Strategy Development Tools and Techniques for Competitive Advantage: An Analysis of IKEA
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This essay analyzes four significant strategy development tools and applies them to IKEA's strategic management. The tools include PESTEL analysis, Five Forces analysis, SWOT analysis, and generic strategies.
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P a g e|1 Essay Strategy development tools and techniques are used by businesses to assist executives and managers in decision-making processes. Anna (2015) identified that many business scholars and researchers have modified various strategy tools that aids contemporary organisations to gain competitive edge. On this note, this essay will analyse four significant strategy development tools along with applying it to a practical business example to understand how they are used in businesses. Since IKEA holds a strong global position in furniture retail industry, this essay proposes to apply strategy tools for analysing IKEA’s strategic management. PESTEL analysis PESTEL analysis model is the most widely used strategy development tool that assists business managers while evaluating macro or external environment of the firms. This tools extensively helps management to give shape to future possibilities that can work well with ever changing competitive marketplace along with developing strategies that can enable well-established projects( Bruin, et al., 2016). Political factors:are the ones which identifies the degree of governmental interferences including political instability and stability, foreign trade practices, etc. In IKEA’s case, the company have to constantly face many political challenges especially due to changes seen country governments government. Economicfactors:are related to factors like change in interest rates, disposable income of customers, etc. For IKEA, economic factors have strong impact since fluctuations seen in any of the country might affects overall prices of IKEA’s furniture along with resulting in increased employee turnover(Abrahamian, 2013). Social factors:can be related to socio-cultural factors that shares attitude and beliefs of consumer. Considering social trends remains on top priority for IKEA since their product designing and prices are highly based on consumer choices and requirements. Technological factors: show how fast technological approach changes, affecting organisation’s management to consider innovative and technical practices involvement. Since IKEA considers innovation and technology in every department including its store designs and logistics, this factor remains favourable for the firm along with enabling IKEA to provide furniture in cost-effective manner. Environmental factors: deal with sustainability and ethical consideration undertaken by the firms. In IKEA’s, environmental factors are undertaken in a critical way. A supplier’s code of conduct, IWAY is one of the biggest examples that shows how company considers environmentally friendly operations along with utilising available resources to its fullest(Gondal, n.d.). Legal factor:includes external factors like legal policies and country regulations including health and safety considerations, product manufacturing standards, etc.
P a g e|2 Since IKEA deals in more than countries, it has to face issues while dealing with every country’s policies and frameworks and thus has to face many legal barriers. Five forces analysis Five force analysis developed by Porter rationalises firm’s competitive position to enable strategic decision and analysing market competition in the industry it operates in. This is extensively used by management while entering new markets and to know firm’s current position along with assisting managers while evaluating current forces and future trends that can give shape to the firm’s businesses (Tehrani & Rahmani, 2014). Threats of new entrants:determines how easier or difficult is to enter an industry and whether firm will gain profitable position or not along with determining threats from new barriers that intensifies rivalries. To set a global furniture retailing, huge amount of investment is required which sets back many new companies consider in entering furniture retail industry which makes this force low for IKEA. Bargaining power of suppliers:this force relates to suppliers bargaining power to find out whether they want to sell raw materials in higher or lower prices that can affect firm’s profit ratio. This force remains weak for IKEA. Due to bulk work, local timber suppliers and furniture manufacturers desires joining IKEA’s business and hence company gets vast choices from where it can select best suppliers (Abrahamian, 2013). Bargaining power of buyers:this force determineswhat power buyershave to demand higher product quality or lower priced products. This force remains strong for IKEA due to presence of many alternative brands in furniture retail industry who offers similar or high-quality products in low prices. Threat of substitutes:This force is related to threats seen in marketplace due to which consumers can easily switch other substitute products. This force remains weak for IKEA as the company provides its customers with functional products that can be self-assembled easily unlike other brands. Rivalry among market competitors:this force reflects strong determinants to finds out whether intense rivalry will act as a barrier or not. Since there are many competitive brands that exists in furniture retailing industry like Amazon, Wayfair and Tesco, IKEA faces intense rivalry(Bhasin, 2018). SWOT analysis SWOT analysis is one of the strategy development tools that provides management with easy evaluation framework through which success factors pertaining external and internal factors can be assessed to determine future threats or opportunities along with present strengths or weaknesses in firms(Anna, 2015). Strengths:describes factors that are excelled by firms and separates them from other competitors. IKEA’s strength lies in its unique management style where the company considers utilising all the available resources to its fullest which considerably helps the company in reducing cost of finished goods(IKEA, 2019).
P a g e|3 Weaknesses:factor stops firms from performing in effective and its optimum level along with reflecting those areas that needs to be improved to gain competitive position. IKEA’s internal management somehow shows few weaknesses as it has improper control in other outsourcing countries especially concerning suppliers’ side. For instance, the code IWAY that is supposed to monitor environmentally friendly activities are ignored by the suppliers deliberately due to complexity seen working under such code. Opportunities:are those factors that creates favourable position for the firms thereby initiating competitive position stances if recognised and undertaken tactfully. Many significant opportunity lays in front of IKEA due to global recognition received by the firm along with gaining customer loyalty due to which it can easily enter new markets. Threats:are those factors which can potentially harm the firm like increased competition, fluctuations seen in raw material prices and increased labour turnover. IKEA faces few threats especially due to economic fluctuations seen in the countries it operates in along with changes seen in customer buying trends. Generic strategies This strategy development tool prompts firms with information’s that can define and plan market-related strategies effectively. Porter’s generic strategy is most widely used by business practitioners since this tool establishes succinct overview of firm’s sustainable position along with profit making strategies that can help in creating value-based products for consumers(Kinyuira, 2014). Cost Leadership strategy:involves those strategies that enables firm’s with gaining cost leadership in the specific industry they operate in. Gaining cost leadership or control over lower pricing techniques helps firms monitor prices within the industry along with gaining competitive position as competitors might struggle to keep up with such prices and do not act as a blockage while increasing market share. IKEA exclusively follows cost-leadership strategy and hence enables all its products to be sold in reduced and cost-effective prices as compared to other competitors present in marketplace. Alongside, the company focuses on providing other value-added benefits like self-assembling feature in its products that makes all its products come in flat-packaged style which are very easy and affordable to carry(Chopra, 2009). Differentiation strategy: this strategy involves making firm’s products different from the others that can potentially attract customers than other competitors’ products. This further depends on what is expected from the industry standards and typically involves focussing upon functionality, support, unique features and brand image etc. that can give value to the customers. IKEA businesses show some stances of differentiation strategy as it utilises innovation and technology in its processes that helps in giving unique product designs along with trendy furniture’s that are made according to the designs desired by its customers. For instance, the firm provides design catalogues from where customers can choose their designs after which the product is been prepared and installed by company’s representatives themselves (IKEA, 2017).
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P a g e|4 References Bruin, L. d., Marques, M., Kanani, P. & Roekel, M. v., 2016.Scanning the Environment: PESTEL Analysis.[Online] Available at:https://www.business-to-you.com/scanning-the-environment-pestel- analysis/ [Accessed 19 04 2019]. Abrahamian, K., 2013.Global Marketing through Local Cultural Strategies: A Case Study of IKEA.[Online] Available at: https://pdfs.semanticscholar.org/e050/3ff2e7fd51ff35407817d8ede0361afe5a30.pdf [Accessed 19 04 2019]. Anna, A., 2015. Strategic Management Tools and Techniques and Organizational Performance: Findings from the Czech Republic.Journal of Competitiveness , 07(03), pp. 19-36. Bhasin, H., 2018.Ikea competitors.[Online] Available at:https://www.marketing91.com/ikea-competitors/ [Accessed 19 04 2019]. Chopra, R., 2009.IKEA Case Study.[Online] Available at:http://aeunike.lecture.ub.ac.id/files/2012/03/Case-Kel.9.pdf [Accessed 19 04 2019]. Gondal, S., n.d.Identify how IKEA has achieved differentiation from its competitors? ANSWER Differentiation Strategy.[Online] Available at: https://www.academia.edu/8001455/Identify_how_IKEA_has_achieved_differentiatio n_from_its_competitors_ANSWER_Differentiation_Strategy [Accessed 19 04 2019]. IKEA, 2017.It’s the people who make the company.[Online] Available at: https://www.ikea.com/ms/en_US/the_ikea_story/working_at_ikea/work_areas_huma n_resources.html [Accessed 19 04 2019]. IKEA, 2019.IKEA vision, culture and values.[Online] Available at:https://ikea.jobs.cz/en/vision-culture-and-values/ [Accessed 19 04 2019]. Kinyuira, D., 2014. Effects of Porter’s Generic Competitive Strategies on the Performance of Savings and Credit Cooperatives (Saccos) in Murang’a County, Kenya.Journal of Business and Management ,16(06), pp. 93-105. Tehrani, M. B. & Rahmani, F., 2014. Evaluation Strategy Michael Porter's five forces model of the competitive environment on the dairy industry (Case Study: Amoll Haraz Dvshh dairy company).American Journal of Engineering Research (AJER), 03(05), pp. 80-85.