IKEA Strategic Analysis: Environment, Capabilities and Direction

This report provides a comprehensive analysis of IKEA's business strategy, starting with an overview of the company's mission, vision, and objectives. It critically evaluates the impact of macro environmental factors using PESTLE analysis, examining political, economic, social, technological, legal, and environmental influences on IKEA's strategic decisions. The report further delves into IKEA's internal environment, focusing on its strengths and weaknesses, utilizing VRIO analysis to assess internal capabilities and the resource-based view framework for competitive advantage. Porter's Five Forces model is evaluated to understand the competitive landscape, and strategic directions for improving IKEA's competitive edge are explored using Ansoff's matrix and Porter's generic strategies. Stakeholder analysis is also conducted to understand and prioritize the needs of various stakeholders. The report concludes with a strategic plan for IKEA, aimed at enhancing its market position and achieving its long-term goals.

Business Strategy

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1 ...........................................................................................................................................1
Analysis of impact of macro environment on IKEA and its business strategies........................1
TASK 2 ...........................................................................................................................................7
Internal environment and capabilities of IKEA..........................................................................7
TASK 3..........................................................................................................................................11
Evaluation of Porter's Five force model....................................................................................11
TASK 4..........................................................................................................................................13
Models, theories and concepts to interpret strategic direction for IKEA..................................13
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Business strategy is a summary about the way an organisation will be achieving its
objectives by meeting its customers expectations in order to have competitive advantage for the
firm (Martinez-Simarro, Devece and Llopis-Albert, 2015). It leads to a systematic process that
helps the business to set its future goals in order to achieve. Present study is based on the
company IKEA that is a Swedish multinational Retail organisation founded in the year 1943.
Company is the world's largest furniture retailers and also design and sell different kitchen
appliances, home accessories and other products. Report will include mission, vision, objectives
of IKEA and will critically evaluate the macro environment factors for strategic decisions.
Further report will include internal environment focusing on strength and weaknesses and also
will use VRIO analysis in order to analyse internal capabilities. It will also include Resource
based view framework for analysing competitive analysis. Further report will evaluate porter's
five forces model for IKEA and will produce strategic direction in order to improves the
competitive edge with the use of Ansoff's matrix. At last report will create strategic plan for
IKEA with the use of Porter's generic strategies.
TASK 1
Analysis of impact of macro environment on IKEA and its business strategies
Vision:-
To create a better day to day life for the surrounding people.
Mission:-
To create better life for the customers with wide range of well designed home furnishing
products at a reasonable prices so that people are able to afford the products.
Objectives:-
 To offer wide range of home furnishing products with attractive design and good quality.
 To offer durable goods with effective functioning.
 To provide goods and services at reasonable price so that majority of people are able to
afford them.
PESTLE analysis:-
It is framework that is used by IKEA in order to analyse the macro factors that impacts
business performance.
Figure:- 1
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Political:-
There are some political factors like policies set by the government, foreign trade,
environment law, tax policy etc. that affects the business and its strategies. The supply chain
disruption is the major issue that affects IKEA due to political instability as many parts of supply
chain is in Europe and political disruption there may affects the activities of supply chain. IKEA
also had faced criticism from the media of china as package boxes of IKEA represented Taiwan
and China as two different and separate countries. Such critics and politics affected the
organisation in many ways (OFFER, 2017).
However, company is making strategies to have political stability and apologised for its
mistakes that leads to both political and economic stability and helped for increasing sales of the
business in foreign market.
Economical:-
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Illustration 1: Pestle analysis

There are many economic factors like exchange rate, inflation rate, unemployment rate
etc. that affects IKEA and its strategies. The global economic recession that resulted in decline of
purchasing power of the potential customers, affected the business strategies of IKEA.
However, its was seen that IKEA was able to manage the pricing of its products and this
strategy helped the organisation to manage the economic fluctuation pressure(Ehsan Ullah,
Karlsson and Dada Olanrewaju, 2016).
Social:-
There are social factors like norms, customs, lifestyle, income distribution etc. that affects
the organisation like IKEA and also its business strategies. IKEA came under the fire as it
Photoshop women of Saudi Arabia that was out of its catalogue and also removed lesbian couple
from Russian magazine. Different social trends have affected the sales of IKEA.
However, the company apologised and communicated that they are improving to share
there values. In order to overcome influence of these factors, IKEA have to ensure that in right
culture, these wrong things does not make any presence (Sadgrove, 2016).
Technological:-
There are different technological factors like research and development, innovation etc.
that affects the business. Competition is increasing day by day due to change in technology and
this factors affects the decision making of IKEA.
However, IKEA is working to provide better experience to its customers with the help of
different digital channels. Digital technology have helped the organisation to reach its customers
and provide them better service experience. Company is coming up with strategies to use
Artificial intelligence and cognitive intelligence in the organisation in order to understand the
consumer behaviour effectively (Nguyen, 2016).
Legal:-
Factors like employment laws, consumer protection law, patent law etc. affects the
business strategies of IKEA as a small hassle in these laws may affect the business and can be
costly for the organisation. In past years some customer’s died due to the furniture of IKEA and
this affected the business strategies of organisation as they worked to produce safe and secure
products to its customers. It affected the business reputation and penetrating it is very tough for
the firm (Beliveau and et.al., 2018).
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However, IKEA have worked over the safety of its products in order to overcome the
impact of legal issues on business strategies.
Environmental:-
The environmental factors like scarcity of raw material, carbon footprint etc. may affect
IKEA and its business strategies as having sustainability in the organisation is very important
part for the business brand and this also helps IKEA to have better brand image. As many
business operations of IKEA are affecting the environment and also people, this may result in
poor reputation of its brand (OFFER, 2017).
However, Company is making strategies and investing in renewable energy. It is aiming
for in-store energy and invested in wind and solar energy. They are also shifting to sustainable
sources rather than using wood or cotton.
Pestle analysis help the company to attain the aim and objectives because it helps to
inform IKEA to determine its external factor that affect the business in opposite way. Further,
using the strategic analysis, company also check their performance and loopholes and then take
action accordingly so that it will help the firm to attain the defined goals. Not only this, the
PESTLE analysis must be done because it helps to take better decision and keep the firm on right
track as well. Moreover, it has been critically evaluated that by not using this strategic
management tool, company will not easily understand external influence of the business so that it
may affect its success or which factor creates opposite impression upon business. Further,
through this, IKEA also determine what factors may change in future and then develop strategies
that helps to gain high competitive advantages as well. Such that if company did not use
PESTLE analysis, then quoted firm did not determine Technology factor also helps the firm to
comply with new and advance techniques in order to stay ahead in the competition.
Stakeholder analysis:-
It is very important to analyse the respective stakeholders and there needs. It becomes
easy with the use of stakeholder analysis technique as it helps in identifying primary and
secondary stakeholders of IKEA(Power, 2016).
IKEA is cooperating with different domestic and internal stakeholders and uses
stakeholder analysis in order resolve conflicts.
The three major steps in stakeholder analysis are as follows:-
Identify stakeholders:-
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IKEA is making different strategies by identifying its stakeholders. The different
stakeholders that are part of this organisation are as follows:- Employees:- The different stakeholders of IKEA are its 211,000 employees that are
working in about 433 locations all over the world. Suppliers:- The furniture is designed in Sweden and main suppliers are from south
America region(Ngai and Falkheimer, 2017). Shareholders:- IKEA is having its owners as its stakeholder that is Ingvar Feodar
Kampard founder of IKEA and CEO Mikael Ohlsson are the shareholders. This also
includes different executive managers. Mangers and customers:- There are stakeholders that manages the organisation and as
company is globalised it is having customers from all over the world.
 Trade union:- As IKEA is working with 20 independent organisations, they are also part
of stakeholders.
Prioritize its stakeholders:-
It is very important to prioritize IKEA's stakeholders and divide them on bases of its
impact in the organisation. IKEA has divided its stakeholders into primary and secondary.
Primary stakeholders are working internally and secondary are external stakeholders (Laurin and
Fantazy, 2017).
Figure:- 2
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Stakeholder analysis uses a power-interest grid in following ways:- Keep satisfied:- In this grid stakeholders that are having high power and low interest are
classified. Governing authorities and Trade unions are under this category and they are
need to be satisfied for the welfare of the organisation. Manage closely:- There are stakeholders that are having high power and high interest like
shareholders, managers and CEO of IKEA are classified in this category. These
stakeholders are managed closely (Anis and Classon, 2017). Monitor:- There are stakeholders that are having low power and low interest that are its
local communities and logistic partners and they need to be monitored closely by IKEA.
 Keep informed:- This category is having low power and high interest and are its
employees and customers. They are required to be informed about business activities of
IKEA.
Understand key stakeholders:-
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Illustration 2: Power interest grid

In order to have effective work in the organisation, it is essential for IKEA to have
knowledge of the stakeholders and there professional ability. As owner of the company is having
the main power, is make strong flexibility and adaptation for its employees.
However, IKEA works to understand its customer’s in order to make strategies for
satisfying there respective needs (Anis and Classon, 2017).
There is a need to use stakeholder analysis for IKEA because involving large number of
stakeholder will help to manage their expectations and engaging the same will also get
invaluable insight as well. Further, taking their reviews and feedback will also help the company
to leads a business towards success path and attain the defined aim and objectives as well.
Therefore, it is quite essential to keep involve primary and secondary stakeholders while taking
any decision for the company. For instance, managers and employees are consider one of the
important stakeholder and that is why, it is necessary to keep them informed related to any task
and as a result, it will help to make better decision for the success of a firm as well. Further, it is
critically evaluated that if IKEA did not use stakeholder analysis, then it will not determine the
role and responsibilities of employees and as a result, it did not take action for further
improvements. That is why, using the tool, company increase its productivity as well as overall
performance of IKEA as well.
TASK 2
Internal environment and capabilities of IKEA
Resource based view framework:-
It is a framework that helps in determining strategic resources that IKEA can exploit for
brining competitive advantage to the firm.
Figure:- 3
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According to this framework resources of the organisation are all its assets, processes,
attributes and information. IKEA is using these resources as input and this helps in effective
performance of organisational activities. These resources are classified as following:- Tangible resources:- The physical assets like raw materials, machinery, plants, patents
etc. are the tangible resources of IKEA (Ahmad and Mohamed, 2018).
 Intangible resources:- There are intangible resources like culture, reputation, relationship
with customers that are having intangible resources of IKEA.
The critical assumptions of these resources are as follows:- Heterogeneous:- The skills, knowledge, structure and resources of IKEA are different
from other competitors and company is designing different strategies in order to brining
competitive advantage to the firm. Immobile:- There are some resources that are not mobile in IKEA and these resources can
not be transferred among the companies. It is difficult for IKEA to obtain these immobile
resources of its competitors.
VRIO analysis of IKEA:-
There are various internal resources in IKEA that are assessed in order to have
competitive advantage to the firm. The VRIO resources of IKEA are as follows:- Valuable:- There are financial resources for IKEA that are highly valuable for the firm as
organisation uses these resources to grab external opportunity. The local food products
are highly differentiable because of which they are valuable for IKEA. The patents are
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Illustration 3: Resource based view

also valuable resources as these allow IKEA to sale its products without having
interference of its competitors. However, research and development is not valuable
resource for IKEA as its having high cost and fewer benefits. Only few innovative
features were there due to research and development as a result it is not brining
competitive advantage to IKEA (Svensson, 2016). Rare:- The financial resources and distribution network of IKEA are rare and have
possessed by only few of its competitors so its brings competitive advantage to the firm.
However, the food products are not rare as many other competitors are providing the
same. So, food products are brining competitive advantage to IKEA. Imitable:- The financial resources are generally costly to imitate in IKEA and it would
require long period for competitors to accumulate it. Therefore, it provides competitive
advantage to the firm. However, employees of IKEA are not costly to imitate as other
organisations can train the employees to improve their skills as IKEA does. So, these
resources do not bring competitive advantage to the organisation.
 Organisation:- Financial resources of IKEA are well organised and these resources are
invested in right direction by the company because of this it is brings competitive
advantage for IKEA. However, patents are not organised effectively as they do not use it
with its full potential. This resource do not bring competitive advantage for IKEA.
According to the VRIO framework, financial resources and distribution resources are used
effectively by IKEA because of which they are able to compete in market. However, they are not
able to use patent and its employees effectively in order to bring competitive advantage to the
firm (Wang and Jie, 2019).
For IKEA, it is essential to use VRIO framework because it also help the company to
take strategic decision in order to attain the aim and objectives. This tool also assist quoted firm
to uncover and protect the resources and capabilities which will further give long term
competitive advantage. However, it is critically evaluated that if IKEA not use VRIO then it will
not collect an important information that helps in evaluating available resources within a firm so
that they make better action for the success. On the other side, this framework also examine the
link between company's internal characteristics and its performance to remain top in the
competition as well.
SWOT Analysis:-
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Strength
 Company is having clear vision and
well defined business strategies (Goel
and Garg, 2018).
 It is having strong financial position
and maintains cost leadership that
positively impacts its revenues.
 The brands of IKEA are affordable and
is impacting customers expectations in
positive ways.
Weaknesses
 Many employees are not satisfied and
have complaint about the promotional
activities that affects brand image.
However, organisation is working to
make its employees motivated by
engaging them with different activities.
 Company works on cost leadership and
do not have focus on quality of the
products that affects profitability of
IKEA (Li And et.al., 2016).
Opportunity
 As online shopping in increasing, it is
brining opportunity for IKEA to sale its
products with the help of its website.
 As demand of lower carbon footprints
is there, IKEA is having opportunity to
reduce energy use with the use of
renewable resources (Kumar and
Bansal, 2015).
Threats
 As government and tax policies
changes, it impacts on prices of IKEA's
product. However, organisation is
working on pricing strategies in order
to overcome this issue.
 Company have gone through different
lawsuits because of its previous issues
regarding employees discrimination
and poor quality of the products.
However, IKEA is working to make its
employees engaged and to not have any
discrimination in the workplace (Muhr
and Aytekin, 2016).
SWOT analysis is another strategic management tool that helps to build strategic plan in
order to meet goals and also improve the operations as well. Such that IKEA use this tool in
order to determine company's strength, weaknesses, opportunities and threat so that company
may easily take action in order to overcome the loopholes. Further, by applying the tool will help
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