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IKEA Business Structure
Organization structures have the ability to influence the culture, innovation, and implementation of strategies in a business. In light of this, multinational businesses must always develop structures that are flexible enough to fit in their diverse cultures and work environments. This paper will discuss on IKEA’s global business expansion strategy and the manner its structure influences its performance in various markets.
Thesis
This paper will discuss how the organization structure of IKEA influences its business, specifically in terms of innovation, decision making, and understanding the local market. Whereas the company has been successful in its operations in Europe, and particularly in Sweden and Germany, the company’s management structure appears to be having difficulty in adapting to various non-European markets such as America and China. Generally, an organization structure can make a business not to respond appropriately to different market due to the lack of understanding of the locals culture. In light of this, organizations must put considerable efforts in developing a business chart, which is a pictorial illustration of its structure, in a manner that will enable it to adapt to various changes in its market.
With this regard, this paper will examine how IKEA’s business structure affects its creativity and innovation levels. In practice, an organization may have either a flexible or formal business structure. In the former, employees are always ready to come up with new innovative ideas, which lead to the development of better quality and profitable products. Formal business structures limit innovations since they require employees to adhere to clearly defined protocols and authority. Similarly, an organization structure affects the communication between employees and the management. A rigid structure creates communication barriers. Consequently, employees communicate with peers of their ranks, which make the top management to lack information that may be needed when formulating business strategies.
Finally, this paper will discuss on how IKEA’s business structure influences the ability of all employees to learn from each other, as well as any bureaucracy in the company. The results from these observations will enable in knowing if the company business structure is effective in enabling it to succeed in its operations. Notably, IKEA’s organization chart is simply a pictorial illustration of its structure. Therefore, the analysis of IKEA’s structure will be equivalent to an analysis of its chart.
Discussion
Overview
IKEA uses a flexible business structure in its operations. Except for the top-level management in the company, there is no clearly defined level of authority in the company. As a result, both junior and top level employees interact freely. This type of business structure is criticized in some countries such as France, while in other regions such as Sweden, most employees love it. The opponents of this structure do not like the fact that it does not create a clear difference in status of various employees. As a result, they perceive it as being unable to create a clear line of authority and command. On the contrary, proponents of this organization structure believe that the lack of a formal structure enables its employees to freely interact and share ideas. While both parties have valid opinions, this paper supports the flexible business structure adopted by IKEA. It argues that this structure is important for the company’s success in the current competitive business world. This paper discusses the role of IKEA’s flexible structure on creativity, communication, bureaucracy, and the ability of employees to learn from each other.
Creativity
One of the most important roles of a flexible organization structure, as the one developed by IKEA, is creativity. Simply, creativity refers to the ability of employees to develop new and innovative products that are suitable for the organization’s market. Further, creativity stretches to activities such as how an organization manages its production, marketing, and logistics activities. Although a formal structure is important in ensuring that a company is able to standardize the type of products that it sells and its operations, it always has a challenge of adapting to the dynamic and changing market patterns. Worley and Lawler (2006) note that formal structures are normally designed to have units operating in isolation. Moreover, they have horizontally specialized labor and are inflexible in decision-making. In addition, they are designed to produce standardized products and to operate in markets that have low levels of competition.
Since the manufacturing and sale of furniture is competitive, the formal organization structure cannot work in this industry. Generally, all units in the company must be able to easily interact so that they can come up with creative measures of adapting to their different international markets where the business branches are located. For example, IKEA has been able to cut its cost of sofa sets by $135 by using creative packaging tactics developed by its designers (Malmo, 2011). Evidently, the logistics team had to interact with the designer’s team in order to develop the most suitable packaging method. In international markets such as the US and China, the company is also tasked with developing creative ideas that match the tastes and preference of customers in these markets. The company’s current flexible structure is the most suitable because only employees who are in these regions can understand the unique cultures and tastes of individuals in these locations. The only challenge is that the company may have to change its business strategies in these locations, but not its structure. In the US for example, the company must understand that customers require not only high-quality products but also services such as how to arrange their furniture.
Communication
A flexible organization structure enables employees to freely communicate and share ideas on how to improve their business. Although formal business structures have a clear chain of command, most employees shy away from airing their opinions when they have to use a formal channel of communication. This occurs especially where some opinions may be perceived to undermine the authority of a senior member of the company. With this regard, the formal structure is ineffective in enabling the company’s management to understand the changes that may be occurring in the company. On the contrary, in a flexible structure, employees of different ranks interact freely in the company. As a result, senior employees and the management are able to have a first-hand observation of matters affecting the company. In light of this, they are able to understand business strategies that are working as well as those that are ineffective. IKEA’s flexible structure enables its management to quickly know any challenges that are affecting its operations and to make quick and immediate countermeasures. For example, due to the easy flow of communication in the company, strategic decisions that were made in the company’s US outlets have enabled USA and Germany to both be the best selling markets for the company (IKEA Group, 2016).
Bureaucracy
Another important benefit of the structure that has been designed by IKEA is the elimination of bureaucracy. The easy flow of communication and quick and immediate decision-making enables the company to avoid bureaucracy. Moreover, the company does not have a long chain of command, which has the effect of lengthening the decision-making process. The company has been able to use its swift decision-making process in order to modify its operations and adapt to the requirements of various markets. For example, the company lack of bureaucracy enabled it to make a few changes in the manner that it conducts business in its US stores. In turn, this enabled it to make more profits in this region. Similarly, the discovery of a less space consuming way of packing sofas by a team of designers enabled this method to be quickly adopted by the entire company. On overall, the flexible organization structure of IKEA, in which employees easily interact with the management, breaks any bureaucracy that may create inefficiencies in the company.
Ability to Learn From Each Other
One of the most important benefits that IKEA enjoys by using a flexible structure is that employees are able to learn from each other. Generally, the interaction of both senior and junior employees, at an almost equal level, creates a suitable environment for the easy and quick transfer of knowledge. Jensen et al. (2007) opine that the formal organization structure, in which employee do not freely interact, does not promote learning, which is essential for innovation. In light of this, IKEA’s strategy enables employees to quickly learn from each other, as well as from themselves through personal training. In turn, this enables the company to produce more innovative, unique, and affordable furniture.
Summary
To sum up, this paper has supported the current organization structure that IKEA uses in its operations. In effect, it has supported the company organization chart. In particular, it has identified that the company uses a flexible organization structure that has the benefits of increasing its creativity, improving its channels of communication, removing bureaucracies, and enabling employees to learn from each other. Moreover, it has shown how IKEA has been able to use these advantages for its success in various international markets.
References
IKEA Group. (2016). Yearly summary 2015. Retrieved from http://www.ikea.com/ms/en_US/pdf/yearly_summary/IKEA_Group_Yearly_Summary_2015.pdf
Jensen, M., Johnson, B., Lorenz, E., Lundvall, A. (2007). Forms of knowledge and modes of innovation. Research Policy, 36(5), 680-693.
Malmo (2011). The secret of IKEA’s success. The Economist. Retrieved from http://www.economist.com/node/18229400
Worley, G., & Lawler, E. (2006). Designing Organizations that are built to change. MIT Sloan Management Review, 48(1), 19-23