LO3. Evaluation of the analysis by using the Porter's Five Forces model

BUSINESS STRATEGY

TABLE OF CONTENTS
INTRODUCTION:..........................................................................................................................1
LO1. Analysis the impact and influence on the company and their strategies from the macro
environments:...............................................................................................................................1
LO2. Internal environments and capabilities of the company.....................................................3
LO3. Evaluation of the analysis by using the Porter's Five Forces model:.................................5
LO4. Theories and models to assist the understanding and interpretation of strategic decisions:
......................................................................................................................................................7
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION:
Business strategy refers to the actions and practices which used by the company for the
success and growth of the company. These strategies help to improve the performance of the
employees. The business strategy is the way to reach the success and reach the objectives of the
company. Business strategy is the effective planning of the company to stand in the competitive
market to achieve their desired objectives. It focuses on the best utilization of the resources and
minimize their weakness to achieve the specific objectives of the company in the long run. The
effective practices of the company will help the business in their future and present working of
the company. The aim of the organization is to maintain the position of the company and
increase their performance of the company. It will help to minimize the threats of the business
reduces the risk from internal and external factors. In this report IKEA is the organization which
is a furnishing company. This report will analyse the impact on the IKEA from the macro
environments and on the strategy of the business operations. There is also the description of the
influence of macro environments on the company. There have lots of benefits ability of the
internal environments.
LO1. Analysis the impact and influence on the company and their strategies from the macro
environments:
Mission:
The mission of the IKEA is to expand their business globally and achieve the and growth
of the business for the long run. And provide different types of the home furnishing products and
quality services (Aims and objectives of IKEA, 2019).
Vision:
The vision of the IKEA is to fulfil the demands of the customer by their effective
products and services and creates the perfect and better life for the people of the world.
Objectives:
 Maintain the good image of the brand in the competitive market
 Focuses earning the greater revenues
 Production of the furniture should be affordable to every one
 Maintain the customer loyalty and wins the trust of the customer (IKEA mission
and vision, 2019).
PESTLE analysis:
1

PESTLE analysis refers to the method and steps taken by the business to examine the
external factors of the company such as political, environmental, social technological legal and
economical. To increase the productivity IKEA measure all the externals which affects the
success of the company (Evans, and et.al., 2017). These externals factors are explained below:
Political factors:
This factors says that the interference of the government in the business operations of the
company by various laws, taxes, tariffs etc. IKEA uses this strategy to identify the effects of the
political on their business in the economy. The problems in the supply chain is the issue related
to the factors of political so the IKEA try to solve the issue to achieve their success. By maintain
the good relations with the governments sop they make the business of import and exports easier
with minimum taxation and law (Parnell, 2016). For remaining stable in the market and increase
their revenue IKEA is fully depended on these relationships. From this IKEA will extend their
business globally easily.
Positive impacts- political factors helps to maintain the good relations with the govt. so it
will help to minimize the law and regulations across the sale of international boundaries and
revenue will increase.
Negative impact. These political factors influence the business of the IKEA because
every country have different rules and regulations so it is difficult to understand the rules of all
the copuntries.
Economic factors:
The business of the IKEA and decision-making is affected by various economic factors
such as growth of the economy, inflation rates, interest rates and exchange rates. With the help of
the global economy the business of the IKEA measure their profits and revenues in the
international markets. IKEA focuses to set their prices of the products and services at the
affordable rates so that it will help them to handle the pressure from the fluctuations in the
economy. In the IKEA these economic factors affects the strategy of pricing whenever they
wanted to raise their prices. IKEA is famous for the low prices products and services.
Social factors:
Culture, populations and age are involved in the social factors and these factors affects
the sales of the business. The business of the IKEA is affected by these factors because company
should have the knowledge of the local culture, growth in the populations etc. these factors will
2

influence the company business and success of the company (Apenko, 2017). IKEA should make
their strategies as per the social factors of the countries.
Positive factors: the strategic decisions of the IKEA is positive affected by the social factors by
they will get the idea and knowledge about their customers culture, age and it will increase in
their sales.
Negative factors: social factors affects the decision and actions of the IKEA negatively because
the taste and preference of the customer is ever-changing.
Technological factors:
The impact of the technological factors on the business of the IKEA is provided the better
products and services to their customers and wins their needs and demand for increase in their
productivity. Effective technology will give the better quality products and improves the services
of the business (Linder and Williander, 2017). By increasing the level of the loyalty IKEA wants
to satisfy the customer needs and wants.
Positive factors: the good and effective technology improves the product efficiency of the
products so these factors have positive impacts on the decisions and actions of the IKEA.
Negative factors: This technology have high cost on the business and affects the decision and
actions of the IKEA.
Environmental factors:
These factors refer to the sustainability and any organization wants to sustain their
business they have to focuses ion the environmental factors. In the IKEA these factors helps to
improve the image of the company and decreases the cost. The IKEA aims to use the resources
which do not harm the environment.
Positive factors: provide the eco friendly products improve the image of the company and by
protecting the environments have positive effect the decision and actions of IKEA.
Negative factors: but this environment affects the decision and actions of the company from
different issues related to the environment.
Legal factors:
The issues related to the law and relations re the legal factors which affects the business.
The business of the IKEA make sure that the sales of the products as per law and safety of the
customers. To achieve the success and growth of the business IKEA manage the legal issues.
3

Positive: the strategic decisions and actions of the IKEA should be improved by the legal factors
because the production of the products is sustainable as per law of protecting the environments
Negative: these legal factors affects the decision and actions of the company by applying various
rules and regulations on the sale of furnished products.
Stakeholder analysis:
It is the process and the strategy used by the IKEA in their business to finds the people
and groups them as per their interest and involvement in the task and analysing them from these
groups. These strategies will help the company to protect them from the external factors. In the
business of the IKEA the stakeholder analysis helps to find the issues and risk which affect the
success of the company (Mellat-Parast, and et.al., 2015). This strategy is used by the IKEA in
starting of the projects to measure the behaviour and attitudes of the stakeholders to reach the
success and growth of the business. Proper planning is need for the sale and manufacture of the
better home furnishing protects so the people will get attr5acted and increase in the sale. In the
macro environment the stakeholder strategy are very useful for the successful business
operations of the IKEA. Stakeholder can have both positive and negative impacts on the business
of the IKEA. The stakeholder provides various new ideas and facts which gives benefits to the
business of furniture but at the same time these stakeholders remove from the business the IKEA
will have to face the losses.
LO2. Internal environments and capabilities of the company.
Resource based view framework:
It is the managerial process to identify the effective resources to acquires the benefits of
the sustainability in the competition markets. The IKEA determine the benefits of the
competition market with the help of using all the resources effectively and efficiently. It refers to
the way of seeing the company and its process for the successful organization. The resources
based theory focuses on the variety of resources which is used to make the effective company
from all the other companies in the market (Baraibar‐Diez, Odriozola and Fernández Sánchez,
2017). Applying this strategy it should be started from the internal environments of the company.
Skills, knowledge, ability, process of the company all are says to be the internal resources which
is combined for the success of the company in the future. These are resources are very helpful for
the IKEA to perform the business activities and works to achieve their goals. Resources which
4

helps to provide the benefits to the business which is in the form of the VRIO analysis. This
includes the four types used by the business of the IKEA to acquires the advantages of the
competition. With the continuous changes in the technology their need to change the resources to
fulfils the requirements of the company and their customers. The IKEA gives the best products
and services of the house furnishing by using the internal resources effectively and efficiently.
The resource based view aims to achieve the success in the competition market by giving
managerial attention on the internal resources. These resources should be further classified that is
tangible and intangible heterogeneous and immobile which supports the activities of the IKEA to
achieve the goals of the company by reducing the risk of the business. Tangible assets involves
the financial and human resource like raw material, plant and machinery, trademark, cash and
patents. These helps to achieves the advantages of the competition in the future and present
environments. Intangible assets involves the reputation, culture, knowledge, relationship with the
customers, stakeholder, suppliers. These intangible resource are not had physical assets, but they
have very important effects on the business and provides advantages to the IKEA. For example
customer will increase the sale of the IKEA if there needs and wants are accomplished by the
company. Heterogeneous resources includes the skills, ability structure of the company. These
resources help the IKEA to achieve the benefits of the competition with different effective
strategies like improvements in the skills, ability and capabilities of the employees working in
the company. Immobile resources means that every company is different from another. The
IKEA will achieve the level of competition by their immobile resources those resources which is
not founded by the competitors.
.
VRIO analysis:
The IKEA uses this analysis for the evaluation of the human resources, financial
resources, material resources and non material resources to achieve the success and growth of the
business. For identifying the strength and weakness of the business in the competitive market the
IKEA adopts this strategy (Schaltegger, Hansen and Lüdeke-Freund, 2016). The IKEA have to
consider the opportunities by identifying the technological, demographic, cultural changes to
acquire the goals of the company. And the threat of buyers, suppliers, entry, rivalry and
substitutes should be identified then it helps to the business of the IKEA to run successfully in
the present and future business environment.
5

Valuable
It includes the valuable resources which helps
to identify the resources of the internal
environment of the IKEA. The valuable
resources will give the advantages to company
to stand in the competitive markets and wins
the competition. If the IKEA does not measure
their opportunity and threats this will results in
the weakness of the IKEA (Xie and Cooke,
2019). The benefits of the company is
depended on the skills and knowledge
integration internally.
Examples
financial resources like raw material, cash,
plant and machinery these are valuable for the
company to achieve the level of competition.
Rare
The IKEA focuses to find the resources which
is uncommon and rare which gives advantages
to the business. The benefits of the IKEA
should be managed with both the valuable and
rare resource. But it gives the temporary
benefits to the business of IKEA.
Examples
The rare resources are human because effective
and skilled human resources are hard to find.
Imitate
Expensive resources are very difficult
to imitate to the other organization for
acquiring them. IKEA protect their resources
from the legal responsibilities like patents and
trademarks. The resources are valuable, rare
and imitation is difficult then it gives the
various benefits to the internal environment of
the IKEA.
Example
Raw material, plant machinery and efficient
technology are involved under imitate
resources.
Organize
It the process, strategy, culture and
Example
Hierarchical organizational structure and
6

structure of the IKEA supports the internal
resources helps to organize in such a manner to
achieve the objectives of the company. And if
the resources of the IKEA does not organize to
achieve the success and growth of the company
then it will not give benefits to the company
(Malerba and et.al., 2015). It helps the business
of the IKEA to achieve the sustainable benefits
by identifying the valuable, rare and imitable
resource. For taking the advantages of the
VRIO analysis the IKEA needs to coordinate
the resources in the effective manner.
innovative culture are used to achieve the
competitive advantages
.
LO3. Evaluation of the analysis by using the Porter's Five Forces model:
Porter five model works as distinguisher to differentiate and measure the strength and weakness
of the company in the competitive market. These forces are used to determine the structure of
company policy and strategy. The IKEA used this five forces model to increase their profitability
and productivity of the business by understanding the competition level in the economy (Liang,
and et.al., 2018). The main goal of the IKEA is to accomplish the demands of customer by
bringing new techniques. IKEA also focuses on the innovation in their product and services.
Good Quality of the products and effective style of cost leadership helps the IKEA to be leader
of the all the markets. The porters five forces model helps the business of the IKEA to make the
effective plans and strategy for the success and the growth of the IKEA. These forces which
affects the working of the IKEA are explained below:
Bargaining powers of the suppliers:
Bargaining power of suppliers refers to the force of supplier which can put on organization by
enhance their cost and lowering product quality and impact on overall competition company. The
power of bargaining of the suppliers of the IKEA is very low because their number of supplier is
large while size of business is small. In that state company's financial position doesn't allow
7

barging of supplier.In this situation the IKEA change their supplier easily because if the supplier
losses their interest in their business. This bargaining power of supplier is low because there
various substitute available for company. In this situation the suppliers of the IKEA have to
follow their rules and policy to remain in the business of IKEA. IKEA has the advantages
according to their suppliers in the business. The suppliers of the IKEA communicates the code of
conduct to their teams of the supplier because it is their responsibility. Rules and regulations are
formulated as per the child labour, environment of the working is the safe, discrimination, wages
should be minimum. The suppliers have to follow these rules and regulations either they will be
removed by the IKEA.
Bargaining power of the buyers:
With increase in the competition level and changes in the technology the wants and
demands of the buyers also changes it results in there is the high bargaining power of the buyers
in the IKEA. The focuses and aims of the IKEA is to increase their marketing and promotes their
products and services in the market. The IKEA made the pricing policy which is affordable for
their customers. IT also provides the effective facility of the shopping through e-commerce and
digital marketing to their customers. Ikea understands that the buyers bargaining power is the
low to moderate. Better quality products, effective strategy of the marketing and low pricing are
some factors which higher the buyers bargaining power in the business of the IKEA (Ahmad,
and et.al., 2017). The IKEA uses the best policies to attract their customers towards their
products and services. It focuses achieves the satisfaction of their customer in the competitive
markets for the success of their business.
Threat from the substitute products:
In the business of the IKEA there is the low threats of the substitutes products because of
the various factors which moderate these threats. Reputation and the image of the brand is one
the important factors in the IKEA which moderate the threat of the substitute products. The
customer of the IKEA have the greater trust on the brand. The IKEA maintain the image and
their reputation in the minds of their customer and from this the customer will increase the trust
and loyalty for the brand. It also increases the sales of the company by the strategic marketing
policies. By providing the greater numbers of products in the one store the IKEA reduces the
threats of the IKEA. By giving the better products and services IKEA gets their popularity in the
competitive markets this will help to decrease the problems of the business.
8

Threat from the new entrants:
In the business of the IKEA the entry of the new entrant is low to moderate because the
company which is entering the market are at the very small scale so it does not affect the IKEA
at the higher rate. It takes lots of investment, time and effort to cover the share of the market for
the new company entering the market of large companies. In the business of the home furnishing
there are various small companies in the market. The new strategy and the innovation takes lots
of time and needs high investment for the success of the new entrants. The process of the
marketing also takes lots of money in the business operation of the new brand for increasing the
sales. So IKEA have the low risk from the new entrants because these factors reduces the threats
and keeps it low to moderate.
Level of the competitive rivalry:
In the home furnishing company the competition level is very high. The number of
competitor in the IKEA is very large but in the other companies the share of market is not very
high. There are different brands which sale the products of home furnishing and gives the threats
of competition to the IKEA like super markets and stores (Maniora, 2018). With the popular
image and effective strategy of the marketing of the IKEA from this the competition threat will
be moderate. So in the IKEA level of the competition is high.
The company get the advantages when the company launches the new and effective
products it will reduce the bargaining power of the company. The company will produce the best
products and do have any other substitutes. IKEA make the policies and the rules to protect from
the new competitors and reduces the threats of the new entrants.
.
LO4. Theories and models to assist the understanding and interpretation of strategic decisions:
Porter Generic Strategy
Porter generic strategy shows how a company taking ruthlessly advantages in the target
market. A firm profitability is the appealing of the industry in which it operates, an important
secondary determinant in within that industry. The industry may have below- average profit. The
concept was described by Michael porter in 1980.
9

This generic strategy calls for being a low cost procedure in an industry for a given level
of quality. The firm sells its product either at averages industry prices to earn a profit higher than
that of rivals. The average industry prices to gain market share.
1. Leadership cost: Leadership cost allows the ruthlessly edge by control production cost, and
its done in two ways.
To increase the market share there is need to charge lower prices if it targets customers in
all segments based on their characteristics other than price, it is pursuing a contrast strategy
(Yoffie and Cusumano, 2015). They seek to minimize a value in areas that do not transform it
and its remain profit cut-throat.
Reducing costs to increase cost with fewer expenses on the books, organizations can
move money into other avenues, like salaries or product research. The type focuses on attainment
of objectives where the firm attain advantage of their practices and lead an effective working
condition in organization type.
2. Differentiation: Differentiation the product in some way in order to compete successfully.
Examples of the successfully use of a differentiation strategy are hero, Asian paints, BMW
group. This strategy is appropriate where the target customer segment is not price sensitive, the
market is saturated. Finally, there is also the concept of brand image, create meaning-full
connections with customer to ensure long – term loyalty. The type will lead to withstand of firm
from the other so as to be different and withstand in market for their type of business operations
as well.
IKEA stands for (Ingvar Kamprad Elmtaryd Agunnaryd). IKEA is a Swedish founded
multinational groups that design and sells ready to assemble furniture, kitchen appliances and
home accessories among other useful goods and occasionally home services. It has been world's
largest furniture retailer since at least.
IKEA founded in 1934 as mostly mail–orders sales business. They started ton sell
furniture five years later.
The business is a private company owned by inter IKEA systems B.V registered in the
Netherlands and controlled by the sons of its founder ingrav kamprad. The company is known
for its modern design for various types of appliances and furniture and its interior design work is
often associated with eco–friendly simplicity.
10

IKEA also runs a foundation name IKEA foundation. The company helping families to
afford a better life. Families living in a poverty around the world face huge challenges. With
millions of people looking to join live ware.
There concept is to achieve by combining function, quality, design and value – always
with maintained in mind. The IKEA concept exists in every part of our company, from design,
sourcing, packing and distributing through to our business model. Their aim is to help more and
more people live a better life at home. Other ventures that IKEA owns and operate is the mega
family shopping centre chain in Russian (Chang, 2016). There marketing strategy is always been
to design and develop products based on consumer everyday needs, keeping prices know
providing functional, attractive and reliable furnishings and solutions.
Tools and techniques for application strategies for management
Porter's Generic strategies
Porter's Generic strategy model concludes a firm's competitive advantage for it's selected
market scope. These are four generally strategies that are either lower cost, differentiation or
focus.
Cost focus
The factor rather than advertising their products in whole market focus on specific class
and people or even small dedicated market who are interested in buying the product produced by
the firm. The factor help company become major player of the type in market securing
operational activities for further years to come (González-Rodríguez and et.al., 2018). The firm
posses low or minimum per unit profit along with optimum profit on eneromos profit on large
sales. The effective practices lead to conditions in market where they need to attain their place
for future earning as well.
Differential focus
Presenting customer with what they are looking for will ultimately justify price of any
article one is looking for. Individual in this market need not to roam in market and generate sale
sin market for betterment of company. The process is ultimately used for planing purposes to
identify a strategy and let the strategy lead to certain market condition (Dahlberg, Hokkanen and
Newman, 2016). The practice also help in retention of consumer loyalty due to unique features
including easy to use along with proving of superior services compared to others for
notwithstanding different from each other and lead different competitive advantage.
11

Applicability of differential strategy on Ikea will help them attain cost and competitive
advantage in market assuring they withstand unique among the type of business helping them
attain attention and publicity of their product where they are entitled to take large and maximum
percentage of profits as there is no one in the market who can replace or substitute their product
and develops confidence in their business conditions as well where they develop the ability to
ensure further growth of their business types a well (Hsieh, Ma and Novoselov, 2018).
CONCLUSION
From the above study it can be concluded that the business strategy have those actions
and practices which leads to the success of the company. These strategies use to improves the
performance of the business operations. The effective marketing and pricing policy of the
company helps to achieve the goals of the company. The PESTLE and stakeholder strategies
helps the companies activities which is affected by the external factors. With the evaluation
various resources in the internal environment of the company helps to achieve the profitability of
the company. With applying the porters five forces the company will evaluate the strength and
weakness of their business.
12

REFERENCES
Books and Journals:
Ahmad, S., and et.al., 2017. Business strategy and performance of logistics companies in
Malaysia. In 4th Conference on Business Management towards Industrial
Revolution (Vol. 4, pp. 29-30).
Apenko, S., 2017. Human resource management of innovative projects in the context of business
strategy. Strategic Management. 22(1). pp.3-6.
Baraibar‐Diez, E., Odriozola, M.D. and Fernández Sánchez, J.L., 2017. A survey of
transparency: An intrinsic aspect of business strategy. Business Strategy and the
Environment. 26(4). pp.480-489.
Chang, J.F., 2016. Business process management systems: strategy and implementation.
Auerbach Publications.
Dahlberg, T., Hokkanen, P. and Newman, M., 2016, January. How Business Strategy and
Changes to Business Strategy Impact the Role and the Tasks of CIOs: An Evolutionary
Model. In 2016 49th Hawaii International Conference on System Sciences (HICSS) (pp.
4910-4919). IEEE.
Dickson, M.A. and McCord, J., 2016. The integrated business strategy of a Central American
denim apparel manufacturer. Latin American Journal of Management for Sustainable
Development. 3(1). pp.66-79.
Evans, S., and et.al., 2017. Business model innovation for sustainability: Towards a unified
perspective for creation of sustainable business models. Business Strategy and the
Environment. 26(5). pp.597-608.
González-Rodríguez, M.R. and et.al., 2018. Revisiting the link between business strategy and
performance: Evidence from hotels. International Journal of Hospitality Management. 72.
pp.21-31.
Hsieh, C.C., Ma, Z. and Novoselov, K.E., 2018. Accounting conservatism, business strategy, and
ambiguity. Accounting, Organizations and Society. 30. p.1e15.
Leonidou, L.C. and et,al., 2015. Environmentally friendly export business strategy: Its
determinants and effects on competitive advantage and performance. International
Business Review. 24(5). pp.798-811.
Liang, H., and et.al., 2018. Can IT Be Too in Sync With Business Strategy?. MIT Sloan
Management Review. 59(3). pp.1-5.
Linder, M. and Williander, M., 2017. Circular business model innovation: inherent
uncertainties. Business strategy and the environment. 26(2). pp.182-196.
Malerba, F., and et.al., 2015. Dynamics of knowledge intensive entrepreneurship: Business
strategy and public policy. Routledge.
Maniora, J., 2018. Mismanagement of sustainability: what business strategy makes the
difference? Empirical evidence from the USA. Journal of Business Ethics. 152(4).
pp.931-947.
Mellat-Parast, M., and et.al., 2015. Linking business strategy to service failures and financial
performance: Empirical evidence from the US domestic airline industry. Journal of
Operations Management. 38. pp.14-24.
Parnell, J.A., 2016. A business strategy typology for the new economy: reconceptualization and
synthesis. Journal of Behavioral and Applied Management. 3(3). p.1052.
13

Schaltegger, S., Hansen, E.G. and Lüdeke-Freund, F., 2016. Business models for sustainability:
Origins, present research, and future avenues.
Strategy, B., 2017. Business Strategy. MARKETING. 1(2). p.3.
Xie, Y. and Cooke, F.L., 2019. Quality and cost? The evolution of Walmart's business strategy
and human resource policies and practices in China and their impact (1996–
2017). Human Resource Management. 58(5). pp.521-541.
Yoffie, D.B. and Cusumano, M.A., 2015. Strategy Rules: Five Timeless Lessons from Bill Gates,
Andy Grove, and Steve Jobs. Harper Business.
Online:
Aims and objectives of IKEA. 2019. [Online]. Available Through:
<http://www.markedbyteachers.com/university-degree/business-and-administrative-
studies/mission-statement-aims-and-objectives-of-ikea.html>.
IKEA mission and vision. 2019. [Online]. Available Through: <https://bstrategyhub.com/ikea-
vision-mission-core-values/>.
14