Analyzing the Impact of Macro Environment on IKEA's Strategies

This report analyzes the impact of the macro environment on IKEA's strategies and examines its internal environment and capabilities. It also evaluates the competitive forces in the retail sector using Porter's Five Forces model and applies different theories for strategic planning.

Business
Strategy
1

Contents
INTRODUCTION.......................................................................................................................................3
TASK 1.......................................................................................................................................................3
P1 Applying appropriate frameworks analyze the impact and influence of the macro environment on a
given organization and its strategies........................................................................................................3
TASK 2.......................................................................................................................................................6
P2 Analyze the internal environment and capabilities of given organization by using appropriate
framework...............................................................................................................................................6
TASK 3.....................................................................................................................................................10
P3 Applying Porter’s Five Forces model evaluate the competitive forces of a given market sector for an
organization...........................................................................................................................................10
TASK 4.....................................................................................................................................................12
P4 Applying a range of theories, concept and models, interpret and devise strategic planning for a
given organization.................................................................................................................................12
CONCLUSION.........................................................................................................................................15
REFRENCES............................................................................................................................................17
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INTRODUCTION
Business strategy is considered as combination of competitive or rivalry practices which
are adopted by a company in order to attract more customers enhance performance, gain
competitive advantages and many more. It will also help in developing proper guidelines that
help in conducting business operations in effective manner for attaining desire goal and
objective. There are main three basic business strategies which every organization needs to adopt
i.e. cost leadership, differentiation strategy and focus (Al-Surmi, Cao and Duan, 2020).
Organization selected for respective report is IKEA which is operating in retail business and it is
founded by Ingvar Kamprad in year 1943. Its head office is located in Delft, Netherland as well
as they design and sell kitchen appliances, ready to assemble furniture and home accessories at
worldwide level. Topics included in this report are impact of macro environment of company
operation as well as it also explain about internal environment and capabilities of firm.
Moreover, it will also evaluate as well as apply outcome of using porter’s five force model in
retail sector as well as it include application of different theories for developing strategic plan.
TASK 1
P1 Applying appropriate frameworks analyze the impact and influence of the macro environment
on a given organization and its strategies.
For an organization it is very much potential to analyze the macro business environment
and its impact on the organisational strategies and tactics to remain competitive in the
marketplace (Hanggara, 2019). Before evaluating the Macro business environment required to
evaluate the organisational vision, mission and objectives that are as follows:
Mission: IKEA’s mission is to provide one of best services for everyday living for people and
keep alive the mission for their employees. The Team members of respective organization share
the doctrines that contribute to build the best products and dream of.
Vision: The one liner simple vision of respective organization is “To create the better everyday
life for the lots of individuals”
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Business objectives and goals: The main objective of respective organization includes to
provide wide range of products includes furnishing home appliances of very good design,
function and in great quality at low price so that every individual can afford it.
Strategic intent and differ kinds of strategic direction:
In context of IKEA they take each and every step in very much planned manner and
depict it to their employees so that constantly they can contribute one of their best efforts in
organisational development and enhancement. In context of IKEA the strategic intent and
strategic direction are as follows:
Strategic intent: In strategic intent consist of the providing low price products with unique design
and functionality to enhance the consumers experience in potential manner (Hanggara, 2019).
IKEA strategies: In strategies of respective organization includes self assembly features that
directly cut operations and transportation cost. Focus on the individual marketing rather than the
mass marketing to achieve the desirable goals and objectives. Further it includes the providing
limited warranty and service model by opening the small retail stores and segmented marketing.
Macro business environment:
In macro environment is very much important for an individual as well as organization to
build strategies and tactics in achieving the desirable goals and objectives. With the help of
PESTEL analysis organization can be able to work in effective manner that are as follows:
Political factor
In political factors consist of the government regulations, political
regimes and taxation and many more. In context of IKEA which
operates in the UK marketplace that is very much unstable in the
nature. Due to advent of brexit organizations not able to operate in
potential manner. Brexit lower down the consumer disposable income
that directly impacts the profitability of organization. Another
important aspect is UK government deciding to lower down the tax rate
from the 30 to 28%.
Positive: Due to the decrease in corporate tax organization can be able
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to gain profitability and sustainability in the marketplace.
Negative: due to the Brexit organization not able to recruit potential
and talented personnel in their firm.
Economic factor
In economic factors consist of the taxation, interest rates and supply of
products and services. In context of IKEA get affected by the
international laws to worldwide economy. Also the respective
organization also suffered from the strong and weak dollar.
Positive: With the help of international laws respective organization
can be able to coordinate the business activities on basis of
international that build distinctive image in marketplace.
Negative: On other hand due to strong dollar more brands lose their
money that hinders their self interest.
Social factor
In social factors consist of the change in taste and preferences of
consumers; in order to serve consumers in best manner required to
acknowledge their needs and demand. In context of IKEA they always
focus on tailoring their products as per the consumer demand but also
avoiding offending social values (Lee, 2019).
Positive: The positive aspect that it directly connects consumers with
organisational products and services and enhances profitability.
Negative: commencing business activities as per the culture of different
nations proved very difficult.
Technological factor
In context of Technological advancement is very much potential, paper
catalogues are still offered to showcase products. with the internet
literally offerings organization can be able to offer one of best products
and services in proactive way.
Positive: with the help of technological advancement organization able
to offer best products at large consumers.
Negative: It occur too much cost to imply.
Environmental factor
In environmental practices of IKEA includes using CSR practices and
eco friendly products to offer best products (Valenti and Horner, 2020).
Positive: It provides one of best experience and eco friendly products.
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Negative: Eco friendly products and services takes too much cost and
time.
Legal factor
In legal factors consist of various kinds of legal regimes, in context of
IKEA they use international laws and HR practices to coordinate
works.
Positive: Legal factors directly enhance the employee’s motivation and
sustainability in marketplace.
Negative: following various kinds of regimes takes too much cost and
creates hindrances.
Stakeholder analysis: stakeholder analysis is the chain of activities includes the identification of
individuals before the project begins (Wahyuni and Eltivia, 2020). In context of IKEA, for
accomplishing the organisational goals that are low cost, offering best design and eco friendly
products that provide one of best experience to the end users. The important individuals in
respective project include the employees, investors, consumers, stakeholders and team of
researchers. People collect knowledge and information and plan in strategic manner to achieve
the desirable goals and objectives.
TASK 2
P2 Analyze the internal environment and capabilities of given organization by using appropriate
framework.
For analyzing internal environment and capabilities a company can adopt different
models as through that they can conduct their business in effective manner by understanding
their effectiveness (Burgelman, 2020). In respect of IKEA, they can adopt two different models,
one for analyzing internal environment and another for capabilities. Below both the models are
given below:-
SWOT Analysis
Strengths Weaknesses
 Strong financial position – IKEA  Negative media consideration – IKEA
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announced income of €38.8 billion
($44.6 billion). This can be credited to
the ideas that convert into a variety of
items that is collected by the customers
themselves and which eventually
prompted colossal decreases in cost
(Cardoni, Kiseleva and Lombardi,
2020). IKEA has centered towards
keeping up cost initiative which thus
forces a positive effect over its income.
 Affordability – The genuine quality of
the brand is its inexpensiveness.
Keeping up this degree of cost-viability
is the principle motivation behind why
clients or customers continue returning.
The organization has numerous routes
through which it drives down expense
and that too without affecting its items
and client desires.
 Brand market value – Interbrand refers
IKEA to be the most important
furniture retailer brand and is esteemed
at $US 17.4 billion of every 2018.
Under the IKEA establishment
framework, today there 423 stores in 52
markets and nations. This worldwide
nearness and solid brand notoriety
guarantee that clients will choose IKEA
over its rivals. Respective company is
notable and perceived furniture brand.
This perceived brand offering 12000
is working is 52 distinct markets
worldwide and has confronted extreme
analysis commonly for various issues.
Numerous representatives or employees
complain about poor treatment, flawed
limited time exercises are another
territory influence IKEA brand
negatively. Negative exposure can
harm client or customer’s reliability
and brand reputation of IKEA.
 IKEA standardized items – IKEA
primary center is to give normalized
quality products and services at low
costs to oblige its customers. In any
case, it isn't workable for standardize
products to address every customers
need and requirement (Ikea Swot
Analysis, 2020).
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items, created 2.5 billion sites guests
and 957 million store visit in the most
recent year (Fritscher and Pigneur,
2020).
 IKEA Products – One of the key
qualities of IKEA is its items go
usefulness structure, quality and cost
simultaneously. Prepared to gather item
approach draws in its clients with
regards to dynamic procedure. "There
is something for everybody".
Throughout the years IKEA has created
cost effective and innovative products
to attract more customers.
Opportunities Threats
 IKEA's green business model – The
green plan of action holds several
opportunities for IKEA to draw
customer’s attention for purchasing
items. Ascent of the moral purchaser or
the purchasing strategy known as
"Moral/ Ethical Chic'. This implies that
buyers or customers incline toward
those items which are eco benevolent
 Worldwide development – Extension of
the organization inside developing
markets and in the creating nations
where there is an undiscovered
customer’s base will be successful
benefit. IKEA is making arrangements
to enter and grow bigger markets like
 Competition – IKEA is working in 52
nations and having solid rivalry with
nearby and worldwide brands. One of
the world's driving brands Walmart is a
genuine model. In India neighborhood
contenders like Pepperfry, which is an
online furniture retail location, is giving
extreme time to IKEA.
 Law Suits of IKEA – IKEA
experienced a few claims and litigation
matters because of its past issues of
discrimination among employees and
poor quality of products (Ghauri,
Grønhaug and Strange, 2020). The
organization was exposed to claims
from its clients who were harmed by its
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India, China and South America with
its cost leadership strategy and has high
would like to yield benefits for the
organization.
products.
VRIO Analysis
Resources Valuable Rare Inimitable Organized
Products design Yes - - -
Supply Chain Yes Yes - -
Employees Yes Yes Yes -
Financial position Yes Yes Yes Yes
Valuable: It refers to those resources which are valuable for a company because it help them in
gaining competitive advantage. Valuable resources of IKEA are
 Products design – It is so because their designs are innovative and attractive as well as
they offer their products at low cost which help in gaining competitive advantage (Kong
and et. al., 2020).
 Supply chain – Respective Company has effective supply chain which help in minimize
cost which make products cheaper than competitors.
 Employees – IKEA employees are highly skilled and experienced which help them in
gaining competitive advantages at the marketplace by attaining goal.
 Financial position – Respective Company has strong financial position at market place
through which adopts innovation successfully.
Rare: It refers to those products which are rare as comparison to the other companies. In respect
of IKEA their some products are not rare i.e. products design but their some resource are not rare
 Supply chain – Respective Company design there supplies chain in unique way which
makes it different from competitors (Lartey and et. al., 2020).
 Employees – IKEA employees are highly skilled and experienced as well as they are
provided quality training which make them rare and more effective than others.
 Financial position – Respective Company has strong financial position in market which
make it rare than the other similar companies.
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Inimitable: It determine as those products which cannot be copied by other firm (Lyneis, 2020).
In respect of IKEA their some products are imitable such as products design and supply chain
but it also has inimitable resources those are
 Employees – IKEA employees are highly skilled, experienced as well as they get training
according to new technique which make them rare and inimitable because of their skills.
 Financial position – Respective Company has strong financial position which cannot be
copied by other firm at market.
Organized: It refers to those resources which need to be organized for gaining competitive
advantage. Some resources of IKEA need to be organized after an interval of time such as
employees, products design and supply chain but it has resources with didn’t required so
 Financial position – Respective Company has strong financial position which not be
organized after specific period of time.
By conduct SWOT analysis IKEA able to understand their strengths which help them in
grabbing opportunities and overcoming threats as well as they also able to know about its
weaknesses which leads to threat (Montundu and et. al., 2020). Along with this, by implementing
VRIO analysis respective company able to determine its capabilities which help them in
adopting change and innovation for attaining desire goal as well as objectives successfully.
TASK 3
P3 Applying Porter’s Five Forces model evaluate the competitive forces of a given market sector
for an organization
Porter’s five force model is considered as technique which is adopted by a company in
order to determine its effectiveness at the marketplace. According to which management can
develop strategies and plans so that they can gain competitive advantage at the marketplace.
Below market analysis of IKEA is given through Porter’s five force model:
 Bargaining power of suppliers – In respect of IKEA the bargaining power of suppliers is
low because there are so many suppliers of respective company as well as they are in
small size so they not seem as factors of barrier. In addition to this, respective company
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can easily switch their suppliers one from another, this will impact on suppliers business
that they loss business sources from a big firm (Moussa and et. al., 2020). IKEA also
launched a code of conduct for their suppliers i.e. IWAY according to which all supplier
need to follow respective company and their rules.
 Bargaining power of customers – For respective company bargaining power of customers
is moderate because they are offering quality products like furniture in affordable price
but there are many companies who offer furniture in low cost. Along with this, if a
customer wants to buy costly furniture then they visit to luxury furniture store as compare
to IKEA. This show that offering quality furniture at the affordable price will be
beneficial as well as limitation for respective company which increase power of
customers.
 Competitive rivalry – IKEA is operating their business at the national as well as
international level so that are facing competition from all sides. In addition to this, it can
be said that competitive rivalry of respective company is high because there are numbers
of other companies who are operating in similar industry such as Bed Bath & Beyond of
Union, Ashley of Arcadia and many more Amazon, Walmart, Sears and many more
(Ojiako, 2020).
 Threat of new entry and exit – IKEA is operating their business at the worldwide level so
they have huge reputation at market which means they have low to moderate threat of
new entry and exit. This is so because it is hard or impossible for new company to have
as much as market shares which respective company have as they are operating their
business at the international market from many years. Due to which they has high market
value, market shares and customer’s base.
 Threat of substitutes – Respective Company is operating their business in furniture
industry and there are no or less substitutes of furniture. So IKEA will face or
experiences low threat of substitutes while operating their business operations and
functions at the potential marketplace.
By conducting analysis through Porter’s five forces model IKEA able to determine their
effectiveness which helps them in gaining competitive advantage at the potential marketplace.
Moreover, it will also help in developing most effective strategies as well as action plan to attain
effectiveness and sustain at marketplace for long time.
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TASK 4
P4 Applying a range of theories, concept and models, interpret and devise strategic planning for
a given organization
Porter’s Generic model
 Cost leadership – IKEA offer their products through low price while they also maintain
great quality by which they able to attract more customers from the upper middle as well
as middle class (Park and Mithas, 2020). So by conducting operations through respective
model will help company in attracting as well as retaining customers for the long time
period. Differentiation – In order to this strategy IKEA will conduct market analysis so that they
can introduce new as well as innovative products which help them in attaining their
desire goal successfully. It will also help them in enhancing their sales as well as
profitability ratio in effective manner and it also help them in gaining competitive
advantage. Focus – In respect of this strategy IKEA need to develop their strategies and plans
according to the narrow market. In this they will design products and services according
to narrow market as well as they set price of products accordingly. The focus strategy is
further divided into two parts cost focus according to which respective company set price
for narrow market (Peng, 2020). Another is differentiation focus according to that
company design products for small marketplace.
Strategic Plan
Executive summary
Business strategy is determined as technique which is implemented by a company
conducting their business operations and functions properly for gaining competitive advantages.
IKEA is operating in retail industry and offer furniture, kitchen applications and other
equipments. Now they are planning to expand their business in Vatican City for which they
develop strategic plan.
Mission
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Respective company mission is to provide quality services to customers and fulfill
employee’s requirement (Puspitasari and Jie, 2020). IKEA team members conduct their work
effective which helps them in attaining their target and objectives.
Vision
The vision of IKEA is to create the better everyday life of potential customers.
SMART objective
IKEA want to open a new store in Vatican City by the middle of 2021 and want to
increase its revenue by 25%.
Macro environment analysis
PEST analysis
 Political – For respective company it is essential to understand political factors like rules,
regulation of Vatican City as that will help in expansion.
 Economical – For management of IKEA it is necessary to understand respective nation
economic conduction as that will help in developing decision (Tomita, 2020).
 Social – Respective Company also need to analyze require as well as need of society then
accordingly they need to design their products.
 Technological – For IKEA it is essential to understand technological advancement of
Vatican City because it helps in decision making.
Micro environment analysis
SWOT analysis
Strength Weakness
IKEA has global presence which shows they
have high market value, shares and numbers of
customers. Along with this, they offer products
at the low price which help in attract more
customers.
The weakness of respective company is that in
some situation media post negative about the
company which impact on their businesses
(Weng, 2020).
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Opportunity Threat
IKEA has opportunity to expand their business
in left over countries as well as they can also
introduce eco friendly products in order to
attract more customers.
Respective Company is operating in numbers
of countries which means they experience huge
threat through competitive companies such as
Amazon, Walmart and so on.
Competitive analysis
Porter’s five force model
Factors Range Explanation
Threat of new entry Low It is so because it is not easy
for new company to touch
business of IKEA at the
Vatican City.
Threat of substitutes Low There is no substitutes of
furniture and kitchen
appliances which mean there
is low threat at respective
nation.
Competitive rivalry High In Vatican City there are
numbers of companies
operating in similar industry
which increase competition of
IKEA.
Bargaining power of suppliers Low There are several suppliers of
respective company raw
materials in Vatican City
which mean it is easy for
IKEA to move one company
to another easily (Weng,
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2020).
Bargaining power of buyers High There are several furniture
companies in Vatican City
which so customers have
numbers of operations; this
show bargaining power is high
of customers.
Market analysis
SMART
objective
Action for
achieving
objective
Resource
implication
Success criteria Who is
responsible
IKEA want to
open a new store
in Vatican City
by the middle of
2021 and want to
increase its
revenue by 25%.
In order to this
respective
company need to
conduct market
analysis which
help in
development of
strategies.
For this IKEA
need to arrange
funds through
loan.
Establish a
successful
business at
Vatican City.
CEO of IKEA
CONCLUSION
By analyzing above mentioned or described point it can be summarized that for every
company it is essential to conduct analysis of market so that they can develop effective business
strategy. Through business strategy they able to gain numbers of benefits such as attract more
customers, gain competitive advantage, and improve process and many more. For this company
management need to conduct several analyses such as macro environment, micro environment,
market analysis and so on and for that they can adopt different models and theories. That will
include PESTEL analysis, stakeholder analysis, SWOT analysis, VRIO analysis, Porter’s five
force analysis and many more. It is so because through it they able to understand market,
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environment and workplace which help in developing effective business strategies for the
attainment of desire goal and objective.
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