Analyzing the Impact of Macro Environment on Business Strategy

This report analyzes the impact of macro environment on business strategy, using IKEA as a case study. It explores the influence of political, economic, social, technological, environmental, and legal factors on the company's operations. The report also assesses the internal environment of IKEA using the RBV framework and VRIO analysis. It highlights the strengths and weaknesses of the company.

Business strategy

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1 ...........................................................................................................................................3
LO1: Analyse the impact of macro environment on the organisation.........................................3
TASK 2............................................................................................................................................8
LO2: Access internal environment of an organisation................................................................8
TASK 3..........................................................................................................................................10
LO3: Evaluate and apply porters five force model....................................................................10
TASK 4..........................................................................................................................................12
LO4: Prepare strategic plan.......................................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................15

INTRODUCTION
Business strategy include the combination of decision which is taken as well as
performed by company in order to attain the competitive position within market. It basically
comprises of well defined strategy which is prepared by business to set particular goals or
objective require to face the adverse or unforeseen circumstances (Apenko, 2017). This is the
systematic thinking approach of the whole system by evaluating the micro or macro environment
factors to determine the desirable output. For the better understanding of report IKEA company
has been selected which is multinational retailer and are specialised in designing the useful home
accessories like kitchen appliances or furniture. In terms of furniture the company is considered
as the largest retailer which operate in more than fifty countries via physical stores or through
online platform. This report cover topics like impact and influence of macro environment on the
business. Analysis of internal environment and the capabilities. Evaluate as well as apply
different models within the particular market structure. Further, use different theories and models
by devising the strategic planning for the given origination are covered in this report.
TASK 1
LO1: Analyse the impact of macro environment on the organisation
Mission: The mission of IKEA company is to maintain the long term customer
relationship by remaining customer oriented in order to understand their requirements and bring
significant chances in the exiting products.
Vision: The vision of IKEA company is to offer different varieties of well designed
furnishing product to different national and international customer at affordable prices in
comparison to the competitors.
Objective: It is the prominent part of business that give sense of focus or direction to the
internal staff of an organisation (Chen, Eshleman and Soileau, 2016). The SMART objective for
the IKEA company consist of five elements which is explained below:
Specific: This mean the objective need to be precise and clearly defined like IKEA
company's specific goal is to maintain the quality of product by reducing unnecessary
expenditure of company.
Measurable: As per measurable criteria the goal can be self sufficient to measure the
progress of business by achieving the set target. The company usually offer the product at

reasonable prices so the target of internal staff is to enhance the footfall of IKEA retail store by
10% within 5-6 month.
Achievable: This refer that the objective can be difficult but ultimately it need to be
feasible so that employees remain enthusiastic to attain the target. In context to IKEA company
offer training and development programme to groom the existing skills of employee which help
them to increase the footfall of company by remaining competitive.
Realistic: A clear defined goal needs to be realistic and within the reach of an
organisation. Further, the constant supervision and guidance of IKEA company managers assist
the staff to reach out the target of company.
Timely: It represent the specific timeline within which the purpose of the organisation
need to be attained. Like, the transition period for staff to enhance the overall sales of company
is 6 months.
Pestle analysis
IKEA company operate globally and has around three hundred brick and mortar outlet
that function in different geographical area. Due to globalisation there are different external
forces such as social, technology as well as political influence which need to be analysed by
company otherwise it can affect the brand image for home furnishing products (Cubas‐Díaz and
Martinez Sedano, 2018).
Political factor: Political forces represent the economic stability that differ from one
nation to another as it help to enhance the profitability of company. As IKEA company operate
in forty countries so before diversifying the manager understand the attitude and policies of
government.
Positive: IKEA majorly operate in developed countries where political forces are
relatively stable. Along with that it is planning to expand in Asian market because the
government of India and China lower down the political barrier in order to enhance the presence
of international brand.
Negative: Although the emerging economy makes effort to promote the entrance of
multinational companies but rep tape is again an issue that can slow down the growth of
company.

Economical factor: It include the different economic condition such as recession or
inflation which affect the revenue or profitability of company. Several big brand like IKEA gets
affect due to economic fluctuations.
Positive: IKEA company makes best possible effort for its offering by managing its
pricing policy effectively. As the company is known for its quality product that is sold at the
nominal prices. So by cutting down its prices assist company to retain the interest of customer.
Negative: During global recession the purchasing power of staff decreases so they first
makes precaution to fulfil their basic need rather than concentrating to the offerings
multinational company. Hence, even the nominal prices can not attract the customers during
extreme conditions.
Social factor: These cultural as well as social factor has deep impact on the company as
it include the preferences of customer that need to be matched by the company (Dickson and
McCord, 2016). While printing the catalogue for IKEA company the managers ensure theta they
display the right culture so that the people does not get offended which can lower down the sales
of company.
Positive: IKEA company use sustainable methods to enhance the sales of company for
which it even encourages the existing customer to put forward their feedback. Along with that on
the basis of E-CRM it analyse the interest of customer and promote its appliances or furnishing
products accordingly.
Negative: The company has faced huge crises like to prepare the magazine in Russia
IKEA company removed the lesbian couple which affect the image of company and lower down
profitability.
Technological factor: Each and every business require technology to deliver the
significant services to the ultimate customers. So to remain competitive IKEA brand too uses
latest technology or innovative.
Positive: The company uses digital media to sustain real shopping experience of the
customer. It even uses augmented reality or Artificial Intelligence with the objective to enhances
the customer shopping experience.
Negative: To bring modifications in the existing technology or while launch new tool and
technique require huge investment which is cost as well as time vosnsusmsisnsg for trh internal
staff.

Environmental factor: Sustainability is one of the main concern of business that help to
reduce the cost and build overall experience of customer. This even help the company to reduce
the overall operational cost and retain the interest of customer to build sound experience.
Positive: The company has made the precaution that by 2020 all the energy which is used
by company need to come from the renewable sources. Also all the raw material such as cotton
come from the sustainable resources in order to retain the interest of external environment.
Negative: As the company basically depends on the wood to convert in into finest
furniture. So there is an immense pressure to make optimum use of the raw material otherwise it
can negatively influence the functioning of company amongst stakeholders.
Legal factor: It comprises of regulation or law which is implemented by the local
authorities and vital for the business to follow in order to safeguard the interest of employee.
Positive: IKEA company function in different parts of the counties and still planning to
expand in the Asian markets. This determine that the company is self reliant to cater the
international regulation effectively (Fontana, Sastre-Merino and Baca, 2017).
Negative: There are different laws which vary from one market to another so in case of
IKEA company such complex structure leads to immense pressure in the functioning of
business . This leads to rigidity and control the growth and development of company.
Stakeholders analysis
There are different stakeholders of company who are basically linked with the company
either directly or indirectly. Stakeholders analysis is the linkage effect that consist of four
categories such as higher power, higher interest, lower power and lower interest. These four
categories basically fall under two group which is higher and lower stakes.

Illustration 1: Stakeholders analysis, 2018
High power, high interest: It comprises of the stakeholder that have decision making
power and supervise the functioning of an organisation. The investors fall under this category
are they have interest in financial statement of IKEA and accordingly takes decision either to
invest or withdraw the fund from company. Thus, their profit is associate with the company.
Along with this shareholders of IKEA appoint the director and conduct meetings to enhance the
market share.
High power, low interest: These stakeholders can influences the functioning of business
but give low propriety to the growth or the progress of project (Ghemawat, 2016). Within IKEA
company this category comprises of government which has high power due to which it analyse
the financial statement of company. As high profit lead to high tax rates which can be further
used for social welfare.
Low power, high interest: Although they does not have the privileged to participate in
the group decision making but still they have interests to overview the functioning of company.
It comprises of the competitors and due to high interest they overview the functioning of IKEA
and accordingly changes its business strategy.
Low power, low interest: Here the people just need to follow the decision or are asked
to performed the required actions. It include the employee, customer as well as advisory that are
the part of company and perform responsibilities because they get some sort of remunerations.
Further, they show low interest in the growth and development of company.

TASK 2
LO2: Access internal environment of an organisation
RBV framework
Resource based view approach is used by the firm to attain competitive advantage by
emphasising on the functioning of business (Gumusluoglu and Acur, 2016). It is feasible for the
IKEA to use the existing resources of business and exploit the business opportunity rather than
acquiring new business skills. It include two tangible as well as intangible resources of the
business.
Illustration 2: Resource based view, 2019
Tangible asset of the IKEA company are machinery, equipments, buildings as well as
capital that help the company to gain long term advantage.
Intangible asset include intellectual property and brand reputation of IKEA that help the
company to build unique image which can be imitated and finally leads to sustainable advantage.
VRIO analysis
It is used by the IKEA company to access the internal resources of company in order to
identify the sources that provide sustainable advantage to company.
Resources Valuable Rare Imitable Organised

Financial
resources
✔ X X ✔
Employees ✔ X ✔ ✔
Brand image ✔ ✔ X ✔
Valuable: It refer to the state under which organisation makes effort for its customers to
exploit external opportunity and neutralise the chances of competition. It is vital for the firm to
uncover its capability and access the resources in order to gain competitive advantage. As IKEA
has operated in different market so due to the portfolio investment the company gets the
advantage of financial capability and economies of scale. These are the valuable part that assist
firm to deliver values to the final user by hiring potential personnel. Further, this has helped the
firm to create unique image and retain the final customers.
Rare: Rarity is the privileged that certain companies gets in order to exolot the
resources. In case if the business offer value but does not have rare resources tehn it undergo the
position of competitive parity. There are many other rivalries of IKEA due to which the financial
strength and potential staff are not rare which leads to competitive parity. On other side the
IKEA has the unique brand image due to which it is one of the dominant seller in terms of
furnishing items and help to gain competitive advantage.
Imitable: Imitable means duplicate of resources which only give temporary advantage to
company (Higgins, Omer and Phillips, 2015). It require the considerable amount of effort that
assist competitor to remain ahead and differentiate its services. So IKEA maintain it brand image
by targetting the potential customer via different channels in order to retain its customer base.
Also the financial capacities can be be copied by the new entrant or other competitors of
company.
Organised: It determine the processes as well as structure of business which is used to
capitalise the firm's capability. The adequate support of company can help the firm to gain the
advantage of long term sustainable development which cannot be replaced by other rivalries
(VRIO Analysis of IKEA. 2018). Whereas, if the resources are not organised then it
encompasses the situation of unused competitive advantage. Thus, IKEA gets the sustainable

advantage due to brand image that led the company to enhance the profitability in terms of
revenue as well as upgrade they capability of an employee.
Strength and weakness of company
Strength Weakness
The main strength of company is its financial
capabilities which has helped the firm to
diversify its furniture business in different
market and gain suitable position.
IKEA faces scalability issue as it operate in
different areas so it is relatively difficult to
follow the same standard everywhere as it
enhances the overall cost of company (SWOT
Analysis of Ikea. 2019).
IKEA company uses different metrics as well
as standards such as key performance
indicator that help the firm to adequately use
renewable resources, innovative method of the
raw material that help the firm to maintain
effective relationship with supplier by
leveraging the use of resources.
Further, increase in the cost of raw material can
affect the overall structure of company as it
will enhance the cost of product and company
will not be able to offer products at reasonable
prices (Holotiuk and Beimborn, 2017).
IKEA has highly skilled staff due to the strong
relational between the employee and employer
as well as training and development session
that led employee to remain motivated and
participate in organisation functioning.
Although IKEA is making enormous
investment in the training and development
session but still it lack to compete with the
leading brands and gain the market dominance.
By maintaining the consistent quality of
products IKEA has effectively scaled up the
business for its products.
The new trends of the customer act as an
opportunity that help to build the new streams
of revenue for the firm.
TASK 3
LO3: Evaluate and apply porters five force model
Porter's five force model

It comprises of five different forces which affect attractiveness as well as competitiveness
of all type of industry. This model assist the business manager to make the plan as well as
formulate strategy at different level of an organisation (IKEA Porter’s Five Forces Analysis.
2017).
Bargaining power of supplier: IKEA being the large size company and strong financial
position can switch its business from one supplier to the another. Whereas, the bargaining power
of supplier is low because if the supplier loses IKEA business then it is difficult situation for
them. As company heavily depend on the raw materials to cater the need of large audience. Thus,
the supplier offer the quality material at reasonable prices in order to maintain long term
relationship (Linder and Williander, 2017).
Bargaining power of buyer: With the increase in competition and emergence of
technology IKEA company has widespread its business effectively in favour of ultimate user.
Due to which the bargaining power of buyer of low to moderate reason being they get finished
items and at effective prices.
Threat from substitute: The treat of substitution for the UIKEA brand is low because of
its renowned brand imager in front of public. As the level of trust or the brand equity is high due
to which it is loyal customer less likely consider the other substitutes. Further, the company offer
different product range or varieties under one roof which is less likely done by other close
rivalries.
Threat from new entrant: Existence of new brand require time as well as fund to acquire
the position that IKEA company has already build. So the threat from new entrant is low in terms
of home furnishing items. Relatively the new company require time to build the human resources
and develop the infrastructure of company which IKEA has already established.
Level of competitive rivalry: The existence of rivalry within home furnishing items are
moderate (Maniora, 2018). Along with furnishing items, the other retail store or the super market
chains are again the competitor of IKEA as it offer different product range under one roof. The
reliable image of company and its affordable pricing has helped to gain the competitive edge
over others.
Ansoff matrix
It consist of for different strategy that help the business to grow and improve in terms of
increase customer base, probability, international coverage, employees and so on. This matrix

comprises of product or market expansion grid in order to gain potential growth and overcome
risk faced by company (McAdam, Bititci and Galbraith, 2017).
Market penetration: It refer to the strategy under which company makes effort to sell
their current items within the confined market (Scholes, 2015). These products are sold at a low
prices so that the company can penetrate or cover the whole market effectively. In terms of
IKEA company can use this strategy to attract the local residence by using effective distribution
channel that help to cater each and every audience of the geographical market effectively.
Market development: This strategy is about selling the existing offering or product but
within new market to target the potential customer. This strategy can help the IKEA company to
gain additional; revenue by entering into new zone effectively.
Product development: This is the innovative strategy as here the firm focuses to sell the
completely new product in the current or existing market. On the basis of changing preferences
IKEA company can update or bring modification in the existing offerings. Like, the company has
planned to totally depend upon the renewable energy to sustain the business and build goodwill
amongst the user.
Diversification: Within this strategy the firm takes decision to expand the new product in
the completely new market due to which it involve huge risk (Teh and Corbitt, 2015). This is
considered as an useful strategy for the IKEA business because it build the global image of brand
and enhances the overall market share.
Therefore, Market development strategy needs to be opt by IKEA company as it has
helped it to become of the largest retailer to deal in furnishing items. The company started
expanding in the countries like Sweden that have close culture like its home country. Finally,
now it has emerged in both developed and developing countries suitable.
Thus, it has been evaluated that the company can confidently follows the market
development strategy. As the supplier are not in state to bargain due to the growing size of the
firm. So they can effectively target the new place where with the help to wide supply chain and
distribution market can leads with then user. Along with that as the bargaining power of
consumer is low this mean they will gain the awareness about company and rely for the services.
Therefore, on the basis of these stakeholders the firm can make decision to expand effectively.

TASK 4
LO4: Prepare strategic plan
Strategies are used to develop the products as well as to accomplish the business
objectives. Strategic plan helps to face the all challenges within organisation and increase the
profitability. IKEA is using Porter generic strategy to select the best strategy such as:
Cost leadership: This is related with cost of products and services which are producing
and providing by organisation. Herein, organisation need to focus on cost and should provide
products at lower cost. If IKEA opt this strategy then it has to reduce the cost of its products like
home accessories, kitchen appliances etc. that will attract customers more and helps to make
buying decisions.
Differentiation: This is related with development of different or unique products which
are valued customers and helps to face the competition. IKEA can opt this strategy by offering
unique products that can helps to increase number of customers.
Cost Focus: It is related with lowest cost of products at niche market which attracts
customers and make buying decisions. IKEA can opt this option by offering products at lowest
possible prices that can help to gain advantages.
Differentiation: It is also related with unique features of products which should be
provided in niche market. In order to opt this strategy IKEA need to focus on uniqueness of
products by targeting the niche market.
IKEA should focus on cost leadership strategy in order to increase the productivity and
profitability by offering products at less prices. Moreover, it can help to retain existing as well as
new customers.
Bowman's strategy clock
This strategy is used by the company to determine the way by which they can position the
offering of company within market. It involve eight different strategies that is described below:
Low price and low added value: Here the firm set low prices and offer the product
which are similar with the other substitute.
Low price: This strategy is used by the competitive brands that undergo price war. Here
prices remain reasonable but simultaneously it deliver value to the target market. Here company
gets the advantage of its economies of scale.

Hybrid: Instead on indulging into the price wars the company uses the innovative
technique that is product differentiation in order to highly deliver the values within market.
Differentiation: Focus is given on the quality of product for which high prices are set
which are further preference by the target market.
Focused differentiation: This strategy is opted for luxury brand that have high quality at
deliver to premium customer at relatively high cost.
Risky high margin: It is the most risky strategy which can even fail in future as
customer look for the better quality at affordable prices. But her the company set high prices for
similar type of product that may lead to existence of unstable market.
Monopoly prices: IT refers to the situation where the company has no competitors so it
primary depend upon the owner to set the adequate process Even if prices increase or decrease it
wont affect the profitably.
Loss of market share: The company is not offering the product as per the likings of
customer which lead to the imposition of high prices. So standard prices is set to preserve the
market share.
Therefore, amongst different types of strategies IKEA company adopt the hybrid strategy
where it try to differentiate its offerings from the others. This lead the company to expand and
enhance its market share effectively.
Recommendation and justification
From the above strategy IKEA has adopted cost leadership theory in which it provides
products at low cost by comparing with other organisation. It is suitable and relevant strategy
such as customers are highly concerned about price and quality that helps to make buying
decision. Therefore, it provide products at low cost which helps to gain competitive advantages.
Strategic Plan: It is consider as strategic tool that covers important information such as
vision or mission, strategies and tactics in order to attain business objectives. As cost leadership
strategy is recommended to IKEA, so strategic plan for company is designed below:
Vision and mission: “ To capture high market share by providing better quality of
product at affordable cost”
Strategies: IKEA uses following strategies for the purpose of launching new service that
is AR app in market:

Promotions: IKEA is going to use promotional strategy in which it used social media and
celebrity advertisement to aware people from AR app. It helps customers to select the best
product which can suit in their home.
Research and development: In this strategy IKEA's management analysis the market and
get customer requirement that helps to generate higher profits.
Tactics: IKEA also focuses on following tactics that are discussed below:
Use of new technology: This tactic is most preferable for IKEA that helps to launch AR
app by using new technology it will help customers to see what furniture and home appliance
looks good in homes.
Funding arrangement: It is major need of organisation that helps to implement the
strategic plan effectively. IKEA can arrange funds from internal and external sources such as
bank, venture capital, sale of old assets, friends or relatives etc.
Therefore, strategic plan of IKEA can attracts customers and also helps to attain long
term goals of organisation by using strategies and tactics.
CONCLUSION
From the above report it has been determined that business strategy is an integral part of
firm that help to analyse both internal and external strategy in order to take the processes in right
direction. The role of Pestle and stakeholders analysis is to determine the role of external factor
with the business on the basis of which the organisation perform its business operations. Apart
from this it is vital to analyse the internal capabilities or skill of business to gain the advantage of
core competencies of business which finally help to attain sustainable development. Moreover
interpretation of the porters models is used by firm to overlook the different forces and their
influence on the business decision. Furthermore, strategic management plan help the firm to grab
the new opportunity by making suitable plan for the new offering of company.

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