IKEA: INDUSTRIAL VISIT

REPORT
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Table of Contents
IKEA INDUSTRIAL VISIT REPORT............................................................................. 3
Executive Summary............................................................................................ 3
Introduction to the Company.............................................................................. 3
Visit Objectives................................................................................................... 5
Finance and Management Accounting of IKEA....................................................5
Control Systems.............................................................................................. 5
Reward System................................................................................................ 6
Cultural system............................................................................................... 6
Technological System...................................................................................... 7
Marketing strategies........................................................................................ 7
Critical analysis for IKEA..................................................................................... 8
Management................................................................................................... 8
Rising prices.................................................................................................... 8
Downsizing by IKEA......................................................................................... 8
Low-cost Products............................................................................................ 8
Environmental issues...................................................................................... 8
Conclusion.......................................................................................................... 9
References........................................................................................................... 10

IKEA INDUSTRIAL VISIT REPORT

Executive Summary
IKEA is considered to be one the top-notch furnishing brands the world.
The need for management control arises for the companies that have high
rate of growth and value chain and IKEA is included among them. The
current industrial visit report focuses upon introducing IKEA with its
background and its current management control in Saudi Arabia. It
describes the management control systems that are used by the Saudi
managers for directing employees behaviour and satisfying customers
needs. Although it is a well reputed company but still some issues needs
to be addressed for maintaining the strategic position in the current
aggressive market.

Introduction to the Company

Headquartered in Leiden, Netherlands Ingvar Kamprad established IKEA
during 1943 in Smaland, Sweden. The companys name is a short form for
Ingvar Kamprad Elmtaryd Agunnaryd (Bartlett, 1996). During the half
decade of establishment IKEA was famous for wallets, pens, jewellery,
tablecloths, picture frames, nylon stockings and clocks. Hence the
commencement of the company profile was low as it covered low-cost
items. However during 1948 it introduced furniture products into the
market that were manufactured by the local manufacturers ( Edvardsson,
2002). This line of product initiated a positive response and feedback from
the customers. Gradually the company expanded its horizons of furniture
manufacturing. In the late 1950s the first IKEA store was opened at
Almhult which expanded from 6500 to 6700 square meters depicting the
largest furniture retail area in Scandinavia. During the later years of
1970s and 1980s the IKEA expanded its wings across several countries
including United Kingdom, USA, Germany, Italy, France, Holland, Austria,
Canada and Australia (Bartlett, 1996). With the rapid expansion IKEA also
ruled the Russian, Chinese and Japanese markets.
Currently IKEA is spreads around over 40 countries with 332 retail stores.
As of 2012 it employs over 139,000 people globally. It is famous for its
modern architectural designs which are eco friendly and simple. In
addition it is also famed for cost control, product development and
operational management. It tends to facilitate people with well designed
yet low priced products. It reaches out not only to its customers but also
employees for satisfying the needs. All range of products is designed by
IKEA in Sweden which are given specificity and is considered to be one of
the largest wood consumer as it uses 1% of total earths wood supply. The
total revenue for 2012 was 27.63 Bn, operating income of 3.45 Bn and
Net income of 3.2 Bn (Arnarson, 2013).

The total ratio for turnover, purchasing and number of employees with
respect to region can be shown as follows:

Figure 1: The total ratio for turnover, purchasing and number of

employees with respect to region (Arnarson, 2013)

In Saudi Arab IKEA was established in 1983 at Jeddah with the first store
comprising of 500 sqm. It was an experiment to observe the market of
Saudi Arab and after two successful years it enlarged its retail stores all
over the Middle East (AlGhamdi, 2011). However the fame of IKEA was
weak as it was difficult for the owner to locate a shopping mall that could
rent out a huge area to an unknown company. With the huge demand for
its products it opened its outlets in Riyadh comprising of 28,000 sqm. The
stores are operated by Ghassan Ahmed Al Sulaiman which is considered to
belong to a well reputed trading family of real estate and retailings. Till
now IKEA has its outlets in Jeddah, Riyadh and Dhahran.

Visit Objectives
The basic objective for visiting IKEA was to observe the developmental
strategy that was established in 1999 consisting of ten points. I wanted to
survey the implementation of those ten points at an organisational level.
The ten point are known as ten jobs and are a mixture of technological,
economic and social activities including developing and introducing
central and vital lines of products, offering exceptional sales for the
customers, improving the communication level with customers and
bridging the communal-gap, reduction of purchase prices and improving
the quality of products, giving out logistic efficiency, create a centre of
attention for the people, be one IKEA, becoming simple and faster for
providing services, taking-on full responsibilities for the suppliers,
colleagues and environment and finally maintaining the strong culture of
IKEA. Hence I wanted to monitor that how IKEA has managed its quality
and price ladder for competing against its competitors and satisfying the
customers needs. Consequently I wanted to see the thinking-tank of
IKEA.

Finance and Management Accounting of IKEA

IKEA is included among one of the superlative retail brands in the world
for its broad range of furnishing products that every person can afford. It
is the trademark of a flourishing globalisation company that has the
capability of crossing borders within a short period of time ( Edvardsson,
2002). However in Saudi Arab it has faced challenges for language,
processing and operating systems as various countries use their own
operating and finance systems for data collection and manipulation. Inter
IKEA Systems BV is the parent company for the retail franchises and has
given the significance and role of technology in accounting and financial
aspects for achieving organisational objective. It has also emphasised
upon standardisation of all accounting processes globally (Baraldi, 2002).
Control Systems
Two plan controlling strategy is used by IKEA including budgets and
business plans. The former is intended for the coming one year whereas
the business plans are scheduled for a period of three years ( Stark, 2007).
The budget process takes a start from the top of the organisation and
input from the head office. A forecast of the market is presented which is

an ordinary income statement including total sales and costs. They are
further divided into cost categories and each is category has an index
number which represents the distinction among figures for several years.
Hence the national forecast is distributed and communicated among the
retail stores and forecasts are made accordingly at the store level
(AlGhamdi, 2011).
When a store is represented with the national forecast they put together
their own individual forecasts for costs and sales in percentages. If there is
a chance of increment in the cost, the store has the option of making
independent forecast that are based on its own assumptions. During
forecast developing stage files are used for the complete access of SO for
generating discussions. Officials of the whole management team and
departments take the responsibility of setting the forecasts. The sales and
BNO managers have the key roles in this process as future scenarios are
represented with respect to originality of the forecast including 10% of
total sales. Hence the number of working hours is increased accordingly.
However Saudi IKEA does not follow a strict line of budget. For instance if
the sales forecasts that are made during the budget year are extensively
far then comparison of the original budget is not followed. In its place
scenario plans are followed and the store makes its own decision for
increasing sales targets (Baraldi, 2002).
Additionally the business plans for IKEA takes around three months which
includes short and long term targets ( Edvardsson, 2006). The team of
managers make a decision about the areas that need focus and set out
targets for the departments accordingly to the action strategies. It also
includes personnel planning which encompasses the staff scheduling for
the upcoming year including the personnel-related expenditures. The
store works with three staffing managers that rule out the scheduling
process. They work upon matching the customers requirements and set
up the working hours for the staff. Although it seems easy but IKEA makes
sure that employees are also at an ease and implements cross functional
staffing system. For example a worker can be busy in a logistic function
during start of the day, whereas at the end of the day he could be at sales
department. Hence by working at numerous departments employees
expand their personal skills for professionalism creating collaboration
within the departments (Arnarson, 2013).
Reward System

Globally IKEA has diverse types of reward systems for the employees.
However it has a target for employing singular system for evaluating and
administrating managerial issues. Saudi IKEA makes use of premium
salary system in which the amount of premium salary is concluded upon
costs, sales and customer satisfaction. The performance of the store is
dependent upon these factors and employees are paid accordingly. For the
equal amounts of hours, employees are paid the same amount. No
monetary rewards are given to the employees, instead group rewards are
given (Stark, 2007). The total annual premium income does not accumulate
a large percentage of the employees salary but is equal to half months

salary. Management considers this system to be a motivational factor for

the employees however in Sweden this is not the case. IKEA management
works upon the feedback system for showing gratitude. Promotion to a
higher level is an important incentive for all employees. They tend to
make individual plans for jumping at a higher level as they have no clear
picture about the prospects of their career at IKEA. On the other hand IKEA
make use of internal recruitment system for satisfying and encouraging
their employees needs.
Cultural system

Before establishing in the Saudi market, IKEA made its strategy for
learning and respecting the Arabic culture for expanding its business
activities. With the gradual shift of Saudi culture towards globalisation
IKEA has retained the balance of local culture and corporate activities. The
challenge it had to face at the early stages was that Saudi culture is a
mixture of oriental Arabic and western cultures. In addition people resist
from westernisation due to the fear of threatening their own culture.
However the key of successfulness by IKEA for capturing the Saudi market
was to study the local culture. Moreover IKEA removed the womens
pictures from its catalogue due to cultural aspects. Hence IKEA satisfies all
the Islamic cultural characteristics (AlGhamdi, 2011).

Table 1: The comparison for features of IKEA international and Saudi

Arabian culture (Arnarson, 2013)
Standard
Saudi
Saudi
Saudi
IKEA
Saudi
IKEA
Saudi
IKEA
Saudi
IKEA
Saudi

IKEA Saudi Arabia

Uniform
Product range is western

IKEA International
Personalized uniform
Products
are
conservative
Celebrations of Swedish Restricted
to
Islamic
festivals
festivals
standard Self service
Partial self service
standard Up to standard quality Premium quality
with low price
high price
standard No gender separation
Gender separation
standard Liberal and open culture

Technological System

with

Fairly open culture

The utilisation of Information Technology is essential for being successful

in the market for any business. It needs to be implemented at the right
time and place. IKEA has offered the services to the customers through

the usage of IT (Edvardsson, 2002). It has employed RFID or Radio

Frequency Identification method for storing and retrieving data through
the antenna and transponder which operates through several domains of
frequencies. Customers are in need to look for correct products from the
warehouses. For avoiding frustration this technology comes into help. It
has decreased the cost of operations through labelling, reduction of
inventory, labelling and check out processes. Furthermore online retail
stores also provide an ease for selling and buying opportunities through
mobile payments that comes with gift vouchers. The awareness of IKEA on
social media has encouraged Saudi women to explore the products in
detail. Moreover the website traffic can also help IKEA for the
marketability factor. The new and free app helps people with virtual
placement of furniture from its catalogue in a room. This gives a clear
picture for people to figure out the colour, size and style of product prior
to purchase (Hkansson, 2002).
Marketing strategies

In Saudi Arabia IKEA bring into play numerous marketing communication

tools including catalogues, websites, in store advertisements through
providing information of products. The company hands out door to door
catalogues to reach out to customers in Arabic as well as in English for
foreign people (Edvardsson, 2006). In stores it can be difficult to find out
catalogues due to Arabic writing system. During the distribution of
catalogues once the customers have paid for their purchases the cashier
takes in address of the customer. This is fed to the software which gives
out the district number and the residing place of the customer can be
known. The target market for IKEA is the whole family including the
women and provides outdoor advertisements. They market their products
through newspapers and magazines for reaching out to women. Due to
modernisation of technological aspects mobile apps are being introduced
for the customers ease. Consequently IKEA follows social, moral and
cultural aspects (Kearney, 2006).

Critical analysis for IKEA

Management

The managers at IKEA are trained by the founder. However in the absence
the shares can be sold to any other foundation that has the similar
objective (Elliott, 1996). The problem arises with the expansion of IKEA
there can be a risk of minimisation of corporate culture.
Provided that the founder has the have power over management and
respective management is devoted towards the founder issues may not
exist. Hence this can be critical issue for IKEA. In addition the exceedingly
competitive market brings IKEA into the problem of solving issues with
stakeholders and suppliers. This can lower the level of market value. Saudi
Arabs IKEA faces a communication gap with the worldwide stakeholders
due to the diversification of cultural aspects. Hence large amounts of
business operations can be hindered due to this issue (Jonsson, 2007).

Rising prices

IKEA has always aimed high for giving the customers the best products
that stands out from the other contenders in the market. The main aim is
to blend out needs and fashionably designed furniture for ensuring the
availability of modern household goods with affordable range. On the
other hand the prices of raw materials are increasing in addition to the
transportation costs. This in return has increased the cost of products for
the customers. Rivals of IKEA are expanding their businesses in home
furnishings following the similar approach for low pricing. This has
presented IKEA with a challenge to maintain its fame in Saudi market
compromising the standards (Stark, 2007).
Downsizing by IKEA

In the current challenging trading conditions IKEA downsized its

organisational structure in Saudi Arabia for maintaining the line of
productivity and efficiency. Numerous managerial posts were listed down
causing people to suffer. This is the reason that IKEA is not expanding to
greater extend in Saudi Arabia as the main management has realised that
expansion needs to slow down. Due to changing environment of the
planning and managerial team the firm is losing its profits. Additionally
there is a communication gap between manager and employee as most of
the managerial posts belongs to Saudi nationals (Kearney, 2006).
Low-cost Products

The demand for low cost products from the customers is putting IKEA at a
difficult position. The pricing strategy targets the customers with less and
limited financial resources and as a result cost needs to be balanced.
Saudis are prone to luxurious items as well hence if they find any threat
they tend to change their product line. IKEA needs to focus upon offering
high quality with low prices. In addition the post-recession era has
decreased the purchasing power of customers. IKEA can take advantage
for helping out the customers in tough financial times (Edvardsson, 2006).
Environmental issues

IKEA at Saudi Arabia is highly aimed at dropping down the carbon

emission to protect the atmospheric problems. It is trying to achieve the
zero wastage targets that can attract the stakeholders and suppliers and
hence improve the relationship. This can provide surplus opportunities to
IKEA for resolving the energy crisis issue resulting in business
sustainability and struggle to gain higher profits (Kling, 2003).

Conclusion
IKEA has a strong hold of corporate culture in Saudi Arabia. With the
passage of time it is spreading the massage of cost consciousness among
the customers. Employees are also benefitting from the framework of
equality to enhance the directions of business. They are more concerned
about the controlling systems of the company including the budget,
planning of financial systems for achieving satisfactory results. No doubt
there is a culture difference but IKEA is striving hard to fit-in the market
and obtaining large market share. The accounting systems adopted are
highly influential that are helping in retaining the firms strategic value.

Moreover the measurement systems are also specific and detailed which
enable the employees to react within short period and take actions
accordingly. IKEA has found operations that are cost efficient and high
turnover which enable the managers to compare their market
performance. The planning process is also up to the mark as they focus
attention to the problem areas and depend upon the staff to work out the
problems by working out the action plans through a positive approach.
Although with all the positive aspects IKEA still needs to focus upon the
upcoming challenges in the near future.

References

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