Assessing the Influence of Environment on IKEA: A Business Strategy Analysis

This report analyzes the influence of the external environment on IKEA's business strategy, including the assessment of political, economic, social, technological, environmental, and legal factors. It also examines the internal environment and capabilities of IKEA using SWOT and VRIO analysis. Additionally, the outcomes of Porter's five force model are applied to identify competitive factors in the industry.

Business Strategy

Table of content
INTRODUCTION......................................................................................................................3
TASK 1......................................................................................................................................3
Assess the influence of environment on selected organisation..............................................3
TASK 2......................................................................................................................................5
Critically assessing the internal environment and capabilities...............................................5
TASK 3......................................................................................................................................7
Examine and apply the outcomes of Porter’s five force model..............................................7
TASK 4......................................................................................................................................9
P4 Apply frameworks for strategic planning in significance with business organisation......9
CONCLUSION........................................................................................................................11
REFERENCES.........................................................................................................................12
Books and Journals...............................................................................................................12

INTRODUCTION
Business strategy is considered as a procedure and tactics for achieving goal and
objective of organisation in stipulated period of time. It is necessary for entity to make
effective business plan in order to operate different business function in appropriate manner.
In addition to this, it is vital for business firm to adopt advanced technology in order to gain
competitive advantage over rival firm at marketplace. This report is undertaken upon IKEA.
It Is the Swedish multinational company which is located in Delft, Netherland. This
organisation was founded by Ingvar Kamprad in the year of 1943. The manager of this firm
focuses on providing wide variety of products and services such as home wares, food
products as well as furniture to its customer. In this assignment, PESTLE and SWOT is
adopted for assessing internal as well as external environment which imposes direct impact
on performance level of business organisation (Aldea, Iacob and Quartel, 2018). And also,
Porter five force models are used for making effective strategies as well as tactics for
company. Apart from this, Porter generic strategy is used for providing differentiates
products to its customer at affordable cost.
TASK 1
Assess the influence of environment on selected organisation
It is necessary for business firm to make strategy and tactics for increasing efficiency
and profitability of organisation. In addition to the, the business environment is dynamic,
therefore, it is vital to adopt changes related to finance, marketing and human resource for
success and growth of organisation. The manager adopts PESTLE Analysis for assessing
external environment which enforces direct influences on performance level of firm which is
going to be discussed below:
PESTEL Analysis:
PESTLE Analysis is the framework which is used for identifying external
environmental factor enforces direct influence on performance level of business organisation.
It helps in understanding of appropriate assessment of business as well as strategies at various
levels. In addition to this, it is necessary to enhance the awareness regarding market trends in
order to operate their company at global level (Braun, Latham and Porschitz, 2016).

Political factors: Political factor included government regulations, rules, legislation
as well as regulation and many more which enforces both positive and negative influences on
productivity of business organisation. Due to instable political condition, the supply chain of
IKEA which is situated in Europe which adversely affect performance level of business
organisation. On the other hand, the company follow rules and regulation which is imposed
by government, it positively affect the productivity as well as profitability of organisation.
Economical factors: It involves exchange rate, interest rate, wages, and inflation as
well as deflation rate and so on. Due to economic recession, it decreases the income of an
individual person. And, it results in reducing the purchasing power of people of country.
Thus it imposes negative influence on sales of IKEA. On the other hand, the manager
emphasised on providing superior quality products and services to its customer at affordable
cost. Thus, it increases the brand image as well as goodwill of company in front of customer.
It helps in increasing success and growth of organisation at marketplace (Langabeer and
Champagne, 2016).
Social factors: Social factor involves religion, market trends, taste and preferences of
customer which directly affect the performance level of company. It is necessary for business
firm to identify the changing need and wants of customer in order to satisfy them. It imposes
favourable influence on profitability of business organisation. Whereas, IKEA do not focus
on local culture and heritage, therefore, it is not possible for firm to assessing the need of
consumer in an effective manner. Thus, it adversely affects the sales of company at
marketplace (Shmeleva, 2017).
Technological factors: Technology plays an essential role for success and growth of
business organisation. It is necessary to implement advanced technology in order to provide
superior quality products and services to its customer. Therefore, the manager of IKEA
adopts Artificially Intelligence in order to identify the need of customer for increasing their
experience level at workplace. Whereas, the cost of implementation of latest technology is
too high, it adds extra cost to the products and service of business organisation.
Environmental factors: Environment factor involves temperature, weather as well as
climatic condition and many more. The business firm provide eco-friendly products and
services to its customer in order increase their standard of living at marketplace. It helps in
increasing sales as well as profit of company in future period of time. Whereas, due to change

in climatic condition, it is necessary for IKEA to change their policies thus it negatively
affects the performance level of business firm.
Legal factors: It involves employment law, consumer protection law as well as
legislation and so on. Due to change in taxation policy, the business firm alter their policy,
thus it imposes adverse impact on growth of company. Whereas, the company follow the
legal polices, thus it imposes favourable influence on sales of business organisation in
upcoming period of time. In addition to this, it helps in retaining customer for longer period
of time (Lee and Klassen, 2016).
Therefore, after analysing the above mentioned external environmental factor, it is
necessary for business firm to adopt various strategies in order to monitor and control
activities and functions of organisation. Therefore, it helps in increasing sales as well as profit
in upcoming period of time.
The strategic planning which is adopted by IKEA is going to be mentioned below:
Aim of company: The primal aim of business organisation is build good brand image
and reputation in front of customer at marketplace.
Vision: “The vision of organisation is to achieve the leading position across the
world”.
Mission: The mission of company is to provide superior quality products and services
to its customer at affordable cost in order to satisfy their need and wants at marketplace.
TASK 2
Critically assessing the internal environment and capabilities
Internal environment includes that factor which is uncontrollable by business firm to
some extent. SWOT Analysis is the framework which is adopted by IKEA in order to assess
strength, opportunities, weaknesses as well as threat of organisation which is going to be
discussed below:
SWOT Analysis
STRENGTH WEAKNESSES
 IKEA has achieved the leading  The major weakness for IKEA is their

position for less price furniture across
the globe. It helps them in increasing
sales and profitability level in future
period of time (Linder and
Williander, 2017).
 Due to integration in the approaches
related to producing as well as supply
chain results in increasing efficiency
and productivity of business
organisation.
 There are many networks of futuristic
stores leads to attract large number of
customer at marketplace.
stores are situated too far from city
centres thus it reduces sales as well as
profitability level of company.
 Due to increase in controversies
related to security as well as
sturdiness of furniture can be
considered as the weakness for
business firm.
 Herein, the organisation takes too
much time in order to make effective
plan and tactics related to new stores
is the major weakness for company.
OPPORTUNITIES THREAT
 Due to expanding budding economies
in relation to producing products and
services at fewer prices.
 Due to increasing popularity as well
as recognition in e-commerce, it
increase brand image as well as
reputation of IKEA.
 The major advantage is to implement
advanced technology for providing
innovative products and services to its
customer at affordable cost. It
increases sales as well as profitability
of company in upcoming period of
time.
 Due to adopting diversification
strategies by its competitive firm
reduces the sales and profit of IKEA.
 The cost of implementation of latest
technology is too high thus it adds
extra cost to the products and services
which is provided by business firm.
 Herein, it is necessary for business
firm to assess the need and wants of
consumer thus it need proper
research, it adds addition cost for
company can be considered as the
threat for IKEA.
Therefore, SWOT Analysis assists the organisation to offer comprehensive
information related to trends and fashion at marketplace. It helps the entity in evaluating the
performance as well as progress level at wider level (Madhushree, Kumar and Aithal, 2018).

Moreover, the business firm adopt VRIO model for assessing the opportunities as
well as resources which is used by business organisation. And also, they focus on core
activities as well as resources in an effective manner. It also helps in monitoring and
controlling the different activities of business organisation in an appropriate manner. In
addition to this, VRIO provide a true picture of firm and assists in taking suitable decision
which will be advantageous for company. There are four elements such as valuable, rare,
organised as well as inimitable is important to consider by IKEA which is going to be
discussed below:
Valuable: The main purpose of business firm is to increase sales and profit within
business organisation. In addition to this, the valuable resource of IKEA is their differentiate
products and services. The manager of business firm focuses on offering unique goods as
well as services to its customer at affordable cost in order to gain competitive advantage over
rival firm at marketplace. It assist firm in boosting sales and profit in future period of time.
And, it helps in achieving goal and objective of business organisation in stipulated period of
time (Sanden, 2016).
Rare: It included those resources which is unique and rare from competitive firm.
The manager of IKEA handle to design the procedure which essentially makes buyer enjoys
working for business organisation. In addition to this, they offer superior quality products and
services to its customer at affordable price helps in gaining competitive advantage over rival
firm at marketplace. And also these things are rare and unique for business organisation in an
effective manner.
Inimitable: The business organisation offer innovative products and services to its
customer across the globe. The manager of entity makes effective strategy and plan in order
to identify the need and wants of consumer. It helps them in provide the good as per their
need which is not duplicated by any other competitive firm. Therefore, it increases sales as
well as profitability level in future period of time (Maniora, 2018).
Organised: IKEA has achieving leading position across the world. It is necessary for
business firm to organise the structure in an effective manner. In context of IKEA, they
recruit talented and capable employees in order to provide better services to its customer. It
helps in retaining customer for the longer period of time. And also make good relationship
with its customer at marketplace. Therefore, the organised firm tackles all issues as well as
problems in better way.

Therefore, from the above mentioned topics it has been analysed that SWOT and
VRIO framework is used for identifying internal as well as external environmental factor of
business firm. It helps in increasing success as well as growth for company in future period of
time (Wonglimpiyarat, 2016).
TASK 3
Examine and apply the outcomes of Porter’s five force model
Porter five force models is adopted business firm to gain competitive advantage over
rival firm at marketplace. It helps the organisation in increasing growth and performance of
organisation at wider level. It is used for assessing the competitors available at marketplace
as well as make effective strategy in order to increase sales and profit in upcoming period of
time (Mohelska, H. and Sokolova, M., 2016). There are different factors which are considered
by IKEA that is going to be discussed below:
Threat of new entrants: The threat of new entrants in manufacturing industry is very
high. There are no rules and regulations in order to take entrance in this sector. But it does not
affect the productivity as well as profitability of business firm. In context of IKEA, the
manager focuses on providing superior quality home wares and furniture to its customer at
affordable cost. Therefore, it is not necessary for new entrants to gain profit at marketplace.
Apart from this, the firm operate their business activities and function at global level in order
to increase their sales and profit in future period of time.
Threat of Substitutes: There are number of substitute products such as home wares,
furniture’s which is provided by competitive firm. Therefore, it is necessary to offer
innovative products and services to its customer in order to gain competitive advantage over
rival firm at marketplace. In addition to this, they offer products at affordable cost in order to
compete with its rival firm Munandar, A., 2017). Therefore, the customers do not switch their
brand to its competitive firm. It helps in increasing sales as well as profitability level in future
period of time.
Bargaining power of customer: There is large number of competitive firm such as
TESCO, Sainsbury’s as well as Wal-Mart available at marketplace. Therefore, the customer
has a choice to select from wide variety of products and services in the market. It has been
stated that the bargaining power of customer is high in this sector. Apart from this, it is

necessary for manager of IKEA to make effective strategy, policies and tactics in order to
assess the changing need of customer. It helps them in providing the products as per their
need. It boosts sales as well as profitability level in upcoming period of time.
Bargaining power of supplier: The bargaining power of supplier is low in
manufacturing sector. It is necessary to impose price according to its competitive firm.
Otherwise, the customer switches their brand to other products and services in the market. In
addition to this, it is vital to make good relationship with its customer in order to retain them
for longer period of time. And also it increases trust as well as loyalty of buyer as well as
increases their experience level at workplace (Xie and Cooke, 2019).
Competitive rivalry: The level of competition is high in manufacturing as well as
furniture industry. There are ample of rivals such as TESCO, Sainsbury’s and Wal-Mart
provide good quality products and services to its customer at affordable cost. Therefore, it is
vital for IKEA to offer goods as per the need and wants of consumer at marketplace. It helps
them in gaining competitive benefits over rival firm at marketplace. And also, it increases
sales as well as profitability level in future period of time. Apart from this, the main purpose
of business firm is to offer superior quality home wares and furniture’s to its customer at
relatively low price for achieving competitive benefits over rival firm at marketplace.
On the basis of above mentioned strategies, it has been analysed that it is necessary
for business firm to offer high quality products and services to its customer in order to gain
competitive advantages over rival firm at marketplace. It helps IKEA in achieving leading
position across the world.
Ansoff matrix is adopted by business firm in order to gain competitive advantage over
rival firm at marketplace which is going to be mentioned below:
Market penetration: Herein, the manager of IKEA focuses on providing existing
products in existing market to its customer. In addition to this, they offer food items as well
as home wares to its client at affordable cost in order to satisfy them.
Market development: In this process, the supervisor focuses on offering existing
products in the new market. In addition to this, they make effective strategy in order to
provide food products as well as home wares to its customer in new market. They want to
attract large number of customer in innovative market.

Product development: Herein, the management team emphasised on providing
innovative products to its customer in existing market. In context of IKEA, the manager
focuses on developing new chicken burger in order to attract ample of customer at
marketplace.
Diversification: In this step, the business firm develop new products in new
marketplace. It is very risky to introduce innovative products at marketplace. But, in order ot
gain profit, it is necessary for firm to develop innovative goods in the new market.
TASK 4
P4 Apply frameworks for strategic planning in significance with business organisation
Porter generic strategic is adopted by business firm to provide unique and innovative
products and services to its customer at affordable cost for gaining competitive advantage
over rival firm at marketplace (Ocasio and Radoynovska, 2016). The manager of IKEA
adopts porter generic strategies which are going to be mentioned below:
Cost Leadership: Herein, the business firm focuses on providing unique products and
services to its customer at affordable cost. It helps them in increasing market share with
relatively less price. In addition to this, the main purpose of organisation is to earn more and
more profit by offering quality products and services to its customer. It aid assistance in
boosting sales as well as profitability level at marketplace (Zhang, 2016).
Differentiation: Herein, the business firm focuses on providing unique products and
services to its customer in order to attract large number of user at marketplace. They want to
differentiate their products for compete with its rival firm. They assess the changing need
and wants of customer. And adopt the specific strategy in order to deliver unique goods and
services to its customer at affordable cost. The main purpose of IKEA is to achieve leading
position across the world.
Cost focus: Herein, the main purpose of business firm to target small market in order
to identify the demand of customer. And they focus on providing superior quality products
and services to its customer at affordable cost. It increases sales as well as profitability level
in future period of time (Pitelis and Teece, 2016).

Differentiation focus: It is necessary for organisation to boost trust and loyalty
among customer towards products and services of company. In addition to this, the manager
of IKEA focuses on offering unique products as well as services to its customer in order ot
achieve competitive benefits over rival firm marketplace.
Therefore, for choosing true strategy for business organisation, it is necessary to
increase the awareness regarding strength as well as competencies in an effective manner. It
helps them in making appropriate strategy for increasing sales as well as profitability level in
future period of time. In addition to this, the top management of IKEA adopts differentiation
strategy. Therefore, they offer unique and specific goods as well as services to its customer
at relatively less price. It increases brand image and reputation of company in front of
customer at marketplace.
Strategic planning
Strategic planning is vital for growth as well as development of business organisation
across the globe (Priem, Wenzel and Koch, 2018). Through effective strategic planning, the
manager of IKEA grabs opportunities at marketplace around the world. It helps in boosting
sales as well as profitability level in future period of time. The strategic planning which is
going to be mentioned below:
Aim of company: The primal aim of business organisation is build good brand image
and reputation in front of customer at marketplace.
Vision: “The vision of organisation is to achieve the leading position across the
world”.
Mission: The mission of company is to provide superior quality products and services
to its customer at affordable cost in order to satisfy their need and wants at marketplace.
Values: IKEA is the largest leading brand who possesses the reliability, principles as
well as simplicity.
Strategies and tactics: It is necessary for business firm to make effective strategies
and tactics in order to boost sales and profitability level at marketplace. The manager of
IKEA adopts differentiation strategy. They offer unique products and services to its customer
in order to gain competitive advantage over rival firm at marketplace (Revathi and Aithal,
2018).

In addition to the Porter generic strategy, it is necessary for IKEA to explain
Bowman’s matrix in order to maintain effective strategy at workplace. It helps in assessing
the strategies of rival firm in order to gain competitive advantage over rival firm in the
market which is going to be mentioned below:
Low price and Low Value Added: Herein, it is necessary for manager of IKEA to
offer superior quality products and services to its customer at relatively low cost in order to
achieve competitive benefits over rival firm at marketplace.
Low price: In this strategy, the company charge low cost to its customer in order to
boost their profitability level and sales in future period of time. It helps in maintain good
brand image and reputation of firm in front of customer at marketplace.
Hybrid: It is the integration of differentiated products as well as low cost services for
its customer. Herein, the business firm provide unique goods and services at relatively less
price for gaining competitive advantage at marketplace.
Differentiation: Herein, the main purpose of business firm is to offer unique and
specific goods to its client in order to satisfy them.
Focused Differentiation: In this level, the supervisors of IKEA emphasised on
providing differentiate products rather than focus on price. It helps them in attracting large
number of customer at marketplace.
Risky high margin: Herein, the business firm charges high price, if they add some
extra amount of value to its customer.
Monopoly pricing: In this process, the price is set by the supplier because he is the
only owner of company who provides high quality products and services to its customer in
order to satisfy their demand within organisation.
Loss of market share: In this level, the manager of IKEA focuses on charging
average price for its products and services.

CONCLUSION
On the basis of above mentioned report, it has been analysed that it is necessary for
business firm to make effective strategy in order to gain profit and sales in future period of
time. It also helps in gaining competitive advantage over rival firm at marketplace. In
addition to this, PESTLE analyses is adopted for assessing the external environment which
imposes direct impact on productivity as well as profitability of business firm. Apart from
this, SWOT and VRIO are used for identifying internal capability as well as external factor of
organisation. In assistance of this, Porter’s five force model is adopted for achieving
competitive advantage over rival firm at marketplace. Beside from this, IKEA is Swedish
multinational company which offer high quality products and services to its customer at
affordable cost. It helps in increasing success as well as growth of business organisation in
future period of time. Beside from this, they use porter generic strategy for gaining
competitive benefits over rival firm at marketplace.

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