IKEA – The Testament!!!

Ingvar Kamprad, founder of IKEA shared “The Testament of a Furniture Dealer” in 1976. It is such a wonderful read, thought of sharing some of the best snippets and few of my thoughts below. Hope you like it!!

Well, in order to read the full testament, click https://cutt.ly/dcPpF4L – an absolute treasure-trove of wisdom!!

• What is good for our customers is also, in the long run, good for us – Customers are the lifeline of any business. Unless your customers are happy, your business will not survive in the long run.

• We know that larger production runs give us new advantages on our home ground, as well as more markets to spread our risks over. That is why it is our duty to expand. – Economies of scale work wonderfully well, especially if you have saturated the circle. Read how D-Mart followed this strategy to become the retail behemoth – here!!

• We shall offer 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. The product range must always be limited to avoid any adverse effect on the overall price picture. The main effort must always be concentrated on the essential products in each product area. – You can’t be everything to everyone – it’s that basic.

• The main emphasis must always be on our basic range – on the part that is “typically IKEA”. Our basic range must have its own profile. It must reflect our way of thinking by being as simple and straightforward as we are ourselves. – Believing in your value proposition and why should customers come to you.

• “Throw-away” products are not IKEA. Whatever the consumer purchases shall give long-term enjoyment. That is why our products must be functional and well-made. But quality must never be an end in itself: it must be adjusted to the consumer’s needs. A tabletop, for example, needs a harder-wearing surface than a shelf in a bookcase. In the first example, a more expensive finish offers the consumer long-lasting utility, whereas in the latter it just hurts the customer by adding to the price. Quality must always be adapted to the consumer’s interests in the long-term. – Practically insights like these only arise when one is curious to understand their customers!!

• Low price with a meaning:Most people usually have limited financial resources. It is the many people whom we aim to serve. The first rule is to maintain an extremely low level of prices. But they must be low prices with a meaning. We must not compromise either functionality or technical quality.

• Profit gives us resources: The aim of our effort to build up financial resources is to reach a good result in the long term. You know what it takes to do that: we must offer the lowest prices, and we must combine them with good quality. If we charge too much, we will not be able to offer the lowest prices. If we charge too little, we will not be able to build up resources. A wonderful problem! It forces us to develop products more economically, to purchase more efficiently and to be constantly stubborn in cost savings of all kinds. That is our secret. That is the foundation of our success. – No brainer!! cash flows rather than profits are the key to any business survival

Wasting resources is a mortal sin at IKEA. It is not all that difficult to reach set targets if you do not have to count the cost. Any designer can design a desk that will cost 5,000 kronor. But only the most highly skilled can design a good, functional desk that will cost 100 kronor. – “Jugaad” is the key. Be approximately right rather than being precisely Wrong!!

• Expensive solutions to any kind of problem are usually the work of mediocrity. We have no respect for a solution until we know what it costs. An IKEA product without a price tag is always wrong! Before you choose a solution, set it in relation to the cost. Only then can you fully determine its worth. – Hope, consultants are listening!!

• No method is more effective than a good example. Simplicity is a virtue. Complicated rules paralyze! exaggerated planning is the most common cause of corporate death. – No company would have created a strategy or created a grandiose plan around Pandemic during their many off-site 2 or 3-year strategic meetings before 2020!!

• By always asking why we are doing this or that, we can find new paths. By refusing to accept a pattern simply because it is well established, we make progress. We dare to do things differently! Not just in large matters, but in solving small everyday problems too. – Small experiments yield results. AWS started as an experiment in Amazon and today it’s the most profitable segment.

• Concentration – important to our success: The general who divides his resources will invariably be defeated. Even a multitalented athlete has problems. For us too, it is a matter of concentration – focusing our resources. We can never do everything, everywhere, all at the same time. Our range cannot be allowed to overflow. We will never be able to satisfy all tastes anyway. We must concentrate on our own profile. We can never promote the whole of our range at once. We must concentrate. We cannot conquer every market at once. We must concentrate for maximum impact, often with small means. – Single product companies with strong focus have usually performed well, both functionally and financially!!

• No decision can claim to be the only right one; it is the energy that is put into the decision that determines whether it is right. It must be allowed to make mistakes. It is always the mediocre people who are negative, who spend their time proving that they were not wrong. The strong person is always positive and looks forward. – Execution is the key after all, isn’t it?

• If somebody steals a model from us, we do not sue them, because a lawsuit is always negative. We solve the problem instead by developing a new and even better model. – Lawyers must be cursing them!!

• Daring to be different is one of the most important criteria behind the IKEA success. It’s the thinking behind some of the most significant aspects of our business idea. Here are some examples: while other furniture retailers were selling manufacturers’ designs’ we started to make our own designs. While furniture dealers set up shop in the centre of town, IKEA was building large stores out of town. While others turned to furniture factories to help them make tables, IKEA got them made by door manufacturers. Whereas others sell their furniture assembled, IKEA lets customers assemble it themselves. – How many companies can differentiate? Far few and between!!

• We are a low-cost company, and we must be seen to be one. Luxurious company cars, first-class flights, separate dining rooms and washrooms for senior staff are all status symbols. It’s not that we deny our hardworking managers a sense of status, it’s just that status symbols like this don’t fit in with our low-cost profile. – Personally, a firm believer in this!!

• Learn to make realistic judgements in your everyday work. How many visitors does the store have? How much storage space do you need for all that stock? Work out a few ratios you can use. What’s the average cost per cubic metre? How much space is needed to park a car? What’s the average cost for a newspaper ad, everything included? Learn these ratios by heart and use them! Question, and ask why! – How many 2^nd generation promoter family heirs know this?? I doubt, handful!!

• Learn to use your common sense. Learn how to say “no” and learn how to stop activities which never should have been started in the first place. Learn to limit the number of decisions you have to make, because you know all too well that too many decisions tend to lead to poor results! It won’t necessarily make you popular, but at least you’ll be respected for it, and you’ll get the lasting results you need! – Making 2 or 3 effective decisions is what you need during your day to become successful. Isn’t it?

Disclaimer: Please note that these are my personal views. While I am NOT a registered Research Analyst as per SEBI (Research Analyst) Regulations, 2014, all investors are advised to conduct their own independent research into individual stocks or industries before making any decision. In addition, investors are advised that past stock performance is not indicative of future price action.