Mathematics Science Part 2

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Table of contents Executive summary ..................................................................................................................................... 1

Introduction................................................................................................................................................... 2

A glimpse of past and present on IKEA.................................................................................................. 2

IKEA’s Business Model Canvas .................................................................................................................. 3

What is a market need in the furniture industry? What logic should IKEA’s R&D department follow in order to present a futuristic market pull? .............................................................................. 6

About IKEA’s R&D lab ................................................................................................................................ 6

The service innovation concept ................................................................................................................. 7

Possible innovation, processes, procedures and innovation management of IKEA Virtual Designer ....................................................................................................................................................... 7

Selecting a suitable innovation model .................................................................................................... 7

Typology ...................................................................................................................................................... 8

Key Partners ............................................................................................................................................. 13

Key activities ............................................................................................................................................ 14

Key resources ........................................................................................................................................... 16

Value proposition .................................................................................................................................... 16

Customer relationship management ..................................................................................................... 18

Channels .................................................................................................................................................... 19

Customer segments .................................................................................................................................. 20

Cost structure ............................................................................................................................................ 21

Revenue streams ...................................................................................................................................... 22

Conclusion .................................................................................................................................................. 23

REFERENCES .............................................................................................................................................. 26

Executive summary

This report aims to discuss and analyse different elements of IKEA’s business model canvas.

IKEA is a furniture selling giant founded in 1943 in Sweden, by Ingvar Kamprad. It is currently

Dutch-headquartered and manufactured its’ products in various law-wage countries such as

western Europe and far east regions.

IKEA is known for its brilliantly practical and space-saving design and its interior design work

is often eco-friendly and simple.

The study of the business model canvas will provide a bird’s eye view on how IKEA managed

to become the seventh most valuable retailer in the world, valued at almost 59 billion U.S.

dollars. However, and just like any other fortune 500 company, IKEA’s management is anxious

about the future and focuses a high degree of attention to its R&D operations. In fact, it has

subsidized the innovation activity to an entity known today as SPACE10.

Therefore, this report will introduce one of many ideas that may be considered by IKEA’s

innovation team, in order to cope with digital transformation and rapidly changing world that

we currently live in. Which is a virtual web-based interior design platform that will allow users

to consider various package IKEA product proposals to furnish their new or renovated space.

That is, IKEA Virtual Designer

IKEA Virtual Designer proposed log

Introduction

A glimpse of past and present on IKEA IKEA is a home furnishings company founded in Sweden, in 1943. IKEA has grown

exponentially since then due to its’ brilliant value proposition which allows the target market to

be covering a vast majority of the people in most regions.

IKEA was initially founded in Sweden in 1943, by a man called Ingvar Kamprad as a mail-

order sale then shifted their core business to furniture sales five years later.

IKEA is now a Dutch-headquartered multinational company and has been the world’s largest

furniture retailer since 2008.

As of 2019, IKEA was the seventh most valuable retailer in the world, making it the most

valuable furniture retail brand, valued at almost 59 billion U.S. dollars.

IKEA believes that home is the most important place in the world and children its most important

people.

But the interesting questions about IKEA maybe be comprised as: How does IKEA run this

massive operation? And What makes IKEA successfully manage all activities of the firm’s value

chain? And lastly, how does it cope with the digital transformation and innovations affecting all

industries in an extremely rapid fashion? What innovative, and possibly disruptive innovative

service could it possibly adapt in order to maintain its’ position as a market leader?

IKEA’s Business Model Canvas

In order to answer the first two questions, and to easily understand from a bird’s eye view the

collective efforts and elements put in place to deliver IKEA’s brand value proposition. The

below business model canvas has been created.

A business model canvas is an informative display of a firm’s overall business model. It

describes the firm’s value proposition, key partners, activities and resources, as well as

customer relationship management, sales channels and cost and revenue streams.

Furthermore, the presented canvas will feature a proposed service innovation idea, which we

believe may form a radical change for IKEA and later in the furniture sales industry. That is,

IKEA’s Virtual Designer

**IMPORTANT NOTE: This canvas does not reflect the items related to the introduced service innovation. This will be added later in the conclusion

What is a market need in the furniture industry? What logic should IKEA’s R&D department follow in order to present a futuristic market pull?

In order for a big company like IKEA to innovate and adapt to the rapid changes and the

digital transformation happening in today’s word, it will need to budget for and extensively

invest in the research and development activities.

About IKEA’s R&D lab

IKEA performs most of its’ research and design activities through a subsidiary known as

SPACE10.

SPACE10 defines itself as a lab that’s supported by and dedicated to IKEA that’s on a mission

to create a better everyday life for people and planet.

SPACE10 headquarters in Copenhagen, Denmark

SPACE10 prioritises the collaborative approach, brainstorming then seeks and engages with

forward-thinking specialists to deliver radical innovations to be exploited by IKEA.

Having said that, it is safe to say now that IKEA’s attention to the importance of innovation

management to the extent that it performs the R&D lab activities through a separate

dedicated and specialized creative entity, forms a solid innovation infrastructure that

welcomes great ideas and is capable of investing in them.

The service innovation concept

The proposed service innovation concept that will be introduced for future consideration by

IKEA is an online interior design platform which allows customers to design their own space

from scratch using IKEA’s webpage or mobile app.

The customer will go through a pre-set online process and the end result will be various interior

design and furnishing proposals to the customer’s required space, using a compilation of IKEA’s

physical products sold as a package within the customer’s chosen budget. The name chosen for

this service would be “IKEA Virtual Designer”

IKEA Virtual Designer proposed logo

Possible innovation, processes, procedures and innovation management of IKEA Virtual Designer

In order for the R&D team to actuate this idea, they need to first decide on which innovation

model should be followed; whether in this case to propose through a technology pull or a

market push, and other aspects to be taken into consideration.

Selecting a suitable innovation model Since IKEA Virtual Designer is a brand new idea and a first time offering by furniture

retailers, it may be best to consider progressing through the design of the service while

conducting market research and surveys to obtain useful feedback iteratively, and eventually

launch a product that is user friendly and satisfies a market need. Thus, a coupling and

interactive model would be the best choice.

Typology

IKEA Virtual Designer combines various cutting-edge technologies to create a new method of

virtually designing and furnishing a certain space. It also serves a market need that has never

been fulfilled before. That is “design and furnish your home, from home”

Furthermore, the cultural changes and the consumer behaviour have radically changed after

the recent events caused by the COVID-19 pandemic. Companies and people now understand

the capabilities of working, studying and running errands from home using their personal

computers or smart phones.

5G outstanding internet

capabilities

COVID-19 new shopping culture

AI, AR and data management capabilities

CAD and 3D modelling design

capabilities

This approach leaves us with the fact that IKEA Virtual Designer is utilizing new methods to

satisfy a new market need, which could possibly become a fundamental to the furniture

shopping industry in the future.

Hence, it is believed that IKEA Virtual Designer should eventually present a radical-to-

disruptive innovation for IKEA, if the perfect set of innovation processes and procedures are

followed and implemented for the entire lifecycle.

As SPACE10 wrote in its mission statement, forward-thinking specialists whether company

employees or not, are a key asset in the innovation process. Hence, the Diffusion of Innovation

(DOI) Theory, developed by E.M. Rogers in 1962 should be considered.

By using the coupled model and adopting the diffusion theory, the role of the early market

leaders, early adaptors or technology enthusiasts in providing continuous feedback as the

product is being developed and tested, is of great significance in creating a radical service.

Having said that, it is of no doubt now that the process of transforming the service innovation

“IKEA Virtual Designer” from an idea to a service happily used by thousands of people will

require extensive planning and months of research and development then implementation and

actuation. However, one of many possible methods to provide this service has been developed

and proposed as follows:

This virtual designer will take the customer through a questionnaire that aims to gather

personal details about the user, such as lifestyle, status, budget, taste and other, then requests

the customer to provide dimensional details, possibly using Augmented Reality (AR), of his/her

space in order to create a 3D model of the customer’s space using an embedded 3D

modelling software.

Eventually, IKEA Virtual Designer will share different interior design proposals for the user

displayed in a 3D model identical to the customer’s home or office, using IKEA’s products and

within the customer’s pre-set budget.

Now that we have introduced the proposed service innovation that would be considered by

IKEA, let us revisit the business model canvas by looking at each of its’ elements and studying

the impact and transformation that would occur should IKEA design to go through with creating

and launching IKEA Virtual Designer

Key Partners

IKEA is a massive retailer that deals with tens of partners around the world, from wood and

cotton suppliers such as WWF, to product design collaborations with the likes of Lego and

Sonos.

Moreover, IKEA does not own its truck fleet, but instead it partners up with delivery and

logistics companies like DHL and UPS. Other interesting partnerships include ones with Paypal

and smart banks around the world that offer financial facilities and instalment plans to IKEA’s

customers.

Lastly, potential collaborations with AI (Artificial Intelligence) and AR (Augmented Reality)

specialists like Apple and NVIDIA then 3D modelling and CAD (Computer-Aided Design) firms

will be needed to develop the new service “IKEA Virtual Designer”

Key activities

IKEA’s makes money through selling modular furniture. Their involvement starts from designing

thousands of furniture assemblies with different models, to manufacturing the parts through its

subsidiary factories

IKEA is also involved in the entire supply chain and logistics management, including distribution

to superstores around the world, quality control, franchise management, and contracting

captive services like interior design consulting, delivery and assembly.

Furthermore, IKEA, as most of the multinational retailers around the world, highly and

increasingly relies on its E-commerce sales channel

Also, IKEA Virtual Designer, which would act as a interior design consultant that offers various

furnishing options to customers using IKEA’s products.

Key resources

IKEA is worldwide spread, offering its products through more than 420 showrooms and

superstores. This massive operation is driven by more than 200,000 employees between

directly hired and contracted through factory subsidiaries. These factories and superstores

are also equipped with high-tech heavy machinery and equipment.

IKEA’s website has also been a key resource mainly utilized for marketing and sales of

products and services.

The provision of IKEA Virtual Designer would also require a great deal of soft and intangible

resources such as CAD embedded websites and mobile apps.

Value proposition

As mentioned before, IKEA's mission is to provide a better everyday life for people and

keeping the mission alive are their everyday employees.

IKEA’s value proposition seems to be the secret recipe behind their success.

IKEA offers thousands of affordable furniture products, that are well-designed, made of good

quality, durable raw materials that are wholesale purchased to reduce product costs,

efficiently packed to save space and reduce logistical costs therefore allow for these products

to be offered on attractive rates.

Moreover, IKEA’s standard showroom is designed to offer a brilliant experience for all

generations and different parts of the society. For example, IKEA’s restaurant and café offer

great food and beverages at affordable prices. Also, IKEA’s kids play area is safe and well

designed to suit different ages and keep the kids distracted while the parents enjoy their

shopping.

IKEA Virtual Designer will offer a one-stop shop solution and inspiration for renovating

customers and proposes package furnishing within their pre-set budgets. This solution will also

provide adaptation to the new shopping culture and consumer behaviour caused by the recent

COVID-19 pandemic.

Also, the following mission statement may be added to cover the purpose of this new feature i.e.

“design and furnish your home, from home”

Customer relationship management

IKEA’s management work hard to provide extraordinary customer experience while shopping

at their showrooms or even website.

IKEA FAMILY is a customers’ engagement and loyalty membership tool that offers many

benefits to members, such as special discounts, reduced delivery and assembly rates and in-

store free access to coffee and tea machines.

Studies have shown that IKEA FAMILY members spend 30% more than non-members while

shopping.

Including a kids’ play area and a dining facility in every showroom around the world

completes the management’s goal in providing ultimate comfort and entertaining shopping

experience to their visitors.

IKEA Virtual Designer would also offer a great deal of options to customers and increase

engagement and returning visitors to its’ E-stores.

Channels

IKEA sells its’ products through various channels, such as:

• Stores and showrooms where most of the sales take place

• IKEA’s official website which is an increasingly reliable sales tool

• E-commerce through intermediaries (Amazon, Alibaba, etc.)

• Mobile application

• Catalogues

• Email subscriptions and

• IKEA Virtual Designer, which would be a great means of facilitating package/bundle

sales and offering a one-stop shop solution to customers

Customer segments

IKEA’s mission implies that the company aims to increasingly cover more levels of society,

whether businesses furnishing their offices or customers furnishing their homes. However, IKEA

primarily focuses on selling to:

• Families, especially ones with kids or newlywed couples

• Students and furnishing student dorms for efficient space utilization

• IKEA employees

• Small-to-medium businesses and office furniture

• Smart home and technology enthusiasts

• Cost conscious individuals

• And with the launching of IKEA Virtual Designer one-stop shop seekers looking for

timely efficient solutions would definitely be attracted

Cost structure

IKEA’s product costing may be broken down into the following categories:

• Raw Materials of which the modular product is made of; IKEA’s strategy is to purchase

raw material such as wood and cotton through wholesale market or via subsidiary companies

like WWF; in order to reduce material cost

• Manufacturing processes that resulted in bringing this raw material to its present form;

these parts are also massively manufactured and produced for the same purpose

• Logistical costs incurred to avail these products at IKEA’s stores and shelves; IKEA ships

its’ dis-assembled, efficiently packed products in bulk so as to reduce shipping cost

• IKEA’s workforce whose collective efforts made these products at the customers

disposal

• Outsourced expenditures spent to market and advertise their products and services

• And costs related to the in-house and subcontracted efforts spent to continuously

develop and provide IKEA Virtual Designer to customers as a reliable tool

Revenue streams

Time and time again, IKEA consistently manages to close their fiscal year as the foremost

name within the furniture market. In fiscal year 2019, the company generated global revenues

exceeding 41 billion Euros.

These revenues are generated through:

• Furniture sales

• Food sales

• In-store restaurant and cafe’ sales

• Captive services, such as consultancy, delivery and assembly through subsidiaries and

subcontractors, removal and recycling, and newly introduced package sales tool, IKEA Virtual

Designer

Conclusion Despite the fact that IKEA is the most valuable company in the furniture industry worldwide, it

needs to be sustainable and strategies to cope with the digital transformation and the rapidly

changing human culture and market need.

One of the key strategies that IKEA focuses on to maintain growth is continuous innovation.

IKEA has subsidized its innovation activities to a company called SPACE10.

Having said that, a new service innovation was considered through a coupling model and by a

suggested application of market pull through implementation of market diffusion theories in

the report and was incorporated with IKEA’s business model canvas elements to see its’ impact

and transformation on each of these elements.

IKEA Virtual Designer is the name given to the virtual interior designer proposed to offer a

complete home shopping solution to the customers home or office. The analysis proved that

IKEA Virtual designer, if ideated and marketed then launched professionally in collaboration

with technological specialists like AUTODESK. APPLE and others, may not only act as a radical

innovation boosting IKEA’s sales in the near future, but also become a disruptive innovation

and end up being the main source of income for furniture selling companies around the world.

IKEA’s business model canvas (IKEA Visual Designer incorporated)

REFERENCES SPACE10. 2020. About | SPACE10. [online] Available at: <https://space10.com/about/> [Accessed 20 July 2020].

Community.cengage.com. 2020. Cengage Resource Center. [online] Available at: <https://community.cengage.com/GECResource2/info/b/marketing/archive/2013/10/15/i kea-serious-about-r-amp-d> [Accessed 22 July 2020]. Sphweb.bumc.bu.edu. 2020. Diffusion Of Innovation Theory. [online] Available at: <https://sphweb.bumc.bu.edu/otlt/MPH- Modules/SB/BehavioralChangeTheories/BehavioralChangeTheories4.html> [Accessed 22 July 2020]. Gaubinger, K., Rabl, M., Swan, S. and Werani, T., n.d. Innovation And Product Management. Trott, P., n.d. Innovation Management And New Product Development. Estonia, C., Sweden, B., Plan, F., Colombia, T., The Panamazónico Social Forum in Mocoa, 1., Estonia, C., Sweden, B., Colombia, T., Plan, F. and The Panamazónico Social Forum in Mocoa, 1., 2020. Start. [online] Skyddaskogen.se. Available at: <http://skyddaskogen.se/en> [Accessed 22 July 2020]. En.wikipedia.org. 2020. IKEA. [online] Available at: <https://en.wikipedia.org/wiki/IKEA> [Accessed 20 July 2020]. Världsnaturfonden WWF. 2020. WWF And IKEA - WWF Sweden. [online] Available at: <https://www.wwf.se/ikea/> [Accessed 23 July 2020].