Case Study Description of IKEA India: Expanding to Success
In May 2017, IKEA India's chief executive officer (CEO) was facing a dilemma. The company had decided to start its business operations in India by opening an experience centre in Hyderabad in November 2018, followed by furniture retail outlets across India by 2025. Key target segments were young, middle-class price-conscious consumers. IKEA India aimed to sell its products at a low price, aligning with its vision. However, the CEO was challenged with developing a strategy for business growth at a time when major global retailers were going bankrupt. He needed to figure out the appropriate pricing and supply chain strategy for India's complex and diverse environment, while offering value to consumers. Mokhalles Mehdi is affiliated with Kaziranga University. Lubna Nafees is affiliated with Appalachian State University.
Authors :: Mokhalles Mehdi, Lubna Nafees, Shriraam S. Bhagavath
Swot Analysis of "IKEA India: Expanding to Success" written by Mokhalles Mehdi, Lubna Nafees, Shriraam S. Bhagavath includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Ikea India facing as an external strategic factors. Some of the topics covered in IKEA India: Expanding to Success case study are - Strategic Management Strategies, Growth strategy, Managing people and Leadership & Managing People.
Some of the macro environment factors that can be used to understand the IKEA India: Expanding to Success casestudy better are - – increasing commodity prices, technology disruption, there is increasing trade war between United States & China, there is backlash against globalization, cloud computing is disrupting traditional business models, increasing energy prices, central banks are concerned over increasing inflation,
challanges to central banks by blockchain based private currencies, increasing transportation and logistics costs, etc
Introduction to SWOT Analysis of IKEA India: Expanding to Success
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in IKEA India: Expanding to Success case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Ikea India, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Ikea India operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of IKEA India: Expanding to Success can be done for the following purposes –
1. Strategic planning using facts provided in IKEA India: Expanding to Success case study
2. Improving business portfolio management of Ikea India
3. Assessing feasibility of the new initiative in Leadership & Managing People field.
4. Making a Leadership & Managing People topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Ikea India
Strengths IKEA India: Expanding to Success | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Ikea India in IKEA India: Expanding to Success Harvard Business Review case study are -
High brand equity
– Ikea India has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Ikea India to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Cross disciplinary teams
– Horizontal connected teams at the Ikea India are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Operational resilience
– The operational resilience strategy in the IKEA India: Expanding to Success Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Successful track record of launching new products
– Ikea India has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Ikea India has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Innovation driven organization
– Ikea India is one of the most innovative firm in sector. Manager in IKEA India: Expanding to Success Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
High switching costs
– The high switching costs that Ikea India has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Effective Research and Development (R&D)
– Ikea India has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study IKEA India: Expanding to Success - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Highly skilled collaborators
– Ikea India has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in IKEA India: Expanding to Success HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Superior customer experience
– The customer experience strategy of Ikea India in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Organizational Resilience of Ikea India
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Ikea India does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Strong track record of project management
– Ikea India is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Learning organization
- Ikea India is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Ikea India is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in IKEA India: Expanding to Success Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Weaknesses IKEA India: Expanding to Success | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of IKEA India: Expanding to Success are -
High bargaining power of channel partners
– Because of the regulatory requirements, Mokhalles Mehdi, Lubna Nafees, Shriraam S. Bhagavath suggests that, Ikea India is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study IKEA India: Expanding to Success, it seems that the employees of Ikea India don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the IKEA India: Expanding to Success HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Ikea India has relatively successful track record of launching new products.
Aligning sales with marketing
– It come across in the case study IKEA India: Expanding to Success that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case IKEA India: Expanding to Success can leverage the sales team experience to cultivate customer relationships as Ikea India is planning to shift buying processes online.
Workers concerns about automation
– As automation is fast increasing in the segment, Ikea India needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
High cash cycle compare to competitors
Ikea India has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
High operating costs
– Compare to the competitors, firm in the HBR case study IKEA India: Expanding to Success has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Ikea India 's lucrative customers.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study IKEA India: Expanding to Success, in the dynamic environment Ikea India has struggled to respond to the nimble upstart competition. Ikea India has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Interest costs
– Compare to the competition, Ikea India has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Increasing silos among functional specialists
– The organizational structure of Ikea India is dominated by functional specialists. It is not different from other players in the Leadership & Managing People segment. Ikea India needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Ikea India to focus more on services rather than just following the product oriented approach.
Capital Spending Reduction
– Even during the low interest decade, Ikea India has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
Opportunities IKEA India: Expanding to Success | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study IKEA India: Expanding to Success are -
Loyalty marketing
– Ikea India has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Ikea India in the consumer business. Now Ikea India can target international markets with far fewer capital restrictions requirements than the existing system.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Leadership & Managing People industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Ikea India can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Ikea India can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Ikea India can use these opportunities to build new business models that can help the communities that Ikea India operates in. Secondly it can use opportunities from government spending in Leadership & Managing People sector.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Ikea India can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, IKEA India: Expanding to Success, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Ikea India to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Low interest rates
– Even though inflation is raising its head in most developed economies, Ikea India can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Ikea India is facing challenges because of the dominance of functional experts in the organization. IKEA India: Expanding to Success case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Ikea India to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Ikea India to hire the very best people irrespective of their geographical location.
Using analytics as competitive advantage
– Ikea India has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study IKEA India: Expanding to Success - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Ikea India to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Manufacturing automation
– Ikea India can use the latest technology developments to improve its manufacturing and designing process in Leadership & Managing People segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Ikea India in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Leadership & Managing People segment, and it will provide faster access to the consumers.
Leveraging digital technologies
– Ikea India can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Threats IKEA India: Expanding to Success External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study IKEA India: Expanding to Success are -
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Ikea India can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study IKEA India: Expanding to Success .
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Ikea India in the Leadership & Managing People industry. The Leadership & Managing People industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study IKEA India: Expanding to Success, Ikea India may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Leadership & Managing People .
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Ikea India in the Leadership & Managing People sector and impact the bottomline of the organization.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Ikea India needs to understand the core reasons impacting the Leadership & Managing People industry. This will help it in building a better workplace.
Easy access to finance
– Easy access to finance in Leadership & Managing People field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Ikea India can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Ikea India with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Regulatory challenges
– Ikea India needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Leadership & Managing People industry regulations.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Ikea India business can come under increasing regulations regarding data privacy, data security, etc.
Technology acceleration in Forth Industrial Revolution
– Ikea India has witnessed rapid integration of technology during Covid-19 in the Leadership & Managing People industry. As one of the leading players in the industry, Ikea India needs to keep up with the evolution of technology in the Leadership & Managing People sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Consumer confidence and its impact on Ikea India demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Ikea India will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
High dependence on third party suppliers
– Ikea India high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Weighted SWOT Analysis of IKEA India: Expanding to Success Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study IKEA India: Expanding to Success needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study IKEA India: Expanding to Success is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study IKEA India: Expanding to Success is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of IKEA India: Expanding to Success is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Ikea India needs to make to build a sustainable competitive advantage.
