Analysis of Business Strategy for IKEA

This report analyzes the impact of macro environment factors on business strategies, the internal environment of IKEA, and the application of Porter's five forces model. It also includes a critical evaluation of the company's business strategy and the use of strategic models and theories.

Business
Strategy

Contents
INTRODUCTION...........................................................................................................................................3
TASK 1..........................................................................................................................................................3
P1: Analysis of macro environment.........................................................................................................3
M1: Critical analysis of macro environment............................................................................................5
TASK 2..........................................................................................................................................................5
P2: Analysis of an organization’s internal environment...........................................................................5
M2: Critical evaluation of internal environment......................................................................................7
TASK 3..........................................................................................................................................................7
P3: Application of Porter’s five forces model..........................................................................................7
M3: Devising of appropriate strategies to improve competitive edge....................................................9
TASK 4..........................................................................................................................................................9
P4: Application of theories, concepts and models and preparation of strategic plan for the
organization.............................................................................................................................................9
M4: Producing a strategic management plan........................................................................................13
D1: Critique and interpretation of information and data......................................................................13
CONCLUSION.............................................................................................................................................13
REFERENCES..............................................................................................................................................14

INTRODUCTION
Business strategy refers to a set of actions and moves which a business uses to attract the
customers towards it (Akter and et.al., 2016). It is primarily prepared in order to strengthen the
performance and achieve the goals and objectives of the organization. It provides an outline of
business in order to achieve the desired results. Thus it is the task of higher-level management to
prepare business strategies. This report is based on IKEA which is a Swedish multinational
company dealing in ready-to-assemble furniture, kitchen and home appliances. In this
assignment, specific analysis will be made on impact macro environment factors can have on
business strategies, internal environment of organization and its capabilities, evaluation and
application of Porter’s five forces. Additionally, focus will be made on application of models and
theories to assist in understanding and interpretation of strategic directions in an enterprise.
TASK 1
P1: Analysis of macro environment
IKEA is a Swedish multinational company which was founded in 1943 and deals in
ready-to-assemble furniture, kitchen appliances and other accessories. The headquarters of the
company is located in Delft, Netherlands.
Mission- IKEA’s mission is to provide goods for home usage to its customers at an
affordable price. It aims to provide quality products to its various customers.
Vision- The vision statement of IKEA is “To create a better everyday life for the many
people”. It aims to provide products which make the lives of its clients easier.
Objectives- IKEA’s objectives are providing furnishing items of good design, function,
durability and quality at low prices so that majority of people can afford them.
Analysis of macro-environment factors-
PESTLE analysis-
PESTLE analysis is a management tool which is used for analyzing those factors which
affect the macro-environment of an organization (Amran and et.al., 2016). Its application in the
context of IKEA is explained as follows-
Political factors-Political factors include government policy, political stability etc. These
factors impact IKEA as it may need to change its strategic decision and tactical action because of
their impact because politics has an influence on objectives of the company.

Positive impact- If the government policy is in IKEA’s favor then it can benefit from it
to realize its objectives and increase its level of profits.
Negative impact- If the political stability in the country is not good then it will
negatively impact IKEA as it may result in decrease in its profitability level.
Economic factors- These are economic growth, exchange rates, disposable income of
customers etc. IKEA’s strategic decisions and tactical actions are impacted by these factors as
they directly or indirectly impact its profitability level because economic conditions have a major
role in influencing profitability.
Positive impact- If the economic growth witnesses a boom then it will positively
influence IKEA’s business.
Negative impact- If the disposable income of customers decreases then it will result in
lower revenues for IKEA.
Social factors- These are population, age distribution, social culture etc. These factors
influence the strategic decisions and tactical actions of IKEA as it may need to change them
according to a change in these factors (Cubas‐Díaz and Martinez Sedano, 2018).
Positive impact- If IKEA manages to attract younger customers in population towards
itself then it can witness high growth in its revenues.
Negative impact- If IKEA’s products are affected by the social culture of a particular
area then it will negatively impact its business.
Technological factors- These are technological incentives, level of innovation, research
and development etc. IKEA’s strategic decisions and tactical actions are impacted due to them
because a change in technology influences restructuring of a firm’s products and services
(Ghemawat, 2016).
Positive impact- If IKEA is quick in adopting new technology in its production then it
will positively impact its business.
Negative impact- If IKEA does not quickly adapts to new technology then it will
negatively impact its business operations.
Legal factors- These are discrimination laws, employment laws and other rules and
regulations framed by the government. IKEA can be impacted by them because a change in them
can affect its strategic decisions and tactical actions.
Positive impact- If the new rules and regulations are in IKEA’s favor then it will result
in positively influencing its business.

Negative impact- If the new rules and regulation are not in IKEA’s favor then it will
result in negative influence on business.
Environmental factors- These are weather, climate, environmental policies etc. They
can impact IKEA’s strategic decisions and tactical actions because customers are increasingly
becoming environment-cautious (Gumusluoglu and Acur, 2016).
Positive impact- If the environment policies are in IKEA’s favor then the business will
positively boost up.
Negative impact- If the government introduces strict environmental policies then
IKEA’s profits may reduce.
Stakeholder analysis-
Stakeholder analysis is used to identify the factors which influence the decision-making
of stakeholders of a business (Habib and Hasan, 2017). The analysis in the context of IKEA is as
follows-
Owners- Owners are the primary stakeholders of a business. IKEA’s managers have to
act according to the strategic decision and tactical actions of the owners.
Employees- Employees are important stakeholders as they are the ones who implement
the policies of management into action and thus influence IKEA’s strategic decision and tactical
action.
Customers- Customers are important for any company including IKEA as its strategic
decisions and tactical actions depend upon their needs and requirements.
Suppliers- Suppliers are important for IKEA as the price of inputs depend upon them and
so does the level of profits of the company.
M1: Critical analysis of macro environment
The macro environment factors can be determined using the PESTLE analysis and
Stakeholder analysis. IKEA can use both of these frameworks to identify the changes in the
macro-environment and act according to them so that its objectives can be achieved. These
frameworks are quite helpful for the organization as they influence the strategic decision-making
by the management. Also long-term plans of the firms are impacted by their influence.

TASK 2
P2: Analysis of an organization’s internal environment
VRIO analysis- VRIO analysis is used to identify those resources of an organization
which can be classified into valuable, rare, inimitable and organized. Its analysis in the context of
IKEA is as follows-
Resources Valuable Rare Inimitable Organized
Brand Image Yes Yes Yes Yes
Customer
support
Yes No No Yes
Innovation Yes Yes Yes Yes
Supply chain
management
Yes No No No
Valuable- Brand image, customer support, innovation and supply chain management are
all valuable resources for IKEA because it is due to them that it has been able to create a strong
customer base and is earning sustainable profits.
Rare- Brand image is rare because not many companies in this segment enjoy such a
good brand image as IKEA, customer support is not rare because many other firms offer the
same and innovation is rare because it requires heavy investment. Supply chain management is
not rare because it is present in other organizations.
Inimitable- Brand image is inimitable because it requires goodwill to build it, customer
support is not inimitable because it can be copied, innovation is inimitable because it requires
research and development and supply chain management is not inimitable because it can be used
by other firms.
Organized- Brand image, customer support and innovation are organized because they
are important for the firm. Supply chain management is not organized because there are some
loopholes present in it.
Resource-based view-
Resource-based view is a managerial approach which is used to identify and classify
resources into various groups in order to achieve sustained competitive advantage (Hart, Sharma
and Halme, 2016). Its analysis in the context of IKEA is as follows-
Tangible resources- IKEA needs to identify their resources which are tangible such as
cash, fixed assets etc. These are important for it because they will give it sustained competitive
advantage in the future.

Intangible resources- Some of the IKEA’s resources are intangible such as brand image,
goodwill etc. They cannot be seen but they provide sustainable competitive advantage if used to
the advantage of company.
Assumptions of analysis-
Heterogeneous- This framework assumes that the resources and capabilities of
companies maybe same but may differ in some aspects. This means that IKEA’s resources and
capabilities are heterogeneous in nature.
Immobile- This framework also assumes that resources and capabilities of companies are
immobile that means they cannot move from one company to another at least in the short-run
(Jeanpert and Paché, 2016). Thus IKEA’s resources and capabilities are immobile in nature.
VRIO- The resources and capabilities identified using RBV analysis should have VRIO
attributes if the company has to gain sustainable competitive advantage using them (Johansson
and Kask, 2017). Thus IKEA’s some resources identified through RBV have VRIO attributes
thereby giving strategic advantage to the organization.
M2: Critical evaluation of internal environment
The internal environment tools i.e. VRIO analysis, RBV analysis and SWOT analysis can
be used by IKEA to identify intrinsic factors affecting its strategic decision making. If these
models are used effectively by the company then it will result in increase in overall efficiency
and effectiveness. This will allow the organization to channelize its intrinsic resources and
capabilities in such a manner so that sustainable advantage can be gained over the competitors.
Also, the use of these models helps a company to find problems with its current strategies and
rectify them.
TASK 3
P3: Application of Porter’s five forces model
Porter’s five forces is a model which is used by organizations in order to find out the five
competitive forces affecting the industry and the power they have to influence strategic decision
making (Porter’s 5 forces, 2020). The application of model in the context of IKEA is as follows-
Competition in the industry- It is the first of the five forces. Competition has the ability
to undercut a company. It has high power to influence the strategic decision-making of IKEA
because increasing competition can force it to reduce prices which will substantially impact the
profitability.
Potential of new entrants- It is the second of the five forces. The industry in which
IKEA operates has fewer chances of new entrants. This is so because this industry requires heavy

investment on parts of businesses. Thus it has low power and is unlikely to influence the
strategic decision-making of the company.
Power of suppliers- It is the third one of the five forces. The industry of IKEA is
dependent on suppliers for essential inputs. Thus this is a high-power force with the ability to
influence the strategic decision-making of the enterprise.
Power of customers- It is the fourth one of the five forces. Customers are regarded as the
king in market. It is their choices, preferences, needs and requirements which puts an influence
the products and services offered by companies. This can be termed as a high-power force which
can impact strategic decision-making of IKEA.
Threat of substitutes- It is the last one of the five forces. It is based upon the threat
substitute products pose for a business. However, in IKEA’s industry this force has a low-power
because here customers prefer to pay more for a quality product rather than purchasing a sub-
standard substitute product for a lower price.
Evaluation- After the evaluation of Porter’s five forces model it can be concluded that
there are three forces which are of high power affecting IKEA and two forces are of low power
which do not impact IKEA. Thus, the right strategic direction for the company in such as case
would be to make strategies for getting ahead of competition by improving its efficiency,
properly manage its dealing with the suppliers and develop products and services according to
the needs and requirements of customers.
For evaluating the outcome of Porter’s five forces it is necessary to apply Ansoff’s
matrix. It is a tool which is used by the firms to analyze and plan their strategies for growth. Its
application in the context of IKEA is as follows-
Market penetration- In this strategy, the companies use their existing products and
services in its present market (Lee and Klassen, 2016). However, it aims to increase its market
share. IKEA can use this strategy by decreasing its prices and increasing its promotion efforts so
that it can acquire a larger market share.
Product development- In this strategy, firms develop a new product to cater to their
existing market (Linder and Williander, 2017). IKEA can use this strategy by investing in R&D,
strategic partnership with other firms to boost sales revenue. If this strategy is used properly it
can benefit a company in the long-run as it can increase its profits by a substantial margin and
will lead to acquiring of sustainable edge over the competitors.
Market development- In this strategy, a firm enters into a new market with their existing
line of products. It can mean expansion into new geographies, customer segments, regions etc. It
can be used by IKEA by catering to a different customer segment, entering into a new domestic
market by expanding regionally or by entering into a foreign market (Sanden, 2016). If an

enterprise uses if effectively and efficiently then it will result in increase in its profits thereby
allowing it to acquire sustainable edge over its competitors.
Diversification- In it, a firm enters into a new market with a new product. This strategy
is the riskiest one for the company as if applied incorrectly it can result in heavy losses for it. The
two types of this strategy are-
 Related diversification- In it, potential synergies is realized between the existing
business and the new product or market.
 Unrelated diversification- In it, there is no potential synergies which are realized
between the existing business and the new product/ market.
Justification- IKEA should use product development strategy in which firms
develop a new product to cater the needs and requirements of their existing market. It is
so because this strategy is helpful in innovation of new products. Innovation is a must if a
firm has to gain and sustain competitive edge over the long-term. This will enable it to
get ahead of its competitors.
M3: Devising of appropriate strategies to improve competitive edge
The use of models like Porter’s five forces and Ansoff matrix gives the firm an
opportunity to find out the power of the environmental forces and the ways through which it can
gain sustainable competitive edge. If they are used effectively and efficiently by IKEA then it
will improve its efficiency, effectiveness and productivity and will raise its profits. This will help
it in accomplishment of long-term goals and objectives which are crucial for its success in the
long-run. Also the impact of environmental factors can be analyzed using these models.
TASK 4
P4: Application of theories, concepts and models and preparation of strategic plan
for the organization
Different theories, concepts and models can be used by the organizations in order to
devise strategic planning for the long-run in order to gain sustainable competitive advantage
(Lloret, 2016). One of such models is Porter’s generic strategies which can be used by IKEA to
pursue competitive advantage.
Porter’s generic strategies-
Porter’s generic strategies refer to a management tool which is used by organizations in
order to devise strategies for gaining sustainable competitive advantage.

The application of this model in the context of IKEA is explained as follows-
Cost leadership- This strategy is useful for the firms to gain competitive advantage by
reducing their costs (Maniora, 2018). IKEA can use it by two ways- By increasing profits
through reduction of cost or increasing market share by charging lower price making a
reasonable amount of profit.
Differentiation- This strategy can be used by organizations when they differentiate their
products from that of the competitor. IKEA can use this strategy by making its goods different
from the competitors in terms of features, quality etc. so as to attract the customers.
Cost focus- In this strategy, companies focus solely on reduction of costs to increase the
level of profits (Marx, 2016). IKEA can use it by reducing its costs so that it can gain sustainable
competitive advantage. It can focus on a particular market where it can reduce its costs.
Differentiation focus- In this strategy, companies solely focus on differentiation. IKEA
can use it by making its products different from the competitors. It can focus on a particular
market where it can differentiate its products from the competitors.

Justification- IKEA should choose cost leadership strategy as it has broad focus as
compared to the other strategies. Using it will help the company in the long-run as it will lead to
reduction of its costs and maximization of profits will certainly help it in acquiring sustainable
competitive advantage.
Tools management can use to apply these strategies-
The management of IKEA can use various types of tools to apply Porter’s generic
strategies. These tools are use of new technology, bringing efficiency and effectiveness in
production, reduction of unnecessary overheads etc. This will help IKEA to gain sustainable
competitive advantage in the market.
Strategic plan-
A strategic plan refers to a document which is used for establishment of direction in an
organization (Perey and et.al., 2018). It is required for short-term and long-term strategic
planning in an enterprise. The strategic plan of IKEA is as follows-
Particulars Explanation
Vision The vision of IKEA is to provide goods and
accessories required by the customers which
can help in their everyday life.
Mission The mission of IKEA is to provide products
and services to the customers at a reasonable
price fulfilling their needs and requirements.
Core values  Cost consciousness- The Company
aims to provide products which are not
heavy on the pockets of the customers
and can be easily purchased by them.
 Caring for people and planet- The
Company aims to design sustainable
and eco-friendly products which do not
harm the environment in any way.
SWOT analysis SWOT analysis of IKEA-
SWOT analysis is a management tool
which is used for assessment of strengths and
weaknesses which are internal in nature and
opportunities and threats which are external in
nature. Its application in the context of IKEA is
as follows-
Strengths-
 IKEA’s clear vision is its biggest
strength due to which customers are
attracted towards it.
 Use of KPIs enables IKEA to measure
performance and ensure that it is

according to standards.
Weaknesses-
 It becomes difficult for IKEA which is
an MNC to control standards across the
world.
 The products of IKEA face concerns
regarding the environment.
Opportunities-
 By embracing new technology the
company can reduce its cost which will
allow it to maximize the profits
 By expanding into emerging markets
the company can increase profits.
Threats-
 IKEA’s business model faces threat of
imitation from its competitors.
 IKEA has been slow to adapt to online
shopping which can create issues for
the company.
Long-term goals The long-term goals of IKEA are to become
the market leader in its segment by leaving
behind all the other competitors and raising its
level of profits.
Yearly objectives IKEA sets objectives on a yearly basis thereby
ensuring that its objectives must be SMART
i.e. Specific, Measurable, Achievable, Realistic
and Time-Based.
Action plan The action plan IKEA will adopt to achieve its
short-term and long-term objectives is as
follows-
 To raise efficiency and effectiveness in
production by arranging special
training sessions for its employees.
This will reduce the inefficiency and
ineffectiveness of the workers of the
organization.
 To reduce its cost the company is
going to remove the unnecessary
overheads which keep cropping up in
its overall costs. Their removal will
help the company to a great extent in
reduction of overall costs and thereby
in achievement of objective of profit
maximization in the future.

M4: Producing a strategic management plan
The strategic management plan provides a roadmap for IKEA to realize its short-term and
long-term objectives by proper implementation of its strategies effectively and efficiently. The
elements of this plan are quite helpful for the organization. This plan can lead to enhancement of
the company’s ability and can influence its decisions. If the company takes the right strategic
approach on the basis of this plan then this will lead to acquiring of competitive advantage over
the other companies in the market.
D1: Critique and interpretation of information and data
The information and data obtained through the analysis of macro-environment and micro-
environment factors can be used effectively and efficiently by IKEA’s managers for framing of
long-term plans for the benefit of the organization. Tools like PESTEL analysis, Stakeholder
analysis provide the information regarding macro-environment. Micro-environment can be
analyzed using VRIO and RBV analysis. If the company can use this information in the right
manner it can devise strategies which will be quite helpful in getting ahead of the competition
prevailing in the market. This can help it becoming the market leader and maximize its level of
profits.
CONCLUSION
From the above report, it can be concluded that business strategy refers to decisions that
the mangers have to take for the benefit of the organization in the short-run and long-run. Tools
like PESTEL analysis and Stakeholder analysis help in analyzing the macro-environment.
Internal environment can be analyzed using VRIO and RBV analysis. Further, Porter’s five
forces can be used to find the power of forces in market. Ansoff’s matrix can be prepared for
devising the strategy that an organization should adopt. Porter’s generic strategies can be used to
identify the approach that the firm should use and a Strategic plan can be prepared to gain
sustainable competitive advantage over other firms.

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