Strategic Planning: IKEA Organizational Structure

Strategic Planning
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Strategic Planning
The effectiveness of any organization is highly dependent on its structure. Multinational companies continually find it difficult to organize their resources, support services and to allocate responsibilities. Most of these companies prefer adapting standardized structures as a way of simplifying costs and making it easier to share risks and other information. In addition to this, centralized or standardized structures are preferred because they help simplify the process of decision-making (Jonsson, 2007). On the contrary, it has been argued that these structures inhibit innovation as well flexibility in local markets. The ensuing discussion seeks to explicate why it may be beneficial to keep an existing organizational chart in line with a new international strategy. In making this case, the paper utilizes IKEA organization chart as an example.
Figure 1: IKEA organizational chart (Source: Jonsson & Foss, 2011).
Over the years, IKEA has assumed a replicating organizational chart whereby it has tried to compound the benefits of structure standardization with the strategy of local adaptation. In line with this, the company treats its organizational chart as a hierarchy encompassing flexible features, positioned near the bottom of the hierarchy tree. The company has thus been able to pursue its internationalization strategy by replicating its value chain across borders. It is important to note here that replication entails creating similar retail outlets, which deliver uniform products/services (Jonsson & Foss, 2011). Like with other companies, which have pursued a mass distributing strategy, IKEA has been successful in applying the replication format of organizational structure.
The organizational chart of IKEA has allowed the organization to transfer capabilities and routines from the parent company to related subsidiaries. In this context, there is an overlap in routines, intangible assets, as well as operating procedures as a result of knowledge transfer. For example, the company’s franchise system, IKEA range, production, and supply activities are under Inter IKEA Group, which is in turn under IKEA Holding B.V (Jonsson & Foss, 2011). AS such, the company’s decision-making process remains highly centralized with major decisions been made by the top management. Centralization has increased the effectiveness of the company’s value chain while ensuring that the top management directs all major changes. While there is replication of operation activities particularly in IKEA Range and retail, a standardized and near-centralized organization structure has ensured that there is no unwarranted duplication of activities.
Past studies have pointed towards the importance of knowledge transfer in driving organizational performance. At IKEA, knowledge is transferred from the headquarters to the franchises, which in turn projects a home based benefit to other markets where the company has operations (Altinay, 2004)....