Evaluation of Macro Environment and Internal Capabilities of IKEA

This report evaluates the macro environment and internal capabilities of IKEA, a multinational furniture company. It analyzes the political, economic, social, technological, legal, and environmental factors affecting the company. It also examines the internal resources and capabilities of IKEA using the VRIO analysis and McKinsey 7's model. The report provides insights into how IKEA can leverage its strengths and address its weaknesses to achieve its business goals.

Business strategy:
retail sector

Table of Contents
Table of Contents.............................................................................................................................3
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1) Evaluation of macro environment.........................................................................................1
TASK 2............................................................................................................................................5
P2) Internal environment and capabilities...................................................................................5
TASK 3............................................................................................................................................7
P3. Porter's five Forces model.....................................................................................................7
TASK 4............................................................................................................................................9
P4) Strategies and theories to attain the business goals by strategic planning............................9
CONCLUSION..............................................................................................................................11

INTRODUCTION
Strategies and planning are the important term that uses to run the business and increase the
organisational productivity in competitive business environment. It can be defined as
combination of all decisions which is taken by owners in order to run the business continuously.
In the field of management and corporate world management are performing the functions and
increase organisational image by offering variety of products and services (Biodi and Sanawiri,
B., 2017). It is important for organisation to make planning which can help to deal with problems
and give guidance to perform well. To understand about this IKEA been taken that is Swedish-
origin Dutch-headquartered multinational group that designs and sells ready-to-assemble
furniture to customers that attracts customers and increase performance. This helps to increase
the organisational productivity. This report covers
TASK 1
P1) Evaluation of macro environment
About organisation – IKEA is a multinational group that designs and sells the furniture
with best quality and designs that can be directly assemble and increase the performance. This is
larger size organisation that is selling the products and furniture to customers. This organisation
is running business by operating stores at different places that can help to increase the brand
image. It was founded in 1943 and famous to make reputed home furnishing brands in world.
Vision – “To create better everyday life for many people.” This increases living standard
of people by offering better quality of furniture and appliances.
Mission – “ To provide functional home furnishing products at prices so low that many
people can afford them.”
Goals – The goals of IKEA is to increase the sale, customers and productivity in
competitive business environment (Dawson and Mussolino, 2014).
Objectives - IKEA’s objectives is to bring new technology for designing furniture and
increase the competitive advantages.
PESTLE Analysis – This is a framework that states the factors which affects the business
organisation and its operation. These is important for organisation to analysis the external
environment so that business can be operated effectively and manage the good performance. A
PESTLE analysis for IKEA organisation has been defined that impacts on operation such as:
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Political factor – This factor is related to political stability that regulations that levied on
business organisations for the purpose of operating. IKEA is operating business successfully as it
is getting the support of government that reduce all restrictions to import and export the goods.
According to 2019/20 it has seen that IKEA is growing its business by entering in to new
countries and selling its designable furniture to customers. This organisation is operating
business in more than 41 countries as having government stability that leads to economic
stability. Now, this organisation is planning to emerging Asian market by increasing presence of
brand that has affected business positively (De Beelde and Tuybens, 2015).
Economical factor – This factor states inflation rates, interest rate, GDP rates and
population that is related to economy. The economic condition of any country decided how much
profits and revenues a business can earn and affects the buyer’s buying power. After Brexit the
economical condition is reduces which affected the buying power of customers. Due to this
reason, people have lost their jobs in larger number that has cut down the living cost. This factor
has affected the IKEA organisation as customers do not get ready to buy the furniture and
appliance easily. To improve the economic condition and selling the products organisation has
provides employment and selling their products at low prices that can help to improve the
business performance (Jeston and Nelis, 2014).
Social factor – This factor involves society and culture that increases the understanding
of people and their needs. It is important for any organisation to go international there us need to
understand the local and little nuance that can help to establish a business smoothly. This factor
affected the chosen organisation for instance, IKEA is not always got local nuances right that
bring the company under fire for photo shopping women out of its catalogue in Saudi Arabia that
has created risk for organisation to operate business. In this, IKEA has to understand the culture
in different country in better ways that can help to operate and attracts the customers effectively.
Technological factor – In changing environment, technology is increasing rapidly
which needs to adopt by companies in order to run and maintain a competition in business
environment. All business concerns are using technology from finance to marketing, customer
services, sales and payment mode that is increases customers attentions and make available them
products. IKEA is retailing sector that make use of such factor currently in better ways as it
introduces Artificial intelligence, cognitive intelligence to understand the consumer behaviour
and provide a new level of experience. This helps to increase the business performance and
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selling activities as it helps to maintain the good relations between customers and managers
(Fuchs and Köstner, 2016).
Legal factor – This factor has created many problems for business that proves small
business cannot affords legislation and regulations because it increases cost. This factor has
affected the business of IKEA is following all legislations and labour laws that is pertaining the
business in well manner. Moreover, it is producing 30% of inventory in other country by
providing job opportunities to people and helped to increase the performance.
Environmental factor – The sustainability for organisations is important that is uses by
organisation to reduce the cost that helps to increase the brand image. IKEA is serious for
environmental factor that has grown the sustainability. For instance, it is investing in climate
changes, renewable energy and carbon emission that has impacted on business positively. By
2020, its stores comes from renewable source of energy and invested large amount in wind and
solar panels that increases the selling activities and taking competitive advantages.
SWOT analysis of IKEA in the year 2020
Strength Weakness
 IKEA has global brand reputation for
low cost furniture.
 It has integrated approach for
manufacturing and designing the
furniture.
 Strong revenue growth and
profitability.
 Vast and numerous network of ultra
modern stores.
 Furniture stores are located away from
city centres.
 Standard product portfolio out of the
globe.
 Controversies regarding safety and
durability of furniture.
 Time taken process (Kwilinski, 2018).
Opportunities Threats
 Low cost manufacturing and expansion
to emerging economies.
 Local source of raw material.
 Introduce of new designs in furniture
 Sustainability in environment due to
 Laws and regulation that needs to
follow in explored markets.
 Price wars and diversification in
strategies.
 Having many competitor in market.
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renewable source of energy.
 Using of e-commerce and new
technologies.
 Consumer income that can limits the
buying power of customers.
Mendelow’s stakeholder matrix: This matrix is uses by organisation for the purpose of mapping
stakeholder by dealing with conflicts and demands. By using this, a person get to know who
stakeholder have high interest in organisation that is defined in context to IKEA as defined:
Interest Level
Power Level HIGH LOW
HIGH Owners Sponsors
LOW Employees Consumers
High Power with high interest: This refers as strong forces that states high power and
interest of stakeholders who have investment in organisation. In context to, IKEA, retail
company owners and managers have high power and interest who make plans and design them in
order to increase the organisational productivity (Leszczyński, 2016).
High powers with low interest – In IKEA, Sponsors are those who have invested in
organisation and least interest to getting back return. Such person have high power who plays
main role by investing but low interest in business activities that may affects the business.
Low powers with high interest – In context to IKEA, workers have low powers and
high interest in activities. Such person have high level of knowledge, skills and talent which
helps to getting the work done by developing strategies that helps to perform well and increase
the productivity (Liboni and Cezarino, 2014).
Low power with low interest - This means stakeholder who have low interest and low
power to involves in organisational tactics and activities. In IKEA, customers have low power
and low interest as they are playing role in buying the products. In IKEA, customers make the
choices of buying furniture with different designs that helps to make business effective.
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TASK 2
P2) Internal environment and capabilities
The businesses should be analysis the internal capabilities that can help to increase the
profitability and productivity. Every organisation is running business by facing many
challenges that may affects their operation and capabilities. IKEA is retailing furniture
company that is operating business at different places and helps to increase the brand image
by entering in to competitive market.
VRIO analysis
This is a framework which is used by organisation to know the valuable, rare, inimitable and
organised resources which helps to improve the capabilities and effectiveness. Evaluating the
tools and skills that the organization has in the competitive market is an empirical process. Using
this tool, IKEA organisation will gain insight into the core opportunities and skills that will have
long-term competitive growth advantages. Mostly, corporate strategy is adopted by managers of
IKEA company who bring innovation and new process to improve the organisational
productivity:
Capabilities Valuable Rare Inimitable Organised
Finance ✔ ✘ ✘ ✘
Global
distribution
channel
✔ ✔ ✘ ✘
Skills
workforce
✘ ✔ ✔ ✘
Product
manufacturing
designs
✔ ✔ ✔ ✔
Valuable – In IKEA, there are many resources such as finance, global distribution
channel, skilled workforce and product designs that helps to operate the business and increasing
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the capabilities. All resources are valuable for organisation as finance is uses to buy the raw
material, pay off labours and other curricular activities that supports the business and increase
productivity. Global distribution channel is valuable to increase the sale, skilled workforce helps
to accept the challenges and work accordingly that increases brand image. On the other hand,
design of furniture and appliances attracting the customers that helps to increase the production
and profitability.
Rare – This refers to goods and service offered by companies that are not readily
accessible in the concentrated market that decreased competition. IKEA is a multinational
corporation offering consumers home ware items such as designing furniture by building a
worldwide distribution platform. It is critical to have an international footprint to operate a
company so that customers connect plan and productively their business properly. These raises a
working business’ internal capacities and also maximize profit (Nahi, 2018).
Inimitable – This means products and services which are offered by organisation and are
not inimitable, helps to increase the business performance. In IKEA, skilled and talented
employees are working who accept the challenges and new technologies in order to increase
business activities. The managers are providing new technology for making the working easy
that is difficult for other to imitate it. This can be challenge for organisation to retain the
employees and getting the work done continuously (Mirzakhani, Parsaamal and Golzar, 2014).
Organised – In IKEA, furniture design and manufacturing process are those activities
which is perform by management in order to take the competitive advantages. All activities and
design of furniture are organised by managers in a better way that attracts customers and deliver
them best quality of products. By using this, internal capabilities of organisation improve and
make higher profits.
McKinsey 7’s model – This is a model which is given by Robert H. Waterman Jr. and Tom
Peters that helps to state how a business can be grow. In other words, it is considered as useful
framework which is used by business entity to review the capability of business organisation
from different viewpoints. This is important for business organisation to know their capabilities
and efficiency so activities can be perform in effective manner and attain the business goals.
Therefore IKEA is using McKinsey 7S model which are as explained:
Strategy – This states organisation should use attractive strategy which can help to face
the competitors and increase profitability. IKEA Martin is using different competitive strategies
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which helps to meet customer's demand, solve their problems and reach the organisational goals
effectively (Peleckis, 2015).
Structure – This states that how an organisation is divided at different level which helps
to manage the functions effectively. IKEA is following hierarchy organisational structure which
is important to meet with all desired objectives of business organisation.
System – This is process, procedure and information system which support business and
increase the organisational profitability. IKEA is using technical system which is appropriate and
clear helps management to maintain and manage the work of their team successfully.
Staff – IKEA is having many employees who are divided on the basis of age, gender and
characteristics. All staff are trained and well designed which helps to operate business to
facilitate organisational growth.
Style – This covers both way in which managers of organisation are behaving in order to
achieve goals and cultural style. IKEA is using programming and emerging technology which
helps to take the greater responsibility to attain business goals (Schönhaar, Pidun and Nippa,
2014).
Shared value – This states shared value and beliefs of business industry which helps to
complete the targets. IKEA aims to increase the productivity by accomplishing and using
innovation from individuals and team.
Skill – This consider as important element of organisation which increases capabilities
and productivity. In context to IKEA, all are aware from overall capabilities of team and specific
skill set of team members which helps to expand the core competencies by offering products in
international market.
TASK 3
P3. Porter's five Forces model.
Background of IKEA – This is home furnishing company which was started in 1943 in
order to run a business. In starting, s small business was established by owners and sourced many
resources which helped to operate the functions and activities effectively. Home is most
important place in world where people wants to décor ate their home by using different appliance
and furniture by making feel good. This helps to increase the organisational productivity and
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profitability. The competitor of IKEA is Wayfair, Amazon, B&Q, Habital etc. that are selling the
similar products and services that attracts customers and increases organisation products.
Porter’s five force model – This is a model that uses by organisation in order to take the
competitive advantages by making decisions. In other words, a model that identifies and analyses
the competitive forces for increasing organisational strength is porter’s analysis. The reason
behind using it, to take competitive benefits in competitive environment and develop the
organisation effectively. The Porter’s five force are uses by IKEA are as defined:
Bargaining power of suppliers – This means people who supply the products and services
at different prices as they have power are consider as suppliers. In context to IKEA, bargaining
power of suppliers is low as there are many suppliers who are selling the products in relation to
furniture at different prices. IKEA is having good relations with suppliers who are raw material
at low cost helps to increase the sale and productivity (Tajeddini and Trueman, 2016).
Threats of competitors – Competitors are those who are selling the products and services at
larger scale. In context to IKEA, number of competitors are having in market who are selling the
design of furniture that attracts customers and increase sale. This organisation is operating the
business by selling the furniture and appliance at low cost as people wants which increases
performance and profitability effectively (Suess, 2014).
Bargaining power of buyers – Buyers are those who buys products and services from
different places and make feel them good. In context to IKEA, bargaining power of buyers is
high that may affects business negatively. In this, customers have chance to buy the products as
their wants that can reduce the organisational cost and profitability.
Threat of substitutes – This means similarity of products and services that can be use
instead of original products. In Context to IKEA, threat of substitution of furniture is high as
grocery items that can affects the business and operations. This can be challenge for organisation
to sale their products and services. To overcome this threat, management of such organisation
needs to sale the products at low cost with best designs that attracts customers and encourage the
customers to buy.
Threat of new entrants – This is influencing force which states entrance of new business
and expansion of activities affected the business. In IKEA, threat of new entrants is moderate as
anyone can enter in to market by selling their furniture and products that can help to operate the
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business and increase competition. Such force can affects the business activities and may
challenge the sales (Szabó and Öri, 2017).
Thus, IKEA is using porter’s forces to face the competition and increase the business
operation by delivering best quality of products and services. The managers are focusing on
factors which may influence negative and make strategies that can help to getting the competitive
advantages.
TASK 4
P4) Strategies and theories to attain the business goals by strategic planning
Porter’s Generic strategy – This is a strategy by defining plans made by organisations in
order to sale products and attain the business goals. Porter’s generic strategy is uses by IKEA
organisation for sustaining development and creating good performance that are as explained:
Cost leadership – This strategy states organisation should be low cost producer by selling
the products and services at lower cost. In case of adopting this, IKEA should make planning to
sale its furniture at low cost that attracts customers and increase the business performance by
increasing market share.
Differentiation – This strategy is related to differentiation in which products and services
should be different from others that make feel good to customers. IKEA can use this strategy by
selling the different design of furniture and products that make feel good and increase
performance (Walker, Ni and Dyck, 2015).
Focus strategy – This planning is the combination of cost and differentiation which helps
to complete the task and attain the business goals. By adopting focus strategy IKEA, need to sale
the furniture and products at low cost with different designs that can attracts the customers and
increase profitability.
From the above, IKEA is adopting cost focus strategy in which it sales furniture and other
items at lower cost than competitor which attracts customers and increase the brand image. This
also increase profitability by increasing sales and maintaining good performance by taking rights
decisions.
Strategic management plan – This is a plan which should be prepared by organisation for
the purpose of completing their task and attaining the business goals. IKEA is making the
strategic management plan in order to increase its sale which is main objective of organisation in
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competitive business environment. The management are brining, new home ware products that
can help to increase the performance and get competitive advantages. To accomplish the
business goals a business plan has been prepared that is defined below:
Procedures Description
Vision The vision of IKEA become the high performer company by
providing different design of furniture and products.
Mission The mission is to increase the sale by attracting customers
and delivering best quality of products.
Objective  To increase selling activities up to 45% in 2021.
 To capture market share by 10%.
 To get the competitive advantages by offering better
design of furniture.
 To maintain high customer base and product range.
Strategy IKEA is using following strategies for designing new
furniture and home ware products. Moreover, strategies also
help to increase the sale by attracting customers that are as
defined:
 Extensive marketing
 Adopting differentiation strategy
 Digital marketing
Tactics For attaining the business goals and increasing sale IKEA
organisation has adopted tactics that helps to make the profits
and increase productivity. The tactics which is applied by
organisation are:
 Low pricing tactics – IKEA has to sale the products
at low cost than its competitors so it can increase the
number of customers and sale.
 Marking mix – This is another tactics which is used
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by organisation to attain their goals such as:
Product: New home ware and appliances are introduced by
IKEA organisation. Moreover, distribution channel with the
help of new technology can help to increase the number of
customers.
Price: low pricing strategy is adopting by organisation that
increases buying power of customers and increase
profitability.
Place: Such products and services will be provided in
Sweden and UK firstly.
Promotion: Social media, print media, newspapers and
digital marketing is uses by organisation in order to inform
and attracts the customers.
People: interior, marketing manager, HRM, finance and
quality management people are working in organisation who
helps to run the business and increase the productivity.
Process: Online designing and decorating home lean
principle is used.
Physical evidence: New design of furniture and offline
stores are considered in physical evidence (Wirtz and et.al.,
2016).
Evaluation Benchmarking and Key performance indicator is uses by
IKEA for evaluating organisational performance, quality of
furniture and other process that can help to increase the
business performance by attaining the goals.
CONCLUSION
From the report it can be concluded that strategies should be uses by organisation for the
purpose of taking competitive advantages. Stakeholder analysis states interest and power of
customers, owners, sponsors and employees who have invested and maintain the good
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performance. PESTLE is uses to analyse the factors which have impacted on business. VRIO
defined how resources are valuable, rare, inimitable and organised at the time of oerating
business.
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REFERENCE
Books and journal
Online
PESTLE analysis of IKEA. 2020. [Online]. Available through:
< https://notesmatic.com/ikea-pestel-analysis/>
SWOT analysis of IKEA. 2020. [Online]. Available through:
<https://www.swotandpestle.com/ikea/>
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