Wednesday, April 18, 2012

IKEA's Blue Ocean Strategy

When reading about red ocean versus blue ocean strategy in “Blue Ocean Strategy,” I was interested by the blue ocean’s strategy of “aligning the whole system of a company’s activities in pursuit of differentiation and low cost.” [1] The first company that came to mind after that statement is one we have discussed multiple times in class: IKEA. Taken straight from their website, the IKEA vision is put into practice “by offering a wide-range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.” [2] So, there you have it, differentiation and low cost.

Although IKEA had a European presence since the mid 1940’s, the first U.S. store opened in Philadelphia in 1985. IKEA sort of entered the U.S. furniture market in the ‘80’s, but essentially they created their very own market. As is mentioned in the “Blue Ocean Strategy” article, “Most blue oceans are created from within, not beyond, red oceans of existing industries,” which is exactly the approach used by IKEA in America. They played off of the furniture market that offered furniture at steep prices. Instead, IKEA focused its efforts on furniture for every room of the house that could be easily assembled at home and purchased at very reasonable prices. IKEA controls its costs by controlling all of its own production. For example, in 2008 IKEA opened its first U.S. manufacturing site in Virginia. [3] Essentially, IKEA controls all aspects of its good from start to finish. This allows them to control their own costs while still giving value to its customers.

Overall, IKEA did not choose to operate in a red ocean and instead chose to target customers who value quality goods at reasonable prices, and created its own market. It interests me how companies do not need to deviate far from current markets in order to create a market in which they can succeed. I question though how a company with a large focus in one market area can afford to take the plunge into somewhere unknown. How do companies evaluate the best times to enter a “blue ocean” and decide how to best allocate their resources?

[1] Kim, W. Chan, & Mauborgne, Renee. (2004, October). Blue Ocean Strategy. Harvard Business Review.

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