Strategic Management of IKEA: Analysis and Recommendations

This report provides an analysis of the strategic options available to IKEA in the market and offers recommendations for achieving a competitive advantage. It includes an environmental analysis, Porter's Five Forces Model, capability analysis, and VRIO criteria. The report also discusses key drivers of change and opportunities and threats for the company.

STRATEGIC
MANAGEMENT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
ENVIRONMENTAL ANALYSIS..................................................................................................3
Porter’s Five Forces Model.........................................................................................................5
CAPABILITY ANALYSIS.............................................................................................................7
Strategic capabilities....................................................................................................................7
VRIO criteria...............................................................................................................................8
Competitive Implications.............................................................................................................9
PROPOSED STRATEGY.............................................................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
IKEA is a private organization which is belonging to Netherlands and has entered this
industry in 1943. The headquarters is in Delft with a number of 211,000 employees in the
organization. The company has made a place for themselves in the market which is a great factor
for them. The company has developed themselves in the local areas which are a great factor for
the company but the company will have to expand themselves if they want to explore and get
more customers in the organization. IKEA mission statement is to offer wide range of well
designed function home furnishing products at low prices. Due to increase in the competition in
this segment it is increasing challenges to fulfil company’s statement effectively. There are a lot
of threats which the company is having which needs to be handled in the organization so that
they can have higher profit margins. The company is selling products which are having high
quality of products which is why the company is having loyal customers in the organization but
it is because of the external and internal factors which are making a problem for the company to
function effectively. There are a lot of political changes which have come in Europe and United
kingdom which the company has expanded themselves into which is why it is getting difficult
for the organization to have a better functioning and understanding for themselves in the market
to be stable. There are a lot of competitors which are coming up in the retail industry which is
why it is very important for IEA to take measures and change the strategies so that they do not
lose their competitive advantage and market share (Ferlie and Parrado, 2018). There are long
term goals IKEA is having in the market which are being achieved on time which is a great
factor for the organization and the company is also having a strong internal factor in the
company which is making the organization have a better functioning for themselves.
The report is going to consist of the strategic options which the organization have for
them in the market which is going to make the company get a competitive advantage. It is very
important for the company to understand the competition which is rising in the market and then
take planning and measures according to them so that the company can have better functioning
for themselves which is going to make the company have a better functioning and understanding
for themselves which is a very important factor for the organization.
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ENVIRONMENTAL ANALYSIS
There are a lot of factors which are influencing the functioning of the organization which
needs to be controlled by the organization so that they can continue to have a competitive
advantage in the market (David and David, 2016). The needs and demands of the customers and
the employees are changing from time to time which needs to be controlled and improved upon
by the organization so that there is a better functioning. The external factors are not in control of
the organization which is why the strategies and measures have to be planned accordingly in
IKEA. The further report is going to analysis the PESTLE of the organization and the
opportunities and threats which are present in the company because of these factors.
 Political Factors
Opportunities- The taxes and other policies which are being trade is a great opportunity for
the company because there is a free trade policy which other countries have started which can
help IKEA to expand them (Ocasio, Laamanen and Vaara, 2018).
Threats- There are changes which are taking place in the political parties which can turn out
to be a great threat for the company which is why the organization must find ways through which
they can change strategies and have a better functioning for themselves.
 Economic Factors
Opportunities- IKEA is being able to find low labour wages employees which is cost
friendly or the organization.
Threats- New employees are not hired in the organization because of this factor and new
ideas are not being able to generate (Rothaermel, 2016). The currency value is also a great threat
for the company which is why the organization will have to be more careful while expanding
themselves.
 Social Factors
Opportunities- Company is being able to understand the customers and change the trends
and products design according to the customers which is a great factor for the company
(Steinbach and et.al., 2017).
Threats- The changes have to be got in rapidly in the organization which is a little difficult
in IKEA because the employees are used to the old working which is not just making the
productivity slower but the operations as well in the organization.
 Technological Changes
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Opportunities- The data can be protected and the customers are going to be more satisfied
with technologies since the errors in the organization are going to cut down.
Threats- The technological changes can not come easily in the company which is why it is
very important for the company to get in a powerful workforce and skilled as well in the
company so that the organization can get their reputation again in the market.
 Legal Factors
Opportunities- There are policies which are being followed in the company effectively
which is a great factor for the employees and customers. This has made the company get a
competitive advantage in the market (Höglund and et.al., 2018).
Threats- The taxation laws change can make the company have to invest a lot in expansion
of the organization in other markets which is a great threat for the company.
 Environmental Factors
Opportunities- There has to be right measures taken by organization to protect the
environment which is a very essential factor which is being followed by IKEA which is a great
factor for the company.
Threats- The carbon footprint of the company has to reduce so that the organization can get
a competitive advantage and reputation of the company will be higher which a great factor for
the organization is.
Porter’s Five Forces Model
Porter five forces model is strategic tool which helps to analyse market forces which can
develop competiveness in the market and increase the potential of business and attain core
competency effectively. Increase in the demand of readymade furniture in the global market, it
also increased many threats for IKEA to stay a leader in the market and increase their profits.
Bargaining Power of Buyers (High)
Buyers are the king of the market and IKEA products are end consumer products which
also increases the power of buyer in influencing prices and quality of products (Hitt and Duane
Ireland, 2017). IKEA has fulfill all the demand of customers in order to increase their
satisfaction and make them loyal the company. However this also increases the cost of
production of company and impacts its market share negatively.
Bargaining Power of Suppliers (Low)
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IKEA has strong network of suppliers in different parts of the world which helps to
provide them low cost raw materials with high quality. This also helps company to increase the
brand value and profit margins in the market to company and attain core competency effectively.
Threat of New Entrants (Low)
Threat of new entrants in IKEA’s market is very low as establishing new business very
risky task in competitive market. New businesses will be discouraged to invest large capitals to
reduce their cost. This also helps IKEA to reduce the threat of new entrants and increase the
market share of the business effectively.
Threat of Substitute products (High)
Increase in the demand of furniture and home appliances is increasing in the global
market which is also increasing the threat for IKEA of substitute products which can reduce the
market share of company drastically (Honggowati and et.al., 2017). IKEA has to analyse all the
market trends and invest in the future technology to reduce this threat which also helps to
increase the potential of company to become market leader effectively.
Threat of Existing Competition (High)
There are many potential rivals of IKEA in the global market which has developed
furniture products to reduce the market share of company. IKEA has analyzed products and
services of competitors and innovated new product ranges by following product differentiation
strategy to meet the specific needs and demands of customers and increase their satisfaction level
to reduce this threat and increase core competency effectively (Rees and Smith, 2017).
Key Drivers of Change
Leadership
IKEA has to analyse that leaders in the company are effective and has proper skills and
knowledge to influence workforce effectively. Due to increase in competition in the market
Leaders has to develop effective change management which increases the potential of the
company to compete in the market effectively.
Organisational Culture
Organisational culture is not constant due to change in the employees in the organisation
and also other external factors. IKEA has very effective organisation structure which helps
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comoany to increase healthy working environment which reduces all the disputes and improves
performance of organisation to gain higher profit margins effectively.
Opportunities
The company can easily expand themselves in other countries as well because the
organization has a strong portfolio for them in the market. The raw material for the products is
easily available in the market which is going to make the productivity also increase and the
demands of the customers will be met from time to time.
Threats
The competitors in the market are increasing and they are expanding themselves as well
globally which is a great threat for the company (Cosenz and Noto, 2016). The organization will
have to find ways so that they can get an advantage by using the right strategies and measures so
that they can have a better functioning for themselves in the market. The substitute of the
products is also easily available which is why innovation and new products is going to help the
company to have better functioning for them.
CAPABILITY ANALYSIS
Strategic capabilities
In order to analyse he strategic capabilities that an organisation possesses, the value chain
analysis is an important tools that can be used as it helps in ascertaining what are the primary
and secondary activities of an organisation that can contribute in the overall decision making and
operation of the company (Hernández and Garcia, 2018). For IKEA, the analysis can be done in
a following manner:
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Figure 1: Value Chain Framework
IKEA Primary Activities: The primary activities include the inbound logistics, the operations,
the outbound logistics, the marketing and sales and the service aspect for IKEA. Since IKEA is
the largest furniture retailers, the raw material is received form more than 55 countries and the
overall value creation through inbound logistics is highest. The operations mainly include the
categories of franchise, property and finance divisions and the franchise division is the core
business activity of the IKEA organisation. The cost benefits that the different operations
operating at an extremely wide scale presents before IKEA is enormous and helps in contributing
to the majority of the resources is the major value addition. IKEA has their stores in 16 different
countries and when the customers buy goods, the transportation cost from the shop to the address
of delivery has to be borne by them (Rothaermel, 2016). The selections of better packaging
patterns, the cheaper and safer transportation mechanism form distribution centres to the
customer’s centres are the major aspects behind the value contribution. The marketing and sales
activities carried out by the IKEA company is a major activity where they try cataloguing, online
and offline sales etc., different mechanisms that could assist in creation of the better marketing
activities. Since sales indicate the revenue that is earned, this is indeed the major value creation
aspect in the entire value chain that has been developed for IKEA. Last is the IKEA service
aspect of the value chain and under this the quality of service and after sales services that are
being given to the customers contribute in formation of the brand name and the goodwill of the
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company as well. Therefore, collectively the contribution of the secondary activities towards
value creation is huge.
IKEA Support Activities: The support activities mainly include the infrastructure of the
company, the human resources, the technological advancement and the procurement of the
resources. Technology has played a significant role in the value generation for IKEA Company
as they have been able to manage their marketing, sales and distribution activities only by proper
technological integration (Rees and Smith, 2017). Infrastructure of IKEA is in accordance with
the three different business divisions and the hierarchical structure of the organisation is also
classified very properly thus making it easier to contribute in the simplification of different tasks
that are to be completed. The HRM that is being employed is another major value contributor
and the most impotent assets of the IKEA Company. Without, them there could have not been
any value creation and lastly the procurement aspect arises where the variety of suppliers spread
throughout the world contribute majorly in the value generation.
VRIO criteria
The VRIO frameworks comprises of the four major aspects i.e. Valuable, Rare, imitable
and organization (David and David, 2016). These individually helps in analysing the different
aspects related to the resources that have been identified for the IKEA Company. The valuable
aspect depicts the value that these resources hold for the company, rare indicates how difficult it
is to obtain these resources, Imitability indicates whether they can be easily copied or not and the
last organisation shows how organised and systematic is the functioning of the organization. For
IKEA based on the value chain analysis done above, following VRIO analysis can be presented:
Resources Valuable Rare Imitable Organised
Human Resources ✔ ✔ ✔
Technology ✔ ✔
Financing ✔
Patents and
Trademarks
✔
Sales and
distribution
✔ ✔ ✔
Research and
Development
✔ ✔
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Therefore, in this manner the research done above shows that there are a variety of
resources that are currently in the possession of the IKEA Company and therefore, the position
of the company is very strong in the existing market scenario. The resources are available in
adequacy and can be used for further expansion and diversification of the company.
Competitive Implications
The competitive implication of the analysis done above clearly indicates that the existing
position of IKEA is very strong and the company is still very strong in the industry of retail
furniture. The competitive strengths and weaknesses can be analysed and summarized as
follows:
 Strengths: The strengths of the company can be identified in the system that it has still
implemented where the different aspects are addressed completely and with complete detail
thus showing that the company still has a relevant number of resources. The rareness of the
resources that are possessed and the strong value chain shows that why it is tough for
competitors to still beat the company (Antikainen and Valkokari, 2016). Therefore, the
company IKEA has much strength that makes it difficult for the company to be
outcompeted.
 Weaknesses: The weakness of the company that has emerged is that it is still following the
traditional model for the organisation. There have been various developments since then in
the manner in which an organisation should work, and this actually been reported to be very
benefiticial. However, the IKEA Company has still not integrated and upgraded themselves
which proved to be a major weakness. The lack of adequate expansion also categorises as a
major weakness for the company where it has become saturated. Hence, this can be termed
as the major weakness of the company that has been identified.
PROPOSED STRATEGY
On the basis of the analysis done in the IKEA retail Furniture Company in the entire report,
there are certain development strategies that can be proposed for the company. This can be done
in following manner:
The company has correct assortment of the different products and services under the brand
but the reach of these products is not adequate i.e. the markets in which IKEA is currently
operating has become saturated now (Hernández and Garcia, 2018). There is need to expand in
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some newer markets. This can be done by evaluating the Ansoff’s Matrix so that the correct
strategical expansion decision can be taken:
Figure 2: Ansoff's Matrix
The Ansoff’s matrix is basically used to ascertain what should be the correct expansion
or diversification strategy that the company should adopt based on two factors i.e. products
whether they are new or existing and market i.e. whether they are new or existing.
 Market Penetration: Market penetration strategy is adopted when the existing products are
launched in the existing markets only and thus this makes the strategy viable only when a
company is trying to penetrate the market in which they are already operating (Rothaermel,
2016). This strategy is not at all feasible with the objective of the IKEA Company.
 Product Development: The strategy of product development can be adopted when the
products that are being launched are new and the market in which they are to be launched
already exists. This is done when the company tries to expand itself in the existing market
only by developing some new products. This is also not the intended strategy for the IKEA
Company.
 Market Development: Market development is done when some of the existing products n
the company’s portfolios are launched in some entirely new country for expansion of the
business activities (Lopes and et.al., 2018). This is done so that the market can be expanded
an newer revenue generating markets can be developed. This is the best strategy for IKEA
and is in accordance with the goals set by the company.
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 Diversification: This is adopted when the new product is being launched in an entirely new
market and the risk level is too high. This is due to the increased uncertainty and again this
is also not the strategy that would be most feasible for the IKEA Company.
Therefore it can be said that the Market development would be the best strategy for the
IKEA Company and they can do this by their trademark method of opening a franchisee store in
some entirely new and underdeveloped market in terms of retail furniture.
CONCLUSION
The research conducted above is in accordance with the problems that were identified in the
introduction initially i.e. analysis of the strategy and expansion technique for the IKEA
Company. it is expected that the proposed strategy of engaging in market development would
help in meeting the different challenges that were identified for IKEA in the pestle analysis
conducted above. It can be said that the strategy is based on one of the most critical strengths of
the IKEA i.e. their products goodwill in the market. The Value chain analysis and he VRIO
analysis clearly indicated that the resources that are available in the company are in abundance
and they can be strategically focused for the purpose of expansion. The resources here signify the
human as well as material resources as both are equally crucial. Therefore it can be concluded
that the strategy is in perfect alignment of the intended objective of IKEA Company.
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