Business Strategy & Enterprise Modelling

Case Summary by Syndicate 8

Erlangga Dwinanda 29116490 M. Maulana Yusuf 29116063
Moch. Arief Rahman 29116412 Vionna Angelica 29116417

Competitive Advantage
IKEA has objective sell the well-designed but inexpensive (low-cost) furniture. Although there is
a cartel that reject IKEA and do not want to become IKEAs manufacturers, but IKEA does not
stop there. Ingvar Kamprad, CEO of IKEA was forced to look abroad for new sources, and find
Poland as IKEAs largest source.

Figure 1. Competitive Advantage and Value Chain

IKEA also has competitive advantage, that makes them different and attractive than any other
competitors. Kamprad had written, Only while sleeping one makes no mistakes. The fear of
mistakes is root of bureaucracy and the enemy of all evolution. Exaggerated planning can be
fatal. Let the simplicity and common sense characterize your planning.
IKEA also serviced cutomers with features such as playroom for children, a low-priced
restaurant, and a Sweden-shop for groceries that had made IKEA Swedens leading food
expoter.

Figure 2. IKEAs Competitive Advantage

IKEAs Value Chain

IKEA tends to make a sustainable, long-term value chain. Kindly, there is a difference between
value chain and supply chain. Value chain means that the relation between company, supplier,
customer, manufacturers (shareholders) does not stop until selling and buying perspective. But
there is a value that should be shared among parties.
 Figure 3. IKEAs Value Chain

. Challenge, How to anticipate, How to Deal with

Referring to the child labor problem raised by a Swedish television documentary which

showed children in Pakistan working at weaving looms, we first look at how IKEA addressed the

event according to the case document. It sent a legal team to Geneva to seek input and advice

from the International Labor Organization (ILO) on how to deal with the problem. It turned out

that India, Pakistan, and Nepal were not signatories to the convention. The fact that India,

Pakistan, and Nepal were not signatories to the convention implies it is unreasonable to accuse

IKEA of violating the law of child labor. Still, this fact did not help IKEA much as child labor is

an ethical issue.
 IKEA therefore adds a clause to all supply contracts, stating that if the supplier hires

children under the legal working age, his contract will be canceled. The third step is to appoint

third-party agents to monitor child labor practices in their suppliers in India and Pakistan. This

third step helps companies in the field of publicity and the media, and makes things seem fairer

than public view. Barner's business managers conduct further research on child labor issues by

contacting relevant organizations, such as Swedish Save the Children, UNICEF, and the ILO for

advice. After obtaining some knowledge of the matter, Barner and his direct manager traveled to

India, Nepal and Pakistan to investigate the real situation. On the way, Barner learned more

about the Rugmark Foundation, hosted by the Indo-German Export Promotion, Indian carpet

producers, and exporters, and several Indian NGOs, to develop labels stating that the carpets they

wear are made without the use of child labor. Barner then returned to Sweden and often met with

experts Saveman Children about child labor. This helps Barner internalize the importance of

child labor actions that shape IKEA's new attitudes and attitudes. So, what Barner initially did to

the situation until the child labor issue asked for a more specific action on the next event.

Marianne Barner knew that the long-term strategies for IKEA would need to make

differences in the lives of the children and taking a very proactive stand. Many others within the

company felt that this proactive stance would put IKEA at a significant cost disadvantage to its

competitors. Getting involved with Rugmark or Save the Children would be the great long-term

strategies for Barner and IKEA. Also, continuing to stay active and semi-micro-managing its

manufacturing plants in India would provide IKEA with results and knowledge. Visiting the

plants often, unannounced, might scare away some manufacturers, but that is the cost that must

be paid if IKEA wants to avoid child labor issues. The company should stay and source from
India because the people need jobs and money. Additionally, since India is the biggest

purchasing source for carpets and rugs, exiting from the country would result in major losses.

Core Competencies of Ikea

Core competencies are the main strengths or strategic advantages of a business, including
the combination of pooled knowledge and technical capacities that allow a business to be
competitive in the marketplace. Theoretically, a core competency should allow a company to
expand into new end markets as well as provide a significant benefit to customers. It should also
be hard for competitors to replicate.
IKEA has focused its strategy on the core competency of sustaining profitability through
a low-cost business model. This model allows IKEA to examine the true cost involved in a
specific product or process, including the design, sourcing, and operational expenses involved.
While growing its operations, IKEA has also capitalized on maintaining low costs.

IKEA believes that it can be a low-cost leader without

sacrificing quality or compromising its corporate social
responsibility. To generate low cost savings IKEA uses a
flat packing process that allows more merchandise to be
shipped and stored between distribution centers. The

Figure 1 Pimped up flat pack company wants customers to understand that their role is

not to consume value, but to create it. IKEA has been

able to modify the value chain approach by integrating
the customer into the process and introducing a two-way
value system between customers, suppliers, and IKEAs
headquarters. Through this, the company is able to
create a supply chain that is differentiating and growth
enabling, which allows IKEA to operate efficiently. Figure 2 Flat Pack Furniture
 IKEAs core competencies have also helped to accomplish a sustainable business model
in the United States. IKEA has a strategy that leverages its unique core competencies, resources,
and distinct capabilities over furniture retailers in the United States. Although IKEA faced
challenges in understanding the American culture in terms of furniture, it was able to sustain
itself through the competency of consumer intelligence. The business model allowed IKEA to
align with what customers wanted.

Figure 3 Business Model of IKEA (Porter's Diamond Model)

Outsourcing
Outsourcing is the purchase of the value-creating activity from an external supplier.
Firms engaging in effective outsourcing increase their flexibility, mitigate risks, and reduce their
capital investment. In multiple global industries, the trend toward outsourcing continues at a
rapid pace. Moreover, in some industries, virtually all firms seek the value that can be captured
through effective outsourcing. As with other strategic management process decisions, careful
analysis is required before the firm decides to engage in outsourcing. Firms must outsource only
activities where they cannot create value or where they are at a substantial disadvantage
compared to competitors. Managers need to understand whether and how outsourcing create
competitive advantage within their company.
 IKEA has built a strong long-term relationship with its suppliers over the years. The
relationship that IKEA established with the Poles has become the archetype for relationship with
suppliers. This is one of their biggest strengths. A strong relationship established with the
suppliers provides a very smooth supply chain which saves IKEA from quite a lot of additional
costs and hassles. Due to this strong relationship IKEA can put in a lot of additional advice
regarding production. It is widely seen that companies have always been benefited by a strong
long-term relationship with their suppliers.
Strategic outsourcing is the decision of IKEA to allow one or more company to perform
specifically or selected value chain activities or function by independent specialist companies
that focus all their skills and knowledge on just one kind of activities. According to available
information IKEA now outsource 90% of their product and rest 10% produce internally.

Outsourcing has brought some benefits for IKEA, such as:

Low cost structure

Vertical Integration has been cut IKEAs cost structure because it creates increasing
economic of scale. Achieving economic of scale is very important of IKEA because it has a high
fixed cost structure. In furniture industries allows IKEA to spread its fixed cost over its large
volume of production and in this way it drove down IKEA to average cost per unit.

Focus on the core business

A final advantage of strategic outsourcing for IKEA is that it allows managers to focus
their energies and company resources on performing those core activities that have the most
potential to create value and competitive advantage
VRIO ANALYSIS
Valuable Rare Costly to Imitate Organization
Applicable
YES YES NO YES
Allows IKEA to In this Industry, Competitors will Ikea has been in the
differentiate itself none of other always fall behind in market for long
from competitors competitors have the experience time, they have a
because it is an manage to design curve. Nevertheless strong presences and
innovation of such easy processes if competitors have brand recognition
business model and which actually make the right which is helped the
value chain which customers enjoy combination of company to be
allows the firm to working for the money, time, skills, successful in many
produce such company. It is like and corporate countries.
democratic design. a family outing culture they can They should manage
eventually imitate it to be hyper dynamic
It is rare to find such in the long term. in managing the
a good combination different cultures
of good quality, around the world
price, and design in which can turn into
other competitors threats.
store as well as the
wwhole shopping
experience.

Businesses that sustain a competitive edge with sustainability are continuously looking
for ways to achieve and secure enduring value. This means they focus on the things that can
really make a positive impact or difference.
They hone their competencies through a long-term sustainability vision and planning.
This includes sustainability stretch goals (e.g., 100% renewable energy or zero waste).
 They achieve and retain leadership positions across all sustainability
dimensions: environmental, social, economic, and governance. These are supported by strategies
and leading practices that continually add value and take a long view.
They maintain a corporate culture built on values by investing in and engaging
employees, suppliers, and partners. They encourage ideas from stakeholders at all levels.
They are not afraid to learn from and share lessons learned. They continuously create
new opportunities and continuously improve.
This is what it means to sustain a competitive advantage through a sustainability edge.