IKEA'S STRATEGIC SERVICE VISION

When hundreds of millions of people—typically students, younger singles, and married couples just beginning housekeeping—think of furniture, they think of IKEA. Some individuals will even describe themselves as an "IKEA person," meaning they have turned over many decisions regarding taste and lifestyle to the company's merchants. But IKEA wasn't always a leader in assemble-your-own furniture. IKEA's strategic service vision helps us understand why a store selling everything from fountain pens and udder balm for cows in a small Swedish town in 1943 has grown into a global purveyor of a lifestyle through home furnishings, selling nearly 30 billion euros of home furnishings in fiscal 2014 through 315 big-box stores in 27 countries and pulling more than 11 percent of that to the bottom line. How did IKEA do it?

Market Focus

Over the years founder Ingvar Kamprad and his management team have had a clear picture of IKEA's target market—the profile of the customers IKEA targets with its offerings. IKEA can fashion stories about these young people, single or married, furnishing their first residence on a limited budget. These are people with little time or patience—or money—to furnish a home. They may also lack confidence in their taste. For its target markets—primarily college students, singles, and young families—IKEA provides complete starter sets of furnishings at hardly believable low prices. This is offered to those willing to contain their creativity and furnish their living spaces in one or a mix of the four "style groups" comprising about 9,000 items and designed to be accepted anywhere in the world. They are also likely to be those who will shoulder some of the burden of getting their purchases home and assembling them. The company's website reminds us that "IKEA asks the customer to work as a partner."

Of course, when it comes to furniture, not every consumer is looking for a partner. IKEA is not for everybody. Some bristle at the conformity implied by what one expert observer calls "IKEA's aesthetic 'global functional minimalism.'" One former employee, writing about the company, describes the claustrophobia one can experience in shopping in an IKEA store on a busy day. That said, a sharp dividing line between those giving a service organization high and low marks is an indicator of a well-focused strategy. Internet gripe sites targeted at organizations creating a desired experience for a clearly defined target market while repelling others are sure signs of focus. IKEA is no exception. In fact, its detractors have even created a Facebook group, "Official IKEA Is Hell on Earth."

There is general agreement at IKEA about the clientele for whom IKEA's experience is not meant. The company's management has addressed the question that most marketing people avoid like the plague: to whom won't we sell? As a result, it has achieved market focus.

Service Concept: Results and Solutions

IKEA's offerings are meant to provide a unique experience to its potential customers. IKEA does not sell furniture. Nor does it sell home furnishings. According to its website, it sells "affordable solutions for better living" and "a better everyday life for the many people." These are solutions sought by some customers. They constitute IKEA's business definition—its service concept. If it sold furniture, it would have to compete with thousands of other furniture stores. Instead, the kinds of merchandise required to deliver a lifestyle have to be designed, manufactured, and brought together in one place so that customers uncertain of their interior design tastes and skills can visualize how things will look in their own homes. If the lifestyle is to be affordable, all of the merchandise has to be designed and manufactured with an eye to low cost. IKEA is in business to prove that taste and better living don't have to be expensive. It has created an operating strategy to back up that claim.

Operating Strategy

With little time for shopping and an as yet unformed sense of design, customers drive—sometimes substantial distances—to get to one of the company's stores, which are often located on inexpensive land or in light industrial parks. There, they are invited to the Main Aisle, a clearly-marked path that ensures that customers miss nothing—starting with living room settings, proceeding through bedrooms, and ultimately ending in the kitchen. The unguided "tour" is designed to strengthen customers' trust in their own design preferences without the presence of a salesperson. "Stories" are provided about each room setting to personalize them for customers. All price tags point leftward and are easily readable. These practices are more than just indicators of founder Kamprad's legacy of management compulsion. Many are designed to reduce selling costs and contribute to lower prices.

In any number of other ways, the company has designed its operating strategy to deliver results and experiences at low costs—various forms of leverage that provide an edge over competitors. For example, purposely limiting design styles to four "style groups"—Popular, Modern, Scandinavian, and Traditional—reduces the costs of carrying inventory as well as markdowns on unpopular styles.

Many customers accept responsibility for transportation and assembly of furniture. IKEA can afford to pass on cost savings to them in the form of lower prices. Customers' transport and handling also frees IKEA store personnel from the dickering that results from alleged damages. It helps preserve the company's reputation for fair customer treatment.

Support Systems

An operating strategy directed largely to neophyte homemakers requires support systems with unique features. First, IKEA's retail stores need vast spaces for merchandise display. The facilities themselves are designed to provide a veritable seminar in outfitting a home. The Main Aisle we mentioned earlier is cleverly curved to obscure its length and encourage shoppers to explore fully furnished room settings at a leisurely pace (assuming the store isn't packed with shoppers). Displays are sequenced in the way that people often think of to furnish a home—large pieces and furniture settings first, smaller accessories and utensils later.

IKEA's operating strategy requires that customers have access to a large loading dock, devices for transporting merchandise to their vehicles, and ample parking space. Since this sort of real estate comes at a reasonable price if it is some distance from urban centers, the expected experience has to be sufficiently positive for customers to see the long drive as worth it. This is why IKEA seeks to provide a destination experience, one spanning several hours, for them. Customers are encouraged, for example, to take a break for a meal at the store, with specials that are priced lower than even those at the well-known fast-food purveyors. This too influences store layout and design.

The Strategic Service Vision and Competitive Edge

IKEA's high volume of sales for a limited number of styles and items allows it to achieve inventory turnover rates that support the same level of sales as competitors with two to three times as much stock. Although IKEA's management doesn't use the term, it has a highly-effective strategic service vision that does the following:

1. It defines customers that an organization desires to serve and does not desire to serve. It delivers market focus.

2. It is based on results or solutions—not products or services—delivered to these customers. It defines the business in terms of results or solutions.

3. It describes an operating strategy that delivers results for customers that they regarded as 3.3 billion euros—IKEA's profit margin—more valuable in 2014 than the costs of achieving them. It provides an edge over the competition by leveraging results over costs while preserving operating focus.

4. It provides support systems and resources needed to achieve the operating strategy. It is defined by the excellence of its facilities and their layout, networks, locations, and technology.

Great service leaders implicitly have to supply answers to a number of questions in putting together and sustaining breakthrough services. They include questions listed in the sidebar.

Now, think of all the elements of IKEA's strategic service vision, all the things on which it executes well, and how those elements fit together. They defy description on a bumper sticker or in a brief journalistic article. They provide the organization with the various sources of edge over competition that are mapped in figure 2-1.

Figure 2-1 Some Important Elements of IKEA's Strategic Service Vision

How the Strategic Service Vision Creates Value for Customers

Strategic visions help organizations focus on a few important ideas. However, if those ideas don't translate into value for customers, they are essentially worthless. In the case of IKEA, the translation provides ways of delivering better results and solutions at lower cost for targeted customers—sources of leverage. In doing so, it also provides competitive advantage—or edge. As we discussed in chapter 1, the result from the customer's end is the value equation shown in figure 2-2.

The experiences and value that IKEA creates for customers are critical to the long-term success of the organization. But if the same thinking is not applied to employees, such a vision is doomed to fail. It involves thinking about employees in the same terms that the organization thinks about customers. In fact, it regards employees as customers.

Figure 2-2 IKEA's Customer Value Equation