Analysis of IKEA’s Strategy Formation
Introduction
The INSEAD case study "How IKEA’s Strategy Was Formed" (2011) chronicles the evolution of
IKEA, a global retail giant, from its humble beginnings in rural Sweden to a modern success story
with 280 stores and €2.7 billion in net income by 2010. Founded by Ingvar Kamprad in 1943,
IKEA transformed the furniture industry through innovative strategies such as flat-pack
furniture, self-service models, and low-cost, high-quality design. The case highlights how
Kamprad’s entrepreneurial vision, coupled with adaptive responses to market challenges,
shaped IKEA’s unique business model. This report analyzes IKEA’s strategic development,
evaluates its strengths and weaknesses, and proposes solutions to enhance its global
competitiveness while preserving its core values.
Problem Statement
IKEA’s growth into a global furniture retailer was driven by innovative strategies, but its journey
was fraught with challenges that tested its resilience. Early on, Kamprad faced fierce resistance
from Swedish furniture cartels, which imposed boycotts and supply bans due to IKEA’s low-price
strategy, threatening the company’s survival. The shift from mail-order to showrooms and self-
service stores required significant operational adjustments, while maintaining quality
perceptions among middle-class consumers was critical. As IKEA expanded internationally,
preserving its Swedish identity and cost-conscious culture became challenging amidst diverse
markets and increasing scale. Today, IKEA must balance global scalability with its Älmhult-centric
culture, address potential supply chain vulnerabilities, and adapt to evolving consumer
preferences, all while maintaining its low-price, high-quality value proposition.
SWOT Analysis
Strengths
• Innovative Business Model: IKEA’s flat-pack, self-service, and catalogue-driven
showroom concept revolutionized furniture retailing, reducing costs and enhancing
customer accessibility.
• Strong Brand Identity: The emphasis on Swedishes and Småland values (thrift, hard
work) creates a consistent, globally recognized brand, reinforced by unique product
naming and store design.
• Cost Leadership: Strategic sourcing from low-cost regions like Poland and efficient
logistics enable IKEA to offer high-quality furniture at affordable prices, as validated by
the 1964 quality tests.
Weaknesses
• Over-Reliance on Älmhult: Centralizing design and decision-making in Älmhult may limit
agility and responsiveness in diverse global markets, risking cultural disconnect.
• Historical Supply Chain Risks: Early dependence on Polish suppliers, initially criticized for
quality and ethical concerns, highlights vulnerabilities in sourcing strategies.
• Resistance to Change: The rigid store concept and cultural preservation efforts may stifle
local innovation or adaptation, as store managers require permission to deviate from the
model.
• Early Operational Challenges: Incidents like the Kungens Kurva opening chaos reveal
initial weaknesses in scalability and customer service preparedness.
Opportunities
• Global Market Expansion: Emerging markets with growing middle classes offer
opportunities to replicate IKEA’s low-cost model, leveraging its scalable store concept.
• Digital Transformation: Enhancing e-commerce and virtual showrooms could address
modern consumer preferences, improving accessibility and reducing physical store
dependency.
• Sustainability Initiatives: Investing in eco-friendly materials and ethical sourcing can
align with consumer trends, enhancing brand appeal and mitigating past criticisms.
• Localized Adaptation: Allowing controlled flexibility in store designs or product ranges
could better cater to regional tastes, improving market penetration without diluting
brand identity.
Threats
• Competitive Pressure: Rivals adopting similar low-cost, flat-pack models could erode
IKEA’s market share, especially in price-sensitive markets.
• Supply Chain Disruptions: Geopolitical or economic instability in key sourcing regions
like Poland could impact cost advantages and supply reliability.
• Cultural Dilution: Rapid global expansion risks weakening IKEA’s Swedish identity,
particularly if Amulet’s influence diminishes or new employees deviate from core values.
• Changing Consumer Behaviors: Shifts toward online shopping and sustainable products
may challenge IKEA’s traditional store-centric model if not addressed proactively.
Solution
To address IKEA’s strategic challenges and capitalize on opportunities, the following solutions
are proposed:
1. Enhance Global Scalability with Localized Flexibility:
o Allow regional managers limited autonomy to adapt store layouts or product
ranges to local preferences, while maintaining core elements like flat-pack and
self-service. For example, introduce region-specific designs under Älmhult’s
oversight to ensure brand consistency.
2. Strengthen Supply Chain Resilience:
o Diversify sourcing beyond Poland to other cost-effective regions (e.g., Southeast
Asia) to mitigate geopolitical risks. Implement stricter supplier audits to ensure
quality and ethical standards, addressing past criticisms.
3. Invest in Digital and E-Commerce Platforms:
o Develop immersive online showrooms and augmented reality tools to replicate
the in-store experience, catering to digital-savvy consumers. Integrate seamless
online-offline ordering systems to enhance convenience.
4. Promote Sustainability and Ethical Practices:
o Commit to sustainable materials (e.g., recycled wood) and transparent sourcing
practices. Launch marketing campaigns highlighting IKEA’s environmental efforts
to align with consumer values and counter ethical concerns.
5. Reinforce Cultural Values Globally:
o Expand the “ambassador” program to train international employees in IKEA’s
Småland values, ensuring cultural consistency. Use digital training modules to
scale the “Testament of a Furniture Dealer” across global workforces.
Conclusion:
IKEA’s strategic evolution, as detailed in the INSEAD case, showcases a remarkable journey from
a small mail-order business to a global retail leader, driven by Kamprad’s vision and resilience
against industry resistance. Its strengths—innovative business model, cost leadership, and
strong brand identity—have solidified its market position, but weaknesses like Älmhult
dependency and supply chain risks pose challenges. By embracing localized flexibility, digital
transformation, sustainability, and cultural reinforcement, IKEA can address these issues and
seize opportunities in emerging markets.
