Business Strategy for IKEA

This report discusses the business strategy of IKEA, focusing on the macro environment impact, internal environment and capabilities, and the use of theories, models, and concepts for strategic planning. It examines the competitive forces applied on IKEA and provides insights into the organization's vision, mission, objectives, and stakeholder analysis. The report also discusses the strengths, weaknesses, opportunities, and threats faced by IKEA, along with an analysis of its VRIO framework. Additionally, it explores the strategic models of Porter's Generic Strategies and Bowman's Strategic Clock used by IKEA.

Business Strategy
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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Task 1...........................................................................................................................................3
Macro environment impact on organization................................................................................3
Task 2...........................................................................................................................................6
Internal environment and capabilities..........................................................................................6
Task 4...........................................................................................................................................8
Theories, models, and concepts to interpret and devise strategic plan for the organization........8
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14
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INTRODUCTION
Business strategy refers to the actions and decisions that the company takes to reach its
business goals and be competitive in its industry which can help guide the decision-making
process for hiring and resource allocation (Soltanizadeh, Rasid and Golshan., and et.al., 2016).
IKEA is a multinational conglomerate, that designs and sells ready to assemble furniture, kitchen
appliances and home accessories, among other useful goods and occasionally home services. It is
known for its modernist design work which is often associated with an echo – friendly
simplicity. IKEA has complex corporate structure. The following report will examine porter's
five forces model for evaluating the competitive forces applied on IKEA along with the range of
theories, concepts and models, interpreting and devising strategic plan for the organization as
whole.
Task 1
Macro environment impact on organization
Vision-
The vision statement of IKEA is “To create a better everyday life for many people.”
Mission-
The mission statement if IKEA is “The business ideas supports the vision by offering
wide range of well-developed and designed furniture by which many people as possible will be
able to afford them.”
Objective-
The objective of IKEA is “To offer wide range of home furnished products of good
design and functions, excellently high quality and durability, at prices so low that the majority of
people can afford to buy them.”
Political-
Political conditions of a geographic location make a direct impact on company's
performance because company has to follow the rules and regulations developed by the
governments (Wu, 2020). Since tax fluctuation in UK are very less IKEA is having stores in
different geographic locations and because of which it can achieve a good economic conditions
and high sales due to several stores. But during the events of Brexit UK's decision of leaving
European Union has made a negative impact on company's performance because IKEA must pay
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taxes in the areas which were freely available before the events of Brexit. This has increased
organizational expenditures and forced IKEA to increase the pricing on its products, thus
resulting as decrement in sales.
Economical-
Company's like IKEA has to make sure that it is able to achieve high level of
organizational sales by which it can ensure that it is able to achieve its organizational sales and
for which it has to implement creative working strategies by which customers can be attracted
towards the organization. However, there are several external factors which make a direct
negative impact on company's pricing strategy like the unemployment rates, high interest rates
and exchange rates (Laurin and Fantazy, 2017). This is important because if customers are not
able to buy products then IKEA must face decrement in sales. In the recent times due to COVID-
19 many customers have lost their jobs and because of which IKEA must decrease its product
pricing for achieving sales and this has reduced profit margin.
Social-
Social factors are the changing demand of customers which company must fulfil to
maintain their engagement with the organization, for this IKEA has to closely evaluate the
targeted customers and their requirements. With that company also has to evaluate the changing
market trends by which it can ensure the is able to attract trendy crowd and also can reduce the
chances of company switching at the customer side because they are ensured that they are getting
best in quality and new products. Also, company must change its working strategy as per
changing customer requirements as per the changing market trends.
Technological-
Technological advancement is changing the way of product development and because of
which customers are also changing their ways of buying products. Thus, IKEA must increase its
engagement in online activities by which it can improve its communication bridge with the
customers (Baraldi and Ratajczak-Mrozek, 2019). Also, IKEA must develop effective
communication point with the customers through the means of social media marketing by which
wide range of customers can be attracted at a reduced cost. This is because social media
customers are increasing in numbers and because of which organization must increase its
engagement in social media which is cost efficient as compared to traditional marketing also
much more effective.
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Legal-
Legal factors the governmental rules and regulations which IKEA has to follow in order
to provide its services and products to the customers, it is important for company to develop a
working strategy in such a way that it is able to fulfil every criteria. For example, employee
legislation law which IKEA must fulfil to maintain employee’s loyalty towards the organization
and also to make sure that it is able to provide the basic requirements of employees. This is
important because it fails to fulfil the basic employee requirements then it has to face penalties,
which will increase organizational expenditures and but this employee legislation will increase
the organizational expenditures which will make negative impact on its economic growth.
Environmental-
IKEA must make sure that it develops its organizational working structure such that it is
able to minimize its negative impact on environment these steps include steps to reduce the
carbon footprints and several others. This is important for company because through this it will
be able to develop a positive image for its customer’s and through this it will ensure that
governmental criteria are being fulfilled. But this increases organizational expenditures and thus
make a direct negative impact on its economic growth, but on the other hand IKEA can use this
for development of a positive image in front of customers because by this it will ensure that
customer's engagement is increased.
Stakeholder-
Stakeholder of an organization can be an individual or a group of people which are able
to affect the task performance or are affected from task performance, therefore company has to
evaluate these stakeholders and prioritize them on the basis of their power and interest in
organizational working such that effective working can be achieved (Roy, 2020).
High power and high interest-
These are having high power in decision-making and have level of interest in terms of
goal achievement because of which are provided high level of priority, Existing share
organizational customers and board of directors are considered in this segment.
High power and low interest
Possess high power in affecting decision-making but are less interested in organizational
activities due to which they are having less amount of priority but IKEA has to keep them
satisfied because by which it can ensure that goal is achieved efficiently.
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Low power and high interest
These stakeholders have low power to affects organizational decision-making but are
highly interested in organizational activities because of which they are having reduced amount of
priority and thus company has to keep they informed about the activities by which it will be able
to maintain their loyalty.
Low power and low interest
This type of stakeholder has low power and less interested in organizational actions
because of which they are having minimum amount of priority (Elf, 2020). Non existing
organizational customers are the segmented audience in this region because of their less impact
and less interest in activities.
Task 2
Internal environment and capabilities
Strength-
IKEA is a multinational organization which provide wide range of furniture options to its
customers are an affordable pricing and because of which it is able to high amount of
organizational sales which has provided it an good economical background and high brand
awareness (Höcker, Sturén and Troedsson, 2018). IKEA has wide geographic reach in some
prime locations because of which it is having large number of workforces, through this large
number of workforces it is able to provide high level of customer services by which customer
loyalty is increased. Company provide latest and trendy products based on customer
requirements by which it can attract trendy crowd towards the organization for high sales.
Weaknesses-
Company provide high quality products to its customers on the basis of their
requirements but the final delivery of product is done in unassembled parts for pricing reduction
and customers have to pay separately for the assembly or have to assemble manually. This cost
saving strategy limits company's customer count of the organization because customers can
directly buy finished products from other alternatives which reduces customer's engagement with
organization. Company provide wooden furniture on the basis of customer requirements but this
increases deforestation which makes a negative impact on the environment because of which less
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amount of customer involvement can be seen, since environment related concerns are increasing
company faces decrement in sales.
Opportunity-
IKEA can implement technological advancement at its work place by which it can
provide customization options to customers in which they can design their furniture requirements
and then IKEA can provide proper guidance and simulated working process of the develop
product. This simulation options with design options it can increase their engagement in
organizational activities which will reduce the chances of brand switching and improve the
communication bridge (MEHRA, 2020). IKEA uses social media marketing for showcasing its
products but company can implement social media communication bots for developing strong
customer relationship because through this customers can provide feedbacks which will be
beneficial for analysing the effectiveness of current working process.
Threat
Changing market trends are motivating customers to change the ways of buying products
and because of which organizations like IKEA also have to implement these changes in such a
way that it is able to achieve its organizational changes in such a way that is able to achieve its
targets. Due to this IKEA must implement technological advancement which will increase
organizational expenditure thus making a direct negative impact on economic growth. Increasing
global warming is motivating global governments to take strict actions regarding deforestation
and because of which IKEA must change the ways of development of product.
VRIO
Valuable Rare Imitable Organization
Brand Value Yes Yes No Yes
Product quality Yes No Yes Yes
Economic Growth Yes No Yes Yes
Brand Value-
There are several factors which are very valuable for IKEA and company pays high
attention in maintaining this special status, these factors contain elements like brand value,
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product quality and economic growth (Wu, 2020). The Brand value of IKEA is very important
because through this basis it can attract customers towards the organization and is not imitable.
With that company's organized values are also an important factor for the company because it
has to provide high level of working quality and therefore it has developed a proper working
scenario by which high level of productivity can be achieved at low pricing.
Product quality-
IKEA make sure that the customers are getting the best in class products and because of
which product quality is a valuable asset of IKEA and since company pays special concerns
towards it because of which it is also very rare in terms of company's perspective but since other
market competitors are utilizing machinery options because of which it is not rare and due to
simple design it is also imitable. However, company make sure that developed product can work
as per the requirements and because of which it is highly organization.
Economic growth-
Company's economic growth is a very valuable asset for it and because of this reason
only it pays high attention it is very rare, however this strong economic growth is hard to imitate
but certainly not impossible to achieve (Vahlne and Jonsson, 2017). IKEA has achieved this with
a slow and gradual performance and because of which it has highly organization and thus
through this company can make sure that it is able to achieve its organizational targets.
Critical Analysis-
Even though IKEA is a multinational organization which is having high brand value but
company is lagging performance in terms of attracting new customer towards the organization
because of its simple design and high competition availability. Due to high market competition
customers often switch brands and also due to low pricing strategy product quality is also
affected which reduces customer’s engagement with the company.
Task 4
Theories, models, and concepts to interpret and devise strategic plan for the organization
Strategic planning is a process in which the organization identify goals through planning
and implements those plans for achieving the organizational goals. Strategic planning mainly
refers to the strategies being formed for the completion of tasks and desired goals to be achieved.
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(Echchakoui,2018). Three basic types of Porter's Generic Strategies with reference to IKEA
organization is as follows -
Cost – Leadership Strategy – IKEA mainly follows the Cost Leadership Strategy which is
defined by Michael Porter. In IKEA, the company seeks for the suppliers who could
manufacture designed sub – assemblies on the lowest cost. Manufacturers are allowed to
reduce the cost As soon as customers pay for the product which is of high quality.
Differentiation Strategy – IKEA follows this strategy to the lower level. They have innovated
the way consumer purchases the product that is furniture and reviews about what the customer
actually want on different levels of purchasing. For this, the company has placed the product in
prototype rooms which are stylish in the appearance and this provides the consumer choices
while choosing the product. Thus, through this process of marketing IKEA can easily receive
their potential buyers.
Focus Strategy – Moreover, IKEA obeys the “Focus Strategies” on differentiation. This strategy
is also a link – up to the cost – leadership strategy of which the main aspect is low cost. This
strategy focuses on the price structure where the product pricing is done in reference to the
characteristics the product displays. This helps in variation of the product type and the focus is
attracted towards the product classified into different types.
Bowman's Strategic Clock – This marketing model explores strategic positioning of the
product and how it is classified on basis of its range of value and price which is demonstrated by
the IKEA company (Spinoglio, 2020).
Position – 1: Low value added – Despite a low price, the furniture as a product deficient and
the consumer perceives little value. This strategy is bargain-basement which keeps the price low
to maintain the competitiveness in the market structure. Thus, the products under this factor
which IKEA produces is of low quality.
Position – 2: Low Price – In this factor, IKEA produces large quantity products due to low
pricing. This factor is expected in the market where the furniture produces low – profit margins
as there are other competing products in the market which are merchandising in the similar type
industry. The high volume of output produces high profits for the product on the economies of
scale of the employees.
Position – 3: Hybrid – IKEA has built great brand loyalty by utilizing the strengths of both the
strategies that is product differentiation and low price to add value for the customers.
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Position – 4 : Differentiation – IKEA has achieved the maximum level of perceived value
through this position called differentiation in which the product quality plays an important role
and so does the branding by differentiating the product on different steps.
Position – 5: Focused Differentiation – IKEA targets to position its product or service at the
utmost price levels where buyer purchases the product because of high perceived value.
Position – 6 : Risky High Margins – In this strategy, IKEA sets high prices factor which is
focused on it and this results in the change of consumer behaviour towards the product, the
industry produces.
Position – 7: Monopoly Pricing – In this factor, if IKEA provides limited options to the
consumers then they will either buy the product or not. In this position monopolists can set the
prices according to them at any levels of price they prefer.
Position – 8: Loss of Market Share – If IKEA offers the products or services at higher price
then the company will eventually lose its customer base which will result to loss of market share.
Preferring not this to happen, then IKEA should follow lower prices in positioning the product.
Horizontal and Vertical Integration –
Vertical Integration - Vertical integration is strategy in which company follows the
supply chain and controls its suppliers and distributors. IKEA is benefited from vertical –
integration as it allows controlling, process and reduce cost by improving the efficiencies of the
work by the employees (Pérez-Lara, Saucedo-Martínez and Marmolejo-Saucedo., and et.al.,
2018). IKEA has been implementing their vertical integration strategy which helps them in the
increasing awareness towards the climate change by making it more eco – friendly and
sustainable. IKEA's latest move to be more conscious of this was to invest in a plastic's recycling
plant by making all plastic products with 100% recycled plastic and this initiative has taken the
company to achieve and reach on the good scales of reputation in the internal and external
organizational environment.
Horizontal Integration - Horizontal integration is a process in the part of supply chain
which increases the production of goods and services of a company. IKEA has integrated to
increase their size, diversify product or services to achieve economies of scale or reduce
competition. Thus, IKEA has access to gain new consumers and markets including overseas.
Thus, it generates more revenue by new innovations in the technology, its marketing – research
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and development areas by producing the desired product consumer wishes and differentiating
according to the industry's work processes.
Strategic Plan for IKEA -
Objectives – To achieve short and medium term goals that the organization set to achieve
along with the resource to be allocated which helps in determining the policies and processes that
are to be implemented for the IKEA company in consideration with long and short term goals
(Ellesson and Hultin, 2016).
Analysis of Marketing Mix of IKEA Company is -
Product – IKEA cater to different segments by selling wide range of products as customers are
more interested in furnishing their homes by purchasing new furniture which are available to
them at affordable prices (Išoraitė, 2016). This is the main reason why IKEA differs from its
competitors.
Price – By providing and following the pricing strategies, IKEA has provided high quality
furniture products at affordable prices to the consumers.
Place – IKEA has widespread its market and business and have 415+ retail stores across
different countries by adopting different models of store management and in building new
physical structures.
Promotion – Promotion of the product that has been produced by IKEA contains all the market
strategies which are applied and progress towards the new strategies and planning of the product
which diversifies the furniture of the company with its competitors. The promotional strategies
of the company include social media marketing sites like Facebook, twitter, and other forms of
influencing sites.
Strategy – IKEA's strategy has always been designed in such a way that it helps the consumers
to uy the products according to their everyday needs and wants while keeping prices low which
help the consumers to buy the products easily and in different types (Sandybayev, 2017).
Sustainability has been at the root of IKEA's strategy which secures long – period access to the
natural physical products which helps in maintaining the energy supplies in the market and
develops cordial relationships with the customers and employees of the company attributing to
the market share of the organization.
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Risk factor – There can be various risk factors which degrade the performance and the working
process of the organization. These factors include financial risks, competitiveness with other
companies, the operational risks which can affect the production of the product or service. The
technological risks which may stop the growth of the industry procedures as whole and due to
this it will also affect the people and the culture of IKEA which may lead to loss of consumers
and market share structure can be affected, fraud can be also takes place due to this.
Performance Evaluation – Key Performance Indicators are the critical indicators of progress
toward an intent result (Li and Sofos, 2019). The overall evaluation of the IKEA industry focuses
on the strategic and operational improvement factors which are explained as how the company
went under different strategic analysis processes and thus the evaluation is done on the basis of
the company's performance in the market structure along with the position it holds.
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CONCLUSION
This can be concluded that even though IKEA is a multinational organization which
provide broad extent of furniture choices to its consumers at an affordable pricing. But the
external factors makes a significant direct impact on company's working strategy and thus
company has to change its working as per the requirements by which it can ensure that it is able
to achieve its organizational targets by working as per the changing market requirements.
However IKEA also has to make sure that it concentrate its efforts on improvising its internal
environment which include its weaknesses by which it can ensure that it is able to fulfil
consumer requirements which will improve their goal achievement. IKEA also has to make sure
that it is able to evaluate the market competition by which it reduces the chances of brand
switching and for which it has to monitor the working capabilities of existing market competition
and also analyse the new entry's working capabilities. Through this analysis it can ensure that the
developed product is able to surpass market competition and also it has to provide something
new and rare which will reduce the chances of brand switching and thus IKEA can evaluate the
effectiveness of its working capabilities.
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