Comprehensive Strategic Analysis of IKEA: VRIO, PESTLE, and Porter's

This report provides a strategic analysis of IKEA, a well-known furniture brand, using several strategic management tools. It begins with an evaluation of IKEA's purpose, vision, mission, and objectives, followed by an assessment of its competitive advantage using the VRIO framework, which examines the value, rarity, imitability, and organization of IKEA's resources and capabilities. The report then conducts a PESTLE analysis to assess the external political, economic, social, technological, environmental, and legal factors affecting IKEA. Additionally, it applies Porter's Five Forces model to analyze the competitive intensity within IKEA's industry. The report also reviews IKEA’s organizational strategy using Ansoff Matrix and Balance Score Card. The analysis aims to provide a comprehensive understanding of IKEA's strategic position and the factors influencing its success. Desklib offers a platform for students to access similar solved assignments and past papers.

STRATEGIC
MANAGEMENT

Contents
INTRODUCTION......................................................................................................................3
TASK.........................................................................................................................................3
A critical evaluation of the value of clear purpose, vision, mission and objectives in setting
the strategic direction of organizations using examples from selected organisation.............3
Assess the competitive advantage of the selected company, using the VRIO framework....4
PESTLE framework analysing the external environment of the selected business...............5
Application of the Porter’s Five Forces Model for the selected organisation........................7
Review organisation strategy.................................................................................................8
CONCLUSION..........................................................................................................................8
REFERENCES.........................................................................................................................10

INTRODUCTION
Strategic management is process of analysing company’s strategies to know about
position of firm in market. It evaluates existing strategies of firm so that entity can make
changes and can gain success in market (Kor, Mahoney and Tan, 2020). Present study is based on
IKEA, it is the well known furniture brand that offers cost effective quality home furnishing
its to global consumers. Current assignment will conduct Pestle analyses of chosen business.
It will conduct Porter’s five forces and Ansoff matrix. Organisational strategies will be
reviewed in this report.
TASK
A critical evaluation of the value of clear purpose, vision, mission and objectives in setting
the strategic direction of organizations using examples from selected organisation
IKEA being a leading brand has developed strong position in market.
Purpose of company is to improve better life by offering them high quality everyday life
products to them (Wellner and Lakotta, 2020).
Mission of company is to design amazing furniture and furnishing products and provide it at
affordable rates to wide range of consumers.
Objective of IKEA is to enhance its profitability by satisfying its consumers globally.
It is very essential for company that to have clear review of its strategies, these aids in
giving clear direction for future so that enterprise can grow well in market and can gain
competitive advantage as well (Coccia, 2020). Ansoff matrix is the model that is used to
review or evaluate strategic direction of company.
Market penetration
‘ This is the strategy in which company concentrates on selling its existing furniture
products in existing market only. IKEA is using this tactics greatly as it concentrates on local
market because it has great understanding about needs of local people. It implements
effective marketing tactics so that it can gain attention of consumers in existing market. As to

grow well and to become the leading brand it is essential for business to go internationally as
well (Ongaro and Ferlie, 2020). This strategy helps IKEA in attracting new buyers and
satisfying their needs hence goal of company can be accomplished.
Product development
This is the tactic in which enterprise can concentrate on developing new modified
products and sell it into the existing market (Ma, 2020). This is the great strategic direction in
which enterprise can attract new buyers as well. It can offer wide range of furniture products
such as kitchen, home furnishing items. Recently it has 2500 new products that has helped
the IEKA in gaining success in market and becoming the most popular favour brand in this
market.
Market development
This strategy is high related with entering into new market to grow well in global
market. Being a largest retailer this strategy is most suitable for IKEA (Bohórquez and et.al.,
2020). This has many branches in many areas. By this entity can know more about global
consumers and can offer them quality material. This would be better in gaining success in
market and accomplishing its objective successfully (Gray And et.al., 2020).
Diversification
This is the tactic that is also known as riskiest strategy in which IKEA can go into
new market with new products. This is quite risky because if it fails to make consumers
happy then it may face huge loss. But if it offers satisfactory items in new market then it
would generate huge opportunity for IKEA. This is great business strategy that can give cost
advantage to IKEA and will help the firm in accomplishing its objective successfully (Gupta
and Zhang, 2020).
Balance score card
It is the methods that is used by companies to complete organisational vision into real
action. That means taking such actions that may make strategic planning successful. It has
four major perspectives: financial, customers, business process, learning and growth.
IKEA’s main strategic objective is to increase its revenues and reduce cost of sales so
that net profit can be increased. It can be measured through net profit ration, mark up ratio

etc. In order to meet its financial objective IKEA needs to look upon the needs of all its
stakeholders (The Balanced Scorecard Framework (mini presentation, case study of IKEA),.
2020). Hence it is planning to improve its marketing tactics so that sales can be increased.
The KPIs for this objective are net profit ratio etc. Use of effective marketing plan will attract
more consumers and entity will be able to increase sales and its number of consumers. That
would result in improvement in net profit ratio of organisation. It will also open new retail
stores in more locations so that retail revenues can be increased. Entering into more markets
would be another strategy that would help in meeting strategic financial objective of IKEA.
Performance indicators would be annual turnover of company and overall increment in
number of stores. In the year 2013 net profit ratio was 14.4 whereas it was 14.2 in 2014. In
2013 its number of stores were 303 but till the end of 2015 it reached to 327.
Customer perspective is another major aspect of balance score car. It aims to provide
them value for money products. Increase awareness of consumers is strategic objective of
IKEA. For that it is planning to organise more campaign and participating in prom optional
activities. Its objective is to make changes in products so that customer can get more effective
desired products. Performance indicators to measure the success can be number of customer
of organisation, number of suppliers etc. As in the year 2013 number of consumers of IKEA
were 775 million built in 2014 it reached to 821 million. Hence this strategic planning of
organisation is giving great results to firm (The Balanced Scorecard Framework (mini
presentation, case study of IKEA), 2020).
Business process perspective is another aspect of this model. Strategic objective of
IKEA is to enhance optimisation of supply chain. It also aims to ensure quality of products.
Performance indicators are network efficiency ratio, defective products, product return etc. In
the year 2013 its network efficiency ratio was 55% and in 2014 it was 58%. Hence strategies
to enhance business process were worthwhile.
Learning and growth perspective is the last element of balance score card model.
IKEA has objective to enhance staff training and improve corporate culture as well. For that
it is using strategies of e-learning, organising workshops and training programs timely. Apart
from this, to improve culture IKEA encourage workers and involve then in decision making
process. Performance indicators for this are number of trainees in business and executive
replacements over a period of time. In 2013 IKEA has given training to around 120000
people whereas in 2014 it was 135000

Assess the competitive advantage of the selected company, using the VRIO framework
This is the model that is used by companies to analyses capabilities of companies and
its power to gain competitive advantage (Durdyev, Omarov and Ismail, 2020).
Valuable
Innovative business model is the valuable aspect of IKEA it makes it different from
other competitors such as Wal-Mart etc. It has democratic design products that are valuable
thing for IKEA. By using such designs it makes its consumers happy and gain competitive
advantage in market. Value chain of company is very strong that makes it unique from other
firms (e Cunha and et.al., 2020).
Rare
Working patter and process of company is very smooth, that is the reason that
employees like to work in IKEA for longer duration. This easy and smooth process is very
rare in this industry. People enjoy working in organisation. Company provides family
environment to its entire staff that is very rare that aids company in enhancing satisfaction
level of talent in business unit. IKEA concentrates on quality with price that is very rare.
That means it maintains quality and offers such high quality furniture products to buyers at
affordable prices so that customers enjoy buying furniture from IKEA (Danish and et.al.,
2020). This is the thing that develops is unique brand image as compare to its competitors.
Inimitable
This is another important aspect that help business in gaining competitive advantage.
The uses of skill and resources can not be copied. Corporate culture is inimitable that cannot
be copied by any other company (Statiev, 2020).
Organisation Applicable
IKEA is working in this sector since longer duration; it has great experience of
working in this industry which is the most common reason of its success. Its management and
hyper dynamic culture creates threats to other business (Do, 2020). This helps organisation in
gaining success in this industry.

PESTLE framework analysing the external environment of the selected business
IKEA is the well known furniture brand that provides ready to assemble furniture to
the consumers.
Political factor
IKEA is the big brand and recently it is operating in around 41 countries. Political
stability of government aids business to run operations properly and generate sales in the
international market. Favourable political stability aids in smooth functioning of trade
activities. That creates opportunity for firm to gain competitive advantage (e Cunha and et.al.,
2020). Policies of government are friendly that helps in minimising disputes. But if there is
rigid policies then important export activities can get affected badly hence profitability of
firm will be affected.
Economic factor
Economic forces plays significant role in the functioning of companies. High inflation
creates problem in sustainability because it reduces purchasing power of consumers. If
people lose their jobs then employment rates will be reduced hence people will not take
interest in buying products hence sales and profit will get reduced whereas it value of
currency is high then people will have adequate capability spend money in such kind of home
furnishing items. Hence profitability of IKEA can be raised (Coccia, 2020).
Social factor
Culture, life style, believes are the major factors that affect sustainability of company
badly. IKEA always take care needs of buyers and offer them furniture products as per their
life style. It communicates with consumers according to their cultural values. That makes
people loyal and happy with the brand. It always take care of clear communication with
consumers so that no misunderstanding take place and people trust on brand (Ongaro and
Ferlie, 2020).
Technological factor
This is the element that has great impact over organisation; IKEA provides best
quality, best designing furniture items to its global consumers. It always ensures that people
feel satisfied and spend their money in its products. It has used advance technologies through
which it can serve its consumers timely and quickly. Artificial intelligence is used by

business that helps IKEA to understand buyer’s behaviour. By understanding buyer’s
behaviour IKEA try to provides them amazing experience which makes the person loyal
towards the brand because people get value for money (Bohórquez and et.al., 2020).
Environmental factor
This is the element that plays significant role in the success of business unit. IKEA is
trying to use sustainable practices so that wastage can be minimised and cost can be reduced.
This sustainable practices aid business in enhancing its brand reputation in market and
gaining competitive advantage as well. IKEA is using renewable energy sources such as
solar panels etc that help the firm in using natural resources in effective manner. This strategy
of business is the right action to protect environment. By this way IKEA fulfils its corporate
social responsibility and develop trust in the mind of consumers (Ongaro and Ferlie, 2020)
Legal factor
It follows proper employment laws and treats its employees according to nation’s law
only. Changing laws affect its profit but still IKEA ensures that it works under legal
guidelines that aids business in sustaining in market for longer duration (Kor, Mahoney and
Tan, 2020).
Application of the Porter’s Five Forces Model for the selected organisation
IEKA is popular home furnishing brand that always takes care of need and capacity of
its consumers hence it offers variety of furniture products so that all range of consumers can
afford it easily.
Threats from new entrants
Enterprise has no threat from new companies because new ventures have no
capability to deal with legal complications and to develop strong brand image immediately. It
requires experience and huge capital investment that is not possible to have with new entrants
(IKEA Porter’s Five Forces Analysis, 2020). New entrants cannot develop global brand
image as IKEA has hence firm has not threat with these new companies.
Threats from competitors
IKEA has direct and indirect competitors, Wall mart, Tesco, Sainsbury are the big
retailers those which are giving hard competition to business unit. Direct competitors such as

Argos is creating issue for firm because consumers can switch the brand if they get better
products there. Buyt to deal with these competitors IKEA is investing in marketing and has
made effective pricing strategy so that its quality products can be available for all range of
consumers. That helps in generating more sales and gaining competitive advantage as well
(Bohórquez and et.al., 2020).
Buyers power
IKEA is the big furniture company that needs to ensure that consumers are happy with
its services. It always keeps its consumers first and provide them value for money. Buyers
have high power to switch brand but IKEA retain its loyal consumers by giving them
attractive discounts etc. This has significant contribution to this industry that aids business in
enhancing satisfaction level of consumers to great extent.
Threats from substitute products
Power of these substitute products is moderate, sometimes it influences’ people but
sometime not. As Consumers compares products with quality and price. And substitute
products cannot fulfil the requirement of Consumers hence IEKA has no fear with these
products (Gupta and Zhang, 2020).
Bargaining power of suppliers
As it is working well in retail sector where large number of suppliers are available.
IKEA develops healthy relationship with its suppliers. But ensure that suppliers are offering
best quality raw material to them. This aids firm in gaining success in market. Power of
suppliers is low because number of suppliers is high but still entity is able to maintain
competition in market by raising bonding with its good suppliers (Ongaro and Ferlie, 2020).
Review organisation strategy
IKEA is the popular brand in retail sector that has maintained quality and cost both.
Company is suing sustainable business practices where it is using renewable energy sources
to produce its furniture products (Gupta and Zhang, 2020). This strategy of company is very
effective. It helps the organisation in reducing its operational cost and utilising its resources
in significant manner. Company always takes care of best utilisation of resources so that no
wastage takes place in business unit. IKEA is using diversification strategy where it
introduces new products in the new market. This strategy of business is very helpful for

company in attracting wide range of global consumers and making them aware with services
and features of products of firm. It is using digital tools to interact with consumers. By this
way kit understands needs of buyers and provide them goods and services as per their
preferences, this tactics of business aid the firm in gaining competitive advantage in market
and generating huge profit so that organisational objective can be accomplished successfully.
CONCLUSION
From the above study it can be concluded that strategic management is the tool that
helps business in gaining success in market and evaluating market condition well. By this
way firm can make new strategies accordingly so that it can sustain in market for longer
duration and can gain competitive advantage as well. Pestle and porters five forces are used
to analyses external market situation of business and making changes in firm accordingly so
that entity can avoid risks and can gain more opportunities.

REFERENCES
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Ma, N., 2020. Strategic market analysis for a privacy solutions company (Doctoral
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Statiev, A., 2020. The strategy of the organisation of Ukrainian nationalists in its quest for a
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Online
IKEA Porter’s Five Forces Analysis. 2020. [Online]. Available through https://research-
methodology.net/ikea-porters-five-forces-analysis/

The Balanced Scorecard Framework (mini presentation, case study of IKEA). 2020.[online].
Available through <https://www.linkedin.com/pulse/balanced-scorecard-framework-
mini-presentation-case-study-peioglou>