Ikea has purchased a forest in order to have better control over their supply chain. Simply put, this move is backward integration – moving “back” or further up the supply chain, closer to raw materials and farther from end customers.
It’s an interesting strategy from both the supply chain and cost perspective and also from a branding viewpoint. This acquisition will give Ikea control over the cost of lumber, which is expected to increase globally as renewable energy becomes more popular. The company is also focused on optimizing its furniture design to use trees in the most efficient way.
In addition, Ikea has run into some environmental and sustainability challenges in the past and was banned from logging in Russia for a time in 2012. Owning this forest will help avoid pauses in the supply chain and help with quality control and environmental concerns. The acquisition is a smart-move for Ikea, both for the short-term and long-term.
Although you may not be buying a forest, you, too, can explore backward integration for your business. I would recommend using a tool like the Adjacency Map to generate new ideas about company growth.
The Adjacency Map is a series of co-centric circles with your profitable core at the center. From that core there are many different, directions in which to grow — backward integration, forward integration, new customers, new markets, new geographies, new capabilities, etc. As you move farther away from the center circle, your ideas move farther from the core business.
When brainstorming, no idea is too wild or crazy; just write everything down. There will be plenty of time to evaluate after this exercise. For example, if your profitable core is a retail beer and wine store in the southern United States you could think of backward integration into wineries or breweries or forward integration into a restaurant. You could expand into the Mid-Atlantic region or even into shipping and logistics.
Simply getting these get these ideas on paper will spark your creativity and provide direction for growth.
* The Adjacency Map is adapted from Chris Zook’s book Profit from the Core.
