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(originally published by Booz & Company)


How Ikea Reassembled Its Growth Strategy

S+B: What kinds of changes did you have to make to accomplish this?
WORLING: One of our most important decisions was a change we chose not to make. We did not cut back on our investment in retail stores. We own all of our buildings and land, and our stores are custom built and designed for efficiency and sales potential. We want people to feel at home in our stores, which is why we include the restaurants and child-care facilities. We decided to keep our investment, not just in new stores, but in extending and expanding our existing stores. We think it’s just as important to improve the way we serve the customers we have today as it is to take on new customers.

To make up the difference, we had to become very good at four things. First was lowering operational costs. We had to have genuinely low costs wherever we could, especially where customers didn’t see. Everybody in our company travels economy class and stays in moderately priced hotels. We don’t have fancy offices.

Second, we had to become even better at increasing volume, because that allows us to lower our cost of goods and operating costs. To increase volume, we had to become better at handling more people and products. We have fewer than 400 stores — far fewer than Walmart or Carrefour — but the volume we put through each location is significant.

Third, we had to develop an even better-functioning supply chain. Over the years, maintaining our stock of items has been one of our bigger challenges. Improving this has been a real focus for the past couple of years, and we have made some progress. We could not do this as a more conventional retailer might, because we design and produce most of our products ourselves. At the same time, because we own some of our factories — including some that produce components — we could look at each part of the company and each process as a way to lower costs.

The fourth area involved empowering our co-workers. We try to keep the center of the company relatively lean, and not make too many decisions centrally that would be better made in stores or factories close to customers and suppliers. Therefore, we must have a strong group of co-workers who can make the right decisions to support our strategies.

S+B: How did you align these four priorities with people throughout the company?
WORLING: Our biggest advantage was Ikea’s culture and value. Culture is extremely important at Ikea, even more so than at other companies. We work hard to ensure that as new people come in, they understand who we are and what we’re trying to do. The people who work here genuinely want to be here and share Ikea’s core values of cost consciousness and humility. I suppose that we must do a lot of things reasonably well, but we never talk about that. We always talk about where we’ve disappointed people and how we can do better. When we have a particularly good triumph, you’ll hear someone say: “Okay, we’ll take one minute now for satisfaction, and then move on.”

Lowering costs is part of our cultural DNA. It’s ingrained in everybody from Day One that we don’t waste resources or money. I don’t think you could take a senior position in this company if you didn’t believe wholeheartedly in that. For any expense, we always ask ourselves, “Would our customers want to pay for that particular item themselves?” If the answer is no, then we try to find a way to do without it or to do it in a cheaper way.

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