Case Study 6
IKEA: Culture as competitive advantage
Suggested case discussion questions
Q1Explain how IKEA’s culture contributed to its early expansion efforts
IKEA’s culture is encapsulated in the expression the “IKEA-way.” This is the philosophy Ingvar Kamprad formed during the early years of IKEA and drove its expansion efforts. His non-conformist ways gave him freedom to focus and innovate on all facets of distribution. His obsession with low prices, led to an unwavering focus on keeping costs low. He developed strong reciprocal relationships with his suppliers, such that they could be assured he would purchase whatever they produced. IKEA’s culture has evolved step-by-step and is seen by those within IKEA as being the cornerstone of its operations. This is believed to such an extent that managers as seen as missionaries embodying the “IKEA-way,” explaining to new and older exployees why things are done the way they are. IKEA’s management style is based on these early experiences and co-workers are encouraged to “learn by doing,” where making mistakes is tolerated. Managers are expected to eschew status signifiers and develop close, caring relationships with their co-workers. Interactions between co-workers and managers are characterized by informality and egalitarianism. Managers are encouraged to not take themselves too seriously, to show “equalness,” involve co-workers in decisions and exhibit characteristics of “humbleness” when interacting with others.
Q2Critically analyse how aspects of the “IKEA-way” have caused problems in its overseas experiences in Germany, France and the United States
While IKEA’s culture has been a strong factor in its competitive advantage, its expansion into overseas locations has also brought challenges, when in-country cultural norms clashed with IKEA’s preferred way of doing business. In Germany, IKEA’s liking for informal relations between co-workers and managers has been interpreted as undermining the respect and prestige traditionally given to a boss. Also, the German worker is felt to be more comfortable with detailed procedures and work instructions, which contradicts with IKEA’s belief in minimizing bureaucracy and burdensome administration. In France, IKEA’s informality has been interpreted as a sign of weakness, or indecision. Also, its preference for not recognizing status is felt to cause an identity problem as everyone is on the same level. However, it is perhaps in the US that cultural differences have been most profound. Swedes traditionally value muted and controlled emotions, whereas the American sales force were more used to overt displays of emotion. Swedish managers in the US were also reluctant to tell people what to do and preferred a more subtle managerial style. However, the American workforce wanted to know who’s in charge and to be told what to do. American employees also wanted greater recognition for individual contribution, through performance review schemes, which run counter to traditional Swedish collectivism. Also, the low hierarchy in stores (three levels from co-worker to manager) inhibited the career progression routes American workers were used to. These challenges forced IKEA to confront the “IKEA-way” and make changes to take account of local norms and expectations
Q3Using the case and Exhibit 2, outline the factors that contribute to a regional cluster emerging
The case describes IKEA’s emergence from Sweden in the 1950s to become a global firm in the 1990s and Exhibit 2 provides a useful historical and geographic context for this. It helps bring Porter’s notion of a regional cluster to life. From the case, we learn how Kamprad’s activities in the 1950s, where he took on established players in the Swedish furnishings industry, honed his entrepreneurial qualities. One result of this was innovations such as a reconfigured value chain that allowed IKEA to purchase large, bulk orders from its suppliers, in contrast with the activities of its competitors. Exhibit 2 explains how access to vast natural resources, in the guise of pine forests and a belief that everyone, even the working class, should be able to purchase furniture which was light, beautiful, comfortable, hygienic and easy to care for helped form a furnishings design cluster in the region. The Nordic countries nurtured aesthetic characteristics as representations of their social outlook: Sweden’s love of air, sunlight and a light, airy, preferably classicistic – but soft – language of design, integrated with Finland’s weight, power and gloomily ardent colourfulness, were complimented by Denmark’s more extrovert style. These countries take design seriously and saw it almost as a social obligation to produce furniture that enhanced people’s living experiences while being relatively low in price. Since 1859, Sweden’s craftsmen, artisans and manufacturers have honed their skills and ability to respond to society’s ups and downs, and through frequent exposure to overseas trade fairs and exhibitions ensure that their products have a wider appeal than their own domestic markets.