This report covers the business strategy of IKEA, including PESTLE analysis, stakeholder analysis, mission and vision statement, objectives, SWOT analysis, VRIO analysis, and Porter's Five Forces analysis.
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BUSINESS STRATEGY
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Table of Contents INTRODUCTION...........................................................................................................................3 TASK 1...........................................................................................................................................3 PESTLE Analysis of IKEA-.......................................................................................................3 Stakeholder Analysis-.................................................................................................................5 Mission and Vision Statement of IKEA-...................................................................................5 Objectives of IKEA-...................................................................................................................5 TASK 2............................................................................................................................................6 SWOT Analysis of IKEA-.........................................................................................................6 VRIO Analysis of IKEA-............................................................................................................7 TASK 3............................................................................................................................................8 Porter's Five Force Analysis of IKEA-.......................................................................................8 TASK 4.........................................................................................................................................10 Interpreting strategic direction..................................................................................................10 CONCLUSION..............................................................................................................................14 REFERENCES..............................................................................................................................15
INTRODUCTION Abusiness strategyis a set of competitive moves and actions that abusinessuses to attract customers, compete successfully, strengthening performance, and achieve organisational goals. It outlines howbusiness should be carried out to reach the desired ends.IKEA is a European multinational group that designs and sells ready-to-assemble furniture, kitchen appliances and home accessories, among other useful goods and occasionally home services. Founded in Sweden in 1943 by 17-year-old Ingvar Kamprad, IKEA has been the world's largest furniture retailer since 2008. This report covers questions such as PESTLE Analysis of IKEA,Stakeholder Analysis, Mission and Vision Statement of IKEA,Objectives of IKEA SWOT Analysis of IKEA, VRIO Analysis of IKEA, Porter's Five Force Analysis of IKEA. TASK 1 PESTLE Analysis of IKEA- Political Factors- IKEA is a multinational company which means they operate in many countries and that is 41 to be exact. The company has to follow the regulations of each and every country. On the positive side every company is getting benefits from the political stability in different countries. If these measures are not taken then economic stability will be impossible. It states that company may earn or loose according to who is in charge in the concerned country. For instance if the government of the country is not friendly then company will face issues in exporting or importing the goods. The company tries to maintain a stability between these factors so that the revenue of the company does not get on the line. On the contrary if they have good relationship and there is a scope for developing countries in India and China because they are more open to multi national companies. IKEA is planning to make a move in the Asian markets as they have seen the positive shift. (Mahmood, Chung and Mitchell, 2017.) Economic Factors- As the company is serving in many markets so they have to keep the worldwide economy in mind as they are the factors which will help the company to generate more revenue. Some companies are still suffering from the recession which came in 2008. That time there were no jobs and people lost their existing jobs. Company observed the behaviour of the consumers at
that time and they were conscious to make decisions regarding buying. After observing they got to know that the consumers were buying only those things which they wanted to fulfil their need rather than luxury. This analysis forced the company to make changes and they made their prices of products more on a conservative approach. This has made the image in the eyes of the people that whenever they need quality products at affordable prices then IKEA is the best. Sales of the company is on the level of rise. Social Factors- This factor is concerned with following the different culture of different society. IKEA follows all these measures not just to improve their sales but also to avoid offending the people. For instance in Russia homosexuality is considered shameful so the company removed the image of same sex couple sitting on their furniture in a Russian magazine. After that they started to change their appearance and way of thinking. The mistake was company assumed that these issues does not affect in developed countries but now they make according to their thinking. These type of factors can affect the profitability of the business. Still after keeping all of these factors in mind the company get negative reviews from the critics and people. Technological Factors- IKEA needs to change their way of working and cope up with the technological factors. They still use paper catalogues and their competitors display it online. Every business has their own website which leaves the company behind their competitors. Website can do everything such as provide detailed information asks for the final order and these all things cannot be done through paper catalogues. (Grayson and Hodges, 2017.) Legal Factors- If a company has to serve in any market then they will have to follow these factors otherwise they won't be allowed to run their operations. That is why IKEA follows every law and regulations of every country they serve in. labour laws are the most essential for the company as they operate their services in physical stores. On the top of that the companies is loosing their image because they are getting criticized for poor quality of products such as their products have
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fallen over which has led to death and injuries among people. Company has to handle these issues so that they don't have to deal with lawsuits. Environmental Factors- Company has taken initiatives such as they have invested $ 1 billion in renewable energy in nations which are poor. They have set their aim to make their store which runs fully on the renewable energy. They are thinking of investing in wind and solar panels. Above that they are thinking of extracting things such as cotton and wood from sustainable sources. (Bentley-Goode, Newton and Thompson, 2017.) Stakeholder Analysis- It is a process of identifying the people before the beginning of the project. So that they can be put into the group according to their interest, level of participation and influence in the project so that it can be determine who is the best person to involve and communicate with them throughout the whole process. Mission and Vision Statement of IKEA- The mission and vision of the company are the same things and that is they believe to create a better life for many people. Idea of the company is to support this vision by providing their customers with wide rangeofwell-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them. Objectives of IKEA- ï‚·To earn more profits. ï‚·To have a reputed brand image in the market. ï‚·To have the leverage of competitive advantage in the market. ï‚·To satisfy more and more customers and increase the customer loyalty. ï‚·To make furniture which is affordable by the general public. ï‚·To expand the business in more markets. (Teh and Corbitt, 2015.)
TASK 2 SWOT Analysis of IKEA- Strength- Vision of the company is considered to be as their biggest strength that is to bring more value to their customers. The company does not concerns about the conditions of the market. This has gave the company a well defined strategy to retail business. This has also benefited the company to target their customers in an easy way as they are making their positioning better. IKEA gives the credit of their strength to the method of KPI as they have started using resources which are renewable and the raw materials they used before now they do it in a optimized manner. The company has maintained and established their relationship with the suppliers for a long time which has given the leverage of synergy from the factor of economies of scale. Another strength of the company is their cost reduction strategy at the time of manufacturing it is all because of their clear concept but they pass it all on to their customers. The focus of the company is single minded which has established them as largest retailer in furniture industry. (Gumusluoglu and Acur, 2016.) Weaknesses- IKEA is a multi national company which means that they have to maintain their operations in many countries which sometimes is difficult for the company because every company has different standards. IKEA is trying to build the products with the same uniform and quality in whichever country they operate so that they can overcome this weakness. Company is known for their cost leadership strategy but now company is facing loss because of it as the cost of raw materials are increasing which is making it difficult for the company to maintain their operations. Apart from this company is also facing some issues regarding the environment they have to make it clear soon to their customers and shareholders. (Oldman and Tomkins, 2018.) Opportunities- The company has the opportunity to make products for the people who wants green and eco friendly products as they have changed their business model so its time to change the target customers. Another opportunity is their cost leadership strategy as some of them think that the
quality of the product may not be good but most of them think that they are getting things worth their money. Another opportunity for them is to set their market in developing countries such as India and China as they want to increase their profitability and they are confident that their cost leadership strategy will benefit them a lot. Threats- The business model which IKEA made has been copied many of its rivals which has bring a threat for them because now they continuously need to innovate their strategies in order to beat their competitors. Apart from this company is also facing threats from online retailers because DIY is no longer the ley strategy to success and their cost leadership strategy won't be effective because online retailers provide products at lower cost as compared to IKEA which is a risk for the company. VRIO Analysis of IKEA- Valuable- This analysis helps to prove that the resources that the company has are high in value. The reason behind it was because they help in taking out the opportunities which are external. On the top of that they also help the company to face external threats. This analysis also highlights the fact that their local food products are considered highly differentiated in the market. The company considers their employs as a valuable resource to them. The reason behind this is they have highly trained some of them because of which they get better results in the output of production. The retention level of the company is also high because their employees are loyal. This helps them to generate greater customer service. Company also consider their patents as resourceful because they reduce the factor of competitive interference and allows the firm to generate more revenue. Company also considers their network of distribution valuable. This helps the company reach more customers and helps the company in doing more and more promotion into sales. (Phaal, Farrukh and Probert, 2015.) Rare- Financial aspects of the company are found to be rare because not so many companies have this strong resources. On the contrary company also deals in local food and they are not
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considered as rare because there are many companies dealing in the same thing. Company considers their employees rare because they are skilled and highly trained which not every company have. IKEA has provided them a better environment to work so that they stay for long. This analysis also consider their patents as rare because it allows them to flow them without the interference of competitors. After this company also considers their network of distribution rare because to set it up it requires a huge amount of investment which not every company can afford. Imitable- Not every company can imitate the financial resources of IKEA. Company has sustained them over a long period of time. Any company who tries to achieve it would take a similar amount of time. The company also deals in local food products and anyone can start that up with a significant amount of investment. If they invest the money in the right department then company can take up to long in building this business.Still it is considered as imitable. The factor of employees is imitable as any company can highly train them, provide them with better packages, environment and benefits. Patents of the company are not imitable as it is a legal boundation no one is allowed to do that. Apart from this it is also a costly process. Even their distribution network is costly to set up and this analysis helps to know that this kind of set up is not easy to imitate. (Dahlberg, Hokkanen and Newman, 2016,) Organization- According to this analysis IKEA is not using their patents up to their full potential. They have not organized them in a well manner. On the other hand this analysis considers their network of distribution organized as it helps the company to reach out with their customers and helps to check that their products are available in their stores. This also gives them a sustained advantage. According to this analysis company needs to focus on investing I n the right places so that they cannot miss any opportunities and overcome any threats. TASK 3 Porter's Five Force Analysis of IKEA- Bargaining Power of Suppliers-
Suppliers of IKEA have low bargaining power as there are many suppliers of the company and due to low cash flow and weak financial position the power is low. The company has no problem in changing the supplier as the availability of supplier is high but for the supplier it can be risky as they can loose their business. That is why company has set some protocols to follow. They have set a code of conduct for them which they refer to as IWAY. They have given the responsibility to their suppliers to communicate the same protocol and code of conduct to their sub suppliers. The company conduct many audits 1000 to be approx each year and they check regularly to make sure that there must be no violations. Rules have been formed for discrimination, minimum wages, child labour and maintain a safe working environment. If the suppliers don't implement this then they will be cut out. This tells that the company has upper hand. (Moseley III, 2017) Bargaining Power of Buyers- In the case of IKEA power of the buyers are insignificant that is the reason that company focus on pulling and retaining the customers. Time has changed here in 21stcentury customers have more power than company. This change is all due to growth in technological factors and increase in competition. That is why customers have more weight over company. The company never shifts their focus from promotion and marketing. The pricing strategy of the company is already built to influence more and more customers. For making the experience of shopping better company is also focusing on aspects such as digital marketing and e commerce. To conclude this factor bargaining power of customers can be stated as moderate to low. The factors which lead to this much bargaining power of the customers are good quality products, affordable prices and the strategies of the company. Threat from Substitute Products- Company gives less concern to this issue as they don't face much threat from other companies. There are various factors that state this threat. Most effective is the brand image that the company has in the market. It is possible because of the reason that for years company has put in a lot of efforts so that they could gain the trust of customers and gain brand recognition in the market. Apart from this they offer wide variety of products under one roof. There are not
many companies offering the same services. Analysing all the factors states that company faces minimum threat from their competitors. Threat from New Entrants- IKEA faces low threat from new companies. The reason behind this is any new company which will enter in the market will start on a low scale with low investment that is why they won't have any effect from the competitors that will affect them on a big scale. The industry involves many players but not many of them operate on a large scale. If any new company tries to enter into the market it will take a lot of time, effort and investment to grow on the level of IKEA. Excluding the factors such as human resources and infrastructure factors such as innovation and strategy requires investment on a huge level and it is a time consuming process. Apart from this new companies has to invest on factors such as promotion and marketing which is not easy for a new company. Any company can enter in this industry but to grow on this level they will have to face many barriers. This is the reason that the threat of this factor is moderate. (Eaton and Kilby, 2015.) Level of Competitive Rivalry- Level of competition from the rival companies is high. The battle is not concerned with the share in the market as IKEA is the sole winner there. Still IKEA has to face large no of competitors. Apart from the companies who operate on a large scale there are also small scale retailers or super market owners and brand stores who also compete in this industry. They are a threat to the IKEA. Company has gained a large customer base with the help of marketing and their cost leadership strategy. These type of factors help the company to reduce the threat from other companies. (Chen, Eshleman and Soileau, 2016.) TASK 4 Interpreting strategic direction VisionThe vision of IKEA is to create the life of many people better every day.
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MissionThe mission of IKEA organization is to design and develop all its products in such a way that they could fulfil the daily needs of the customers. ObjectivesThe objective of the organization IKEA is to offer a wide range of well- defined products of home furnishing. Moreover, the company has the clear mission to provide these furnishing articles at the price as low as possible, so that most of the people can afford to buy it. Strategies (basedon suitability, acceptabilityand feasibility) Porters generic Strategies Suitability Strategy Through online presence, the IKEA company has facilitated its various consumers with the availability of wide range of product. Thus, this strategy is used by IKEA in order to have higher sales. Acceptability Strategy as acceptability strategy concerns with expected performance outcomes. Since, IKEA has its availability in online market, due to this the risk associated with the market development strategy is quite low (Olson and et.al, 2018). Feasibility Strategy The company IKEA has huge financial capabilities & infrastructures, so due to this the company could easily enhance its online market developing strategy along with the expansion in its supplier base Porters generic IKEA company is a multinational organization with the high reputations in itstargetedmarketsegments.TheorganizationIKEA'scompetitive advantagescouldbeunderstoodthroughMichaelporter'sgenericand intensive growth model. In order to handle the competitions of the market the organization has adoptedthecombinationsofcostleadership,differentiationandfocus strategies. By focusing on the strategies of intensive growth to obtain customer base expansion as well as sale growth objectives, the company
focuses on the three generic strategy i.e. cost, differentiation and focus. More over, the intensive growth strategy used by IKEA in order to obtain growth targets includes market penetration, market development, product development and diversification. In order to achieve growth objectives, the three main streams for porter's generic strategies are used by IKEA are Cost leadership thisstrategyproposedbyPorter,whichmeansgainingofcompetitive advantage by lowering the cost of the commodity. This strategy is known as cost leadership strategy. Thus, this strategy of cost leadership is used adopted by IKEA in order to use in its various consumer markets. IKEA assumes that the primary objective due to which it has adopted this strategy is to preserve leadership position in the market. Thus, this could be achieved through efficient value chain management. Due to lower price of the commodities,it hasbecame easierfor the organization IKEA to target the middle class families, as the middle class families has the largest proportion in the country as well as they are of great importance in pricing factor of the commodity. Therefore, in order to find out the needs of the customer segment, cost leadership is the best strategy used by the organization IKEA (Theoharakis, Bicakcioglu and Tanyeri, 2019). In order to have high brand awareness, or high recognisance for the ultimate growth in sales as well as to provide strong competitive advantage basis, the IKEA uses the strategy of cost leadership in order to have great affordability & easy accessibility of its products to the customers all across the globe. Forhandlingthecompetitivepressureduetoitscloserivalries,the organization tends to charge the product by lowering the production cost and by maximizing the efficiency of supply chain. Moreover, the organization IKEA frequently provides discounts and coupons to its customers in order to reach its sales targets. Therefore, the strategy of cost leadership has benefited IKEA in several
factors such as expansion of customer base, enhancing of brand recognizance etc. Differentiation The another commonly used generic strategy in order to build competitive advantages is differentiation. The organization IKEA uses this strategy in order to achieve growth in its objectives. IKEA emphases on the unique product features in order to increase its consumer base. The products offered by IKEA are in such a way that the company always stand above in the market. Focus Strategy This strategy encourages companies to have concentrations on resources in ordertoexpandthenarrowmarketsegments.TheorganizationIKEA adopted this strategy in order to serve its consumers with the best value at the least cost. For satisfying the consumers psychological expectations, the organization IKEA frequently revise its designing and packaging to avail the customers with the maximum value for money. Tactics (marketing mix) As IKEA tends to offer wide range of products at the low cost, by focusing on the focusing on the product and price elements of the marketing mix. Along with the elements of marketing mix, IKEA also focused on the remaining 7P's i.e. physical evidence, people, process, promotion and place. By using the mono segment and adaptive type of product positioning, the retailers of the furniture, tends to target the cost conscious customers to get the best value for money. So the organization IKEA has adopted this strategy in order to provide its customers with the widest range of product at the possible low cost (Amran and et.al, 2016). The channel through which the marketing of the product can be done by IKEA is through print and media advertising, and more specifically through thepublicrelations,eventandexperienceaswellasthroughsales
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promotions. Implementation/ Control (resource allocation andcontrol measures) The resource allocation and control measures explains how the resources are allocated for the betterment of the organization and what control measures areadoptedinordertoeffectiveutilizationoftheresourcesinthe organization. ThecompanyIKEAbelievedthatimplementationofresourcesinthe measured way will always encourage the organization toward success and will ultimately help the organization in achieving its goals and mission (Martinez-Simarro, Devece and Llopis-Albert, 2015). EvaluationThe evaluation can be done by measuring the goals achieved. For IKEA, as the organization has set goals in the initial phase, and thus, by measuring the goal achieved the company could take further decision for enhancing their progress. CONCLUSION From the above studies it has been concluded that IKEA is one of the leaders in the furniture segment. IKEA is known for their cost leadership strategy as they provide wide range of products at an affordable price. Company is facing tough competition but still it has the brand image that no one can beat. Although company has to cope up with some measures such as improving the use of advanced technology and leaving the old methods so that new customers can also be influenced. IKEA has to maintain the same quality in every country as there have been some issues of the furniture tipping down and leading to death. If they don't improve it then they will have to fight with lawsuits.
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