Business Strategy for IKEA

This report discusses the business strategy of IKEA, including its mission, vision, objectives, and macro environment factors. It also covers the SWOT analysis and Porter's Five Forces analysis of IKEA. The report provides insights into the company's strategies and direction for future growth.

BUSINESS STRATEGY
1

TABLE OF CONTENT
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Mission, Vision and objectives of IKEA.....................................................................................3
Macro environment......................................................................................................................4
TASK 2............................................................................................................................................6
Swot Analysis..............................................................................................................................6
VRIO Framework........................................................................................................................7
TASK 3............................................................................................................................................9
Porter five forces..........................................................................................................................9
TASK 4..........................................................................................................................................10
Model and concept of strategic management plan for IKEA....................................................10
CONCLUSION..............................................................................................................................12
REFERENCE................................................................................................................................13
2

INTRODUCTION
Business strategies are formulated by organisation in order to gain competitive
advantages and maximum customer share in particular industry. Company need to formulate
strategies decision and tactics action as per internal and external factors that impact on operation
of firm. Internal capabilities and resources of company helps in effective utilisation of available
opportunity and protect firm from various external threats for smooth operation of enterprise.
This report is about IKEA that design and sell furniture, home accessories and kitchen appliance
to customers in order to earn profitability. It has covers various areas such as macro environment
factors that influence IKEA performance and market share. Porter Five force model is used to
identify level of competition and market position of IKEA in retail industry so that effective
strategies can be formulated to gain competitive positioning. At last Boom clock model is used to
suggest various strategies and direction that can be used by IKEA to operate its function.
TASK 1
Mission, Vision and objectives of IKEA
Mission:
The business idea helps the vision by providing a broad range of well-designed,
functional home furnishing product at affordable prices so that number of people enables to
afford them. The core value of IKEA is to offer high quality products at lower price.
Vision statement
The mission statement of IKEA is to develop better life for the people (IKEA: Vision |
Mission | Core Values (2019), 2019).
IKEA’s objectives
The main objective of the company is to offer high quality, durability home furnishing
items of good design and functions, at affordable price so majority of people can buy them. This
objective give direction to employer an employee to work in right direction. It also supports to
create base for the IKEA decision-making and try to decline price of the product as much as
possible (Brata, 2018). This objective guides the way of IKEA products indirectly such as
designs, manufactures, transport, sell and assembles. So in other word, it can say it is the base of
all organization’s strategies, tactics. This objective helps IKEA to measure and control all the
performance of workforce as well as management.
3

Strategies of organization
 To focus on individual marketing instead of mass marketing so that easy to access large of
customer on time as well as saves extra expenditure on mass marketing.
 To introduce diversity in the workplace effectively so that it helps to generate high revenue and
builds strong brand image in the business market.
 To open small retail stores in various countries that helps to lead high availability of the product
in the market. Organization has strategy to open number of stores an locates them as per
segmented marketing.
 IKEA has strategy to lead financial stability, independence and flexibility which supports to get
good position in the business market.
Macro environment
It is a set of external condition or factors that impacts on organization’s performance,
productivity and operations positively or negatively (Vergassola, 2019). Macro environmental
factor includes GDP, inflation, employment, spending, monetary and fiscal policy etc. which
impact financial stability positively or negatively.
Pestle Analysis
It is analytical tool that is used to analyse and monitor external environment of the
company. It contains numerous factors i.e. political, economic, socio-cultural, technological,
legal and environmental factors (Ehsan Ullah, Karlsson and Dada Olanrewaju, 2016). IKEA
company uses Pestle analysis framework because it is analytical tool and supports to analyse
external business environment of company. IKEA is a Swedish-based brand that offers wide
range products at low price through its stores which are located across the world.
Political factors
Political stability from past few years impacts on organization’s operation positively. Due
to the stability organization does not have to change their policies and gets chance to retail it’s
product to large number of product at single time. Organization has strategy to locate some new
stores which leads high availability of IKEA products in the market and influence sales revenue
of company. Whereas political stability influences this strategy because it does not have to
follow other policies to operate business effectively. There has high level of taxation in the
country which give negative impact on organization’s profitability.
Economical factors
4

The economical factors are economic crisis, currency exchange rates, fluctuation of raw
material, tax rates and employment rate etc. impacts on organization performance. For example,
unemployment rate is too high in the country which is profitable opportunity for the company
(Hämäläinen, 2019). Company has strategy to make supply chain stronger that helps to supply
raw material on time. whereas high unemployment rate influences strategy of company because
it gets chance to recruit large number of people who willing to work on lower cost that declines
cost of the IKEA. Thus, company gets positive impact on it’s strategy. But economical instability
leads financial loss in company because company does not have currency exchange facilities that
causes unable to trade it’s products to other people.
Socio-cultural factors
Demographic changes, difference in education background etc. are socio-cultural factors
that impact organization strategy such as to meet each customers objective. So, IKEA follows
marketing segmentation strategy to target it’s customer whereas demographical segmentation
strategy supports company to target certain customer i.e. women. This strategy influences by
demographic factors as result IKEA easy to influence purchasing behaviour of customer.
Continuous change in customer trends gives negative impact on organization’s sales revenue
because company have to change it’s products to meet each customer objective which leads
uncertainty in business operations.
Technological factors
Recent technological development gives positive impact on the organization’s
performance and productivity as well. For example, IKEA enables to give high quality home
decor furniture on lower cost that attracts customer towards products and increases purchasing
behaviour of the company (Mehra, 2017). But continuous change in the technology impacts on
the cost of company negatively as result reduces profit ratio on large scale. To overcome the
issue company strategy of future technological innovation this will support to raise the levels of
profit. In addition this strategy ensures IKEA sustainable profit over long extend period of time.
Legal factors
Discrimination law is imposed by government for all companies so that every company
treats it’s employees fairly. IKEA has strategy to introduce diversity at the workforce and meet
each employment policies effectively in the organization. Whereas this strategy influences by
government because company recruits job vacancy to the people that means gives contribution to
5

reduce unemployment rate (Rothaermel, 2016). Thus, organization gets two type profit such as
first it easy to lead high turnover of employees or worker at the workplace. Second diversity of
workforce helps company to understand each customer needs and demands for the product. The
legal factor gives positive impact on organization’s strategy.
Environmental factors
It includes climate change, weather condition and environmental safety law etc are
environment factors which impacts on IKEA’s strategy. Current weather condition affects ability
of the company to arrange the transportation of both resources and final products negatively. The
reason behind is that IKEA unable to supply it’s products to the customer on time that leads
negative impression of the customer towards company. Organization has strategy to offer wide
variety of products on different costs so that it can meet each class customer’s objective.
Whereas environmental laws impact this strategy negatively because IKEA produces large
amount waste that leads high pollution. So, environmental government imposes several laws on
the IKEA type companies to manage their environmental habits.
TASK 2
Swot Analysis
It is a strategic planning tool that is used to support individual or organization to
determine strengths, weaknesses, threats and opportunities which is related to business
competition or project planning as well (Rybnikář, 2016). The model is basically designed to
analyse internal environment of the company.
Strengths
 Brand reputation and market presence: It is major strength of the company that
acquires through it’s good quality furniture products. Due to the product organization
becomes valuable furniture retailer brand in the global market. Organization has strong
brand presence in the hypermarket and supermarket. It operates in 38 countries through
it’s 332 retail stores which are located across the world and offers high quality furniture
products to the customer. More than 600 million users visit IKEA retail stores per year.
 Diversified product portfolio: Company has wide product line i.e. furniture products
and others that helps to meet each customer’s objectives. The main function of the
company is to design, manufactures and sells its products to the customer as per their
requirement. It is major strength of the company (Šomodi, 2017).
6

Weaknesses
 Negative publicity: Ikea has lots of time criticized for it’s issues like poor fair treatment
of employees and questionable advertising practices etc. that gives negative publicity and
decreases brand image of the company in the market.
 Low quality product and service: organization unable to find another solution to reduce
operational cost of the inputs while maintain high quality of all products. as per the view
of UK’s customer statement IKEA is not offered high quality products and services to
them. Thus, type negativity causes company face high loss in it’s firm and damages brand
image as well.
Opportunity
 Growing online sales: it is beneficial opportunity for the company to expand sales
revenue of the company. If company uses this opportunity it helps company to deal with
large number of customers at single time and can lead satisfaction level by offering
comment service. In addition, it declines cost of the company which it spends on its
infrastructure.
 Expansion to growing grocery market: Company has opportunity to expand it’s
business in the grocery sector because current trend is to eating healthier food in the UK.
So this opportunity helps company to expand it’s business in multiple sector as well.
Threats
 Fast competition: Organization can get threat in his sector because competitor for the
furniture products is growing which is not good sign for the company (Szerakowski,
2017). The major competitor of the company is Walmart and Tesco who offers less
expensive home furniture items.
 Increase in disposable income: It is another threat for the company because high
disposable income leads change in customer’s choice. Potential customer does not like
buy cheap products in that situation IKEA unable to retail it’s product to the customer.
VRIO Framework
It is another model that is used to identify internal strength and capabilities of firm so that
it can make effectively utilisation of available opportunities and grow its business operation.
IKEA strength and capabilities can also be analysed through use of VRIO Framework so that
7

company can remove its weakness to gain competitive advantages as compared to others
(Ransbotham and et.al., 2017). At the same time use its strength to make optimum utilisation of
available opportunity in retail market so that customers needs can be satisfied. VRIO analysis of
IKEA is as follows:
Resource of
firm
Value Rare Imitable Organise
Human
Resource
YES NO NO YES
Management YES YES YES YES
Organisational
structure
YES NO YES YES
Technology YES YES NO YES
Brand Image YES YES NO YES
From the above table strength and capabilities of IKEA can be determined that
contributed towards achievement of organisational goals. Such as :
Value: IKEA has highly qualified, experienced and knowledge employees that are dedicated to
work hard so that company can earn huge amount of profitability. Innovative technology has
helped company to satisfy wants and desire of customers thus it is also valuable. Effective
management of people and definite organisational structure helps in better coordination and
cooperation of individual towards accomplishment of particular task (Paulus-Rohmer, Schatton,
and Bauernhansl, 2016). Brand image of IKEA is also valuable that helps in differentiating
company products from other competitors in the market.
Rear: IKEA in three areas is rare such as brand image, technology and management that
promote sales and growth of enterprise in retail industry. Company by patent its technology and
product image have gained strong brand image and maximum customers satisfaction. Manager
of IKEA also provide friendly and support environment so that employees does not focus on
conflict and plan ways to improve their performance.
Imitable: Management and organisational structure of IKEA can be imitable so company have
to find new and innovative method to manage people and perform various task so that desired
objective can be gained (Manimaran, Pandian and Rajaram, 2020). Flexible organisational
8

structures helps company to easily adapt to environmental changes and gained differentiate
positioning.
Organise: IKEA has effective utilise its human resource, technology and organisational structure
to render better and qualitative services to end user. Therefore, optimum utilisation of individual
capabilities, skill, and technology to deliver services to customers has promoted growth of
organisation.
TASK 3
Porter five forces
Porter’s five forces model refers to identification and analysis of competition in the
market which helps industry to determine its weakness and strengths. Thus, five forces help
people in selecting the line and potential of the business in the market to achieve the goal (Danso
and et.al., 2019). IKEA is the well knows business which is dealing in furniture and home
appliance segment of the market. IKEA Porter’s five forces are explained below:
Threat of new entrants: Furniture business needs less documents to starts its activities in the
market to achieve the goal. Barriers and policies are less involved in the furniture business
industry. This generate platform to enter in the world of furniture industry. IKEA dealing in the
sectors which have number of legal formalities to start the business so its difficult for new
company to enter into market. IKEA is providing its services at large scale of the market which
also contributes to the economic growth of the country. This economic growth may affect the
new business in the initial stage to operate the function of the firm (Mangematin, Ravarini and
Scott, 2017). New entrants will have difficulties in building of similar to IKEA distribution
channels, as company is providing products and services to the market from long period of time.
In the global market of furniture and home appliance there is more supply then the demand of the
products this make difficult for the new business to enter the industry. Therefore, threat of new
entrance is low so IKEA can easily can expand its market shares.
Rivalry among existing firms: IKEA have to face both direct and indirect competition in the
market to achieve the objective. Some of the stores likes Wall Mart, Tesco are the also dealing in
all types of furniture and home appliances in the market which directly gives competition to
IKEA. Number of local furniture manufactures effects the sales of the furniture in the market.
This is the offline competition provided by the business prevailing in the market to IKEA. IKEA
also faces competition on the online platform such as eBay, amazon, Alibaba etc. These giant
9

online retailers have good network of the people in digital marketing to make deals easily in the
market. Everyone in the market is trying to increase the sales which results in high competition
market to IKEA.
Bargaining power of buyers: Bargaining is the human tendency which is prevailing in every
customer from starting of the life. IKEA products are also being highly bargained by the people
in the market. IKEA already provides its products at best price in the market to achieve the goal
but customers are king of the market which may compare the products on the price basis (de
Oliveira and et.al., 2017). Buyers also creates the list of advantages and disadvantages of the
product which helps in bargaining of the IKEA products in the market. Customers are also fully
loaded with the list of the different retailers in the furniture world which create the competition
in the sale of the business.
Bargaining power of suppliers: There are large numbers of suppliers in the market from which
company can deals to complete the goal. IKEA has a strong brand image in the world of
furniture which make it easy to switch over the different supplier in the market. This makes
bargaining power low of the supplier. IKEA has formulated some laws such as no child labour,
no discrimination, and providing safe environment to the workers which supplier needs to fulfil
to generate the business from the company. Supplier needs to fulfil all the formulated law
otherwise company have the right to cancel the contract which is between IKEA and supplier.
Threat from substitute products: IKEA has the high brand image in the market of the furniture
between the people. This helps in developing of trust over the brand by the customers prevailing
in the market. IKEA offers wide range of products under one roof which may be difficult task for
the competitors. Hardly any of the competitors provide wide range of furniture products in the
market (Peris-Ortiz and Ferreira, 2017). Company provides products and services at affordable
price which moderate the threats from the substitute products. IKEA has a great popularity and
quality range offered in the market to achieve the goal of the company. Based on all these factors
IKEA threat from the substitute products gets low.
TASK 4
Model and concept of strategic management plan for IKEA
Strategic management plan contribute in effective growth and expansion of enterprise by
planning in advance various steps, strategy that need to be performed by company in order to
satisfy customers needs. Different strategic, tactic and tangible objective can be made by IKEA
10

in order to guide and support individual about various activities that need to be performed for
attainment of common goals (Davids and Van Belle, 2017). Boom clock model can be used to
plan strategic management strategy for IKEA so that in future it can gain competitive
advantages. Such as:
Low prices and low value Added: It is one of the least important strategies to increase
profitability as customers are provided low valuable products at lower prices. Thus, Low prices,
low value reduces customer’s satisfaction level and impacted on overall profitability, market
share of firm. Therefore IKEA should not offer low quality products to attract customers as it is
short term strategy to expand market share.
Low price: It can be another suitable strategy that can be adopted by IKEA to meet customers’
needs and demand. Company by using innovative technologies and method of production can
bring economic of scale, building strong relationship with supplier to get raw material at lower
prices thus reduces prices of each products can be reduced (Ko and Liu, 2017). Lowering profit
margin to reduce cost of products is not best strategy as lot of effort is taken to earn minimum
amount of profitability.
Hybrid: IKEA can also offer differentiate products at reasonable rates in order to gain
competitive advantages and increase its sales volume. It is one of the effective positional strategy
that can be used by IKEA to influence maximum number of customers and earn large amount of
profitability. Therefore Hybrid is the second option that can be used by IKEA to maximise its
market share and customers satisfaction in retail industry.
Differentiation: This is a strategy that is initially used by IKEA to operate its function in retail
industry and meet customers’ needs. Company always tries to launch new and innovative
products and services so that existing as well as new customers can be attracted to make
purchase of IKEA furniture and home appliance (Danso and et.al., 2019). IKEA has put effort on
building strong brand image and customer satisfaction so that it can enjoy profitability and
market share for number of years. Therefore differentiation of products and services by IKEA
will help firm to grow and success its business for longer period of time.
Focused differentiation: It is another best suitable strategy for IKEA to meet needs of target
customers such as company can manufacture furniture, home appliance as per needs of particular
individual. IKEA by making products for high class people can charge high price and earn huge
amount of profit thus it is best strategy for long and short term goals.
11

Risky high margin: It is responsibilities of top management to ensure that appropriate prices are
set for particular products and services. Customers are render high value than they have purchase
so that they can easily retained within firm and continuously purchase product after some times
like month, year etc.
Monopoly Policy: IKEA operate in retail industry that have numerous competitors offer
qualitative and unique products to end user so company cannot charge monopoly price for
customers. So, manager of IKEA avoid monopoly policy in order to grow and sustain in retail
industry for longer period of time.
Loss of market share: It is last position where company market share have been loss as firm sell
low quality products at high prices. Therefore manager of IKEA always ensure that maximum
benefits should be provider to end user in order to retain customers satisfaction and loyalty
(Paulus-Rohmer, Schatton and Bauernhansl, 2016). Therefore all such strategic, objective and
tactic helps IKEA to achieve its objective and increase its sales volume through focusing on
customers’ needs only.
CONCLUSION
From the above report it can be concluded that IKEA manager through effectively
identifying external factors of environment able to formulate appropriate strategies for growth of
organisation. It can also be concluded that SWOT and VRIO analysis helps in identifying
company strength and weakness that can contribute in growth and expansion of enterprise in
retail industry. Porter five forces illustrate that IKEA has competitive positioning in market
through innovative strategies and strong brand image. At last it can be concluded from above
report that strategic management plan helps company to easily operate its business activities in
future time through satisfying requirement of customers.
12

REFERENCE
Book and journals
Brata, A. B., 2018. Analisis Strategi Integrated Marketing Communication IKEA Indonesia
dalam Menghadapi Persaingan Bisnis di Bidang Furniture dan Home Furnishings.
Chi, M., Zhao, J. and Li, Y., 2016. Digital business strategy and firm performance: the mediation
effects of E-collaboration capability. In Wuhan International Conference On E-
Bisnis. Association for Information Systems AIS Electronic Library (AISeL).
Danso, A and et.al., 2019. Environmental sustainability orientation, competitive strategy and
financial performance. Business Strategy and the Environment, 28(5). pp.885-
895.
Davids, F. and Van Belle, J. P., 2017, January. Understanding the business strategy factors that
drive the business impacts of cloud computing. In 2017 7th International
Conference on Cloud Computing, Data Science & Engineering-Confluence (pp.
281-287). IEEE.
de Oliveira, M.C and et.al., 2017. Is sustainability in business strategy factual or
figurative?. Race: revista de administração, contabilidade e economia, 16(2).
pp.427-454.
Ehsan Ullah, E., Karlsson, B. and Dada Olanrewaju, D., 2016. Foreign Market Entry Srategies.:
A Case study of IKEA entering Indian Market.
Hämäläinen, J., 2019. Market research on the Swedish textile and fashion market for a Finnish
headwear manufacturer: Case company: Tella Oy.
Ko, W. W. and Liu, G., 2017. Environmental strategy and competitive advantage: The role of
small‐and medium‐sized enterprises' dynamic capabilities. Business Strategy and
the Environment, 26(5). pp.584-596.
Mangematin, V., Ravarini, A .M. and Scott, P. S ., 2017. Practitioner insights on business models
and future directions. Journal of Business Strategy.
Manimaran, S., Pandian, T. M. and Rajaram, K. B., 2020. A Study on Competitive Advantage of
Aligning Information Technology/Information System with Business Strategy of
Fedex. Studies in Indian Place Names, 40(60). pp.4317-4328.
Mehra, S., 2017. Entry Strategy of Global Corporations on The Markets of Non-EU Countries
(India). Scholar, 2019.
Paulus-Rohmer, D., Schatton, H. and Bauernhansl, T., 2016. Ecosystems, strategy and business
models in the age of digitization-How the manufacturing industry is going to
change its logic. Procedia CIRP, 57. pp.8-13.
Peris-Ortiz, M. and Ferreira, J. J., 2017. Cooperation and networks in small business strategy: An
Overview. In Cooperative And Networking Strategies In Small Business (pp. 1-
9). Springer, Cham.
Ransbotham, S and et.al., 2017. Reshaping business with artificial intelligence: Closing the gap
between ambition and action. MIT Sloan Management Review, 59(1).
Rothaermel, F.T., 2016. Strategic management: concepts (Vol. 2). McGraw-Hill Education.
Rybnikář, L., 2016. Projekt marketingové strategie pro zvýšení konkurenceschopnosti firmy
Dvořák autoservis.
13

Šomodi, M., 2017. An Analysis of the Marketing Strategy of the Company HOME INTERIER
sro.
Szerakowski, C., 2017. Transitioning IKEA Towards a Circular Economy: A Backcasting
Approach (Master's thesis).
Vergassola, I., 2019. Prerequisites and outcomes of glocalization of marketing strategies by
international retailers: the case study of IKEA and home depot in China.
Online
IKEA: Vision | Mission | Core Values (2019). 2019. [Online]. Available Through:-<
https://bstrategyhub.com/ikea-vision-mission-core-values/>
14