Business Strategy Report: IKEA's Strategic Planning and Analysis

This report provides a comprehensive analysis of IKEA's business strategy. It begins with an introduction to business strategy and its importance for achieving competitive advantages and maximizing profits. The report then delves into a detailed examination of IKEA's macro-environment usi...Read More

Business
Strategy

Contents
INTRODUCTION...........................................................................................................................................3
TASK 1..........................................................................................................................................................3
P1: Macro-environment analysis.............................................................................................................3
M1: Critical analysis of Macro-environment............................................................................................5
TASK 2..........................................................................................................................................................5
P2: Internal environment analysis...........................................................................................................5
M2: Critical evaluation of internal environment......................................................................................7
TASK 3..........................................................................................................................................................8
P3: Porter’s five forces.............................................................................................................................8
M3: Devising of strategies for improvement of competitive edge and market position.......................10
TASK 4........................................................................................................................................................10
P4: Application of a range of theories, concepts and models for devising strategic planning...............10
M4: Producing of strategic management plan......................................................................................12
D1: Critique and Interpretation of information and data......................................................................12
CONCLUSION.............................................................................................................................................13
REFERENCES..............................................................................................................................................14

INTRODUCTION
Business Strategy refers to the various types of actions which are required to be taken by
an organization if it has to attain a strategic edge within the market (Akter and et.al., 2016). It is
very useful so that an optimum strategy can be framed for the purpose of achievement of short-
term and long-term goals as well as objectives in the future time period without any issues and
problems. If a company is able to frame a right business strategy then it will lead towards
attainment of objective of maximization of profits. Thus there is a requirement of making sure
that the company’s managers frame the right strategy to gain a competitive edge. For this report,
IKEA has been considered which is a Swedish company headquartered in Netherlands. It deals
in various types of products for the customers. In this assignment, detailed analysis will be made
on analysis of impact of macro environment, analysis of internal environment. Also, evaluation
of outcomes using Porter’s five forces analysis and application of theories and models and
concepts will be discussed as a part of this project.
TASK 1
P1: Macro-environment analysis
Macro-environment of an organization consists of various types of factors which can help
the organization in the short-run and long-run period (Amran and et.al., 2016). Therefore, this
can be analyzed using PESTEL analysis.
PESTEL analysis-
Political factors- These are government policy, political stability and corruption. These
factors affect the performance of IKEA because this will lead towards creation of an impact on
its profitability level.
 Opportunity- If the government policy is stable and in the favor of IKEA then this will
lead towards creation of profits for the company and this will help it in attaining its
required goals and objectives in the future time period.
 Threat- If the political stability is not present in the country where IKEA is operating
then this will lead towards problems and issues for the organization in the long-run period
of time.
Economic factors- These are economic growth, exchange rates and inflation rates. These
factors can create an impact on the performance of IKEA because the economic
conditions can affect its profitability.
 Opportunity- If the economic growth is booming then this offers an excellent
opportunity for IKEA as this will make sure that the company is able to achieve its goals
and objectives in the future time period.

 Threat- If the inflation rates are increasing then this acts as a threat for IKEA as this will
lead towards a decrease in the profits of the company.
Social factors- These are population growth rate, safety emphasis and health
consciousness. These factors have an impact on IKEA as they can lead towards either an
increase in its profits or a decrease in the profits.
 Opportunity- If the population growth rate is increasing then this offers an opportunity
for IKEA as it will lead towards increase in the demand of its products.
 Threat- Change in lifestyle attitudes of the customers can create impact on business of
IKEA in the short-run as well as long-run.
Technological factors- These are technology incentives, level of innovation and R&D
activity (Anwar, Shah and Hasnu, 2016). These factors can create an impact on IKEA.
This is so because this will lead towards either an increase or a decrease in the profits.
 Opportunity- If IKEA is able to adopt technology faster than the others then this will
make sure that it is able to earn more profits in the future time period.
 Threat- If IKEA is not able to adopt technology faster than the others then this will lead
toward decrease in its level of profitability.
Environmental factors- These are weather, climate and environmental policies. In the
context of IKEA, these factors can create an impact on the company as it will lead
towards either an increase in the profits or decrease in profits (Ghemawat, 2016).
 Opportunity- If IKEA is able to adopt the environmental policies of the government
then this will make sure that its image among the customers is good and it earns higher
level of profits.
 Threat- If IKEA is not adapting to environmental policies of the government then this
will impact its image among the customers and its revenues may fall leading to a
decrease in the overall profits.
Legal factors- These are discrimination laws, antitrust laws and employment laws
(González-Rodríguez and et.al., 2018). For IKEA, these factors have due importance
because it is important for the companies to obey the legal rules and regulations of the
country where they are operating because this will lead towards an increase in their
profits.
 Opportunity- If the rules and regulations of the government are in IKEA’s favor then
this will make sure that the company is able to earn profits effectively and efficiently.
 Threat- If the rules and regulations of the government are not in IKEA’s favor then this
will lead towards to a decrease in its profitability.

Thus, overall there is a requirement for the companies to make sure that they take macro-
environment factors so that they are able to earn higher level of profits in the future time period.
M1: Critical analysis of Macro-environment
For a company it is quite important to make a critical analysis of its macro-environment.
By analyzing the PESTEL analysis of IKEA it has been found out that the various factors in the
external environment provide an opportunity as well as also act like a threat for IKEA. If the
company’s managers are able to frame the right strategy for the environmental factors then this
will lead towards achievement of higher-level of overall efficiency and effectiveness and an
increase in the productivity level leading to higher profits.
TASK 2
P2: Internal environment analysis
There is a requirement for the organizations to analyze the internal environment so that
they are able to make their own assessment. It can be analyzed as follows-
RBV framework-
The Resource-based view of the firm is an approach to business strategic management
that emerged in the 1980’s and 1990’s.
There are two types of assets-
Tangible- These assets are the ones which are physical in nature (Gumusluoglu and
Acur, 2016). Examples of such assets are Land, Buildings, Machinery, and Equipment.
Intangible- These assets are the ones which don’t have a physical presence but they
create an impact on the company. Examples of such assets are Goodwill, Brand Reputation,
Trademarks and Intellectual Property.
These assets must be-
Heterogeneous- This means that the assets of the firm must differ with the other firms
because this will lead towards attainment of strategic advantage (Lai, Melloni and Stacchezzini,
2016). Therefore IKEA must focus on making its assets heterogeneous in nature.
Immobile- This means that the assets of the firm are not mobile and cannot move from
one place to another. Thus IKEA should make sure that its assets cannot move from one place to
another atleast in the short-run.
These assets must have VRIO characteristics which will make sure that they create much-
required value for the company. Thus IKEA needs to make sure that its assets have these
characteristics.

These assets must facilitate achievement of competitive advantage so that the firm is able
to achieve strategic advantage over its competitors in the market. IKEA needs to make sure that
it is able to achieve this advantage.
VRIO Analysis-
VRIO analysis is an analytical technique which is used for evaluating a company’s
resources and identifying its competitive advantage (Leischnig, Woelfl and Ivens, 2016). The
analysis in the context of IKEA is as follows-
Resources Valuable Rare Inimitable Organized
Goodwill    
Customer Base   
Human
Resources
 
Financial
Resources

Valuable resources- Goodwill is a valuable resource because it takes time to make it.
Customer base is valuable because customers are important for any organization. Human
Resources are valuable because they are required to be given due importance. Financial
Resources are valuable because funds are required by every organization.
Rare resources- Goodwill is rare resource because not every firm has it. Customer base
is rare because not every organization is able to build a strong customer base. Human Resources
are rare because talented people are hard to find in any industry. Financial Resources are not rare
because many firms have good financial position.
Inimitable resources- Goodwill is inimitable because it cannot be copied. Customer base
is inimitable because the loyal customers will always stay with the organization. Human
Resources are not inimitable because other firms also have them. Financial Resources are not
inimitable because other companies have them.
Organized resources- Goodwill is organized because it has been formed because of
quality provided by the company. Customer Base is not organized because some customers can
shift to other firms. Human Resources are not organized because sometimes they are
mismanaged. Financial Resources are not organized as the financial position keeps on changing.
SWOT analysis-
SWOT analysis is a tool which is used commonly in the management to make an
assessment of the internal environment of an organization (Leischnig and et.al., 2017). The
analysis in the context of IKEA is as follows-

Strengths Weaknesses
 Customer base- IKEA enjoys a
substantial customer base and this acts
as its strength.
 Quality products- IKEA provides
quality products to its customers which
is its another strength,
 Marketing strategies- The marketing
strategies of IKEA leave a lot to be
desired and thus are not according to
the strategies adopted by the
competitors.
 Lack of efficiency- There is a lack of
efficiency among some of the staff
members of IKEA which can hurt its
performance.
Opportunities Threats
 Diversification- By diversifying in
several countries where it is not present
IKEA can earn higher-level of profits.
 Innovative products- By introducing
innovative products in the market
IKEA can make sure that it is able to
earn higher level of profits.
 Competition- Higher-level of
competition in the market is a threat for
IKEA as it can reduce its profits.
 Increase in tax rates- Increase in tax
rates by the government can create
problems for IKEA as it can reduce its
profits.
M2: Critical evaluation of internal environment
The internal environment of an organization can be analyzed using various frameworks.
From their use it has been analyzed that IKEA has a strong internal environment. It must make
some required improvements in it to make it even better. This will allow it to identify the
opportunities in the market and make sure that it is able to use them effectively and efficiently so
that it can earn higher level of profits in the future time period. Thus there is a requirement for
the company to make some improvements in its internal environment.

TASK 3
P3: Porter’s five forces
The five forces of Porter are as follows-
 Competition in the industry- This refers to the level of competition which is prevalent
within the industry (Porter’s 5 forces, 2020). In the context of IKEA, this force has a
high power because there is a lot of competition which is prevailing within the industry.

 Potential of new entrants- This means the potential which the new entrants have within
the industry. For IKEA, this force has a very high power because in its industry the new
entrants can enter very easily.
 Power of suppliers- This refers to the power which the suppliers have within the market
to influence the prices. In the context of IKEA, this force has a high power because the
suppliers can change the prices of inputs according to a change in the supply.
 Power of customers- This means the power which the customers have in the market. For
IKEA this force has a very high power as the customers are extremely important for the
organization as they are the ones who drive the revenues of the company.
 Threat of substitute products- This means the power which the substitute products have
in the market to influence the buying decision for the customers. For IKEA, this force has
a low power because the quality of its products is very good and thus the customers will
not prefer to purchase substitute products over its quality products in the future time
period.
Justification- From this analysis, it can be said that 4 out of 5 forces have a high power
and the remaining 1 force has a low power. Thus for IKEA it is necessary to frame a right
strategy which will help it in achieving sustainable success in the market.
Ansoff Matrix-
Ansoff Matrix can be used by the firms in order to identify the strategy which can
be adopted by them to succeed in the market in the long-run (Leonidou and et.al., 2017).
With the use of this matrix IKEA’s managers can make sure that they adopt the right
strategy which will make sure that they will attain competitive advantage in the future
time period without any problems and issues.
The strategies which can be used are as follows-
 Market penetration- This strategy can be used so that the firm is able to
penetrate the market effectively with the use of existing products and services
(Lieder and et.al., 2017). Thus in the context of IKEA this strategy is quite useful.
 Market development- In this strategy, the firms can make sure that they are able
to enter new markets which will lead towards increase in the overall level of
profits for them (Linder and Williander, 2017). IKEA can make use of this
strategy by planning to diversify in the markets where it is not present currently.
 Product and Development- In this strategy, the firms can develop existing
products and services to make sure that they have new features and can attract the
customers (Maniora, 2018). The managers of IKEA can make use of this strategy
so that they are able to develop new products for their market.
 Diversification- In this strategy, the companies enter into new markets with new
products and services. This strategy can pay long-term dividends to the companies
if used in the right manner. Thus, for the managers of IKEA this can be very
useful because this will make sure that it is able to achieve its goals and objectives

and its full potential. This will lead towards an increase in its profits and
maximization of the profits in the long-term leading to obtaining of a strategic
edge in the market.
Justification- IKEA should make use of Market Penetration Strategy. This is so because
by the use of this strategy the company will be able to get more market share and thus can
obtain a strategic edge over its rivals.
M3: Devising of strategies for improvement of competitive edge and market position
There is a requirement for the companies to make sure that they are using the right
strategy for improving their competitive edge and market position. For the management of
IKEA, it becomes essential that they are able to make use of Market Penetration Strategy. This
can be useful for them in increasing their overall market share and thus make sure that they are
able to maximize their potential for achieving higher level of efficiency as well as effectiveness.
Thus the managers should focus on this strategy to achieve the desired outcomes because this
will help them in maximization of profits.
TASK 4
P4: Application of a range of theories, concepts and models for devising strategic
planning
Porter’s generic strategies-
Porter’s generic strategies can be used in the right manner by the organization so that
they are able to devise strategic planning for achieving sustainable level of success in the future
time period (Mohelska and Sokolova, 2016). IKEA can make use of these strategies for
obtaining success in the market.
The strategies are as follows-
Cost Leadership- In it, the firms focus on reducing their level of costs so that they are
able to obtain strategic advantage in the market (Ransbotham and et.al., 2017). For IKEA, it
becomes highly necessary that they are able to use this strategy for gaining competitive
advantage.
Differentiation- In it, the companies are required to focus on differentiation to make sure
that they are able to make their products look different from their various competitors within the
market (Sanden, 2016). In the context of IKEA, this makes sure that the company achieves
strategic edge in the market.

Cost Focus- In it, the companies put their focus on the specific markets where they can
reduce their costs for attaining competitive edge (Whitehead, 2017). For IKEA, it is necessary
that it identifies these markets for increasing its revenues and level of profits.
Differentiation Focus- In it, the companies make their focus on differentiating their
products from the competitors (Yuliansyah, Gurd and Mohamed, 2017). In the context of IKEA,
it becomes necessary that they are able to put their focus on certain markets where they can
differentiate to attain a competitive edge.
Justification- In the context of IKEA, it is highly necessary to use Cost Leadership
Strategy so that it is able to reduce its prices effectively to attain a much-required competitive
edge within the market in the future time period. If the company’s management makes use of this
strategy in the right manner then they can easily attain a strategic edge over the various
competitors in the market.
Strategic Plan- A strategic plan is a document which is prepared by the companies to
analyze the right strategies which they can use to acquire a competitive edge within the market
(Zakaria, Hashim and Ahmad, 2016). In the context of IKEA, this plan is as follows-
Particulars Details
Vision IKEA aims to create a better everyday life for
people. Thus it offers a range of various
products for its customers.
Mission IKEA’s mission is to make the lives of its
customers easier through the products which it
offers to them.
Core Values  Togetherness- IKEA values
Togetherness as it is quite important for
them.
 Caring for people and planet- In
IKEA people and planet are on the
priority and the products are designed
to care for them.
 Cost-Consciousness- IKEA aims to
create affordable products for its
customers.
 Simplicity- IKEA aims to provide
simplistic products to its customers.
Objectives  IKEA aims to increase its market share
in the future.
 IKEA aims to expand its customer
base.
Marketing Strategy  Product- IKEA provides ready-to-
assemble furniture, kitchen appliances
and home accessories.

 Price- IKEA charges a reasonable price
for its products.
 Place- IKEA is present all over the
world in many countries.
 Promotion- IKEA uses the traditional
as well as modern promotional
techniques.
Strategies to be used  For increasing the market share IKEA’s
management must make sure that it
sells more products in the existing
market.
 For expanding the customer base
IKEA’s managers are required to make
sure that they can target various
customers from different segments so
that more revenue can be generated.
Summary The summary of this strategic plan is that
IKEA is required to use the right techniques
which will make sure that it is able to achieve
its various types of goals and objectives in the
future time period. If it uses the right strategies
then it will acquire a competitive edge on its
competitors which will lead towards
maximization of its profits and achievement of
sustainable success in the future time period.
M4: Producing of strategic management plan
By producing a strategic management plan the firms can make sure that they attain
competitive edge over the competitors. The plan has various types of elements and thus if framed
in the right manner this can ensure that IKEA is able to meet its short-term and long-term goals
and objectives. The firm can also make the required changes to its strategies if the need is felt to
do so. By doing so, it will stay ahead of its various competitors in the market and will be able to
maximize its profits.
D1: Critique and Interpretation of information and data
IKEA is a reputed company in the market. However due to the increasing competition in
the market and the dynamic changes in the business environment it is required to make certain
changes in its strategies. This will provide its management the direction which is required to be
followed in the future and thus the managers can make sure that they can attain the required
competitive advantage in the future time period without any issues and problems. Thus the right
implementation of strategic plan is important in this regard as this ensures success in the future
time period.

CONCLUSION
From the above report, it can be concluded that Business Strategy is required to be
framed so that the firms can adjust to the dynamic business environment’s demands. For the
purpose of maximization or profits and attainment of goals and objectives it becomes highly
important as it is required for using the right techniques by the organization. Macro-environment
can be analyzed using PESTEL analysis. Internal environment can be analyzed using RBV
framework, VRIO and SWOT analysis. Porter’s five forces are used to analyze the situation in
the market. Ansoff Matrix can be prepared to identify the strategy to be used in the future time
period. Also, Porter’s generic strategies help in assessing different strategies and choosing the
best one out of them to acquire competitive advantage. Strategic Plan can be prepared so that the
goals and objectives can be achieved without issues and problems and the strategies can be
changed if required.

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Porter’s 5 forces. 2020. [Online]. Available through:
<https://www.investopedia.com/terms/p/porter.asp>