Analysis of IKEA's Business Model and Challenges - Report

This report provides a comprehensive analysis of IKEA, a multinational retailer specializing in ready-to-assemble furniture and home accessories. It begins with an introduction to the Competitive Value Framework (CVF) and its application to IKEA's operations. The report then delves into IKEA's company profile, utilizing SWOT, PESTLE, and Porter's Five Forces analyses to assess its strengths, weaknesses, opportunities, and threats within the global market. It examines IKEA's management approach, highlighting the rational goal model and its impact on product design, manufacturing, and supply chain optimization. The report identifies key business challenges facing IKEA, including supply chain management, competition, customer satisfaction, and market saturation. It explores the impact of these challenges on IKEA's operations in China and the US. The report concludes with recommendations for IKEA to leverage the CVF model, strengthen customer relations, and adapt to market demands.

Report

Table of Contents
Contents
INTRODUCTION...........................................................................................................................1
2.0The Company..............................................................................................................................1
2.1 Company profile...............................................................................................................1
2.2 Company’s management approach...................................................................................3
The business challenges...................................................................................................................4
3.1The challenge facing the company....................................................................................4
3.2The impact of challenge on company................................................................................5
Recommendation.............................................................................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Competitive value framework also known as CVF is a model developed by the Robert
Quinn and Kim Cameron in a particular way. It consists of four kind of culture in corporate
which represent how a company operates in a particular culture. It states that there are many
different approaches to management and to define that it divides it into, where first dimension is
organisational focus which emphasis on development of people internally. Second dimension is
organisational preference which contrasts between flexibility and control that further divide into
four querent (Competitive value framework. 2019). These include human relation model, open
system model, rational goal model, internal process model. For determining the adequacy of this
CVF model, this project is conducted which is based on Ikea a multinational retailer deals in
manufacturing and selling of furniture. This report involves a discussion about company profile
using 3 analysis model and a management model used by Ikea. It also discuss about the
challenges prevailing in industry and its impact on Ikea along with recommendations
2.0The Company
2.1 Company profile
IKEA is a Swedish multinational group which operates to design and sell the ready to
assemble furniture, home accessories and kitchen appliances. It was founded in year 1943 and
now consider as world’s largest retailer of furniture since 2008. In year 2019 it was surveyed and
marked that Ikea has its presence at 433 locations and manage +revenue if around US$45.4
billion. Other than this it maintains workforces of around 211000 as marked in year 2019
(Helmefalk, 2016). It operates its business throughout the world and marked its greater presence
throughout the world. To better understood about the company following analysis tools are used,
SWOT
It is a tool which support in performing internal and external analysis where internal
information help in determining strength and weakness, and external analysis provide an idea
regarding opportunity or threat. The SWOT analysis of Ikea is mentioned below:
Strength Weakness
The biggest strength of Ikea is its extensive
knowledge about customers as it know the
purchasing behaviour and pattern, hence it
The main weakness that affects Ikea’s
performance in marketplace is its negative
publicity as the company was coitized for
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bring innovation in product accordingly.
Additionally it also maintains good relations
with suppliers that assure guaranteed and
timely delivery of order (Psota and Green,
2018). Its diverse portfolio is also big strength
of company.
wrong treatment with employees that affect
brand image. Other than this its brand image
also get damaged after the report presented by
UK Customer insight that Ikeas is not able to
manage with cost reduction with same quality.
Hence quality is being affected.
Opportunity Threat
Ikea is currently operating in developed
countries but it has an opportunity to expand in
developing countries too as some of them are
growing over their economy. Another
opportunity in front of Ikea to expand its
operations more on online as today ecommerce
market is growing fatly and also reduces cost
of operations.
The main threat to Ikea is increasing
competition from retailer like ASDA, TESCO
etc. Another major threat to Ikea’s growth is
increasing average consumer income which
diverts their choice as Ikea offered low cost
average quality product.
PESTLE
It is a analytical tool that help in determining the favourable and unfavourable conditions
that Ikea have within external environment using six elements of macro environment.
Political Economic
The supply chain activities of Ikea is very
much affected by the political affairs but the
liberty given by government of China and
India to enter and start business brings a
greater opportunity to business expansion in
Asia(Tunyaplin and Chanpuypetch, 2019).
As Ikea operates at international level it get
affected by several international economic law
in term of taxes, but it has positive factor that it
offer stylish but inexpensive furnishing that are
easily affordable to people which maintain its
financial position,.
Social Technological
Ikea found difficulties in managing with
customer choices as it operate in around 41
countries which affect its the choice of
consumers as per their cultural value.
The technology business integration is a big
boom for a company same as Ikea. It maintain
online channel where it display its furnishing
design which provide an enamours experience
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to customers and make them approach it.
Legal Environmental
Ikea experience several legal compliances and
one claim is being imposed over the company
that it offered poor quality product as a result
its item get fallen and tipped over that leads to
injury and death, it affect its financial growth
and brand reputation.
It is a eco friendly rand as it put around 1
billion dollar toward renewable energy in poor
nations for storing natural energy.
Porter’s five force model:
This model help in analysing the position that a company hold within a marketplace by
assessing it over the five main forces that are crucial for organisation’s survival. These are
explained below:
 Bargaining power of supplier: - The bargaining power that suppliers have is relatively
lower due to their weak financial position (Rajandran and Taib, 2014). Hence, Ikea rule
the game as oat can easily switch from one supplier to another for low cost supplies.
 Bargaining power of buyer: - The bargaining power of buyer is high due to increasing
options as well as technological growth which provide them with range of options to
choose from.
 Threat from substitute product: - The substitute threat is relatively lower for Ikea
which is possible due to several factors such as brand image of Ikea that build up trust
among customers, its affordable pricing strategy and better customers services.
 Threat of new entrant: - This threat is low to moderate as new entrant can start up at
lower level which not affect eth Ikea business as to reach up to it, new entrants require
higher investment and market share.
 Competitive rivalry: The competition within home furnishing industry is high as several
brands are already providing it tough competition and other than this Ikea is also
experiencing competition from super market like Tesco.
2.2 Company’s management approach
The Ikea business and operating model is one of the best factor behind its success which
is also denoted by rational goal model (den Hertog, C., 2014). This model mainly focuses over
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deigning the products that are for affordable to every person and to accomplish this aim the Ikea
mainly design, manufacture and supplies the quality furniture at relatively lower price so that it
can be afford by majority of people. This become possible as Ikea maintain a strong network and
better relationship with suppliers which offer it good quality raw material to form designer
products while maintaining its low budget plan. Its product are design in a manner that are easier
to assemble. Ikea mainly relies over its value chain in order to optimise its overhead costs and
production (IKEA’s business and operating models, 2015). This model is truly democratic model
as under this Ikea is focusing over creating the products that can be accessible to all income
group people.
The business challenges
3.1The challenge facing the company
With the evolution of technology and increasing focus on consumer experience has
totally changes the retail industry. However the challenges within the home furnishing industry
have also grown as compare to other sector of retailing (5 Common Challenges that Current
Furniture Industry Retailers are facing, 2019). The main issues determined in this segment are
related with supply chain, business scaling, customer satisfaction and market saturation. Some of
the major issue found in furniture retail industry are,
Managing operations: - The manufacturing process as well as inventory management is
two components which make supply chain management in furniture retail industry. Earlier
retailer’s focuses on maintaining relationship with vendor to deliver they product and get
supplies, but with increasing need of Omni channel it require them to focus on geographical
based partnership.
Tackling competition: - The competition is getting more intense which is affecting all
the players as small retailers are constantly trying to grapple with shipping and return cost, lack
of brand recognition and scarcity of suitable manufacturing. On other side the prominent brand
are striving to provide superior customer satisfaction (Baraldi and Ratajczak-Mrozek, 2019).
Hence a retailer dealing in furniture and home furnishing experiences competition from both
such as small retailers and brands that are operating within the several segment of industry.
Fuelling growth: As the sale cycle are very long and the purchasing process mainly
involve the tactile experience, the consumer acquisition and retention is remain quite difficult as
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well as different across different part of the retail sector. Hence it can be said that the growth
process is relatively fraught with huge risk. This is so because the expansion process involves a
heavy expenditure in managing its operations.
Keeping the customer satisfied: - The buying decision of an individual is usually get
affected by the personal perception of a consumer, estimation made by them over available areas
and visualisation of colour combination. This is so braces the dissatisfaction that get experienced
among customer regarding the design and appearance of the furnishing stuff is quite higher
(Baraldi and Ratajczak-Mrozek, 2019). The main problems lies here is that the customers are
deepening depend over the friendly and cheap rate policies that they can gain.
3.2The impact of challenge on company
The IKEA has faced a challenge while operating the business in China as they have
manage the operation at lower prices by which the local seller were copied their design by which
the customer will more confused by which the profit ratio of the business will get decreased. As
the local supplier didn’t provide the raw material to the Ikea and they were also didn’t allowed
showcasing their furniture in the different furniture exhibition (Psota, 2014). Thus the Ikea have
induces more innovation in their business and get learned from the Poland about how to gave
design to their furniture by their own and have bought the raw material from the Poland at
cheaper rate and also conduct their own exhibitions. It helps the business to be the world’s
largest retail chain of furniture and has manages the 300 stored all across the world.
The have also faced challenge while operating the business in US as their customer are
more likely to used to of the longer beds, and big size closet by which the Ikea must have
replicate their business model and strategy. The American customer demand are more different
thus according to that Ikea also make changes in their business and operate the function with
different marketing strategy by which their revenue will get developed more rapidly and better
sales get developed that induce more profit to the business.
Recommendation
It has been recommended from the above report that the in order to attain more profit the
company must have uses the CVF model as competitive value framework and have performed
the different function as per the market competition and induce more design in their furniture as
per the requirement and need of the customers (Jonsson, 2014). The company will get more
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benefits from the human relation model and the open system model as by this model they could
make the healthy relation with the customer that it is easier to get understand the need and
demand of the customer and the company will must work accordingly. The IKEA will face the
challenges while operating the business in the China and US as per the market behaviour and the
requirement of the customers. To make the ultimate changes the IKEA must have induce the
changes as per the requirement of the market with this the company will uses the different
strategy and the business as well as management model by which make the innovation and
designing by themselves by which their working ability and capability of the business will get
more developed.
CONCLUSION
It has been concluded from the above report that the competitive value framework has
been used that is more helpful to make the suitable changes within the business by which more
profit will get gained by the company in the certain period of time. It has more positive impact
on the performance of the business and with this they have worked with more sufficiency and
have generates more effectual outcomes within the certain period of time. In addition this defines
the different models as like human relation model, open system model and the internal process
model through which the company will try to get over from the different challenges that get
generated on random basis.
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REFERENCES
Books and Journals
Baraldi, E. and Ratajczak-Mrozek, M., 2019. From supplier to center of excellence and beyond:
The network position development of a business unit within “IKEA Industry”. Journal of
Business Research, 100, pp.1-15.
den Hertog, C., 2014. Better value chains: a matrix for competitive advantage. Journal of
Business Strategy.
Helmefalk, M., 2016. Congruency as a mediator in an IKEA retail setting. International Journal
of Retail & Distribution Management.
Jonsson, A. and Tolstoy, D., 2014. A thematic analysis of research on global sourcing and
international purchasing in retail firms. International Journal of Retail & Distribution
Management.
Psota, J.R. and Green, J., Panjiva Inc, 2014. Transaction facilitating marketplace platform. U.S.
Patent Application 14/205,058.
Psota, J.R. and Green, J., Panjiva Inc, 2018. Transaction facilitating marketplace platform. U.S.
Patent 9,898,767.
Rajandran, K. and Taib, F., 2014. Disclosing compliant and responsible corporations: CSR
performance in Malaysian CEO Statements. GEMA Online® Journal of Language
Studies, 14(3).
Tunyaplin, S. and Chanpuypetch, W., 2019. Development of a performance measurement system
for a home furniture delivery and assembly logistics provider in Thailand. International
Journal of Business Process Integration and Management, 9(4), pp.292-306.
Online
5 Common Challenges that Current Furniture Industry Retailers are Facing. 2019. [Online]
Available through: <https://adoreztech.com/challenges-faced-by-furniture-retailers/>
IKEA’s business and operating models. 2015. [Online] Available through:
<https://digital.hbs.edu/platform-rctom/submission/ikeas-business-and-operating-models-
a-match-made-in-heaven/>.
Competitive value framework. 2019. [Online] Available
through:<https://www.valuebasedmanagement.net/methods_quinn_competing_values_fra
mework.html>.
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