Business Strategy: Analysis of IKEA's Internal and External Environment

This report provides an analysis of IKEA's internal and external environment, including a SWOT analysis, PESTLE analysis, stakeholder analysis, competitive analysis, and Ansoff model.

BUSINESS STRATEGY

Contents
INTRODUCTION.....................................................................................................................................3
Task 1.....................................................................................................................................................3
Task 2.....................................................................................................................................................6
Task 3.....................................................................................................................................................7
Task 4...................................................................................................................................................10
CONCLUSION.......................................................................................................................................12
References...........................................................................................................................................13

INTRODUCTION
The business strategy can be defined as the combination of the decisions and the
actions that are taken by the companies for accomplishing the organisational objectives. With
the help of better strategies the businesses can take competitive advantage over others. To
facilitate better strategies it is important to analyse both internal and external environment so
that the impact of various factors can be identified on the business (Rivera, 2019). Such
strategies are formulated by the business o different levels such as corporate level, business
level and at functional level. This report is based upon IKEA which is a Swedish originated
Dutch company that offers ready to assemble furniture, kitchen appliances, home accessories
etc. to their customers at comparatively lower cost. The report includes the analysis of the
internal and external analysis of the market along with the resources and the capabilities with
the help of which they can expand their business. Apart from this the report includes impact
of various industry forces on the company and the strategies that can be adopted by the
company for achieving their business objectives.
Task 1
Overview of the company: IKEA is considered to the world’s largest furniture selling
company that has been trading privately. The owner of the IKEA group is Stitching Ingka
Foundation. The group has been engaged into retail stores offering furniture, shopping
centres, financial asset management, customer fulfilment, services functions etc. the company
has been operating into different location such as North America, Europe, Russia, Asia and
Australia (Pramanik, Maiti and Maiti, 2018).
Vision: The vision of the company is to create a better life for the people for offering them
better and comfortable furniture.
Mission: The mission of the company is to support the visions of the company and to offers a
wide variety of well-designed, functional home furnishing at comparatively lower prices so
that people can easily afford their products.

Objectives of the company: The objective of the company is to increase the number of outlets
so that they can increase their market share by 10% and thus the profitability within a period
of 1 year.
PESTLE analysis:
For efficiently accomplishing the business objectives it is crucial for the IKEA to analyse the
impact of various macro factors so that the influence of different factors can be reduced. It
can be done with the help of PESTLE analysis which is given below:
Political factors: The political stability and better administrative system has positive impact
on the IKEA as due to this there will no such significant changes will take place in the
policies. Also the alliances and the associations with other nations will have positive impact
on IKEA as they can easily trade with them.
Economic factors: The economic condition is feasible for the IKEA as their opportunities for
FDI are easily available and the government is expected to reduce the rate of corporate to
18% which will has favourable impact on the company. Also the per capita income of the
customers is higher which offers them the opportunity to establish their business (Chang and
Tsai, 2016).
Social factors: The standard of living of the people in UK is considerably better and due to
which they spend much on better quality products and this offers an opportunity for them to
open up their new stores in the country. Also with increased level of education the customers
prefers to purchase branded products which are both economic and of beater quality which is
factorable for IKEA.
Technological factors: In UK people prefers to have technologically advanced products as
this enables them to have more comfort. Due to which the management of v has opportunity
to offer their better products which are developed with efficiently technologically advanced
process.
Legal factors: The IKEA has to comply with the equality act and the employment act within
the premises but this will also have favourable impact on them as with they can ensure better
and satisfied workforce that can contribute with their efficiency.

Ecological factors: Toe government has taken various step and laid various implication on
the management of the wastage so that environmental protection can be ensured. With this
the company can ensure better image of the company before their customers.
On the basis of the analysis of the PESTLE analysis it can be identified that the
company has significant advantage over all the external environment factors and due to this
they can easily expand their market in UK. The expansion with all the favourable factors will
ensure that they have better investment opportunities and with the help of their capabilities
and resources IKEA can easily open up new stores with which their sales can be boosted up.
STAKEHOLDER analysis:
The stakeholder analysis enables the company to determine the impact of both
internal and external stakeholders on the company so that they can efficiently manage their
influence and can make them understand the benefits of various strategies and tactical actions
taken by them (Evans, 2017). The stakeholder analysis for IKEA is given below:
Stakeholder Interest Power
Employees High Low
Investors High High
Suppliers Low Low
Managers High High
On the basis of this table it can be identified that the IKEA has various internal and
external stakeholders which has direct impact on the decision making of the company. The
stakeholders such as the investors of the company have both high power and high interest due

to which the company must disclose their strategies and tactics before them as they can affect
their operations. But the suppliers of the company have both low interest and low powers due
to which the company need not to emphasis greater on them while planning. The managers
are those stakeholders which take all the necessary decisions for the on the basis of analysis
of their analysis of various factors. This also implies that the recommendations of the
managers must be taken into consideration by the management of the company.
Task 2
For the organisation it is crucial that they have to analyse their internal factors also as
with the help of this they can identify their strengths and weaknesses for achieving their
objectives by grabbing the opportunities present in the market (Stašák and Schmidt, 2019).
To support this SWOT analysis for IKEA id given below:
Strengths Weaknesses
 The brand value of the IKEA is better
with the help of which they can easily
convince their customers to make
purchases.
 The consistent R&D of the company
enables them bring down their cost
and to make their products better and
attractive.
 The control on the standards are high
for the company as they aim better
quality and lower cost which is not
possible.
 The increasing cost of the raw
material affect the overall cost and
company standards.
Opportunities Threats
 As the per capita income of the
customers is increasing it offers them
opportunity to expand their market
and their products.
 The consumers are now becoming
cost conscious and they aims to
purchase such furniture that they can
change periodically due to which they
purchase lower cost furniture.
 The changing laws and the taxation
policies can have adverse impact on
the operation of the company.
 The increasing competition from the
local retailers has impact on the
accomplishment of the objectives of
IKEA.

Resource based view
The resource based view of the company facilitates the company to determine the
capability of the business on the basis of their resources. With the help of this model it can be
analysed that how the resources of the oragsnaition supports the capabilities and how the
capabilities exploits resources (Johnson, 2017). The management of IKEA can efficiently
analyse their resources and capabilities though VRIO framework which is given below:
Particulars Valuable Rare Inimitable Organisational
Applicable
Financial
resources
✔ ✔ ✔ ✔
Employees of
the company
✔ ✔ - -
Distribution
network
✔ ✔ - ✔
Research and
development
✔ - - -
On the basis of the product it can be identified that the financial resources and the distribution
system of IKEA offers them sustainable competitive advantage as they are valuable to them,
rare, inimitable as well as efficiently used by the organisation. But the employees of the
company provide them temporary competitive advantage because the employees can be
inimitable by the competitors by providing similar trainings to their employees. The research
and development so adopted by the organisation with the aim of reducing the cost provides
them benefits but it does not facilitate them in taking competitive advantage as it is not rare, it
can be adopted by any business (Youn, 2017).
With the help of this internal analysis it can be identified that the IKEA has
significant resources with the help of which they can efficiently open up new stores within
UK so that they can achieve their overall organisational objectives.
Task 3
Competitive analysis a strategic process that helps in identifying major competitors of
firm as well as a potential research on their products, marketing strategy and sales (Maté,
Trujillo and Mylopoulos, 2012). By doing this, organisation can create a solid business

strategy that assist them to improve market positioning over its competitors. Ikea is a
Swedish brand that deals in home furnishing products. Organisation basically provides
quality of products that assist them in attaining desired competitive advantages easily. For
effective competitive analysis, organisation can implement Porter’s five force model that
determine deconstruct industry structure appropriately. The discussion of this model is
determined below as:
 Bargaining power of buyers (High): The bargaining power of customer of furniture
and home appliance manufacturing industry is high due to availability of so many
options and supplier in the market. Customers of Ikea are very price sensitive and this
situation increases their bargaining power. In UK, there is long list of furniture retailer
to whom individual can buy several products thus, in this regard, Ikea implements
some strategic direction in their firm that assist them in managing power of their
buyer at specific level. These options are unique product strategy as well as quality
services that provide them competitive advantages over its rivalries.
 Bargaining power of suppliers (Low): The bargaining power of suppliers is low
because in the market of UK there are so many material supplier who allow them to
purchase enough clout in desirable rate. Ikea cab set the rule of their game and their
supplier are required to follow them because Ikea have an option to switch one
supplier to another easily. Thus, due to lack of options in the market, suppliers have to
switch their cost which reduces their power in the market.
 Threat of substitute (Low): From the many years, Ikea has built a strong brand
image at global level in which the level of trust between the customers and brand is
very high (Murthy, 2012). Thus, the threat of substitute products for Ikea is low
because organisation already has a strong customer’s base. Furthermore, organisation
provides quality services to its consumers that help them to build a strong relationship
by recognition of brand services. Thus, it is hard for substitute to threaten
organisation’s positioning in the market.
 Threat of new entrant (Low): In the manufacturing industry, threat of new entrants
is general and significant because there are no specific legal or regulatory barriers to
enter in the industry. IKEA itself a global leader in furniture and home appliance
manufacturing industry but it also faced threat of new entrants in the market but the
impact of these rivals are low. Main reason behind this is that new market would not
be able to benefit the scale of economies as much as IKEA already have. On the other

hand, it will also be difficult for new entrants to gain their effective access to
distribution channel similar to Ikea. Thus, the power of new entrants over Ikea is low.
 Existing rivalries (High): Ikea is a leading furniture manufacture that faces direct
and indirect competition from its existing rivalries. As per the consideration, the
power of exiting rivals is high over the firm. The indirect competitors of Ikea are
Tesco, Walmart, Sainsbury and so on that sell similar type of products in the market.
On the other hand, direct rivals of firm are Ashley furniture, Argos etc. who only
deals in furniture manufacturing and home furnishing services. Furthermore, some
giant online retailer also poses serious competition for firm who works globally.
Ansoff model
This model basically uses to analyse market expansion grid which is a tool used by
several organisations in order to analyse growth strategic options (Oestreicher-Singer and
Zalmanson, 2013). With the help of this model, Ikea can analyse growth opportunities as well
as can evaluate risk which are associate with each strategy. The explanation of this model is
determined below as:
 Market penetration:In a penetration strategy, a firm uses its existing products to sell
in the existing market. If Ikea, implements this strategy in their business process than
it could be done by reducing the prices of their existing product, by acquiring existing
competitors who in the existing market place as well as by increasing distribution and
promotional efforts.
 Market development: At this stage, Firm enters a new market with the help of its
existing products and services. This option leads to market expansion strategy for a
business firm thus, Ikea can implement this option by entering into a new domestic or
foreign market. With the help of this, Ikea can cater their services to different
customers segments in order to attain desired growth opportunities.
 Product development: As per this strategy, a firm requires to develop or introduce
new products to cater them to the existing market. If Ikea wants to go with this
strategy, than they needs to involve extensive research and development to analyse
customer’s requirement as well as need. Furthermore, Ikea can develop a strategic
partnership with other organisations to enhance its distribution channels.
 Diversification: In this strategy, the firm introduce its existing products and services
into the existing market (Reich and Benbasat, 2013). This is a riskiest strategy for any

firm in which market and product development is required a mitigated risk. Thus, for
Ikea it can be a diversified business option in which they are required potential
synergies between existing business and new market.
On the basis of above analysis it has been analysed that Market development strategy
could be beneficial strategic option for Ikea. In which firm requires to expand their business
in which small countries where the number of available competitors are low. This strategy
would assist them to develop a global chain image by providing quality products and services
to worldwide.
Task 4
Strategic directions are the decisions, techniques and behaviour that incorporate the
analysis process that determine the requirements for an organization to makes changes in its
business model which help them to achieve the strategic vision (Scholes, 2015). In context of
Ikea, they requires to choose strategic alternatives that helps them to determine growth option
for which resources and human efforts will be used to attain selected objectives. For this, firm
can choose strategic direction with the help of Porter’s generic model that assist them to
choose one best option for attaining desired growth opportunities. Explanation of this model
is determine below as:
 Cost leadership: In this strategy, organisation requires to opt an option to offer the
lowest possible prices in the market. In this regard, organisation can choose an option
to keep cost as low as possible or ensure that organisation have a large market share in
which they can offer average prices. In both these cases, the one major point is to
reduce cost of organisation’s products and services to gain an effective leadership in
market.
 Differentiation leadership: According to this strategy, organisation have to introduce
their products and services that has a unique features. With the help of this strategy,
firm can make their product as exclusive as possible to make them more attractive
than other comparable products offered by rivals. In order to implement this strategy,
organisation requires a good research, innovation as well as an ability to deliver high
quality product range that have a unique as well as attractive features. This process
also required an effective marketing to develop an understanding of new product
development benefits.

 Cost focus:As per this strategy, organisation target a niche market as well as offer
cost effective or low price products (Verbeke, 2013). In this strategy, firm seeks cost
advantages for its target dynamics and wishes to ensure that they provide quality
services by remain the costs low.
 Differentiation focus:In this strategy, organisation target a niche market in which
their product and services has unique feature. This strategy involves astrong brand
loyalty among its customers. Major requirement in this strategy is to serve unique
services to its customers in order to with the help of unique services quality.
On the basis of above discussion, it has been summarised that Ikea requires to implement
cost leadership strategy in their business process through which they can sustain in the market
for a long run duration. As Ikea already implement this strategy, thus it would be beneficial
for them to attain desired success with the help of cist leadership strategy.
Bowmen’s clock strategy
This Model also assist an organisation to perceive strategic positioning option that aid to
gain major competitive advantages in the market (Wang and Verma, 2012). Discussion of
this model is determine below as:
 Low price and low added value: According to this strategy, organisation can remain
competitive in the market when customer perceive very little value despite a low
price.
 Low price: This stage determine that firm needs to remain low-cost leader in the
market for their brand positioning. Therefore, firm requires to set a low profit margin
but a high volume of output that aid to sustain in the market for a long run.
 Hybrid: This stage determine a strategy of firm in which they requires to offer low
price services but also implementing some unique features in the products.
 Differentiation: According to this strategy, firm needs to offer a high quality product
with the help of strong brand awareness. A unique products can assist organisation to
gain a desired position in the market.
 Focused differentiation: This strategy determine that firm can position in the market
by highest price level because customer can buy them due to high perceived values.
 Risky high margins: On this stage, organisation sets high prices of their products
without offering anything extra within perceived values.

 Monopoly pricing: At this stage, organisation sets a monopoly in the market they are
remain only one business in the market.
 Loss of market share: This strategic position is not so desirable because at this
position company is not able to offer nay product as per the customer requirement and
need.
As per the above analysis it has been analysed that for Ikea Hybrid stage will be more
effective in which firm can introduce their product and services at low cost by implementing
unique ideas.
Strategic plan: On the basis of above strategic directions, Ikea can develop a strategic
objective for firm that could be:
 To introduce existing product and services in Monaco within 1 year by implementing
cost leadership strategy to gain market share by 20% more.
In order to implement this strategy, Ikea needs to analyse customer’s requirement and
demand in order to provide them quality services easily. In this regard, firm needs to manage
funds and resources that can assist them to expand business in new market.
CONCLUSION
It is concluded from the above report that the business need to take into consideration
the impact of both internal and external environmental factors with the help of various
models such as SWOT analysis, PESTLE analysis etc. Along with this the strategies are
identified and the impact of various industry forces so that better and effective strategies can
be developed for the oragsnaition. In addition to this the capabilities and the resources of the
company are analysed with the help of which the ability of the company can be identified for
undertaking the various actions and plans.

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