Analysis of impact of macro environment on IKEA and its business strategies

This study analyzes the impact of macro environment on IKEA and its business strategies. It includes a PESTLE analysis, stakeholder analysis, and VRIO analysis of IKEA's internal resources.

Business Strategy

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1 ...........................................................................................................................................1
Analysis of impact of macro environment on IKEA and its business strategies........................1
TASK 2 ...........................................................................................................................................6
Internal environment and capabilities of IKEA..........................................................................6
TASK 3............................................................................................................................................9
Evaluation of Porter's Five force model......................................................................................9
TASK 4..........................................................................................................................................11
Models, theories and concepts to interpret strategic direction for IKEA..................................11
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Business strategy is a summary about the way an organisation will be achieving its
objectives by meeting its customers expectations in order to have competitive advantage for the
firm(Martinez-Simarro, Devece and Llopis-Albert, 2015). It leads to a systematic process that
helps the business to set its future goals in order to achieve. Present study is based on the
company IKEA that is a Swedish multinational Retail organisation founded in the year 1943.
Company is the world's largest furniture retailers and also design and sell different kitchen
appliances, home accessories and other products. Report will include mission, vision, objectives
of IKEA and will critically evaluate the macro environment factors for strategic decisions.
Further report will include internal environment focusing on strength and weaknesses and also
will use VRIO analysis in order to analyse internal capabilities. It will also include Resource
based view framework for analysing competitive analysis. Further report will evaluate porter's
five forces model for IKEA and will produce strategic direction in order to improves the
competitive edge with the use of Ansoff's matrix. At last report will create strategic plan for
IKEA with the use of Porter's generic strategies.
TASK 1
Analysis of impact of macro environment on IKEA and its business strategies
Vision:-
To create a better day to day life for the surrounding people.
Mission:-
To create better life for the customers with wide range of well designed home furnishing
products at a reasonable prices so that people are able to afford the products.
Objectives:-
 To offer wide range of home furnishing products with attractive design and good quality.
 To offer durable goods with effective functioning.
 To provide goods and services at reasonable price so that majority of people are able to
afford them.
PESTLE analysis:-
It is framework that is used by IKEA in order to analyse the macro factors that impacts
business performance. It helps the company to have deep understanding of its business and helps
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to exploit opportunities. However, IKEA is not doing the PESTLE analysis on regular bases
because of which company is facing criticism with respect to political and legal factors.
Figure:- 1
Political:-
There are some political factors like policies set by the government, foreign trade,
environment law, tax policy etc. that affects the business and its strategies. The supply chain
disruption is the major issue that affects IKEA due to political instability as many parts of supply
chain is in Europe and political disruption there may affects the activities of supply chain. IKEA
also had faced criticism from the media of china as package boxes of IKEA represented Taiwan
and China as two different and separate countries. Such critics and politics affected the
organisation in many ways(OFFER, 2017). However, company is making strategies to have
political stability and apologised for its mistakes that leads to both political and economic
stability and helped for increasing sales of the business in foreign market.
2
Illustration 1: Pestle analysis

Economical:-
There are many economic factors like exchange rate, inflation rate, unemployment rate
etc. that affects IKEA and its strategies. The global economic recession that resulted in decline of
purchasing power of the potential customers, affected the business strategies of IKEA.
However, its was seen that IKEA was able to manage the pricing of its products and this
strategy helped the organisation to manage the economic fluctuation pressure(Ehsan Ullah,
Karlsson and Dada Olanrewaju, 2016).
Social:-
There are social factors like norms, customs, lifestyle, income distribution etc. that affects
the organisation like IKEA and also its business strategies. IKEA came under the fire as it
Photoshop women of Saudi Arabia that was out of its catalogue and also removed lesbian couple
from Russian magazine. Different social trends have affected the sales of IKEA.
However, the company apologised and communicated that they are improving to share
there values. In order to overcome influence of these factors, IKEA have to ensure that in right
culture, these wrong things does not make any presence(Sadgrove, 2016).
Technological:-
There are different technological factors like research and development, innovation etc.
that affects the business. Competition is increasing day by day due to change in technology and
this factors affects the decision making of IKEA.
However, IKEA is working to provide better experience to its customers with the help of
different digital channels. Digital technology have helped the organisation to reach its customers
and provide them better service experience. Company is coming up with strategies to use
Artificial intelligence and cognitive intelligence in the organisation in order to understand the
consumer behaviour effectively(Nguyen, 2016).
Legal:-
Factors like employment laws, consumer protection law, patent law etc. affects the
business strategies of IKEA as a small hassle in these laws may affect the business and can be
costly for the organisation. In past years some customer’s died due to the furniture of IKEA and
this affected the business strategies of organisation as they worked to produce safe and secure
products to its customers. It affected the business reputation and penetrating it is very tough for
the firm(Beliveau and et.al., 2018).
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However, IKEA have worked over the safety of its products in order to overcome the
impact of legal issues on business strategies.
Environmental:-
The environmental factors like scarcity of raw material, carbon footprint etc. may affect
IKEA and its business strategies as having sustainability in the organisation is very important
part for the business brand and this also helps IKEA to have better brand image. As many
business operations of IKEA are affecting the environment and also people, this may result in
poor reputation of its brand(OFFER, 2017).
However, Company is making strategies and investing in renewable energy. It is aiming
for in-store energy and invested in wind and solar energy. They are also shifting to sustainable
sources rather than using wood or cotton.
Stakeholder analysis:-
It is very important to analyse the respective stakeholders and there needs. It becomes
easy with the use of stakeholder analysis technique as it helps in identifying primary and
secondary stakeholders of IKEA(Power, 2016). However, IKEA is lacking to monitor its logistic
partners and affects business competitiveness. In order to lead the market and to keep its position
in market, IKEA have to build effective relation with its stakeholders.
IKEA is cooperating with different domestic and internal stakeholders and uses
stakeholder analysis in order resolve conflicts.
The three major steps in stakeholder analysis are as follows:-
Identify stakeholders:-
IKEA is making different strategies by identifying its stakeholders. The different
stakeholders that are part of this organisation are as follows:- Employees:- The different stakeholders of IKEA are its 211,000 employees that are
working in about 433 locations all over the world. Suppliers:- The furniture is designed in Sweden and main suppliers are from south
America region(Ngai and Falkheimer, 2017). Shareholders:- IKEA is having its owners as its stakeholder that is Ingvar Feodar
Kampard founder of IKEA and CEO Mikael Ohlsson are the shareholders. This also
includes different executive managers.
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 Mangers and customers:- There are stakeholders that manages the organisation and as
company is globalised it is having customers from all over the world.
 Trade union:- As IKEA is working with 20 independent organisations, they are also part
of stakeholders.
Prioritize its stakeholders:-
It is very important to prioritize IKEA's stakeholders and divide them on bases of its
impact in the organisation. IKEA has divided its stakeholders into primary and secondary.
Primary stakeholders are working internally and secondary are external stakeholders(Laurin and
Fantazy, 2017). However, they are having less focus on external stakeholders and have to make
them engaged in order to bring competitive advantage to the firm.
Figure:- 2
Stakeholder analysis uses a power-interest grid in following ways:-
5
Illustration 2: Power interest grid

 Keep satisfied:- In this grid stakeholders that are having high power and low interest are
classified. Governing authorities and Trade unions are under this category and they are
need to be satisfied for the welfare of the organisation. However, these authorities are
having both positive and negative impact on organisation as it is necessary for IKEA to
make them satisfied in order to run the business smoothly. Manage closely:- There are stakeholders that are having high power and high interest like
shareholders, managers and CEO of IKEA are classified in this category. These
stakeholders are managed closely(Anis and Classon, 2017). However, these stakeholders
have to be engaged in business activities as their power and interest both are high.
Unsatisfied stakeholders results to poor business operations as they are lifeblood of the
business and its different activities. Monitor:- There are stakeholders that are having low power and low interest that are its
local communities and logistic partners and they need to be monitored closely by IKEA.
However, if business do not have key eye on these stakeholders or do not communicate
effectively, it will be tough for IKEA to compete in market.
 Keep informed:- This category is having low power and high interest and are its
employees and customers. They are required to be informed about business activities of
IKEA. However, if IKEA is not able to satisfy its customers than it will affect the
profitability of business.
Understand key stakeholders:-
In order to have effective work in the organisation, it is essential for IKEA to have
knowledge of the stakeholders and there professional ability. As owner of the company is having
the main power, is make strong flexibility and adaptation for its employees.
However, IKEA works to understand its customer’s in order to make strategies for
satisfying there respective needs(Anis and Classon, 2017).
TASK 2
Internal environment and capabilities of IKEA
Resource based view framework:-
It is a framework that helps in determining strategic resources that IKEA can exploit for
brining competitive advantage to the firm.
Figure:- 3
6

According to this framework resources of the organisation are all its assets, processes,
attributes and information. IKEA is using these resources as input and this helps in effective
performance of organisational activities. These resources are classified as following:- Tangible resources:- The physical assets like raw materials, machinery, plants, patents
etc. are the tangible resources of IKEA(Ahmad and Mohamed, 2018).
 Intangible resources:- There are intangible resources like culture, reputation, relationship
with customers that are having intangible resources of IKEA.
The critical assumptions of these resources are as follows:- Heterogeneous:- The skills, knowledge, structure and resources of IKEA are different
from other competitors and company is designing different strategies in order to brining
competitive advantage to the firm. Immobile:- There are some resources that are not mobile in IKEA and these resources can
not be transferred among the companies. It is difficult for IKEA to obtain these immobile
resources of its competitors.
VRIO analysis of IKEA:-
There are various internal resources in IKEA that are assessed in order to have
competitive advantage to the firm. However, IKEA is lacking behind with respect to research
and development. Not only this company is also not able to organise its patent effectively. The
VRIO resources of IKEA are as follows:-
7
Illustration 3: Resource based view

 Valuable:- There are financial resources for IKEA that are highly valuable for the firm as
organisation uses these resources to grab external opportunity. The local food products
are highly differentiable because of which they are valuable for IKEA. The patents are
also valuable resources as these allow IKEA to sale its products without having
interference of its competitors. However, research and development is not valuable
resource for IKEA as its having high cost and fewer benefits. Only few innovative
features were there due to research and development as a result it is not brining
competitive advantage to IKEA(Svensson, 2016). Rare:- The financial resources and distribution network of IKEA are rare and have
possessed by only few of its competitors so its brings competitive advantage to the firm.
However, the food products are not rare as many other competitors are providing the
same. So, food products are brining competitive advantage to IKEA. Imitable:- The financial resources are generally costly to imitate in IKEA and it would
require long period for competitors to accumulate it. Therefore, it provides competitive
advantage to the firm. However, employees of IKEA are not costly to imitate as other
organisations can train the employees to improve their skills as IKEA does. So, these
resources do not bring competitive advantage to the organisation.
 Organisation:- Financial resources of IKEA are well organised and these resources are
invested in right direction by the company because of this it is brings competitive
advantage for IKEA. However, patents are not organised effectively as they do not use it
with its full potential. This resource do not bring competitive advantage for IKEA.
According to the VRIO framework, financial resources and distribution resources are
used effectively by IKEA because of which they are able to compete in market. However, they
are not able to use patent and its employees effectively in order to bring competitive advantage to
the firm(Wang and Jie, 2019).
SWOT Analysis:-
It is a framework that helps IKEA to identify its respective strength and weaknesses and
also helps in analysing external factors that is opportunities and threats for its business. However,
this framework is not utilised effectively by IKEA in order to analyse its opportunities. There is
huge opportunity in market and IKEA is in need to work on it.
Strength Weaknesses
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 Company is having clear vision and
well defined business strategies(Goel
and Garg, 2018).
 It is having strong financial position
and maintains cost leadership that
positively impacts its revenues.
 The brands of IKEA are affordable and
is impacting customers expectations in
positive ways.
 Many employees are not satisfied and
have complaint about the promotional
activities that affects brand image.
However, organisation is working to
make its employees motivated by
engaging them with different activities.
 Company works on cost leadership and
do not have focus on quality of the
products that affects profitability of
IKEA(Li And et.al., 2016).
Opportunity
 As online shopping in increasing, it is
brining opportunity for IKEA to sale its
products with the help of its website.
 As demand of lower carbon footprints
is there, IKEA is having opportunity to
reduce energy use with the use of
renewable resources(Kumar and
Bansal, 2015).
Threats
 As government and tax policies
changes, it impacts on prices of IKEA's
product. However, organisation is
working on pricing strategies in order
to overcome this issue.
 Company have gone through different
lawsuits because of its previous issues
regarding employees discrimination
and poor quality of the products.
However, IKEA is working to make its
employees engaged and to not have any
discrimination in the workplace(Muhr
and Aytekin, 2016).
TASK 3
Evaluation of Porter's Five force model
This model helps IKEA to determine the competitive landscape in order to understand the
profit potential within the industry in which company is operating. However, this model ignores
many other factors with respect to stakeholders, internal and external business analysis that may
not help IKEA to bring competitive advantage to the firm.
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Figure:- 4
Threat of new entrants:-
It is very difficult for to achieve economies of scale in the industry in which IKEA
operates. So, the threats of new entrants is a weaker force. However, it is easy for the new
entrants to assess the distribution network in order to come into this business. So, the threats of
new entrants is a strong force for the industry in which IKEA is operating(Mathooko and Ogutu,
2015).
Strategies to tackle:-
 Company have to take advantage of economies of scale in order to fight with the new
entrants that are coming in this industry. Company have to make its product differentiable with the help of innovation so that
IKEA do not lose its customers because of new entrants.
Bargaining power of suppliers:-
As there are many suppliers in this industry in which IKEA operates, suppliers are not
having control over the prices, therefore the bargaining power of suppliers is a weaker force with
respect to this industry. However, there are some products that do not have substitutes and
10
Illustration 4: Porter's five force model

suppliers takes advantage of it. This makes the bargaining power of suppliers a strong force for
the respective industry in which IKEA is operating(Zhao And et.al., 2016).
Strategies to tackle:-
 IKEA have to ask for raw material at low cost from the suppliers. Company also have to develop an effective relationship with these suppliers.
Bargaining power of buyers:-
As there are fewer firms that produce these products that IKEA is offering therefore,
bargaining power of buyer is a weaker force within the industry. However, there are few
substitutes in the same industry that are having more quality products so, bargaining power of
buyers is strong force in this industry.
Strategies to tackle:-
 Company have to work on innovation and have to increase quality of products. Have to build large customer base so that brand loyalty increases.
Threat of substitutes:-
There are only few substitutes available for the products that IKEA offers therefore,
threats of substitute products is a weaker force with respect to the same industry. However, few
substitutes are offering quality products so here, the threats of substitutes are having strong force
with respect to this industry in which IKEA is operating(Mathooko and Ogutu, 2015).
Strategies to tackle:-
 IKEA have to work on quality of its products with lower pricing strategy. Company have to make its products differentiable in market.
Rivalry among existing firm:-
There are only few competitors with which IKEA have to compete so, rivalry among
existing firm is having weaker force within the industry in which IKEA operates. However,
These few competitors are having large market share and makes the rivalry among existing firm
as strong force in this industry.
Strategies to tackle:-
 IKEA have to make its focus on its new customers rather than just focusing on existing
ones as competition is increasing.
 They have to do market research in order to avoid overproduction(Zhao And et.al., 2016).
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TASK 4
Models, theories and concepts to interpret strategic direction for IKEA
Figure:- 5
Porter's generic strategies have three strategies that are cost leadership, customer focus
and product differentiation. IKEA can choose anyone for brining competitive advantage.
However, IKEA have its major focus on Cost leadership and differentiation strategy and
somehow is lacking behind with respect to focus strategy. Company have to use focus strategy in
order to have loyal customers.
Cost Leadership strategy:-
According to this strategy, organisations come up with low cost products in market with
in the industry. Here with lower cost, company is having broad target for the competitive scope.
IKEA uses this strategy and also include economies of scale, access raw material in order have
competitive advantage. IKEA is maintaining low cost products in market with effective quality.
This makes the customers attracted towards the offerings. However, company have to exploit all
sources for having cost advantage(Bertozzi, Ali and Gul, 2017). As IKEA is working to achieve
overall cost leadership, it will be helping the company to reach above average performer with
respect to this industry.
Differentiation strategy:-
12
Illustration 5: Porter's generic strategy

According to this strategy, organisations develops products and services that are having
unique attributes and they value there customers by providing the products that differentiate from
its competitors. IKEA used this strategy and made the brand outstanding and differentiable from
many of its competitors. As middle class of the customers are in need of low or average pricing
products, IKEA is offering the services at affordable prices to its customers. However, company
is required to do proper research and development in order to bring creative products so that
substitutes are not available in market(Pulaj, Kume and Cipi, 2015).
Focus strategy:-
With this strategy, many organisations have there focus on narrow segments either to
have cost advantage or differentiation in products. This strategy is having two variants that are
cost focus and differentiation focus. Companies uses this strategy in order to have high
customers' loyalty and it becomes tough for other organisations to compete with the firm. With
Cost focus, firms are having cost advantage and with differentiation focus, firms are having
differentiation in its target market. However, IKEA is not using this strategy in its business.
It is seen from above study that IKEA is using Cost Leadership strategy and
Differentiation strategy in its business and this helps the company to bring competitive
advantage to the firm.
Strategic management plan:-
Strategies:-
 Company have to reduce the operational and transportational cost in order to achieve the
business goals.
 IKEA have to divert its focus from mass marketing to individual marketing as it will help
in bring loyal customers with effective relationship with them. They have to bring diversity in there business and have to standardised there retailer
sections(Wicker and et.al., 2015).
Objectives:-
 To offer excellent quality in its products.
 Offer products with affordable prices with high quality and durability. Home furnishing items with good design and uniqueness.
Tactics:-
 Company is opening its 10 more stores with effective servicing.
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 IKEA is investing in solar panel and renewable installations. They are also working on
carbon footprints, as nowadays customers demand for sustainable products.
 Offering high quality products at a reasonable rates and for the same IKEA is doing
proper research and development of its products(Bertozzi, Ali and Gul, 2017).
 IKEA is also working to develop an effective relationship with its suppliers.
CONCLUSION
From the above study it is been concluded that IKEA is using Pestle analysis in order to
analyse the macro factors that impacts business performance. Further report concludes that in
order to understand and analyse the primary and secondary stakeholders of IKEA, stakeholder
analysis is used. Report also concludes that in order to determine strategic resources that IKEA
can exploit for brining competitive advantage to the firm, RBV and VRIO framework is
effectively used. Strength and weaknesses of organisation is determined with the use of SWOT
analysis. Report also concludes that Porter's Five force model helps IKEA to determine the
competitive landscape in order to understand the profit potential within the industry in which
company is operating. Report concludes that the strategic management plan helped in identifying
the strategies, objectives and tactics in order to bring competitive advantage for IKEA.
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