Sep 19, 2022
about 5 min read
How does IKEA utilize digital transformation in business?
TABLE OF CONTENT
What is digital transformation?
Digital transformation of IKEA
What and how does digital transformation influence IKEA’s operations?
What is digital transformation?
Digital transformation has been a trend for years yet it now becomes familiar with the technology world. Many companies globally all make efforts to embrace the advantages of digital transformation.
Simply speaking, digital transformation takes a customer-driven, digital-first approach to all aspects of a business, from the business models to customer experiences to processes and operations.
Digital transformation of IKEA
In 2022, Barbara Martin Coppola - Chief Digital Officer of IKEA Retail, claimed that digital technology helps the company to operate more efficiently and find new sources of growth with digital business models. It is not about the digital strategy but the strategy enabled by digital transformation.
IKEA planned to enlarge the digital transformation scale in May 2021. It is announced that the company had built the vast warehouse spanning 72,000 m2 on a 16 ha site located in France for an investment of €120 million. This future distribution center will mostly be dedicated to online sales. This major initiative is part of a strategy adopted by the Group in 2018 that focuses on online commerce. “Digitization is creating new possibilities for the retail sector…” This new strategy focuses on using new technology to access all IKEA aspects in a smaller space, providing both physical stores and online offerings in various formats, with the possibility of receiving personalized advice.
What and how does digital transformation influence IKEA’s operation
New tool, new channels
IKEA is a leader in making innovations in business and improving the customer experience. In 2017, IKEA launched a new augmented reality (AR) application that allows shoppers to test IKEA's products in real-time through Apple iOS 11’s ARKit technology.
Courtesy Inter IKEA Systems
Later on, in 2020, IKEA acquitted Geomagical Labs, which is a US-based start-up’s augmented reality solution used to create a 3D representation of a room. This allows users to virtually “delete” the furniture and adjust it with other objects, this feature is integrated into IKEA’s various applications and website.
IKEA has invested over $200 million in the acquisition, both contributing to the sector and clearly defining its long-term vision. It is likely that IKEA strongly invests in modern technology which concentrates on improving the customer's experience, and it seems a wise strategy as IKEA’s performance shows positive results.
Read more: 4 AR lessons you can learn from IKEA’s business model
The effect of Covid-19
With the effect of the health crisis about 2 years ago, the world suffered the quarantine that postponed many offline activities and businesses to happen. Many companies had to close their businesses due to Covid-19, and some of the survivors were fast enough to turn their operations online. IKEA recorded a 7% decrease in its revenue in 2020, yet online sales rose to 44%, four times greater than 2017, accounting for 15.4% of the total revenue. It can be said that becoming digital is radical with or without the effect of Covid-19.
Centering the cloud
IKEA utilizes loud technology as its major digital transformation application. Thanks to cloud technology, the company transformed the current technological infrastructure, converted the closed shops into order processing centers, and activated contactless click and collect services. Due to the quarantine in Covid-19, customers tend to approach digital channels more before making a purchase. According to a report by Growth from Knowledge (2020), most respondents prefer stores that offer online services in delivery and purchasing. Fortunately, IKEA also executed a channel strategy with both physical and digital channels. It offers customers a more comprehensive phygital experience such as click-and-collect services and home delivery.
Read more: How Digital Transformation At IKEA Is A Journey Not A Destination
Artificial Intelligence (AI) in customer service
The brand deploys new tools to better fulfil customers’ needs. The Group comes with an AI chatbot to conveniently communicate with customers and simplify the service process. In addition, IKEA acquired Geomagical Labs whose technology is integrated into an interactive design experience for its website and app called IKEA Kreativ. Specifically, this feature allows users to capture a wide-angle 3D and design the whole space head-to-toe.
Lessons to learn from IKEA’s digital transformation
Minimize cost everywhere
From the "flat-pack" ship design or "get it yourself" warehouse, IKEA is always coming up with creative new ideas to lower the cost of producing and distributing its goods. With technologies that can minimize credit card interchange fees or assist in moving the paper billing clients to electronic invoicing. The overall expenses will decrease as you manage each phase more effectively, enhancing your margins and assisting you in maintaining competitive pricing.
Optimize the convenience for customers
One of the outstanding features of IKEA is its convenience in buying a piece of goods and delivering it to your house the same day. The invoicing and payment process the organization currently uses is a huge piece of the convenience puzzle. The customer can have multiple options when it comes to the payment step, and solving disputes should be quick and satisfactory.
Building trust is preeminent
IKEA has successfully built itself as one of the trusted brands in the world as many surveys indicated. For example, in a 2006 survey of Swedish citizens, more than 80% said they trusted IKEA. A 2007 global survey by Reputation Institute put IKEA as the second most trusted brand in the world. Building trust should never be the short-term objective, it is a process at every little step when each customer comes to the business.
For 80 years, IKEA has been a very analogous business of selling its distinct brand of home goods to people. The brand keeps doing its great work and invests in digital transformation to create excellent competitive advantages in the market.
Digital transformation influences the company to operate differently. Nevertheless, the company acknowledges the mission of keeping the DNA of its business. Barbara Martin Coppola, CDO at IKEA Retail claimed in an interview with Harvard Business Review (2020) that IKEA has been changing what it is operating, yet the soul of the business remains.
IKEA is undergoing a transformation looking at offering customers new things, new distribution channels for those offers, and new operational strategies. To succeed, digital must be ingrained in every aspect of the company. Becoming digital is a way of working, making decisions, and managing the company.
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