Business Strategy Analysis Report: IKEA (Module Name, Semester)

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This report provides a comprehensive analysis of IKEA's business strategy. It begins with an introduction outlining the company's mission and vision. Task 1 delves into the impact of the macro environment, employing PESTLE and stakeholder analyses to understand external factors influencing IKEA's decision-making. Task 2 examines IKEA's internal environment and capabilities using the RBV framework and VRIO analysis to identify strengths and competitive advantages. Task 3 evaluates IKEA's competitive position through Porter’s Five Forces model. Finally, Task 4 applies various strategic planning theories and models to interpret and devise strategic plans for IKEA's future. The report culminates in a conclusion summarizing key findings and recommendations, supported by a comprehensive list of references.

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Contents
INTRODUCTION........................................................................................................................... 1
TASK 1............................................................................................................................................ 1
P1 Analysis of the impact and influence of macro environment on the strategic decision-
making of IKEA.......................................................................................................................... 1
TASK 2............................................................................................................................................ 4
P2 Analysis of the internal environment and capabilities of IKEA.............................................4
TASK 3............................................................................................................................................ 7
P3 Evaluation of the competitive forces and position of IKEA applying Porter’s Five Forces
Model........................................................................................................................................... 7
TASK 4............................................................................................................................................ 9
P4 Applying a range of theories, concepts and models, interpret and devise strategic planning
for IKEA...................................................................................................................................... 9
CONCLUSION..............................................................................................................................10
REFERENCES.............................................................................................................................. 12

INTRODUCTION
IKEA was established by Ingvar Kamprad in the year 1943 in Delft, Netherlands to offer a
wide range of products for home furniture and decoration purposes. The following project report
aims to comprehend and evaluate the impact of external factors on decision-making by IKEA
and also tries to examine the internal capability and strength of the organisation. In the report, a
competitive analysis of IKEA has been done with a motive of helping the management in
preparation of a strategic plan for future direction and generic strategies which can be used for
business growth and development.
TASK 1
P1 Analysis of the impact and influence of macro environment on the strategic decision-making
of IKEA.
IKEA is certainly on the list of topmost trusted companies when it comes to home-care and
furnishing products. Company’s vision statement is ‘To create better everyday life for the many
people’. It can be observed from the vision statement of the company that the management has
the primary motive of providing better standard of live to its customers through a strategy which
aims at making home-care products and furniture easily accessible and affordable for as many
people as possible. To accomplish the vision of the company, the management involves itself in
strategic policy formulation and planning. From the mission statement of the company which is
considered to be “offering a wide range of well designed, functional home furnishing products at
prices so low that as many people as possible will be able to afford them”, it can be analysed that
the management of IKEA is determined to provide the best range of home-care products which
are of best quality and easy to assemble at prices which makes the product affordable for the
masses and increases the ambit of potential customers for the company. Every decision which is
being taken by the management of the company has a massive influence of the company’s vision
and mission statement. However, it is important to notice that the vision and mission of a
company are not the only factors influencing the strategic decision-making by the management
and a lot of external factors present in the macro environment of IKEA also affects and haves an
impact on the decision-making process of the company. To understand and comprehend this
impact and influence in a better way, a PESTLE and stakeholder’s analysis of IKEA is being
done as follows:
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PESTLE Analysis of IKEA:
PESTLE Analysis is a framework of strategic management which is of utmost importance
and relevance for management of any business organisation to identify and ascertain the impact
of factors in the external environment of the company on the business operations and decision-
making (Perera, 2017). It helps in early identification and determination of threats and
opportunities. Here is PESTLE Analysis of IKEA to analyse the influence of its macro
environment on the management policies:
Political Factors: Political factors such as the extent of government intervention and
regulation in a business territory or the political stability and instability influences the business
operations and process of decision-making by the managers. IKEA was associated with a
political controversy relating to the production and manufacturing of its goods by political
prisoners which has affected the brand image and goodwill of the company. Liberalisation
policies and policies allowing free trade between countries has influenced the decision of the
managers to expand the operations of IKEA beyond national boundaries. Opening up of new
avenues of international trade has been the main reason behind the new policy of IKEA to start
its operations in Asian countries like China and India which is a huge opportunity for the
company.
Economic Factors: One of the biggest market for IKEA is UK and as a result of Brexit, the
economic activities of the company in Britain are expected to suffer a lot as a result of post
Brexit impacts. Income level of people in the Britain have declined and also the operational cost
of the company due to Brexit in UK has increased which is a threat for the company with respect
to the business growth and development. However, the developing economies of countries like
India present a huge business opportunity for the company and the management of IKEA should
plan strategically to derive more revenue from its international operations.
Social Factors: Social values, trends of consumption, cultural backgrounds etcetera are
some factors which also affect the decision-making of the management of IKEA. As the
company operates in more than 40 countries all over the world, it is important for managers to
take care of the cultural aspect of various communities and people and specially while printing
the brochures and catalogues of the company products to ensure no conflicting point is included.
Youth these days has become ultra-mobile with more and more people regularly changing and
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shifting to different place which has reduced the demand for the products of IKEA to some
extent and needs strategic planning by the management.
Technological Factors: It can be argued that this decade has witnessed one of the biggest
waves in technological changes and innovations which has disrupted and changed the dynamics
of operations in every industry. The managers of IKEA have decided to ride the wave of
technological changes and have made some major innovations such as building a dedicated
online website for sales with provision of using technologies such as augmented reality and
artificial intelligence to enhance the shopping experience of the company which presents a huge
opportunity for business growth in future (Lim, Pirsiavash and Torralba, 2013).
Legal Factors: Legal factors have been a challenge for the company because of its wide
scale operations in many countries all over the world and multiple complicated sets of legal rules
and regulations. During the past few years, company has faced major criticism on allegations of
tax evasions and it has been particularly problematic for the company to get the legal complex
right in context of Indian markets. Hence, the managers need to formulate plans and strategies to
avoid any further lawsuit or legal threat. Product safety guidelines is also a major concern for
IKEA.
Environmental Factors: Sustainability and the impact on nature and environment has a
major role to play in building the image and goodwill of any company in today’s era. With the
motive of improving the sustainability standing of the company, IKEA has made huge
investments in the renewable sources of energy and is dedicated to create a positive impact on
nature and is also extending support to developing countries and communities in coping with the
issues related to climate change (Cosmo and Yang, 2017). This has presented an opportunity and
advantage to the company which should be taken leverage of by the managers.
Stakeholder Analysis of IKEA:
Stakeholders can be defined as individuals or group of individuals who are closely
connected with a business organisation and have an interest in the profitability and the operations
of the company such as employees, customers, suppliers, government, shareholders etcetera. It is
important for managers of IKEA to consider and safeguard the interests of its stakeholders
through business activities which help in maximisation of stakeholder benefits. Some of the
major stakeholders of the company are:
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Customers: It is important for business managers to protect the interest of the customers by
providing them goods of high quality at affordable prices. Customers of IKEA have shown to be
loyal and company has maintained a long-term relationship with its customers which is a major
source of its competitive edge as well (Miski, 2014).
Employees: Human resource of any organisation are the most important resource which
helps in utilisation of other resources in an optimum manner. Employees at IKEA feel satisfied
with the job and incentives such as increased rewards with performance efficiency and overtime
bonus etcetera are provided by IKEA to foster healthy relationships between management and
the workforce.
Suppliers: Maintaining good relations with suppliers is also important for enhancing the
bottom line of the company. IKEA has been constantly trying to develop and cultivate healthy
supplier relations and safeguard their interests by measures such as clearing their payment
obligations before time and providing advances in some cases (Laurin and Fantazy, 2017).
Shareholders: Operations of IKEA over the years has been profitable and the company has
witnessed a huge growth in its business operations also which has resulted in safeguarding and
satisfying the interest and need of its shareholders which is maximisation of wealth. Future
growth prospects of the company are also likely to further maximise the wealth of the company’s
shareholders.
From the above stakeholder and PESTLE analysis of IKEA, it can be said that every
decision of the management in the company is largely influenced by the factors such as political
stability or economic situation and needs to be evaluated from the viewpoint of stakeholder
interest and needs.
TASK 2
P2 Analysis of the internal environment and capabilities of IKEA.
Internal environment and strength of the internal capabilities of IKEA can be determined
with the help of RBV Framework and VRIO analysis as follows:
RBV Framework:
RBV Framework is termed as a Resource-Based-View which is a concept that involves
analysing the strengths and internal capabilities of an organisation to ascertain the potential
sources from which competitive advantage can be obtained (Lockett and Wild, 2014). It is an
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approach which is fundamentally based on the argument that the best way for any organisation to
have a competitive edge over the others in its industry is to look inside and examine the
resources of the company which are considered as the best source of competitive edge. From the
context of IKEA, the managers of the company should try to evaluate the internal resources of
the company instead of market analysis and examination to get better competitive position. For
any organisation, resources can be of two major categories which includes tangible resources and
intangible resources. Tangible resources are those resources which can be touched and seen such
as tangible resources of IKEA refers to employees, machinery, land, financial resources,
equipment etcetera (Jonsson, Rudberg and Holmberg, 2013). Intangible resources of the
company can only be felt such as the goodwill and the market image of the company with
respect to IKEA. IKEA is considered to be a highly reputed brand with loyal customers which is
one of its biggest strength as per the RBV framework. RBV framework is formed on the basis
that resources of any organisation are different from the resources which are acquired by its
competitors in some way or the other and also that in short-term and medium-term, it is very
problematic for any other company to copy or duplicate the resources of its competitors. Hence,
it identifies resources as the main source of potential competitive edge for a company and the
managers of IKEA should focus on improving the internal capabilities and the resources of the
company to fight the intense competition in the industry.
VRIO Analysis for IKEA:
VRIO Framework is one of the most crucial and vital tool which helps the management of
any organisation to evaluate the strength and potential of the resources which are held by the
company with respect to providing competitive advantage and edge to the company. Resources
of IKEA needs to be evaluated from four different perspectives which are value of the resources,
rarity of the resources, whether the resources are imitable and whether the resources are
organised in an effective manner (Knott, 2015). Here is a VRIO analysis of IKEA which is
significant for the managers to determine the areas where there exists a scope of improvement
and a scope for the company to obtain competitive edge to derive long-term stable business
performance:
Valuable: IKEA has a strong base of financial resources which are highly valuable as it
helps the company to undertake any investment opportunity which has the potential of business
growth and development. IKEA has more than 2,10,000 employees as the human resource of the
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company which are highly skilled and trained is another valuable resource of the company.
IKEA has made investments into a lot of patents related to home-furnishing and décor
technology which has helped the company in smoothly continuing its business operations with
no obstacles. Investments made in Artificial intelligence and technology is also another valuable
resource of the company (Raska and Richter, 2017). However, the cost structure of the company
has reduced its profitability to a below industry average level which is not a valuable resource of
the company.
Rare: It has been observed that the majority of the resources held by IKEA are rare.
Company has a strong base of financial resources which is very rare and is of great advantage for
the company. Employees of the company are skilled and trained according to the needs and
requirements and the training modules of the company are given a lot of consideration which is
attributable to the rare human resources of the company. Technology which has been deployed
by the company with the help of AI and augmented reality is also another rare resource of the
company and the company also has a lot of rare patents registered in its name.
Imitable: It can be argued that the financial resources held by IKEA are developed through
the long history of company’s profitable operations and revenue models and it is very difficult
for any new firm to enter into the industry with such a huge pool of funds and capital. However,
technological resources and the human resources of the company are not very difficult to imitate
since every organisation is making huge investments into research and development teams and
the training and development of its employees so these resources can be imitated through
constant efforts of the management.
Organisation: It has been observed that the financial and human resources held by IKEA are
organised in a way which provides the liberty to the managers to use these resources for the
growth and success of the business (Rose, 2015). However, patents of the company are not
organised in a manner which assists in their maximum utilisation.
From the above discussion, it can be ascertained that the financial resources which are held
by IKEA provide a huge opportunity for the company to invest in many opportunities and open
up new avenues of international trade and operations which can subsequently help in future
growth and success of the company. It will also help IKEA to improve its competitive position in
the industry.
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TASK 3
P3 Evaluation of the competitive forces and position of IKEA applying Porter’s Five Forces
Model.
Porter’s Five Forces Model:
Porter’s Five Forces is a tool of strategic management which is vital for any business
organisation to determine its competitive position in the industry with determination of the
strength of five different forces (Srivastava, Franklin and Martinette, 2013). Porter’s Five Forces
Model for IKEA is as follows:
Threat of new entrants: Threat of new entrants in the industry is a weak force with respect to
IKEA and its operations as the company operates in more than 40 countries all over the world
with a large pool of financial resources which allows it to invest in various business growth
opportunities. Entering the industry with such wide-scale resources is very difficult and hence,
there are players or other firms in the home décor industry but they are operating at local level or
small scale which is not any issue for the managers of IKEA.
Threat of substitutes: Threat of substitute products is low to moderate for the company
IKEA as it has been offering its customers a wide range of products related to home furniture
requirements at best prices and high quality which has formed a highly reputed and reliable
market image of the company. Also, there is a lack of many substitute products in the industry in
which IKEA operates which mitigates the threat caused by this force for the revenue and
business activities of IKEA.
Bargaining power of buyers: Customers and buyers of IKEA have a very high bargaining
power primarily because of two main reasons which are the low switching costs which allows
them to buy products from different brands and competitors in case IKEA increases its prices
and secondly, the industry in which IKEA operates is not essential industry are the customers are
very price sensitive and usually slightest increase in prices is likely to affect their purchase
decision. Hence, price-wars and attractive pricing is common tools of promotion being used by
managers of IKEA to attract more customers and increase the spectrum.
Bargaining power of suppliers: Suppliers have very low or negligible bargaining power or
they are not in a position to dominate the business dealings with IKEA due to a large number of
suppliers and low switching costs for IKEA. Effective supply-chain management has also helped
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the company to mitigate any bargaining power of suppliers with plan for contingency
requirements.
Competitive Rivalry: Competitive rivalry is a high force with respect to sales and revenue of
IKEA. Over the past few years, the attractiveness of the industry has increased due to a
preference for better standard of living which has increased the number of companies and firms
in this industry like TESCO, Walmart etcetera supermarket giants are also starting to offer
furniture which has increased the competition to a great extent for IKEA and its products (Wu,
2020).
It can be evaluated on the basis of above analysis that IKEA maintains a strong competitive
position in the industry with almost no threat of substitutes, new entrants and no bargaining
power of suppliers. However, the competition in the industry is intense and buyers have a power
to shift brands easily which forces the managers of IKEA to make constant efforts to maintain
and enhance its competitive position in the industry in the long-term business and industrial
environment.
Ansoff’s Matrix for IKEA:
Ansoff Matrix is a framework of strategic management which is vital and provides a
strategic direction for any company with respect to future business growth and development. It
considers the potential and favourability of four different alternatives for business growth which
are market penetration, product development, market development and diversification (Schawel
and Billing, 2012).
Market penetration refers to using sales promotion tools to increase the sale of existing products
in existing markets,
Product development refers to launching a new product in existing markets,
Market development involves offering existing range of products in a new market and
Diversification refers to offering new products in a new market.
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(Source: https://corporatefinanceinstitute.com/resources/knowledge/strategy/ansoff-matrix/)
On the basis of Ansoff’s Matrix, market penetration and market development are the two
possible strategic direction which are recommended to the management of IKEA. The
management of the company should increase the use of sales promotion techniques and tools
such as discounts and offers which can help in fighting the intense competition and also
accomplish the vision of the company to provide its products to as many people as possible.
Market penetration can help the company in improving the value proposition for its products and
increase the sales and obtaining and improving its competitive position in the industry as well.
Along with market penetration, market development in new developing countries and
international markets is also another strategic option available for the company. The
management should focus on increasing the revenue from the international markets and continue
development of new markets. Hence, market penetration and market development are the two
recommended strategic direction for future business growth and development for the
management of IKEA.
TASK 4
P4 Applying a range of theories, concepts and models, interpret and devise strategic planning for
IKEA.
Porter’s Generic Strategies for IKEA:
With an objective of improving the competitive position of any business organisation in its
industry, Michael Porter identified four different strategies which can be used or followed as an
approach by the management in achieving this objective. Four different strategies are cost-
leadership strategy, differentiation strategy, cost-focus and differentiation focus (Tanwar, 2013).
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A strategic plan for the management of IKEA based on the application of Porter’s Generic
Strategies is as follows:
It is suggested that the management should follow the four different strategy devised by
Porter for future growth and obtaining a competitive edge in the industry. With respect to cost-
leadership strategy, it focuses on improving the position of the company with the minimisation
of cost being incurred in the production and operations which improves profitability and
provides the opportunity for the company to use additional tools for sales promotion and
marketing. The management of IKEA can implement the cost-leadership strategy in the business
organisation with the help of making effective and relevant changes in its supply-chain
management. IKEA should look for suppliers which can provide the components and materials
of the best quality at best prices to the company and the cost of production in the company
should also be reduced using new technologies and techniques for manufacturing. It will help the
company in lowering the costs and gaining long-term competitive advantage. As a cost-focus
strategy, company should stress on subassemblies which can reduce the cost further for the
customers and high quality products can be delivered (Alstete, 2014). As a part of the
implementation of differentiation strategy, a complete wide range of new innovated products
should be offered which can attract the customers. Investments in research and development
needs to be made to develop products which are unique to IKEA and offer a great value to the
customers as well. For implementation of the differentiation-focus strategy, IKEA is a company
which operates in more than 40 countries and hence, it should focus on developing products
which are unique for the country and are specifically designed based on the cultural background
and value systems of people in that country (Jin-Yuan, Miao, and Xiao-Ming, 2016).
Traditionally designed furniture for each country and business territory can help in strong
implementation of differentiation-focus strategy for business growth and success. It can be
recommended that with the help of using measures suggested to implement these strategies, the
managers of IKEA can create huge opportunity for competitive edge and improved business
performance and growth prospects in the future.
CONCLUSION
It has been observed that the external environment factors and interest of the stakeholders
affect the overall process of business operations and managerial decision-making for IKEA.
From the RBV View and VRIO analysis of the resources held by IKEA, it has been interpreted
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that there exists a huge opportunity for company to gain competitive edge in the industry based
on the strength of its existing financial and other valuable resources. It can also be observed that
IKEA maintains a strong competitive position and market penetration and market development
can be of vital help in further improvement and enhancement of its market position. At last, it is
recommended that the company should implement various generic strategies of cost leadership
and differentiation as a strategic direction for future growth.
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REFERENCES
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