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toobz17
IkeaTradeoffsFitandContinuity2.pptMichael Porter’s Ideas on a Sound Strategy
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Create a Better Everyday Life for the Majority of People
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Ikea’s Value Proposition
- Good design and function at a low price
- Target customer: person with a thin wallet
- Do not expect to meet the needs of all furniture buyers
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Concept began in 1943
First retail store:1958
- Began as a mail order business
- Swedish market was primarily hand-me-downs
- Swedish retail furniture stores locked Ikea out of supply
- Swedish prices for furniture were high
- Ikea began designing and sourcing its own furniture
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Ikea Organizational Style
- Informal work atmosphere
- No status perks
- Simplicity and attention to detail
- Very cost conscious
- Use common sense
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An Example of Cost Consciousness and Attention to Detail: the Bang mug
- 1996 – create a mug that could be sold for 50¢
- Avoid red pigment – most expensive color
- Design to maximize number of mugs per pallet – from 864 => new rim = 1280; further redesign to 2024 = 60% freight savings
- More redesign increased kiln capacity in firing
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Ikea’s Conscious Tradeoffs
- Variety: narrow the style range: Scandinavian style, few fabrics and finishes => buy in bulk, better price
- Minimal in-store service; self serve => lower prices. Store design/warehouse
- Outsource delivery to the customer
- Picks purchase by item tag
- Gets product in flat pack & self assembles
- Suburban location with lots of free parking
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Conscious Tradeoffs
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Store Design
- Large showroom/warehouse combination
- All items displayed in studio setting
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- Customer follows a route through the store
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More Store Design
- Create a shopping outing
- In store cafeteria
- After you go through the entire store
- You must bus your own table
- Entertainment for the children + baby sitting
- Car friendly locations with free parking
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Benefits of Flat Packs
- This strategic component emerged when a customer couldn’t fit a pre assembled item into his car; Ikeas moved to unassembled-prepacked items
- Customer can take with: no shipping damage
- Reduced inbound shipping costs by 84%
- No outbound shipping costs
- Same day delivery: no wait time
- Customer willing to pay more for this
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Sustained Competitive Advantage: Revamp the Value Chain
Ikea has transferred Delivery and Assembly to the Customer
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These buyer benefits are hard for competitors to copy without compromising their own value proposition
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What is Fit?
- The value of one activity is enhanced by the way other activities are performed
- There is interconnectedness
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Fit: the Amplifier for Ikea
- 1. Network of product designers: Ikea controls product development
- 2. Centralized managed global supply chain – all manufacturing outsourced
- 3. Large stores
- 4. Warehouse is in the store – the last stop in the stores layout
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- 5. Cheaper suburban locations near customers
- 6. Free parking
- 7. No sales personnel on floor – not needed
- 8. Large information tags with size, materials and price
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- 9. Fully decorated full room displays
- 10. Flat pack delivery
- 11. In store cafeteria at the end of the store layout
- 12. In store child care
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Continuity: The Enabler
- The elements of strategy
- Tailored value proposition
- Trade-offs
- Fit
take time to develop
- Without continuity there is no time to allow them to develop
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Continuity (Consistency?)
- Customers know what you stand for
- Suppliers and channels support the company’s competitive advantages
- It improves activities and fit
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Following This Path Makes Managing Easy
- The base principles are taught and internalized by all the coworkers
- Improves focus and simplicity of strategy
- Decisions are made at lower levels based on mutual understanding of the culture
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How can Ikea Deliver Sustainable Advantage Year after Year?
- Compress the distance between management and the front line
- Decide better and faster
- Master the art of continuous improvement
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