Business Strategy: Analysing Macro-Environment and Internal Environment of IKEA

This article provides a strategic analysis of IKEA, including an analysis of the macro-environment and internal environment. It discusses the strengths, weaknesses, capabilities, structure, and skills set of IKEA. It also explores the opportunities and threats faced by the company. The article concludes with a VRIO analysis of IKEA's resources and capabilities.

BUSINESS STRATEGY

CONTENTS
INTRODUCTION.................................................................................................................................1
TASK – 1..............................................................................................................................................1
Analysing the macro-environment for determining the strategic management decision....................1
TASK – 2..............................................................................................................................................3
Critical analysis of internal environment for assessing the strength, weakness, capabilities, structure
and skills set......................................................................................................................................3
TASK – 3..............................................................................................................................................6
Devising appropriate strategies for improving competitive edge and position in the market.............6
TASK – 4..............................................................................................................................................9
Application of models, concepts & theories and devising strategic planning for Ikea.......................9
CONCLUSION...................................................................................................................................11
REFERENCES....................................................................................................................................12

INTRODUCTION
The present dynamic as well as aggressive environment entails the centrality of key
planning and evaluation for the association. Deliberate planning is needed for the
organizations that are trying to turn into the significant player in the business. The term
strategic analysis is being alluded as the appraisal of the goal, abilities, costs and
understanding the current economic situations of the organization that structures the
substance for the advancement of the strategic procedure. In this way, it is considered as the
most indispensable device for authorizing appropriate arranging process inside the business
(Johnson, Scholes and Whittington, 2008). Considering this, the present research study
centres around offering a vital investigation of IKEA, which is a worldwide organization
established in Sweden, UK, connected with into the selling and planning of furniture, frill and
home apparatuses. The report will incorporate outer condition examination of the
organization in which it is presently working and its related issues influencing the firm. The
investigation will likewise centres around the focused interior capacities of the firm. Result
from the Porter’s five force model will also be evaluated. The last piece of the examination
will illuminate conceivable strategic plan IKEA can use for continuing and improving its
focused position.
TASK – 1
Analysing the macro-environment for determining the strategic management decision
Speaking in volume in regards with IKEA, it is a privately held international home
products retailer that is engaged into selling bathroom and kitchen items, households,
furniture and other accessories. The company was founded in the year 1943 with a main
mission to offer well-designed functional home furnishing products at affordable prices. The
vision of the company is develop a better everyday life for most of the people. Furthermore,
the objectives of IKEA is to manufacture cheap products for those people who can’t afford
expensive products (IKEA, 2013). They also make sure that the customers get everything
what they are looking for in the store. The strategic decisions and tactical actions of the
company is affected by numerous macro-environmental factors and there critical evaluation
is necessary for informing right management decisions. All these factors can be analysed by
making use of PESTLE analysis tool.
PESTLE analysis
The benefits of IKEA is profoundly affected by the rate of corporate
1

Political
taxes which essentially drops down the after-charge earnings.
Further, there are numerous levies and exchange hindrances
enforced by the administration of United Kingdom which prompts
increment in the costs of products bought from different countries by
the procedure of import. In addition to this, in the decade of 1970 to
1980, IKEA has used prison labour in EAST Germany which has
developed a political controversy all across the globe. Issue in
relation with the supply chain disruption caused due to political
instability in the nation also affects the strategic decision making
process (Chen, 2016). All of these factors can impact IKEA and its
organizational strategies as well. Because of supply chain disruption
IEKA’s strategic decision-making process has been affected in
drastic manner.
Economic
The development of the economy of the country legitimately impacts the
business. There has been quick development in the economy of United
Kingdom, which is providing better expectations of living along with
expanded pace of work. This can impact overall sales of IKEA as
enhanced living standard of people of UK can help IKEA to enhance
their overall sales. Supplementary to this, the expense of work is another
factor that effects IKEA harshly. There are numerous countries, for
example, China and India where experienced workers are high in
numbers and thus, can offer more extensive overall revenue to the
company. In view of the expansion rates in the nation, the conduct of the
purchasers is distorted and there is age of avoidable deficiency of assets.
In conclusion, the market is additionally destabilized (Yip, 2004).
Social
The strategic choice of IKEA is bound to impact by the demographic
variable of the country. The maturing populace is very less that make
purchase related furnishings. Moreover, the diminished salary level of the
individuals in UK will urge them to put furniture on lower rank in their
need list. Social trends also impact the sales of IKEA as change in social
trends can decrease popularity or demand of their products or services.
Technology
Digital technology has helped the firm to reach large number of
customers and offered a more cost effective shopping experience to them.
Due to the online retail locations, there is gigantic selling activity for the
2

dealer. In addition, the usage of social media as flighty advertising
channel by majority of its rivals will essentially present incredible risk to
IKEA. It is one of the major factors that can impact IKEA and because of
this IKEA need to focus on their online retail stores as well in order to
increase their overall sales. This is mainly because most of the people
prefer to shop online as compared to physical retail stores.
Environmental
For the firms like IKEA, environmental factors are considered quite
important for their sustenance (Takreem, 2015). The company has
invested in climate around 1 billion dollar towards the renewable energy.
In addition to this, they are also making efforts to source cotton and wood
from sustainable resources. Other than this today a greater number of
people are becoming environment friendly and this can affect IKEA
drastically. They need to focus on producing more eco friendly products
in order to attract a greater number of customers.
Legal
Legal threats are all-time major problem in front of the IKEA. This is
because of the fact that the laws and regulations are very tough and small
violation can prove costly to the firm. The laws being intended for
security of the buyer confines the practical activity of the organization in
a few different ways. Furthermore, the authoritative need requests the
business goals of IKEA to be in higher consistence with the local
legitimate commitments present in the investigated markets (Yip, 2004).
These legal factors have impacted IKEA many times and recently they
have landed into legal issues because of poor product quality.
Conclusion
From the above analysis of macro-environmental factors, it can be critically evaluated
that since, Ikea is one of the greatest home furnishing retailers all across the world, it should
tallies quantities of things to catch the most extreme market amongst solid contender. They
should utilize more and more sustainable power source for their business to diminish the cost
of items and to lessen carbon impression. Ikea have great brand name far and wide of their
items with great cost and quality. Thus, to support this image, they should know their inside
and outside dangers and should attempt to come over. As a huge business they ought to have
great correspondence with providers and with shoppers (Ambrosini and Bowman, 2009). By
3

embracing most recent innovation they can be in front of contenders. Utilizing waste or
harmed material they can deliver item and can protect the environment.
TASK – 2
Critical analysis of internal environment for assessing the strength, weakness, capabilities,
structure and skills set
Internal capabilities – SWOT analysis
Strength
 The major strength is the brand value of
the firm
 Revenue of IKEA was around €32.7
billion in the year 2015
 Types of products being manufactured
 Products are cost effective (Inter
IKEA Systems, 2014)
 Firm is quite famous for smart marketer
and product placement
 IKEA are one of the most affordable
brands that provides good quality
products to their customers. IKEA also
provide countless designs to their
customers to choose from.
Weakness
 Negative image of the company is some
nations
 The concern of Ikea is to keep the cost
minimal and sometimes this is not
always possible
 Scaleability is also one of the major
weakness of the firm as it operates in
many nations and similar standards are
not considered everywhere
 Environmental problems creates bad
image of the firm in the market
 They have recently faced media
attention because of poor quality of
products and as they failed to meet they
customers expectations.
Opportunities
 Growing demand of eco-friendly
products in the current times
 People are now becoming more
conscious about the costs
 IKEA can target countries where per
capita income is low such as China and
India
Threats
 Company faces major threat from
counterfeit products
 Alteration in the government laws and
regulations impacts the price of the
products (Kim, 2015)
 Increasing disposable income will lead
the customers to trade in higher markets
 One of the major threat for IKEA is
increasing competition and in order to
4

gain competitive advantage they need to
maintain their product quality.
Resource based framework
For long haul endurance, organizations like Ikea try to pick up or continue an upper
hand. In connection to the resource based view (RBV), such an upper hand can be
accomplished by playing to the strength and qualities which are its special assets. In addition
to this, it also helps in defining the company in relation with the things it is capable of
performing through its resources as well as capabilities. The resource based view of IKEA is
being described below:
Intellectual resource
 Unique style of furniture
 Having good relations with the government and suppliers
 Staff members are skilled (Ambrosini and Bowman, 2009)
 Operates 24 hours on a regular basis
Physical asset
 More than 300 stores in 30 nations of the world
 One of the largest furniture retailer in the globe
 Around 37 stores of Ikea are franchised
Financial asset
 Source from franchise
 In the year 2005, company made 14.8 billion EURO
 IKEA estimated 23 million dollar in year 2010
 They have also experienced fifteen percent increase in the
sales
Human resource
 More than 125000 of staff
 All the members are skilled and competent
 Customer service is also good (Reynolds, 2008)
 Employees are motivated through reward system
Relational resource
 Internet access of IKEA is quite good
 Transport system is virtuous
 There are around 28 distribution centres
 Networking system
Reputation resource
 Brand name and image
 Popular in America and Europe as well as Asia
5

 Franchising
VRIO framework
Talking about the VRIO analysis, it is being alluded as that instrument that aides in
assessing the quality and shortcoming of the organization. In this technique, a progression of
four inquiries that should be posed in respects with the business workouts of the organization
is being organized appropriately (Kathuria, Joshi and Porth, 2007). Also, these four inquiries
are connected with value, imitability, rarity and the association, for example, does the assets
and abilities empowers the firm to react to the dangers and chances of the environment, what
number of firms are working with a similar significant assets, is the organization is sorted out
adequately to misuse its maximum capacity and so forth the VRIO investigation of IKEA are
as follows:
Valuable
 The shopping experience is enjoyable
 Inventory system
 Desirable stylish products at low costs
 Experience of global expansion and
launches in new market
Rare
 Stylish desirable products at low costs
 Inventory system i.e. ability to take
home products immediately is quite rare
 Customer community as Ikea has
maintained good relationship with them
 Experience is difficult to acquire so it is
rare (Baraldi, 2008)
Imitability
 Style of the furniture are somewhat
imitable
 Experience of shopping can be copied
by other competitors
 Product portfolio can be hackneyed
Organization
 Company seems to have control on the
key resources as well as capabilities
 Ikea follows ownership structure which
makes sure independent as well as long
term approach
Conclusion
As a result of unique assets, IKEA is in a situation to have number of abilities. This
segment turns around an effective retail methodology which works toward making the firm
truly outstanding and driving retailer the whole way across the world. The company centres
around its core idea of reasonable along with different home furnishing and not at all like the
other contending goliaths that focuses on including increasingly more product offerings to
their businesses. In addition to this, there are many core skills of the organization too.
6

Initially, to keep up minimal cost of the items, the bundling of the items is done in a basic
manner utilizing less exorbitant materials. Besides, the firm keep up its structure and model
and gets their patent right. Along these lines, the firm creates faithfulness from its clients.
Finally, the arrangement of the association isn't so perplexing and is adaptable as well.
TASK – 3
Devising appropriate strategies for improving competitive edge and position in the market
Porter’s five force analysis
Bargaining power of the
suppliers
This factor is quite weak in force in light of the fact
that the providers of the organization are offering
rivalry to one another continually for keeping up a
decent association with the major furniture
mammoths. Consequently, the frail industrial power
authorizes the business associations to make more full
usage of the assets and aides in amplifying their
benefits (Chen, 2016).
For IKEA it is a weak force as there are many
suppliers available but their weak financial position
does not allow them to clout.
Bargaining power of the buyers
The purchaser’s bargaining power is very solid due to
the way that there is an excess of accessibility of
decisions as substitutes. Besides, discussing the global
markets, for example, China and Japan, there exists
intense challenge among these retailers.
It is high for IKEA as there are various kinds of
substitute products available in market that can attract
buyers of IKEA.
Threat from new entrants
Threat from new entrants is being viewed as the frail
power on the grounds that the advancement of the new
rivals in the furniture business is generally
insubstantial. This is on the grounds that it includes
colossal measure of capital investment along with
high market immersion (Henderson and Venkatraman,
7

2009).
This power is low as entering and stabilizing oneself
for new entrant is quite tough as this industry requires
large amount of investment which is one of the main
barriers for IKEA.
Threat from substitute
In light of the in vogue brand view of Ikea, it has the
option to draw in simultaneously hold huge base of
clients. Indeed, even there is an excess of accessibility
of substitutes in the market, the organization is
picking up notoriety and in this way it is likewise
considered as a powerless power.
Power of this threat is moderate as there are various
products available in the market that can work as
substitute for products of IKEA and lower brand
image of IKEA can strengthen this threat for IKEA.
Competitive rivalry
It is moderate to high threat for IKEA as IKEA need
to constantly fight for market share as there are many
competitors available in UK market that can give a
tough competition to IKEA.
Outrageous measure of pressure and rivalry is being
looked by IKEA from the comparative sorts of
furniture retailers, for example, Designs Inc.,
Galiform, Argos, Euromarkets and some more.
Further, both China and Japan is considered as the
most encouraging and appealing markets for the
furniture business and hence, organization confronted
solid challenges in such zones (Baroto, Abdullah and
Wan, 2012).
Consequently, with the bounty of fundamental issues that impact the attractiveness of
the business that Ikea is into, it may be reasoned that the furnishing business in United
Kingdom is alluring. Notwithstanding, lot of competition existing in the business makes it
hard for IKEA to deliberately vie for making profits. The higher rates of duties along with
low economic development results into significant expense affectability between the clients.
8

In this manner, it will adversely affect the business procedure models and objectives of the
organization being embraced. On the basis of the outcomes, valid strategic direction can be
produced by making using of Ansoff matrix.
Ansoff matrix for producing valid strategic direction
In this focused as well as vigorous business world, the fate of the organization is
generally optimistic. Ikea need to focus on vital activities in its current and potential markets.
This is a result of the way that challenge is expanding at a quick pace as is the business
patterns (Fangfang, 2013). Relating to this, Ansoff framework can be utilized for assisting the
company to devise future policies and approaches. Explanation of these strategies are as
follows:
 Market penetration – It is the name given to a development technique where the
business centres on selling existing items into existing markets. The main objective of
adopting this strategy is mainly to increase the share in the market of the current
products. Ikea can achieve this by adopting competitive pricing strategy, sales
promotion, personal selling and advertising. Market development – It is being referred as the strategy where existing items are
being sold to the new customers or market. This strategy can be approached by Ikea
through exporting products to new nation or geographical area, new dimension of the
product or packaging, varied pricing policies and new distribution (Marchand,
Kettinger and Rollins, 2001). However, it is being regarded as the most risky strategy
as well as the firm will be targeting new markets.
 Product development – It is a type of a growth strategy wherein new items are being
sold in the existing market or customers. Under this strategy, Ikea is required to
modify its products and develop new competencies. This can be done through
effective research and development, details insights in regards with the needs of the
customers and being first in the whole market.
 Diversification – The last growth strategy is very crucial as it involves selling new
product into the new market. Diversification is inherently more risky strategy since
the business is stepping towards the market which is unknown to them and have very
little experience. Ikea is required to assess the amount of risk being involved in this
growth strategy. If right evaluation of risk and reward is carried out than it can prove
more rewarding (Ireland, Hitt and Hoskisson, 2008).
9

In this way, from the over four techniques being examined, the most reasonable
growth strategy for IKEA is diversification. This procedure will assist the firm with running
for longer timeframe as the item and the market in which the company is approaching are
both new. It is appropriate in light of the fact that it matches with the mission of Ikea, for
example, offering personal satisfaction to all individuals all throughout the globe. The idea of
stepping into the new market with new product will give another wellspring of salary to the
organization. As the firm is new, individuals are anticipating more from it. Introduction of
new product offering will exhibit IKEA as proficient daring entity who can work towards all
path (Dunphy, Griffiths and Benn, 2007). Besides, Ikea has numerous one of a kind assets
which can be utilized creatively for setting up and running another product offering. Along
these lines, diversification or enhancement procedure will unquestionably make upper hand
for the corporation.
TASK – 4
Application of models, concepts & theories and devising strategic planning for Ikea
Porter’s generic strategies
The present world is been described by extreme and solid challenge between the
business brands. Every single brand driving the market has gained this position as a result of
their one or other upper hands. In the absence of this competitive advantage, no organization
can advance beyond its rivals. Tossing light towards Ikea, it is the main home outfitting brand
which is known for its lower costs. The company additionally has worldwide existence and
quite renowned for its a la mode furniture. In this way, being such a known brand, it needs
some significant forte (Argote, 2013). As indicated by Michael Porter, there are three
methodologies which can bolster marks in building and continuing an edge over the
organizations in the market, for example, cost leadership, differentiation and focus. All these
strategies are being elaborated below:
 Cost leadership – In the cost leadership strategy, the company targets the broad
market and provide the products at lowest possible price. In such a strategy, there are
generally two options available for the firm i.e. either keeping the costs as low as
possible or having larger share in the market with average costs.
 Differentiation – Talking in relation with the diversification strategy, here in this the
target is broad i.e. high demanding. However, the product or the service has very
unique features. Efforts are made by the firm to make their products exclusive as
possible in comparison with their competitor’s product. Good research and
10

development, innovation and high quality is being required in such strategy (Eldring,
2009).
 Focus – Here, in this strategy the target market is niche wherein there is little
competition and market is also quite focussed. Firm offer products either with lowest
price or a unique or exclusive feature in the product. It generally involves strong
brand loyalty.
Considering the above discussion, it can be said that Ikea should adopt diversification
strategy by stepping into a new market with new product through cost leadership. In this
regards, it should open a new clothing section in their stores. The firms should keep their
prices low and provide quality products to their target market. Furthermore, for standing apart
from the group isn't generally simple. To accomplish this, the organization need to focus on
fulfilling the requirements of the white collar class clients which are actually quite huge
throughout the world. The association is required to make items which are contemporary in
style and doesn't viably consume the pockets of the clients as well. Therefore, it tends to be
basically said that nature of the item along with its reasonableness might be viewed as a
significant wellspring of suitable upper hand for Ikea (Cooper, 2000).
STRATEGIC PLAN
Strategic vision
Increasing the revenue as well as reputation of the new product i.e. clothing range,
enhancement of its quality and aggressive promotion of the brand IKEA
Gaol Objective Action plan Measurement
Increasing the
revenue of IKEA
 Launching new
clothing range for
men and women in
next six months
 Promotion of sales
in summer season
 Developing
products for
market testing
 Selecting and
launching the best
products
 Increasing sales
of the store by 20
percent by
promotion and
updating the
products
If the gross
revenue growth of
IKEA increases by
30 percent then it
means that
increasing revenue
goal is achieved.
11

Improving the
recognition of the
IKEA’s brand Image
Promotion of the
brand IKEA by
making use of
advertising, in-store
displaying of the
merchandise and sales
promotion
Appointing an
individual team
responsible for brand
promotion
independently
though sales
promotion
 If overall
customer base
of IKEA
increases by at
least 20 percent
then this goal
will be
achieved.
Improvement in the
perception of quality
 Making
improvement in
the perception of
quality of all the
products of Ikea
 Achievement of
high perception of
quality for the new
product category
of IKEA
 At the time of
market testing of
new products in
the potential
markets, quality
is the major
consideration
 Perception needs
to be changed by
using good
quality fabrics,
innovative
designs and
colours
 Improvement in
the perception
of quality by 2
percent of the
existing
products of
Ikea
 Perception of
quality of 90
percent of the
new product
launches
CONCLUSION
Consequently, from the above discourse, it tends to be said that the organization has
numerous qualities along with resources that can be utilized successfully for accomplishing a
focused edge in the market. IKEA has utilized hybrid technique which is demonstrated to be
both effective just as hard for the contenders to duplicate (Miles and et.al, 2018). With
powerful planning and strategies, the association had the option to remain in front of its
contentions. They have additionally focused on white collar class individuals and offered
them separated items at rationale cost. This helped the business corporation to accomplish
quickened performance level and higher development of market.
12

13

REFERENCES
Books and journals
Ambrosini, V. and Bowman, C., 2009. What are dynamic capabilities and are they a useful
construct in strategic management. International Journal of Management Reviews,
11(1), pp.29-49.
Argote, L., 2013. Organizational Learning. 2nded. Springer.
Baraldi, E., 2008. Strategy in industrial networks: Experiences from IKEA. California
Review Management, 50(4), pp.99-136.
Baroto, B., Abdullah, M. and Wan, H.L., 2012. Hybrid Strategy: A New Strategy for
Competitive Advantage. International Journal of Business and Management, 7(20), pp.
1-14.
Cooper, L., 2000. Strategic selling planning for radically new merchandises. Journal of
Marketing, 64(1), pp.1-15.
Dunphy, D., Griffiths, A. and Benn, S., 2007. Organizational change for corporate
sustainability. Routledge.
Eldring, J., 2009. Porter ́ s (1980) Generic Strategies, Performance and Risk: An Empirical
Investigation with German Data. Diplomica Verlag Publishers.
Henderson, J. and Venkatraman, N., 2009. Strategic Alignment - leveraging information
technology for transforming organizations, Management Decision, 32(1), pp.472–484.
Ireland, D.R., Hitt, A.M. and Hoskisson, E.R., 2008. Competing for Advantage, 2nded.
Cengage Learning Publishers.
Johnson, G., Scholes, K. and Whittington, R., 2008. Exploring corporate strategy: text &
cases. 8thed. Financial Times Prentice Hall.
Kathuria, R., Joshi, M.P. and Porth, S.J., 2007. Organizational alignment and performance:
past, present and future. Management Decision, 45(3), pp.503–517.
Marchand, D.A., Kettinger, W. and Rollins, J.D., 2001. Making the invisible visible: How
companies win with the right information, people, and IT. John Wiley & Sons, Inc.
Miles, R.E., Snow, C.C., Meyer, A.D. and Coleman, H.J., 2018. Organizational strategy,
structure, and process. Academy of management review, 3(3), pp.546-562.
Reynolds, J., 2008. IKEA: A competitive company with style. Retail and Distribution
Management, 5, pp.6-7.
Yip, G.S., 2004. Using strategy to change your business model. Business strategy review,
15(2), pp.17-24.
14

Online references
Chen, J., 2016. Ikea Pestel & Porter's 5 Forces. [Online]. Available through:
https://www.academia.edu/10538798/Ikea_Pestel_and_Porters_5_Forces>. [Accessed
on 20thOctober 2019].
Fangfang, L., 2013. Assembling a strategy for the future. Assembling a strategy for the
future. [Online]. Available through: <https://africa.chinadaily.com.cn/weekly/2013-
11/15/content_17108320.htm>. [Accessed on 21stOctober 2019].
IKEA. 2013. About IKEA. [Online]. Available through:
<http://www.ikea.com/ms/en_GB/about_ikea/index.html>. [Accessed on 21stOctober
2019].
Inter IKEA Systems. 2014. Company Information: IKEA. [Online]. Available through:
<https://www.ikea.com/ms/en_JP/about-the-ikea-group/company-information/>.
[Accessed on 21stOctober 2019].
Kim, S., 2015. Ikea Issues Furniture Safety Warning Following Death of Two Children.
[Online]. Available through: <https://abcnews.go.com/Business/ikea-issues-furniture-
safety-warning-death-children/story?id=32621946>. [Accessed on 20thOctober 2019].
Takreem, 2015. PESTEL Analysis of IKEA. PESTEL Analysis of IKEA. [Online]. Available
through: <https://ineverknewit.com/2015/05/13/pestal-analysis-of-ikea/>. [Accessed on
20thOctober 2019].
15