ASSIGNMENT INSTRUCTIONS

Interim/Final: Final/September Intake

First/Resit FIRST

Assessment Code: 012

Academic Year: 2016/17

Semester: 1

Module Title: Managing International Business

Module Code: MOD003497

Level: 6

Module Leader: John Threlfall

Weighting: 50%

Word Limit: 3000 words

Submission Date: This assignment must be received by no later than 14:00 on

Saturday, 22 April 2017

WRITING YOUR ASSIGNMENT

This assignment must be completed individually.
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SUBMITTING YOUR ASSIGNMENT

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Please refer to the Academic Regulations or your Student Handbook for full details.

IKEA Case Study

IKEA

The IKEA Idea Concept

A discussion of IKEAs current replication mode may usefully begin from the
distinction between IKEAs Idea Concept and a Concept in Practice. This distinction
reflects how IKEA explicitly thinks of replication as a hierarchical process, in which
some features (embodied in the Idea Concept) must stay fixed, while other ones
(embodied in the Concept in Practice) are allowed to be more flexible. The need for
such flexibility stems from variation in local markets, as well as the need to modify
the format for replication under the impact of new learning.

The Idea Concept

The IKEA Idea Concept contains the guiding principles, vision, and culture that
management wants to underpin IKEAs operations and development, including its
process of internalization. An IKEA manager explains that the
IKEA concept has evolved over more than 50 years as a result of serious
opportunities and experiences, both large and small in many different areas. The
result today is a strong, tried and tested concept, which has proved that it is
possible to combine global business ideas with local business opportunities.

The Idea Concept is described as the unique asset that differentiates IKEA from the
competition.9 A manager at Inter IKEA Systems elaborates on the nature of the Idea
Concept:
[It] outlines how we shall offer products for the many people, our business idea,
how to work with low prices, etc. There are certain eternal truths that will never
change. This is the starting point for all that we do. y The Idea Concept is
something that we will never adjust. For instance, we shall always offer the
lowest price, we shall serve the many people, etc.

The Concept in Practice

The Idea Concept is a set of overall guiding principles that, while replicated across
the IKEA network, offers only general instructions on store design, HR management,
etc. As a manager at Inter IKEA Systems explains:
Everything shall not be clear and in detail. Because then it will not move. We are
an organism that takes the opportunity. If we should have clear definitions, then it
would turn into a lubricated machine and it would not be IKEA any more.
 As this suggests, flexibility and a commitment to continuous exploration are at the
core of IKEAs self-understanding. While the guiding principles of the Idea Concept
remain unchanged, the Concept in Practice that is, the current embodiment of the
Idea Concept in terms of product offering, store design and location, pricing policy,
and so on is frequently modified. In the words of another IKEA manager:
The Concept in Practice relates to our latest proven solutions regarding how to
run an efficient home furnishing business, the size of the stores, range, etc. All of
those things need to change over time but it has to be in line with the Idea
Concept.

In general, IKEA thinking on the Concept in practice stresses its process and
learning aspects. Kamprad consistently emphasizes the importance of maintaining
the entrepreneurial spirit, and the necessity of always questioning proven solutions.
According to IKEA lore, for Kamprad the worst situation would be one in which co-
workers did not make mistakes. In fact, one of the ten explicit values in the IKEA
culture stresses that making mistakes now and again is the privilege of the dynamic
co-worker they are the ones who have the ability to put things right.
Still, the components that constitute the Concept in Practice are ordered in a
hierarchical manner, depending on how much they are allowed to change and vary.
IKEA considers the product range as fairly fixed over the short to medium term.
Whereas some products, such as the BILLY bookshelves or the KLIPPAN sofas,
have been present in the product offering for a very long time, other products may
be replaced after just a year. Pricing is also fixed, but only over the 1-year period
covered by the IKEA catalogue. Prices are set at the country level, but must follow
the Idea Concept guideline that IKEA shall offer low prices for the many people.
However, a store manager has the authority to lower a price immediately if a similar
product is being offered by any competitor at a lower
price.
In addition to the overall Idea Concept, which is supposed to be replicated across
the whole IKEA network, the (current) format for replicating IKEAs retail part may
be described in terms of a set of variables, the key ones being the product range,
pricing, store format, store design, standard operating procedures, and local HRM;
the variables are allowed to vary within more or less well-defined ranges.

Product range

The number of products has obviously increased since the founding of the first IKEA
store in 1958, but over the last decade has reduced to approximately 9500
products, a significant part of which comprises ready-to-assemble furniture pieces.
A persistent feature of IKEAs replication process since the first expansion beyond
the Almhult location in the beginning of the 1960s is that any store, wherever it is
located, must carry the core product range (e.g., the BILLY bookcase and the
KLIPPAN sofa). Beyond the fixed product range that any store must carry there is
considerable discretion for each store and each market with respect to selecting
from the overall product range. This means, for example, that a store in Japan may
choose to sell smaller sofas than a store in the US. The basic idea with a core
product range is that the consumer should be able to recognize the IKEA store and
IKEA products no matter whether he or she visits a store in Sweden or in Japan.
Having one core range, of course, also implies possibilities for economies of scale
and lowering costs. The product range and price is part of the Idea Concept, and
viewed as holy to the business idea. So rather than adapt the product range to local
markets, it is the product offering that is adapted to fit the taste and homes of that
markets consumers.

Pricing

Overall, IKEAs competitive strategy emphasizes cost leadership. IKEA positions

itself as a vendor for people who happily trade off service against lower costs
(Porter, 1996). When designing a new product, the price tag always comes first, as it
were (Edvardsson, Enquist, & Hay, 2006). However, recently sustainability has been
added to that strategy, aiming for more sustainable products, production, and
distribution. However, the emphasis is not just on low prices, but on stable prices.
When the yearly IKEA catalogue has been published, prices cannot change until the
next catalogue is printed. Finding the right price level in new markets is particularly
important in order to attract the target consumers. This is an example of local
adaptation. This has been especially challenging in markets with high import duties,
such as China and Russia. Such challenges have led to a need for more local
production, as it is difficult to change the consumers view of acceptable prices a
lesson learned in the Polish market, where it took IKEA several years to convince
consumers that it had lowered its prices to meet the many people. The issue of
finding the right price level was a big concern that was extensively discussed before
the market entrance into Japan in 2006. However, when falling back to the Idea
Concept, IKEA decided to fit with the strategy of offering products at low prices.

Store format and design

IKEA stores follow a fixed basic format. The size of an IKEA store has increased
over the years.
Currently the smallest standard stores that are built are 32,000 square meters and
the largest are 45,000 square meters. Having standard stores is also in line with the
general cost-efficiency goal. As land is expensive to buy in some markets, IKEA has
currently developed buildings with several floors, with parking lots both in the
basement and on the roof. This is an example of how the Concept in Practice needs
to be adjusted to meet local peculiarities. A selection of furniture is displayed in
room-like settings, adjacent to which is the self-service warehouse section, with the
ready-to-assemble furniture placed in boxes on pallets. All stores also follow a traffic
flow that takes customers through the store in a manner that maximizes the
exposure of IKEA products in different settings. All stores have a restaurant with
essentially the same menu (IKEA is Swedens largest food exporter), in-store child
care in the form of supervised play areas and ballrooms, hot dog/hot sausage
stands, and food markets with traditional Swedish food near the exits, etc. As
stressed, the characteristic blue and yellow facade emerged in the mid-1970s, and
has been an IKEA fixture ever since.

Standard operating procedures

IKEAs early expansion phase was characterized by the establishment of standard

operating procedures in new stores by means of instruction of new employees by
experienced IKEA personnel.
During the 1980s standard operating procedures became increasingly codified, and
the number of manuals detailing procedures has been increasing ever since.
However, expatriates play an important role in ensuring that standard operating
procedures actually function in new stores. It is stressed that it is important to
understand the IKEA culture and the IKEA Idea Concept in order to implement and
apply standard operating procedures. Prior to the entry into Japan in 2006 there was
a concern that Japanese employees would consider best practices as eternal truths.
An experienced store manager was therefore recruited in order to share his
experiences about the difference between the Idea Concept and the Concept in
Practice.
HRM
While IKEA is extremely HRM conscious at the corporate level, local stores have
considerable discretion with respect to such practices as job rotation within stores,
buddy arrangements (used to socialize and educate new employees), and
recruitment.

Managing Flexible Replication: Mechanisms for Intra-IKEA Knowledge Sharing

IKEA management stresses that a fundamental facilitator of its internationalization

process is corporate-wide knowledge transfer, notably the transfer of changes in
those practices that constitute the IKEA format for replication. In fact, the emphasis
on knowledge sharing has clearly increased over the years. In a strategic company
document, the 2001 document Ten jobs in Ten Years, the importance of knowledge
transfer and sharing is strongly emphasized:

When managers and co-workers are genuinely interested in sharing and

accepting ideas from each other, then we will be using the competence and
resources of the whole company. For this to happen we must be prepared to
move our people and to move information across borders. We must break down
all barriers between functions and markets, and build an open and trustful
working climate, and that way, act as one IKEA.

Another goal set out in the document is that in 2010 IKEA will have a new
generation of home grown managers, building an even more trustful and motivating
working climate, sharing knowledge across the organization and bringing IKEAs
business and culture forward. The organizational mechanisms that are deployed in
the service of IKEA-wide knowledge sharing are: dedicated organizational units;
standard operating procedures for gathering, codifying and disseminating
experiential knowledge; documents (manuals, internal journals); values; and the use
of expatriates.

Standard operating procedures for gathering, codifying and disseminating

experiential knowledge The IKEA policy of intensive documentation and codification
of routines and solutions has, if anything, been strengthened over the last three
decades. The mandatory routines and solutions that must be implemented at the
store level are described in manuals that provide instructions on how to present, for
example, a sofa in a store, or how to sell food in an IKEA restaurant. In total, IKEA
works with approximately 75 manuals, of which the first known as the mother of all
manuals describes the IKEA Idea Concept. Manuals are available in each IKEA
store (each store manager owns his or her set of manuals), and on IKEAs intranet,
where other tools for sharing IKEA knowledge are also accessible. In order to
support and secure a successful market entry, forward knowledge flows (i.e.,
knowledge flowing from headquarters) are considered crucially important. In order to
support a market entry, best practices and standardized work routines are
transferred and implemented locally. Much of this knowledge is explicit, and shared
via IKEAs intranet or manuals from headquarters to subsidiaries.
However, there is also a significant amount of reverse knowledge flow that is,
knowledge flowing from lower-level units to headquarters. Thus exploration of new
work methods or new products is strongly encouraged, and takes place at a daily
basis at the store level in all markets. New store level ideas are passed on to the
service office in the relevant store, then on to the service office in the relevant
market, and finally to the global service office. The idea may be rejected, or passed
on to the next stage at each consecutive stage. If an idea does not fit the Idea
Concept, feedback is provided to the store, and it is communicated on an
information wall why the idea was not developed further and exploited to other
markets. If an idea relates to a product, it is IoS that is responsible for developing
this idea further. If an idea relates to a new way to present, for instance, an IKEA
product in the store, it is Inter IKEA Systems that is responsible for developing and
communicating it via IKEA toolbox and the various manuals. This exemplifies how
IKEA learns from the periphery of the organization.

There is clear awareness at the corporate level of the importance of reverse

knowledge flows to IKEAs process of organizational learning. For example, when
IKEA was planning the entry into Japan (which eventually took place in 2006), the
chairman of the board of directors of IKEA Group argued that an entry into Japan,
where packaging is crucially important, would probably provide IKEA with valuable
experiences that would be of use in making more precise demands on IKEAs
suppliers. IKEA top management in general strongly stressed the new learning
experiences that would be produced by the entries into Russia, China, and Japan.

Another formal, organizationally embedded routine for identifying new ideas and
gathering experiential knowledge from lower-level IKEA units, notably local stores,
is the commercial review. This is, first and foremost, an internal audit to ensure that
the IKEA concept is followed (specifically, whether the stores adhere to the
manuals). However, it is also a means of identifying new best practices and new
business opportunities. Those best practices or proven solutions, sometimes
referred to as examples from reality, explored in the review process are published
on the intranet or in the manuals provided by Inter IKEA Systems BV, such as
Range presentation in the store the IKEA way or How to improve childrens
furnishing. Inter IKEA Systems BV is responsible for identifying, evaluating and
sometimes improving certain solutions (i.e., best practices) found in different
markets, as well as for sharing this knowledge with the rest of the IKEA network. A
set of manuals is provided to each store manager, and all other IKEA employees
receive a light version of these manuals in a booklet called Basic Knowledge.
Postscript: in September, 2016 IKEA reported sales of 28.8 billion. 12 new stores
had been added in the previous 12 months and new stores in India and Serbia are
planned for 2107. IKEA aims to increase sales to 50 billion euros by 2020.

Assignment Tasks
You have been promoted to the position of International Management Consultant at
IKEA and have been requested, by the Senior Vice President for International
Strategy, to prepare a report that addresses the following tasks:
Answer all tasks in your 3,000 word report
1. Identify and assess the business model that has enabled IKEA to develop
from a local Swedish furniture business into the worlds leading home
furnishings company. Pay particular attention to IKEAs core competencies.
20 marks
2. Prioritise the market entry methods open to IKEA in either China, or the USA
using a suitable framework that may be used to evaluate costs, risks and
return involved in each method 30 marks

3. With reference to typologies of national culture critically evaluate how IKEA

might adjust its management style and approach to either China or the USA.
30 marks

Evidence of extensive and relevant company research 10 marks

An appropriately structured and written report 10 marks

Total 100 marks

Draw on specific examples you have read, or know about, when responding and
make sure that you justify your answers with theoretical support. Within each
question you should relate relevant academic concepts and theories and
professional practice to the way the organisation operates. You should approach this
in a critical and informed way, and with reference to key texts, articles and other
publications, and by using a range of organisational examples for illustration and
contrast.

Credit will also be given for innovative or original suggestions, if relevant or justified
in terms of their potential value to an organisation.

Marking Guide

Task 1

Identify IKEAs original KFS

Identify IKEAs present KFS

Critically evaluate IKEAs original and present KFS with respect to its success in
international markets

Task 2

Outline the contemporary corporate global strategy that Zara operates within

Critically evaluate IKEAs present corporate global strategy

Critically evaluate IKEAs future corporate global strategy

Task 3

Establish what is meant by corporate culture

Outline e.g. Geert Hofstede or Fons Trompenaars Model of National Culture

Difference

Apply and critically evaluate Fons Trompenaars Model of National Culture

Difference to specific countries where IKEA operate