Business Strategy Analysis: IKEA's Internal & External Factors

This report presents a comprehensive business strategy analysis of IKEA, examining the impact of macro-environmental factors using the PESTLE framework, stakeholder analysis, and strategic intent. The report delves into IKEA's internal environment and capabilities using the VRIO framework, highlighting its strengths and weaknesses. Furthermore, it applies theories, models, and strategic planning approaches relevant to the organization. The analysis also evaluates the competitive forces within IKEA's marketplace, utilizing Porter's Five Forces model to assess the industry dynamics and competitive landscape. The report provides an in-depth understanding of IKEA's strategic decisions and their implications for the company's performance and future growth. The assignment provides an insightful overview of IKEA's business operations and market position.

BUSINESS STRATEGY
1

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Macro environment factors impact on IKEA by applying relevant frameworks...................3
Stakeholder Analysis of IKEA...............................................................................................6
TASK 2............................................................................................................................................7
Models use to determine internal environment & capabilities of IKEA................................7
TASK 3..........................................................................................................................................10
Apply theories, models and strategic planning for organization..........................................10
LO 3...............................................................................................................................................14
Evaluating competitive forces of IKEA marketplace with help of Poter's five forces model14
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17
2

INTRODUCTION
Business strategy is a key element that a company could use to sustain its business for
long term period within specific market or sector. It is one of the most beneficial actions that
managers while performing in well known brands can take to achieve set goals and objectives. It
can be defined as a common direction set for companies who have operated their venture
functions in the world of business. An effective business tactic would support a firm in form of
taking decision where its management efforts and key resources are best spent. The current
assignment will be based on IKEA, which considered in list of top international furniture
designers and home accessories as well as appliances providers brands in the world. This study
will be divided into three tasks, task one will explain impact of macro environment upon chosen
brand and its tactics as well by applying appropriate frameworks. Furthermore, task two will
clarify internal capabilities and environment of company by utilizing suitable concepts. This
report will also justify critical analysis of internal environment that define key strengths and
weaknesses of firm capability, skill set and structure. Moreover, it will describe application of
theories, models and approaches in context of strategic planning for organization.
TASK 1
Macro environment factors impact on IKEA by applying relevant frameworks
Mission-
The mission of IKEA Company is to give excellent experience to its target consumers
after selling products and services.
Vision-
Organization vision is to offer a huge range of well created, functional home furnishing
items at low prices that allow people to purchase.
Business objectives-
Aim-
IKEA goal is to increase customer base and generate profits even better than its business
rivals.
Strategic intent-
Its strategic purpose is to double number of their yearly outlet opening in an effort to
capture a piece of increasing market in United States, Russia and China as well.
Different strategic direction-
3

There are different forms of strategic directions available in the world of business that
IKEA could consider in order to gain competitive benefits such as set clear vision, mission,
adopt principles and values as well.
PESTLE analysis-
Macro environment refer to overall, wider economy and elements that affecting it a
venture versus a micro environment, which concentrated on particular industry of sector (Otieno
and et.al., 2020). It comprises different components that exist in entire economy. There are
ranges of models available in the business world which can use in context of analysing forces
that put negative or positive impact on chosen brand.
Political factor-
There are varieties of political factors accessible in the world that could affect businesses
operations and strategic management decisions. It includes political instability or stability,
changes in trade policy, tax rate, trade restrictions and others (Bitar, Hamadeh and Khoueiri,,
2019). In case of IKEA company, change in tax rate put negative impact on business expansion
strategy and overall practices of chosen firm, as it bring a lot of challenges in front of
management in term of paying extra charges on each trade activity which drive their focus on
replant overall tactic in new manner that must be quite challenging. Due to this factor,
organization needs to pay require amount or charge which make them able to operate its venture
within more than 40 plus nations in effective manner. Increasing charges on trade process could
give negative experience to company and its management as well, it needs more efforts to handle
overall situation.
Economic factor-
Unemployment, income rate of people, currency exchange, inflation, nations GDP and
purchasing power of consumers are consider as economic factors that affect a company and its
current practices in two different manner, negative and positive. Unemployment is one of the
macro environment elements that put negative impact on existing employment strategies and
plans of IKEA (Shah and et.al., 2020). Furthermore, it also affect entire management activities in
term of developing plan to hire new people who are eligible and can work effectively as well as
productively. Because of this factor when government create a guideline to recruit new people in
all companies, it put a lot of pressure on human resource manager and its team in form of
4

redeveloping recruitment plan and find out where new staff could be suitable for what job role,
which is very challenging and difficult task as it consume time and efforts has well.
Social factor-
Changes in need & preferences of customers, market trends, age, culture and values are
included in this category, which put direct impact on sales, productivity and performance of any
company. In case of chosen brand, consumers prefer to purchase furniture according to trend for
example; in recent time people like to purchase and value old wood wardrobes because its
quality as compare to current wood and finishing is much better. As it put negative impact on
current production and supply chain strategy in term of raw material order. Because of this
element, company needs to reconsider each and everything in new manner which needs more
time and workforce as well. It drives management to again conduct research that assist them to
known what exactly its buyers needs and demand for which can help to retain them for longer
period of time and gain attention of new one.
Technology factor-
The best thing about this factor is that it helps to boost productivity and performance
level of organizations as it allows them to conduct its practices at global level without attempt
much hard work. Advancement of digital marketing platforms gives IKEA an amazing chance
which its marketing team and overall management can grab in term of considering and then
implementing marketing technologies at workplace which in return increase its efficiency in
order to conduct product promotion act or practice successfully (Visser, Sikkenga and Berry,
2019). For instance, social media is one of the best advertising technologies that chosen firm can
use to promote its existing and new items effectively at national and international level. It
enhance ability and capability of marketing department to develop influencing content that assist
to gain attention of new customers and permit to retain existing one which is quite beneficial in
form of increasing profits margin and sales level even better.
Legal factor-
IKEA has worked in several nations and because of that it needs to take care and consider
laws pertaining to respective regions. Firm needs to recognize changes within existing laws and
policies governed by government in nation are where it has been operated as it put negative
impact on its trading tactics and business management plans. For example, change in violation
law could put impact on current practices of chosen brand negatively as it put it in a trouble for
5

which management can overcome by finding and conducting appropriate methods. It could make
company in challenging situation where they need to reconsider everything which is not possible
within short term period. For example, copyright infringement legislation impact negatively as it
affect brand image and production practices. It creates legal issues for company and damages its
supply chain and manufacturing process in negative manner.
Environmental factor-
In recent time, local people and government are highly concern about environment safety
and sustainability which help in term of protecting from air, water and land pollution. As it
consider as environmental element that put positive impact on IKEA brand image and strategic
plans as well as strategies because firm as already take step towards conducting CSR practices.
Organization by considering this factor has developed further tactic in term of sustainability
which emphasized on utilizing only recycled and reusable materials while manufacturing ranges
of items. These activities can boost brand image of organization within market place even better
and increase its profitability after maximizing sales level more than last few years or months. It
is one of the biggest challenging tasks for company which it will accomplish by taking right act
and use approaches, which in return allow firm to gain desire outcomes.
Stakeholder Analysis of IKEA
Stakeholder analysis for a company is done on the basis of power and interest that the
stakeholder or various associated parties hold in the company. The higher is the power and
interest in the organization, the more efforts shall be made to make it satisfied. Keep Satisfied: - This division of stakeholder analysis includes the parties which are
having full power in the organisation but are not interested much in its growth and
profitability. The example can be the management of the company who is very powerful
as they govern the operations but are not that much interested in its additional
performance. Such stakeholders have to be kept satisfied to the extent they efficiently
work for IKEA. Manage Closely: - These bunch of people have maximum power with higher interest in
the company. They can be the owners and the shareholders of the company whose money
stay invested and so they wish to maximise their returns by maximising performance of
the company. They are to be given highest weightage among all others.
6

 Monitor: - This criteria of people have lesser power and lower interest in IKEA so they
are to be monitored well so that they do not decrease the efficiency of operations
(Vargas-Hernández and Garcia, 2019). Such parties can be the suppliers, customers,
labour unions etc.
 Keep Informed: - Another category includes those with lower power but higher interest
in the affairs of the company. They can be namely potential investors, government,
employees etc. The company shall also remain informed about their needs and
expectations.
Critical analysis based on macro environment to inform strategic management decision of
organization-
It has been analysed that macro environment and its models help to identify different
forces that put negative & positive impact on strategic management judgement of IKEA
Company. As it drive attention of organization towards considering all factors that can impact
negatively and then permit to take further actions accordingly. Furthermore, macro environment
affect or inform strategic administration decision negatively in term of increasing high pressure
to follow and implement new terms and conditions of varied business laws, which is essential to
do but very difficult.
TASK 2
Models use to determine internal environment & capabilities of IKEA
VRIO Analysis of IKEA-
VRIO framework is used as a tool by IKEA to determine its various strengths and
weaknesses based on its resources. It answers a series of questions like which resources of IKEA
generates value for it, which resources are rare as compared to competitors, which strengths of
the company stands easily imitable and how well is it organized. Value: - Value in a company is created by the resources, strengths and capabilities it has.
The value is generated depending on how well the resources are discounted to positively
respond to the opportunities and threats of the company. IKEA has certain valuable
resources like its employees, financial resources, research and development, technology
as they contribute to its effective policy of innovation and differentiation.
7

 Rarity: - Rarity in an organization is determined by the resources that are not possessed
by the competing businesses. It develops to be the core competencies for IKEA as
provides an edge over the competitors. Such resources for the company can be namely its
employees, the technology it uses, patents that are reserved, financial resources,
marketing strategies and research and development used in doing innovation. Such
resources help in acquiring market share through competitive advantage (Indartono and
Wibowo, 2017). Imitability: - It governs the resources that IKEA has which are easily imitable in nature,
and which if possessed by competitors shall help them gain cost advantage. These
resources as available with IKEA can be the technology, marketing, financial, cost
structure and employees. These resources can be used by the new players in the market
over the time with the use of proper skills and efficiency. Organization: - This analyses that how well is the company organised o use its resources
to its fullest. It governs whether optimum utilization of the resources is being ensured by
IKEA or not. Since the company has strong presence globally and is a profitable one
many resources are used to its capacity like employees, finance, technology and
marketing since it has good brand image (Raum, 2018).
Resources Value Rarity Imitability Organization
Employees ✓ ✓ ✓ ✓
Finance ✓ ✓ ✓ ✓
Research and
Development
✓
Technology ✓ ✓ ✓ ✓
Patents ✓
Marketing ✓ ✓ ✓
Cost Structure ✓
Resource based view framework-
8

It is one of the most commonly use managerial frameworks that has been utilized by
many companies in order to identify strategic assets that can exploit to achieve sustainable
competitive edge in context of IKEA.
This model helps to concentrate on internal resources of company and its marketing
capability to determine determinants of IKEA global marketing performance (Yang, Jia and Xu,
2019).
Intangible-
Tangible-
According to this model, tangible things like quality furniture, home appliances and other
things are key resources of chosen company which it can use to gain competitive advantages by
focusing on quality and styles that should be according to target customers.
Intangible-
Low pricing strategy of IKEA is another important and valuable resource that firm can
use in form of intangible thing that also help to gain competitive edge and allow organization to
be competitive as well as become a market leader, which is quite beneficial.
Heterogeneous-
This term consist of dissimilar ingredients or different kinds of parts. When IKEA
manage its business effectively by conducting collaborative practices between all functional and
operational department it create a productive environment that can help to gain competitive
benefits in term of increasing sales.
Immobile-
VRIO is a part of resource view based model that also help to determine key strengths
and internal abilities of a brand like IKEA in systematic manner. It is a resource that suggests
management to not move its firm to another, at least in short run as it could not replicate
competitor’s assets and implement similar tactics.
Competitive advantages-
As discussed above, IKEA is able to gain competitive advantages and sustain for longer
period of time within retail market because its internal environment is quite productive where all
workers work together in order to manufacture quality products according to buyers needs.
Critical analysis base on assessing weakness and strength of internal structure, skill set and
capabilities of chosen brand-
9

The motivational and supportive environment of IKEA Company is one of its strengths
which make its manager able to enlarge its structure by hiring new workers who can be more
productive and learn new things at workplace by performing with existing talented staff
members. Moreover, it has been analysed that when firm to do conduct effective practices like
moving its brand from other one it could impact negatively as it leads to decrease change for
global expansion where profitable customers and investors are accessible.
TASK 3
Apply theories, models and strategic planning for organization.
As per the above analysis, here is find out the different threats which are faced by company.
That have need to overcome those threats By IKEA. In respect of that here is used Bowman
strategy clock and porter generic model for find out the best way are as follows:
Bowman strategy clock model:
Bowman strategy model is reflecting the different options for finding the strategic
position of IKEA group which is the seller of ready to assemble furniture. There is having main
purpose to draw by company for illustrating business will have various options to know about
the position of product and services. Low price and low added value: This strategy says that that the lower prices of product is
added low value of products. But, some it is good when customer think about the lower
price of product. For the IKEA, this strategy is not good because customer is not able to
compromise with quality of furniture (Chen, Eshleman and Soileau, 2017). Customer wants
bet quality of furniture because of luxury life style. Lower added value is affect to
customers’ life style. As per that, this strategy is not suitable for IKEA Company. Low price: At this place company have chance to sets price of product lower and coffer to
customers in order t attract them for managing thinks in effective manner. Through that,
customer is attracted toward IKEA in effective manner because lower prices of product with
high quality is added more values into product and services. This creates more effectiveness
for company and increase profit margin into it. Hybrid: as per this strategy IKEA is able to differentiated products and services at the lower
price with good quality (Bowman strategy clock model, 2018). This is help to company in
order to attract more customers which is best strategy for IKEA for adopting at workplace in
effective manner.
10

 Differentiation: the aim of strategy is to offers highest level of perceived value to customer.
In this company have chance to differentiate product from another company. In this
management need to make new product for attract more customer towards company. This is
the effective and best opportunity for IKEA for producing product and services by
considering new trends which will be happen at the market place in effective manner. In that
management required to invest more on research and development department in order to
analysis current market trends within the industry (Johnson, 2016). Focused differentiation: this is another one of the best strategy which have aim to get
higher position of product at marketplace. In that management have idea how to make
complete focus on the product and customer. This strategy is adopting by IKEA which is
help to make effective and valuable product and services on perceived values alone. Risky and high margin: In order to increased price of product and standard products which
is highly risky for IKEA? In that case, management have needed to think traditionally
because sometimes innovation is not accepted by customers. This strategy is not worked on
long term proposition as an unjustified price premium will be soon discovered in the
competitive market. Monopoly: as per this strategy, company can adopt high price of product with lower value.
That is creating issue for IKEA. As per that, this is not good and best strategy for company.
 Loss of market share: in this strategy company make available range of poor quality
product. In the multinational sector this strategy will not work out because people already
get the good and effective quality product at high price in the market (Lim, Chalmers and
Hanlon, 2018).
With respect of IKEA, they use the focused differentiation and hybrid strategy for the
working and operations of the company in effective manner. This is particularly used as this will
assist the company in managing the work in proper manner as with help of focused
differentiation the company is able to manage and improve the working efficiency of the
company. Also, in addition to this with help of the hybrid strategy IKEA is able to make a
combination of low price and good quality of the good which will attract more of the consumers.
This help to increase profit of company in effective manner.
Porter generic model:
11

This model is describe to company pursues competitive advantage across within their
selected market is more effective and valuable for company.
 Cost leadership: cost leadership strategy is tries to control cost of production. In respect
to that, products and services offer on very lower cost. As per that IKEA need to sets
advisory board to make control and proper management resources. With the help of this
company is able to get feedback about the products and services are good or not at the
market place. Through that management got idea about the work.
 Differentiation: In this company towards new product which is not possible now days
because customers are not able to purchase any kind of new product. This creates
negative impact. In that management need to make possible changes in existing products.
 Focused strategy:
◦ Cost focused: In this company has their complete focus on the cost of product
which is lower in the market place (Soltanizadeh and et.al., 2019). Through that,
Strategy Company makes several strategies to reduce price of product.
◦ Differentiation focused: in this strategy company focus on product differentiation
only by adding new product line. With the help of this customers are purchase
more products and services with company in order to fulfil their needs and wants.
Here is recommended for company to use adopt new market identification as per the
porter generic model which is help o attract more customer from the other places. As per the
bowman strategy company need to use online shopping app which is help to attract customer
through online and worldwide places. This help to increase profit of IKEA and addressing
complete goals and objective of company in effective manner. These online shopping apps are
also necessary with respect to the current pandemic situation of Corona virus as well. This is
majorly because of the reason that due to the pandemic situation the suppliers are not providing
raw material and this will affect the manufacturing of the goods and services by IKEA.
Strategic management plan:
Strategic management plan is help to IKEA in order to promote growth and sustainability
of company at market place.
Strategy:
Strategy for IKEA is to target new customer’s segments for increase sales through online
platform. In order to complete this strategy company, need to increase investment on research
12