Posted by Sarah Brown on 11 Mar '15
How a clear purpose can even create success in a difficult market
When Harvard Business School teach strategy to entrepreneurs and business owners they start with a case study about Masco and their attempt to be successful in the furniture market. The market was worth a huge $14 billion but no company dominated or made much profit. Masco had been successful in other household sectors like plumbing, kitchens and bathrooms, so they had high reserves which they decided to invest in buying 10 furniture companies and then upgrading them, spending over time $2 billion.
They were sure that their success would be transferable from other markets but they failed, in the end selling their furniture businesses for only $650 million having only ever made 6% profit when the rest of their business was making 14%.
The furniture market is notoriously difficult and lots of other large companies have tried and failed but strikingly IKEA has been incredibly successful. IKEA started in 1943 had a turnover in 2014 of 28.7 billion euro with a profit of 3.3 billion euro – reduced by a large new staff loyalty scheme. So what is the difference? Talking about the 2014 financial results the group’s chief executive Peter Agnefjäll said “A key factor to our strong performance is that we have a long-term view, and we don’t aim to maximise short-term profits. We strive to continuously create better products at lower prices for our customers and to make substantial investments in our future”
Masco went into the market to use their expertise, find a use for their cash and make money. They had no identified market positioning, they bought manufacturers of all types, they had no identified niche or way they thought they would change the world. Contrast this with IKEA who have always had a clear vision and purpose and have innovated to address market needs and drive down prices.
“From the beginning, IKEA has taken a different path….It’s not difficult to manufacture expensive fine furniture. Just spend the money and let the customers pay. To manufacture beautiful, durable furniture at low prices is not so easy. It requires a different approach. Finding simple solutions, scrimping and saving in every direction. Except on ideas.” IKEA vision statement
IKEA have a purpose which results in them making money rather than a purpose to make money and they have innovated and brought in new ways not only of manufacturing but of selling, including the meat balls, the wacky names and the child care.
a better everyday life for the many , IKEA
Any successful business strategy is based on a clear purpose which means that as a business you are changing the world.
IKEA’s aim is to create “ a better everyday life for the many” – do you and your staff know what your aim is? Do you have a clear niche market?