Detailed Report on Value Chain Analysis of IKEA - Business Strategy

This report provides a comprehensive value chain analysis of IKEA, the world's largest home furnishing retailer. It examines IKEA's primary activities, including inbound logistics (sourcing raw materials from over 1000 suppliers across 50 countries), operations (franchise, finance, and property divisions with decentralized strategy), outbound logistics (flat-pack delivery and global distribution network), marketing and sales, and services. The report also analyzes IKEA's support activities such as procurement, human resource management, administration management, and technology development. The analysis highlights how IKEA creates value through cost leadership, innovative design, and sustainability, ultimately achieving a competitive advantage in the global market. The report also touches upon external factors via a PESTEL analysis, considering political, economic, social, technological, environmental, and legal issues affecting IKEA's performance.

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Report on Value Chain Analysis of IKEA
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Table of Contents
Introduction –.............................................................................................................................2
Value Chain Analysis of IKEA –...............................................................................................3
IKEA Primary Activities –.....................................................................................................4
IKEA Support Activities –.....................................................................................................8
Conclusion –.............................................................................................................................11
References –.............................................................................................................................13

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Introduction –
IKEA is a company related to home furnishings, which is founded by Ingvar Kamprad in
Sweden in 1943. Today it is the world’s largest retailer for home furnishing. Company has
grown continuously since it was founded. Company’s vision is to create a better everyone life
for the many people and their business idea is to designing the furniture at affordable price so
that many people will be able to acquire their products and also to achieve quality of products
through optimizing value chain system, building positive relationship with suppliers,
investing in that production which is highly automated and producing large sale volume
(About the IKEA Group, 2017). Furniture at IKEA is mostly flat- pack, ready to be
assembled by the customers, this allow a reduction in packaging and costs to the company.
Company have 9,500 products which include home furniture and accessories. These products
are available at all stores and customer can also order these products through online website
of the company (IKEA all products, 2019). These stores also include cafes and restaurants
which serve Swedish food. They have 355 stores in more than 29 countries and also have
more than 100,000 employees. Low prices of the products are one of the key strategies of the
company, which help in gaining competitive advantages and it also help to make the
customers to buy their products at affordable price. The company focuses on every lifestyle
of its customers, different age groups and types of households and always focus on the
environment and people, so it will help the company to make better utilization of energy as
well as raw material. So, this will help the company in reducing cost, positive impact on
environment and achieving their goals (History, 2019).
Every organization has three main strategies which are using by them for achieving their
objectives, which includes organization strategy, information strategy and business strategy.
The value chain is incorporates from all these strategies. The value chain analysis is a set of
various activities which use by the organization to operate their business effectively and
efficiently (Fearne, Martinez and Dent, 2012). In other words, value chain analysis refer as a
process of classifying various activities related to organization and analysing those activities
which helps the company to contribution towards creation of value to the final products or
services which are deliver to the customers for the decreasing cost of operation of the
company and increase differentiation from the competitors of the organization (Abdelhadi,
2016). All activities which are used by the company have to go through value chain of that
company. This analysis of value chain of the organization helps them in creating value and to

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gain competitive advantages. Activities which include in value chain are classified into
primary activities and support activities. Primary activities are those activities which directly
add value to the organization. Supports activities are those activities which are not directly
add value but it affect indirectly to the value of the products and organization (Liu, 2018).
Value chain analysis is a set of activities which are used by the company to gain competitive
advantages, to increase performance and productivity of the organization and to achieve the
goals and objectives of the organization (Hastings, Howieson and Lawley, 2016). The report
consists of value chain analysis of IKEA.
Value Chain Analysis of IKEA –
Value chain analysis of IKEA is an analytical framework which assists in identifying various
activities related to business which create value and gain competitive advantage to the
furniture retailer across the world. There is a link between each step while manufacturing of
the products or rendering the services to the customers that helps in adding value to the final
products or services and create competitive advantages for the company. Value chain analysis
measure the performance of the organization as in which ways business fulfils its goals and
objectives or what are the strategies of the business in achieving their goals and objectives
(Anandajayasekeram and Gebremedhin, 2009). IKEA is continuously focus on creating value
to their products or services and also focus on how they can differentiate their products from
their competitors and gain competitive advantages. Before delivering the products or services
to their customers, company focuses on their design goals as affordability, good design of the
products, sustainability and fantastic functions within the organization, so buyers are ready to
pay more prices for the products of good quality, design and functions and buyer can also buy
furniture at affordable price with good quality and design of the products. IKEA design their
products by using science and technology and in innovative way because the company ensure
the safety of their customers and satisfaction level of the customers. As company has an
IKEA Test Lab, which is one of the largest laboratories of the furniture across the world, so
they managed to create high quality products with innovative design for their customers. In
this Test Lab of IKEA, there are more than 30 laboratory technicians who were carrying out
more than 50000 experiments in one year to measure the performance of the new products
and quality of new services which are delivering to their customers.
External analysis is also important for every organization to increase their profitability and
growth. Company uses PESTEL analysis as political, economic, social, technological,

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environmental and legal analysis to analysing company’s potential issues which can affect the
performance of the organization. Political issues which are facing by the company will be the
level of consumer and corporate taxation, level of political stability, trade regulation of
European and international and legislation related to consumer protection. Economic issues
of IKEA include exchange rate of the currency in local markets as company has many
branches out of Sweden, so during recession there is possibility of raising the inflation rate.
Social issues include pattern of consumer buying and lifestyle change, so the company has to
have knowledge on them which helps the company in creating better products and services
which are delivering to the customers. Technological issues include the level of potential for
innovation of technology and new technologies (Strangmueller, 2015). So, IKEA divide their
business activities in two parts primary activities and support activities. Company’s primary
activities help in contributing to the physical appearance of the products or services, its
delivery and transfer to the customers and after sale services of the products. It includes
inbound as well as outbound logistics, operations, marketing and sales. For company’s
support activities of the value chain analysis, it adds value to the organization through
relationship with primary activities and it includes procurement, human resource
management, administration management and technology development. Value is the amount
that customers are ready to pay for what a company offers them and this is measure by the
total revenue and productivity of the company, so the company has to invest their amount in
that area which create value for the company and help in gaining competitive advantages
(Stein and Jennie, 2017).
IKEA Primary Activities –
1. IKEA Inbound Logistics – Inbound logistics include receiving of goods, storage of
goods, control on inventory and supply chain management or transportation of goods
and services. IKEA’s inbound logistics is associated with buying raw material for
procuring their products from more than 1000 suppliers who are located in more than
Inbound
Activities Operrations Outbound
Logistics
Marketing
and Sales Services

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50 countries across the world and company also maintain relationship with their
suppliers through 42 offices of trading across the whole world. Stores of IKEA are
massive which has more than 9,500 ranges of the products and approx. (Lu, 2014).
20- 25 per cent of their total employees manage with logistics in their every store
across the world. IKEA’s source of value creation for their products in inbound
logistics includes effective relationship with their suppliers across the world and
economies of scale. Due to cost of packaging of their products which help the
company in making easier of inbound logistics (Logistics, 2015). Proper supply chain
management, store system and inventory management help the company in achieiving
their goals and objectives effectively and effectively and it also helps the organization
in enhancing their productivity and performance and increasing growth of the
company in long run. Company can also create competitive advantages and value to
the final products or services which are delivering to their customers by effective
supply chain management, logistics management, creating effective relationship with
their suppliers as well as their customers, proper system for controlling their inventory
system and providing professional training to their employees, so it will help the
company in increasing their performance and productivity of the company and it also
help the company in achieving their goals and objectives (Gereffi, 2019).
2. IKEA Operations – Operation activity of value chain analysis includes preparation of
products or services which will be delivering to the customers (Mahadevan, 2010).
IKEA divided it operation into three parts such as Franchise, finance and Property and
among these divisions Franchise division is the core of the operation of the business.
Company uses decentralized strategy of the business for its operation management
across the world. As per this strategy, regional manager of the company allow to take
decision making with unique ideas and as per the market, creating effective culture
and environment within their organization and pattern of behaviour of their
customers. Company has more than 350 stores in more than 30 markets across the
world. Company is one of the largest producers of furniture in whole industry because
maximum furniture is produced by the IKEA of IKEA industry. IKEA industry has 40
production units in more than 10 countries as China, Hungary, France, Poland,
Lithuania, Russia, Portugal, Sweden, Slovakia and United State of America. The main
source of the company in value creation through its operations related to cost benefits.

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The massive chunk is located in the company related to company’s manufacturing
units in China and Europe, so it helps the company in reducing their cost of human
resource management. IKEA uses latest and innovative technologies which are related
to home improvement and chain of furnishing in their process of manufacturing, so it
will pact on the operational efficiency of the company. The products of the company
are all outsource because the company does not manufactured their own products, it
will help the company in saving their operation cost (Inter IKEA group, 2017).
3. IKEA Outbound logistics – Outbound logistics is also important activity of the value
chain analysis which help the company in increasing their performance and
productivity, it also added value to the final product of the company which are
delivering to their customers and to gain competitive advantages. Outbound activities
refer as providing ready products or services to the customers. IKEA packed their
products into level boxes, so it make easier for their customer to transport them from
stores to their home. The company operated its stores in more than 28 markets across
the world with more than 350 stores and the company has 22 order points in approx.
11 countries across the world, 41 Centres for shopping in approx. 15 countries and 38
distribution sites in approx. 18 countries across the world. Cost associated with
transportation of goods which are purchased by the customers from IKEA stores are
pay by that customer. They provides two type of delivery to their customers, first is
parcel delivery and other one is truck delivery. Parcel delivery is to be used for small
products and when weight of the product up to 25 kg and they charge from their
customers approx. USD 12 which is depend on the location of the their stores. Truck
delivery is to be used by the company for large items and when weight of the product
more than 25 kg and price of the delivery approx. USD 50 which is charges by the
company from their customers. When customer purchased products from online then
company does not charge any delivery fees from the customers. The main source of
the company related to outbound logistics as they deliver products to their customer
without involvement of any intermediaries, so it help the company to save their cost
of intermediaries. By using outbound activities, company can use various strategies
such as effective communication with the customers, providing better product with
good quality and designing and as per the need and requirement of the customers, try
to increase level of customers satisfaction and proper utilization of resources, so by

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following the above strategies company can add value for their products and it also
help the company to create differentiation with their competitors and increase
productivity and performance of the organization (Sabitovs, 2011).
4. IKEA Marketing and Sales – It includes communication of information and message
through marketing and by using various promotional activities of their products and
services to their target customers (Andersson, Axeisson and Rosenqvist, 2018). IKEA
uses various marketing activities to promote their products and to increase awareness
of their products as home improvement and furnishing chain. Promotional activities
which are used by the company such as print advertising, media advertising, sales
promotion, direct marketing, public relation and events and experiences in a very
integrated manner. The company is a multichannel retailer and they integrate selling
through their stores, website, its apps and catalogues, company relies for their
furniture in its catalogues for promoting and marketing and sales their products
among the customers, so they printed more than 200 million catalogues in every year
worldwide. They also use social media platforms and various online channel for
marketing and sales their products. Company’s website as ikea.com attracted the more
than 3 billion people in financial year 2018 which is increase of approx. 10 per cent
from the previous year. Out of 28 markets, sales through e- commerce are available in
more than 14 markets across the world (Jonsson, Rudberg and Holmberg, 2013). The
main source of the company in value creating through marketing and sales activity is
the effective utilization of IKEA catalogues, traditional as well as paper based. So,
marketing and sales strategies help the company in increasing their customers,
increasing sales and revenue of the company, increasing the level of satisfaction of
their customers, gaining competitive advantages as it help the company to create
differential of their products as compare to its competitors and it also help the
company in increasing performance and productivity of the organization and it
automatically help in achieving the goals and objectives of the company (Siddiqui,
2013).
5. IKEA Services – Services for the customers is one of the primary activities in value
chain analysis which is addressed by the company such as by setting standard of
techniques and key practices such as customer services related to provision of
telephone and online, exchange of the products, providing refunds whenever this is

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essential or relevant and taking feedback from their customers to encourage them and
measure their level of satisfaction related to the products which are using by them
(Carisson, 2015). When customers have issues as some part of the furniture is missing
then they do not need to go back to the store because they can find out the number of
missing part and call to their store to ask them for replace that part and they can also
send mail to them for replacement of the products. IKEA group provided support to
their 20 million customers in financial year 2018 (Customer services, 2018). As the
company does not famous for superior customer services, so it resulted the decreasing
their productivity as per the business strategy of cost leadership. Although company
provide various services to their customers when goods bought by them from its local
store then also they are lacking in satisfying their customers related to their products
and services which are offered by them to their customers after selling the products to
the customers. As customers have various issues regarding the products of IKEA
such as late delivery of their products, delivery of wrong parts, communication issues
and failure to collect the products or some parts of the total product. So, the above
issues of their customers resulted in decreasing their brand image and it also impact
on the overall performance of the organization (Tarnovskaya and Chernatony, 2011).
IKEA Support Activities –
1. IKEA Infrastructure – This is one of the important activities of value chain analysis
which help the company in increasing their value to the final products which are
delivering to their customers and it also help the company in increasing the overall
performance of the organization. This activity of support activity in value chain
analysis includes arranging and controlling various functions and activities related to
the business such as finance, accounting and corporate procedure (Wittmer, Bieger
Firm Infrastructure
Human Resource Management
Technology DEvelopment
Procurement

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and Muller, 2011). Infrastructures of IKEA which are using by them as accounting
management, administrative management, legal management and general
management, so with the above supporting activities of the company will help the
company to manage its operations and it also help the company in creating value to
the products and it also impact positively on the performance and productivity of the
company. For making the IKEA complex, company has permit to use U1 and U2
roads by the public agency related to Land Department. The company established IT
Architecture Infrastructure which helps the company to increase their value and
increase productivity of the organization and achieve their goals effectively and
efficiently. Stores of IKEA are generally large in size and the company also has
effective organizational structure and have hierarchical structure with the
organization. Due to their effective organizational structure and effective business
strategy, it helps the company to create competitive advantages and it also impact
positively on the overall performance of the organization (Hellstrom and Nilsson,
2011).
2. IKEA Human Resource Management – Human Resource Management is an essential
tool for every organization because it help the company in various ways as to increase
efficiency of the company, increasing performance of their employees as well as
organization, encouraging and motivating to their employees, reducing the cost of
operation related to human resource management, effective utilization of human
resource of the company and achieving the goals and objectives of the company
through their human resource. It can be managed by the company by increasing the
level of satisfaction of their employees and increasing their performance and
productivity towards the organization. It include how well the company hires, recruits,
trains, retains, motivates and encourages by rewards and other benefits for their
employees. IKEA provide training and development to their employees in the best
possible way which help them in increasing their performance and development of
their workers. The company use various HR practices by using effective training for
their staff and development programs for their workers. They try to promote
employee empowerment and create effective relationship with their employees. They
maintain effective, strong and nurturing culture in their organization which helps the
company in promoting creativity and diversity, so it will help in creating

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differentiation than its competitors and it helps in maintaining positive relationship
between employees and organization (IKEA’s Innovative Human Resource
Management Practices and Work Culture, 2019). The company offer learning and
development program to their employees such as in- store training, specialized
workshops and national training, which help their employees to develop and enhance
their knowledge towards their work and it also help the company in increasing
leadership abilities of their employees and develop career goals for their workers and
the company also provide tuition reimbursement significantly to their employees
which also help them in increasing their performance and productivity towards the
organization (IKEA Provides Professional Development For Its Staff, 2019).
3. IKEA Technology Development – Technology development also important activity
which help the company in increasing their performance and productivity because it
helps in creating differentiation for their products and services than its competitors
(Hilletofth and Eriksson, 2011). Activity related to technology development include
managing and processing of the information and protecting a knowledge base of the
company, so it help the company at all their stores where customer find or search for a
specific products in their local store of IKEA and it also help the company in saving
the cost of the company. By using various innovative technologies company can
achieve its objective and goals effectively and efficiently. IKEA uses various
activities related to research and development in Sweden with effective use of
information technology their various process of the business. The company also has
its apps and websites from where also they can find product which customer want to
buy. IKEA uses various innovative technologies which are quick and user friendly
such as flat pack furniture, chuck out the chintz, creating affordable and desirable
furniture for their customers and dwellers of young city, launching labs for research
which explore the future lifestyle, providing seamless and augmented shopping
experience to their customers and creating products as furniture for smart home
(Frearson, 2018).
4. IKEA Procurement – This is the last activity which support to the value and
productivity of the company. This activity includes acquiring and purchasing of raw
material for completing or manufacturing final products. It indirectly supports to the

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operation management of the company and it is essential for operation of their
business (Andersen and Larsen, 2009). For IKEA, there is no need for raw material
because the company does produce or manufacture its own product as they outsource
their product but the company has maintained a long term effective relationship with
their suppliers. So it will help the company in increasing the performance and
productivity of the company and achieving the objectives of the company (Reformat,
et al, 2019).
Conclusion –
Hence, value chain analysis is important for every organization to analysis its performance
and productivity and it also help the organization in achieving the goals and objectives of the
organization. It is incorporate from the business, information and organization strategy. value
chain analysis refer as a process of classifying various activities related to organization and
analysing those activities which helps the company to contribution towards creation of value
to the final products or services which are deliver to the customers for the decreasing cost of
operation of the company and increase differentiation from the competitors of the
organization. There are two activities which are classified in the value chain analysis, one is
primary activity and other one is secondary activity. Primary activity includes such activities
which are directly contribute to the performance of organization and create value towards the
organization and it also help in gaining competitive advantages and this activity of value
chain analysis include inbound logistics, operations, outbound logistics, marketing and sales
and services which affect the performance of the organization. Secondary activity includes
such activities which are indirectly support to increase the performance and productivity of
the organization and it also support the organization in creating value for the organization.
IKEA is one of the largest retailers for home furnishing across the world. IKEA is
continuously focus on creating value to their products or services and also focus on how they
can differentiate their products from their competitors and gain competitive advantages
through primary and secondary activities of value chain analysis. They design their products
by using science and technology and in innovative way because the company ensure the
safety of their customers and satisfaction level of the customers and increasing its
performance and productivity. IKEA’s inbound logistics is associated with buying raw
material for procuring their products from more than 1000 suppliers who are located in more
than 50 countries across the world and company is also focus on maintaining effective