Management - prima parte

MANAGEMENT

THE IKEA CASE

21/02/2024 - class 2

Represent IKEA according to the input-output system model:

1. Analyzing IKEA’s business system (resources-activities-results) model and

2. Its consistency with the external environment (competitive – Institutional or social)

3. To better understand the firm, its results and and the reasons for the results achieved

the primary resources (capital - labor)

- employees information/labor = 163.000 employees (table 1)

- capital → IKEA do not give the profits to the owners; part of the profit/the entire profit is

retained by the company and se the money to invest it in the business (open new stores, make

research and development, buy new plants etc)

the initial capital of IKEA is the first money invested by the family who founded IKEA in

order to buy lands and

the money that they

invested in the business

during the time + the

money gained by the

business that they

invested instead of

retaining it

the profit is the amount of money gained - the costs

the net capital = depends on the kind of market in which you participate (that is why it is a

bigger net capital) → the size of the net capital depend on the kind of activities that the

company does and on the market that the business serves

debt 15 billions

equity 38 billions

(table 2)

- the primary resources are transformed into derivative resources thanks to the strategic

management resources

the derivative resources (technical industrial resources - commercial resources)

- the commercial resources = 38 distribution centers in 18 different countries manage the flow

of goods to the IKEA stores: they are localized in peripheral areas, where land is less

expensive, but close to highway exits and provided with large parking lots, restaurants and

bars → convenient locations, services for families

- The layout makes shop assistants unnecessary, and the customer is the protagonist of the

store. Multiple “model rooms'' are assembled to show how to combine different elements and

inspire new ideas and solutions. Each product has a standard label that shows the dimensions,

materials, weight and maintenance. → it is a selling knowledge = the path that you have to

follow when you are in IKEA is a specific selling knowledge (intangible resource)

they want to make you feel involved inside of the experience 6

MANAGEMENT

- the catalogue and the rendering software

- shopping assistant

- adapting the stores in the USA in order to increase the selling

- the labelling

Commercial resources: spacious stores, convenient location – highways, parking space and

services for families -, on line and off line catalogue, sales know how, rendering software that

can be used autonomously by the client, know how on stores’ path design, image and

reputation among clients and other stakeholders,….

technical industrial resources

- production = IKEA’s range of products is, basically, the same worldwide (except for the

USA) and it counts around 9,500 products. They are designed by external and internal

designers, operating in the headquarters of Almhult (Sweden) and vetted, starting from the

designing process, on severe criteria. Aspects such as the availability of materials, production

capacity, warehouse space, environmental impact and quality are evaluated strictly. The

designing process is focused on the research of alternative materials, cheaper and of higher

quality. In the last years, the company has paid more attention to the quality of its products,

previously not completely satisfying in terms of durability and elasticity. IKEA’s designers

moreover consider the ecologic aspects of the products: they exclusively use wood from

controlled sources and avoid chlorofluorocarbons (CFC), formaldehyde and PVC.

Ikea Lab = to test new products and how they can be sustainable → it is owned by the

company

- purchase = IKEA’s products are only partly created in the company’s facilities, which are 36

located in 11 different countries. (tangible resources) The majority of the production is

externalized to a network of around 1000 suppliers localized in around fifty different

countries. IKEA benefits from a vast network of purchasing departments that work to identify

the most inexpensive and efficient suppliers and manage the supply. Proximity to the

suppliers is, in fact, fundamental for good collaboration: it is necessary to follow the

production, test new ideas, negotiate prices and conduct inspections and quality controls.

non-traditional suppliers are chosen

Purchase management is determining for the containment of costs and the achievement of

adequate quality. The products are designed in a modular way, to allow IKEA to buy from its

suppliers in a flexible manner

The relationship with suppliers is characterized by IKEA’s significant support: the Swedish

company often designs their facilities, provides the machinery, finalizes the operating

structures, and provides technical assistance and training courses for the staff.

the vast network of suppliers is part of the technical industrial resource of the company

- sales = 38 distribution centers in 18 different countries manage the flow of goods to the

IKEA stores: they are localized in peripheral areas, where land is less expensive, but close to

highway exits and provided with large parking lots, restaurants and bars

Technical and industrial resources: machinery, sustainable raw materials + relevant know how

in design and production – 36 plants, IKEA lab, 38 distribution centres to have all the

products available in the store, vast network and know how for selecting suppliers,

negotiating with them and providing support, … 7

MANAGEMENT

- derivative resources are consistent with the strategic choices => the strategic choice of ikea

was not to produce everything by themselves but to find as many different suppliers as

possible

in order to chose the suppliers, ikea follows some precise criterion creating an intangible

resources = they are an intangible resource because they are not owned by the company but

are key for the functioning and success of the company

- the code of conduct IWAI can be a technical resource because it is the set of knowledge that

IKEA develops for their suppliers => it is the summary of knowledge that IKEA has about

their suppliers and it is intangible

management activities

strategic management decisions

- Choice of producing functional furniture at low prices

- Choices of the geographical markets and segments to be served: IKEA is present almost all

around the world (except Africa and LatAm) and all house furniture segments (instead of few

markets and few segments)

- Choices related to the features that a store must have

- Choice on what to produce and what to buy from suppliers (make or buy)

- IKEA Lab to test products and materials

- Choice of enrolling young designers instead of famous ones

operations management decisions

- Design: (young Swedish designers): 2.500 new products per year, modular design: designer

design components so that they can be acquired by specialized suppliers at lower costs.

- Purchasing of sustainable raw materials, components but also finished products with great

attention to quality and price

- Production only partially internalized -> selection of specialized suppliers/contractors for

products or components + high volumes

- Distribution and sales; online and offline, low staff per customer or per sm, self service

inventory

- NB: no transport and assembly (carried out by the customers or other companies)

competitive results → consistency on the left side

Measure customers’ satisfaction. If they are :-) are available to pay the price requested and do not buy

from competitors if the price raises + they would be returning customers, possibly willing to buy more

and more

Depend on the consistency between the business system (and in particular resources and activities),

the product system, and the market/customers

Can be measured through a specific indicator: the market share of the company in its market(s) =>

consumers are happy if the company is able to meet their needs

how to measure the happiness

- loyalty

- sales = it is the basic ingredient

- market share = is the measure for competitive results and is telling us if the consumers are

happy or not and we can also see the market share over time 8

MANAGEMENT

market share - the competitive results

- main measure for the competitiveness of the company

- it is measured by the % of sales in an industry generated by a particular company => we make

a ratio and we divide company sales by the total sales of the industry in the same period

IKEA market share in the kitchen furniture =

company sales in 2023 from the sales of the kitchen (revenue) : total sales of kitchens

from 2023 (revenue)

ex: 20 : 100 = 20 % market share

20:100 = 0,2 = 20%

- you can calculate the market share also for a certain country → usually it is better to be more

specific and not to go in general (the deeper you go the better)

ex: global sales of IKEA kitchens : global sales of kitchens = market share of IKEA globally

- if we have 0% we are not active in the market - if we have 100% market share means that all

the kitchens sold globally that here are coming only from IKEA

min = 0% market share

max = 100 % market share

exercise

60 espressos

bar 1 = 10 (price 1.5) = total revenue 15

total revenue = price x quantity = 10 x 1.5 = 15 €

market share = 15 : 65 = 0,2 % = 20 %

bar 2 = 20 (price 1) = total revenue 20

market share = 20 : 65 = 0,30% = 30%

bar 3 = 30 (price 1) = total revenue 30

market share = 30 : 65 = 0,46% = 46%

total revenue of the total market = 15 + 20 + 30 = 65 (total size of the market) 9

MANAGEMENT

we can also calculate the revenue/sales growth as a proxy of the competitive success

calculate the growth in revenues from 2007 to 2016 = 7%

calculate the growth in revenues from 2015 to 2016 = (2016 - 2015) : 2015 = 0,07 = 7%

we can also measure the competitive results looking at the employees

this is however not a measure for competitive results and for success => they are more used in order

to understand the size of the company

it is not a proxy for competitive results but for company size

GOOD COMPETITIVE RESULTS

- they come from the consistency between the left and right side of the input output model 10

MANAGEMENT

institutional results → consistency on the right side

- we are referring to the social and institutional environment

- Measure the satisfaction of the resources suppliers and of stakeholders in general. If their

expectations are met, they guarantee that the business will have the resources it needs.

- Depend on the consistency between: the elements of the business system, the collaboration

offers and the expectations of stakeholders

- Are measured using specific stakeholders measures (e.g. turnover rate fo