Friday, June 16, 2017

IKEA: A disruptive leader


The main theme of this week’s reading was disruptive technology and those companies that could not adapt or lead failed, including one time giants of industry.  IBM missed the shift from mainframe computers to minicomputers; Wang Computers missed the shift from minicomputers to PCs; and Lucent Technologies missed the shift from analog voice to VoIP.  All three were top performers in their industries, however all three failed to recognize the industrial disruption and all three failed.  In the case of Wang and Lucent, they eventually died.
The Innovator’s Dilemma provided antidotal evidence why companies atop of their industries fail when confronting technological change.  One common theme to these failures Christensen points out was that decisions leading to the failures were made when the companies where regarded among the world’s best.   As if the CEO of CISCO took the notes directly form Christensen’s book, the company has followed the suggested form with its “situationally appropriate” management.  First, CISCO views market disruption not as a threat but as an opportunity.  Second, when adapting to disruption, they assemble a group of engineers and developers and “spin-in” them out as their own company like a start-up.  Third, they adapt to new markets by bringing in new expertise and sustaining a “resilient culture."
IKEA is also an outstanding example of a company following Christensen’s principles of disruptive innovation.  IKEA has long experimented with retail and technological innovations and is no doubt a leader of disruptive change.  As Michael Valdsgaard, the head of IKEA’s digital transformation puts it, “we’re trying to do as many things as possible to see what works….it’s like, the more the merrier.”  One innovation set to launch next year will allow the company to sell its furniture on third party websites, Amazon maybe?  Another one is a “reality app” built with Apple that will let its customers visualize products in their own homes.  And in yet another example, IKEA has begun opening smaller outlets closer to city centers.  Since 2015, the company has opened 44 of these “mini stores,” some only one-tenth the regular stores.1
Yet, with all the disruptive innovation, the thrift of IKEA remains.  As chief executive of IKEA Group, Mikael Ohlsson put it, “we hate waste” when describing how designers found a way to pack a three-seat sofa in a way that costs less to manufacture; reduced the carbon-dioxide emissions during transportation.  And best of all, the reduced cost was passed to the consumer, shaving $135 off the price tag.  Ohlsson credits the culture of thrift to the company’s early days when there were located in a poor area of Sweden in 1943 and tried to allow “people with limited means to furnish their houses like rich people.”2
With total sales increasing every year including 17.4B in 2006, 31.9B in 2015, and 34.2B in 2016; 340 stores in 28 countries; and 782 million store visits in 2016, IKEA is clearly at the top and with its ongoing transformative strategy they are well on the way toward staying on top.3

1.     Petroff, Alanna (2017). Smaller stores and virtual reality:  Is this the future of IKEA?  CNN Tech.  Retrieved from hxxp://money.cnn.com/2017/06/15/technology/ikea-small-stores-online-sales/index.html.

2.    The Economist (2011). The Secret of IKEA’s Success.  Retrieved from hxxp://www.economist.com/node/18229400.

3.     IKEA (2016).  Yearly Summary FY 16.  Retrieved from hxxp://www.ikea.com/ms/en_US/img/ad_content/IKEA_Group_Yearly_Summary_2016.pdf.

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