, they had their employees sleep in their cars (6). They have recently adopted a new energy saving method for each of their stores, both bettering the atmosphere as well as cutting energy costs. This mentality of saving, though extreme, has allowed the company to build a business into an industry leader in quality and price that most companies are not able to touch, based on their spending habits. This has been the mentality of the company structure since day one. Kamprad grew up in a farm-based village where people were not used to having quality products at an affordable price. From this, he developed the mentality and business structure that continues. The company has grown immensely due to their overall understanding of cost cutting and satisfying customer needs. The companies’ culture, as listed above, is all about saving money to provide a better company and product to the customer. One example of this is Kamprad had made company employees sleep in cars on a business trip. Having not talked to an employee that was forced to sleep in their car, as opposed to a Marriot hotel bed, I cannot say how they feel toward the company. That being said, I could make two inferences. The first is that the employees were upset. They should be provided with the basic essentials of life when on a business trip and the company should be able and willing to provide that. My second inference would be that these employees made this decision for themselves as well as the company, for the overall benefit of the company. The company advertises that that they share values for each employee. They ask for a unique employee and they advertise that they are not â€Å"filling jobs† but rather collaborating with people based on shared unique values. They compose and suggest these four-shared values as just a start to their list of shared values; One: togetherness, two: cost-consciousness, three: respect, four: simplicity. With those, four shared values maybe being their foundations, it would be easy to say that all employees, if truly investing time and effort into these values, are happy to work together in a uniform effort to save money as well as remain simple and respect one another. This would imply that they all are happy to work together in a situation that is best for everyone, as well as the company. IKEA is an industry leader when it comes to cutting costs and providing quality furniture at a price for everyone. In the market place, they have established themselves with their main competitive advantage to be price. They have done this in a way that most companies are not willing or would be too difficult for companies to rebuild their business model; and thus they are an industry leader. IKEA has established their marketing strategy as a furniture store that provides its customers with stylish furniture at an affordable price. Its founder Ingvar Kamprad instilled this strategy/mindset of the company. Mr. Kamprad’s mission for IKEA is to offer â€Å"a wide range of home furnishing items of good design and function, at prices so low that the majority of people can afford to buy them.† Therefore, IKEA’s focus is finding ways to lower prices yet still maintain the quality product they have been delivering, to its customers, for 70 years. This is their competitive advantage. IKEA maintains their competitive advantage by operating outside the practices of the conventional furniture supplier. A typical furniture store has an open show floor, where customers can peruse at their own leisure. IKEA steers away from this by designing its store in a trail pattern. This forces the buyer to proceed to the entire store and possibly find items they might not had intended on purchasing. Another thing IKEA does differently is, instead of providing delivery for every purchase, IKEA provides means of attaching containers on a customer’s car. This allows them to be able to take the furniture home the same day that they purchased it (7). The containers are usually pods that strap onto the top of a car. Then the customer takes it home and brings it back upon their next visit to IKEA. In addition, IKEA requires more of its customers than classic furniture stores. IKEA does not offer pre-assembled furniture. IKEA’s furniture is easy to assemble furniture that customers can take home and quickly put together (7). They take pride in the simplicity of their designed assembly. They also will not place a cumbersome item that would need to be assembled in the store because it is neither cost effective nor customer friendly (7). IKEA’s main strength comes from their value chain. â€Å"Unique design capabilities, unique sourcing, and tightly controlled logisti cs†¦they are able to produce products that are distinctive enough to provide market recognition, secure sourcing for long runs at profitable levels, and reduce inventory costs through regional warehouses which work closely with stores† (4). Meaning, IKEA is in complete control from furniture design to furniture delivery and storage. IKEA’s main weakness, one could assume, would be the large operation that it is. IKEA now operates in 29 different countries with over 2,000 suppliers in over 50 countries. With the large span of products and countries involved, maintaining control and communication will pose as one of IKEA’s biggest issues. The biggest challenge IKEA is facing would be wood. IKEA consumes 1% of total commercial wood, which amounts to over 13.5 million cubic meters (8). With all this considered, IKEA is launching a new campaign to operate in a more economic-friendly way by only processing wood that has been FSC certified. They are slowly incorporating new policies and plan to be â€Å"forest positive† by 2020; however, missed their 2012 goal of using 35% of their wood from FSC certified wood mainly because according to IKEA’s CSO Steve Howard, ‘only 7% of the world’s forest areas are currently certified to FSC standards† (8). However, IKEA is not only meeting obstacles from the environment, certain countries bureaucratic powers are causing some difficulty for further advancement in the country. China is one of these countries. The Chinese government is imposing harsh restrictions on its real estate market, which has caused stores to close (9). IKEA continues to grow every year by saving money at their current locations through energy saving building and using renewable resources. With their corporate responsibility programs, they continue lead the way in their industry. They also continue to work toward a better future for children all over the world through their Child Labor initiatives. As they continue to keep costs down, they will continue to expand all over the world. Works Cited 1. â€Å"About IKEA.† History. N.p., n.d. Web. 10 Feb. 2013. 2. â€Å"Facts &Figures.† Inter IKEA Systems B.V. N.p., Oct. 2012. Web. 16 Feb. 2013. 3. Canada, Newswire. â€Å"IKEA Group releases 2011 Sustainability Report.† Canada Newswire 15 Feb. 2012: Regional Business News. Web. 16 Feb. 2013. 4. Grol, Paul, Christopher Schoch, and Michel Roger. â€Å"Culture as a Competitive Advantage.† Efbl.org. N.p., 16 Dec. 2010. Web. 13 Feb. 2013. 5. â€Å"IKEA Group SWOT Analysis.† IKEA Group SWOT Analysis (2012): 1-8. Business Source Complete. Web. 16 Feb. 2013. 6. Lewis, Elen. â€Å"Chapter 2: Ingvar Kamprad: The Grand Designer.† GBS: Great IKEA!. 28-45. n.p.: Marshall Cavendish Limited, 2004.Business Source Complete. Web. 16 Feb. 2013. 7. â€Å"The IKEAConcept.† Inter IKEA Systems B.V. N.p., Oct. 2012. Web. 16 Feb. 2013. 8. Kelly, Annie. â€Å"IKEA to Go ‘forest Positive’ à ¢Ã‚€Â“ but Serious Challenges Lie Ahead.† The Guardian. Guardian News and Media, 14 Dec. 2012. Web. 16 Feb. 201 3. 9. â€Å"WantChinaTimes.com.† WantChinaTimes.com. N.p., n.d. Web. 16 Feb. 2013.