The Strategist: Be the Leader Your Business Needs

Then, of course, there is the iconic IKEA packaging—the famous flat pack with its do-it-yourself assembly. While the company didn’t invent this approach, it was the first to grasp and systematically exploit its full potential. The flat pack provides huge cost savings by making shipping, distribution, and storage much more efficient and thus much cheaper. It saves manufacturing steps; it saves shipping costs from factory to store; it saves stocking and handling costs in the store; and it eliminates delivery costs for most customers.

IKEA opened its first store in 1958 in Almhult. Five years later it opened one in Norway, and two years after that, a second Swedish store in Stockholm. It became a nascent global player with openings in Switzerland in 1973 and Germany in 1974. It entered the United States in 1985, China in 1998, Russia in 2000, and Japan in 2006. In 2010, IKEA had 280 stores in twenty-six countries, and served 626 million visitors.8

BEYOND LOW PRICES

So how do you account for IKEA’s success in this terrible industry?

Most likely your immediate thought is “low prices, low prices, low prices.” Indeed, IKEA’s prices are so low they’re not just a difference in degree from competitors’ but a difference in kind.

Over the past decade, the company has lowered its prices by 2 to 3 percent a year on average. Every aspect of IKEA’s operation is subject to ongoing scrutiny to see where further costs can be taken out. Even flat packs have been repeatedly redesigned to gain small efficiencies in the use of space. Kamprad regarded the customary perks of business leadership as waste, too. Stories are legend of his flying coach class or taking a bus instead of a taxi or limousine. It’s an attitude that’s been adopted wholeheartedly by others in the company who speak of spending money unnecessarily as a “disease, a virus that eats away at otherwise healthy companies.”9

But IKEA is not a dollar store: Low prices don’t begin to tell the whole story. Scandinavian design was becoming popular around the world in the 1950s and it suited IKEA’s strategy perfectly. The simplicity of the clean lines made the furnishings particularly appealing; it also made them cheaper to produce than more ornate designs. Kamprad pushed this envelope farther, hiring first-class talent who could design for both style and for frugal manufacturing techniques. Perhaps IKEA’s greatest design achievement has been to make its furniture look and feel more expensive than it is. A turning point came in 1964 when a respected Swedish furniture magazine compared IKEA furniture with more highly regarded brands. IKEA’s, it found, was often as good or better. That shocked the industry and helped to persuade consumers that they had nothing to lose—either financially or in terms of status—by shopping at IKEA.

Unlike so many discount retail stores, IKEA’s are anything but dark and dingy. The company’s vibrant colors (mostly blue and yellow, the colors of the Swedish flag) are everywhere, and except for the weekend crowds, the stores are pleasant places to visit. You can make a day of it: Come with the family, try out the sofas, use the computerized tools to design your own kitchen, and have a full-fledged Swedish meal at the restaurant. If, at the end of the day, you’ve bought too much to load onto your car, you can rent an IKEA van to drive it all home, or even pay to have things delivered, assembled, and set up.

So, what is it that is special about IKEA? I ask you. Low price? Design? Flat pack? Swedish meatballs? What? The answer, of course, is “all of the above.” The centerpiece is low cost—without that, nothing else works—but everything else not only supports low cost but adds its own distinctive attraction.

At this point, you, like many managers, may feel like, “Okay, we’re done—we’ve cracked the case. We know the answer, time to move on.” Maybe so. But what is the real lesson here? What do you take with you to apply to your company? That low cost with some added distinctive features is a winning combination?

Often it is.

But what if I tell you there is a deeper insight here, an insight that applies to all businesses whether you’ve decided to compete on low price or with differentiated, specialty products. It’s something else that was behind everything IKEA did.

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