Business Strategy Report: IKEA's Competitive Analysis

This report provides a comprehensive analysis of IKEA's business strategy, examining the impact of the macro environment, its internal capabilities, and its competitive position. The report begins with an introduction to business strategy and its importance, followed by an analysis of the macro-environment using PESTLE analysis, focusing on political, economic, social, technological, legal, and environmental factors affecting IKEA. It then delves into IKEA's strategic capabilities, including its strengths, weaknesses, and the application of the VRIO framework and resource-based view to assess its competitive advantages. Porter's Five Forces model is applied to evaluate the competitive forces within IKEA's industry, leading to strategic recommendations for enhancing its competitive edge and market position. The report concludes with a discussion on the use of theories, concepts, and models in strategic management planning.

Business Strategy
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Contents
INTRODUCTION...........................................................................................................................3
LO1..................................................................................................................................................3
P1 Analyse appropriate frameworks analyse the impact and influence of Macro environment
on Ikea.........................................................................................................................................3
M1 Critically analyse the macro environment to identify the inform strategic management
decisions......................................................................................................................................6
LO2..................................................................................................................................................7
Strategic capabilities of IKEA.....................................................................................................7
VRIO framework.........................................................................................................................7
Resource based framework..........................................................................................................9
LO3................................................................................................................................................10
P3 Applying Porter’s five forces model for evaluating the competitive force in Ikea business.
...................................................................................................................................................10
M3 Devise appropriate strategies to improve its competitive edge and market position on the
basis of outcome........................................................................................................................12
LO4................................................................................................................................................13
Description on use of theories, concepts and models to produce strategic management plan.. 13
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................17
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INTRODUCTION
Actions or decisions that are taken by company to reach their pre-defined organizational
goals in order to remain competitive in their business environment is known as business strategy
(Huikkola and Kohtamäki, 2017). Every organization needs to develop effective organizational
strategies in order to stand out in competition. Strategic analysis of an organization helps in
achieving their pre-defined goals, enhance their capabilities, strength, as well as strengthen their
overall economic condition.
This report will lay emphasis upon investigating IKEA which is a Swedish-founded
multinational group that sells ready-to-assemble furniture, kitchen appliances and home
accessories, and many other useful goods and occasionally home services. This report will focus
upon analysis of impact and influence which the macro environment has on IKEA and its
business strategies, assessment of organization’s internal environment and capabilities, and
interpretation of strategic directions available to IKEA.
LO1
P1 Analyse appropriate frameworks analyse the impact and influence of Macro environment on
Ikea.
IKEA is based on the multinational group that designs and sells large number of products such as
furniture, kitchen appliances and home accessories, among other useful goods, occasionally
home services (Park and Mithas, 2020). This company was established in 1943 by Carpenter
Ingvar Kamprad. In 2019, there are 423 IKEA stores operating in 52 different countries and their
fiscal year 2018, 38.8 billion worth of Ikea goods were sold.
Pestle analysis
The Macro environmental factors which effect on the organization in term of political,
economic, social, technological, legal and environmental. These are considered the important
factors at current scenario.
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By using PESTLE analysis, it is based on tool or platform that help for identifying the
current future of Ikea. It has been supported that increases the importance of enterprise in global
marketplace. Ikea has been increasing the production from various countries while increasing the
5-8% of production in across the world.
Political Factor
Ikea stores are opened in more than 41 countries, company must include all necessary
regulations of each. Political factor influence of enterprise regarding the bills, political instability
but that’s not all about one thing. Without economic stability, it is not possible to handle the
business performance (Moktadir and et.al., 2020). At certain level, Ikea may have faced the loss
in profitability in one location over another.
For instance, Political Factor can directly impact on the Ikea because of unfriendly
government can make exporting as well as importing foreign goods. Sometimes, Ikea depend on
the stable relationship otherwise revenue is at stake. Ikea, seeing this positive shift which is
mainly consideration of moving towards Asian markets.
Economic Factor
This type of factor is affected by international legislation, they are susceptible to entire
world economy. Even still suffering due to COVID-19 and economic recession. Many people
have been lost their job at the time. The price or cost of Ikea were conservatively. Now it adopt
the stylish approach to target more consumers. Usually, Ikea is influenced by other strongest and
weaker dollar, lose their money.
Social Factor
It is consider as important factors where Ikea can follow the specific business rules,
regulations. Not only depends upon the product to their consumer but it also avoid offending
social values. Nowadays, preference, demand of client have continuously changing so that it
directly impacting on the overall business performance (Bayo-Moriones, Galdon-Sanchez and
Martinez-de-Morentin, 2020). Ikea is mainly focused on the deliver the best quality of product
and service to their potential consumers.
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In additional, IKEA suffers from surprising amount of one star reviews. Searching their
review and name which bring up various complaints. In this way, it has been identified both
positive as well as negative experience of consumers. it may have fault of delivery driver and
company they can actually use.
Technological Factor
The advancement of technology is one of the important innovation in the business that
always support for increasing the performance and efficiency of Ikea. Many potential peoples are
likely to check online offers regarding product and service through website. Nowadays, overall
business are functioning through website and easily target more customers towards brand. Ikea is
offering as home décor, sales which is always inspiring or motivating the consumers (Huikkola
and Kohtamäki, 2017).. The primary aim of Ikea is to provide the realistic experience for their
potential client. Still maintain a similar online experience. Thus, it help for increasing business
advantage or benefits to satisfy potential consumers.
Legal Factor
Ikea must follow as abundance of rules and regulation in different country, they have
tried to operate in different locations. Since, they are focused on the physical stores, staying up-
to-date with labour act. Moreover, company has been landed in the particular news because of
their poor quality and have fallen or slow down (Huikkola and Kohtamäki, 2017).. As a resulting
to show damage, injuries. Sometimes, Ikea needs to ensure that their product is becoming safe.
Environmental Factor
Ikea is concerned about the eco-friendliness so that they have put in more than $1 billion
towards renewable energy in poor countries. The primary aim of this factor is to manage or
control their store energy which fully renewable. In this way, they have achieving this is by
investing in the wind or solar panels.
Stakeholder analysis
A stakeholder analysis is based on the process of identifying those people before starts
the projects, grouping them on the basis of participation level, influence and interest in the
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particular project. This type of stakeholder analysis is identifying how best to involves in
communication within Ikea. It has been observed that management of Ikea which plays
important role in the consumer services. Initially, they have accomplished the organizational goal
and objectives (Peng, 2020). Usually, company is establishing a loyalty, trust so that it can easily
maintain competitive edge. Generally, Ikea employees are those who must ensure that meet
expectation level of customer on the basis of demand. Therefore, company will get more value
for money with Ikea.
There are different stakeholder participate in Ikea business such as Governments, owner,
employees, labour unions, suppliers, investors and other competitors (Huikkola and Kohtamäki,
2017).. These are influencing the Ikea to increase overall business profitability as well as
productivity in global marketplace.
 Mission and Vision: An Ikea, vision or mission is to create an effective everyday life for
different people. it offers wide range of well-designed goods and service at reasonable
price or cost.
Objectives
 To increase overall production and sales of Ikea approximately 5%-8%
 To achieve the desirable goal and objective of business through digital technologies.
 To improve marketing strategies for targeting potential consumers towards brand.
M1 Critically analyse the macro environment to identify the inform strategic management
decisions.
By using Pestle analysis, it can identify the macro environment of Ikea, its current position
of business in global marketplace. Pestle analysis as tool or platform that determine trends in
inflation, employment and spending. It is closely related to overall business cycle which as
opposed the performance of Ikea in the international marketplace. The macro environment can
directly affect on the consumers ability and willingness to spend a lot of money in business
establishment.
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Therefore, it can identify consumer behaviour or reaction towards macro-environment which
are closely monitored or tracked by enterprise as gauge of economy health and condition (Peng,
2020). Furthermore, Ikea has been examined or analysis the business activities while
implementing strategic management decision in context of business growth and development.
LO2
Strategic capabilities of IKEA
Strategic capabilities can be defined as competence and resources that a firm utilises to
compete in the business environment in which they operate (Walton, Zhang and O'Kane, 2020).
Strategic capabilities of IKEA are their strengths like skilled human resource, distribution
channel and efficient value chain. They have developed various kinds of strategies.
Organizations like IKEA need to focus upon overcoming their overall weaknesses.
For internal analysis, it would be considered SWOT analysis as framework or tool that
help for identifying current capabilities of Ikea.
Strengths and weakness of internal capabilities of IKEA
Wide customer base is one of their main strength of IKEA. They have skilled human
resource that help them to maintain high quality of products and services provided by them. They
have focused upon outsourcing global manufacturers so that they can provide low- cost
furniture’s to their customers because outsourcing helps making availability of raw materials and
skilled labour much easier (MacDonald and et.al, 2019). Cheap prices an affordability makes it
much easier for IKEA to maintain their customer base and increase their overall sales. But
one of their main weakness that impact their business is marketing because of which
understanding and knowledge of customers about brands and its products and services get
impacted.
VRIO framework
It is a strategic analysis tool that helps organizations in protecting and uncovering their
resources and capabilities in order to gain long term competitive advantage (Kimosop, Korir and
White, 2016). By using VIRO analysis as framework, IKEA will help in analyzing all the
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internal resources and capabilities of organization so that they can use resources at right place,
make right use of opportunities and reduce weaknesses threats faced by organizations. In order
words it can be said that it can help the organization in gaining temporary competitive advantage.
By using Strategic theory, it has been representing the correlation between ends and
means which include all kinds of threat, use of forces as conscious choice of political aspects.
Valuable
IKEA allows to differentiate themselves from
their competitors because they have focused
upon adopting an innovative model so that they
can provides desirable stylish products to
customers at lower price (Huikkola and
Kohtamäki, 2017). Thy focus upon enhancing
overall shopping experience of customers. This
has helped them in gaining positive market
reputation. This has helped them in gaining
competitive advantage.
Rare
There are extremely a smaller number of
competitors who have successfully managed to
design an easy process to make customers
enjoy shopping with them. It is rare to find
good competition of price, quality and design
as all the enhances overall shopping experience
(Walton, Zhang and O'Kane, 2020). They have
excellent inventory system which makes
availability of take- home products easy which
is quite rate. This has helped them to maintain
good relationship with customers.
Imitability
Financial resources of IKEA are difficult to
imitate because these resources have been
acquired by IKEA through prolonged profits
over the years. Employees of IKEA are not
costly to imitate this is majorly because other
organizations can also provide training to
employees (MacDonald and et.al, 2019). But
patent of IKEA is difficult to imitate. Not only
Organization
Financial resources of IKEA are organized to
capture value. These resources are organized in
such a manner that it can be invested at right
place at right time (Kimosop, Korir and White,
2016). But patents of IKEA are not very well
organized because of which they find it
difficult to use their patents at their fullest.
Distribution network of IKEA is well
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this, patented products of IKEA cannot be
imitated easily which provides them with a
competitive advantage.
organized that helps them to reach their
customers and increase availability of products
for customers much easier.
Resource based framework
This framework is also known as resource- based view. It is a kind of framework which is
used to determine strategic resources that can be exploited by firm or achievement of sustainable
competitive advantage (Kimosop, Korir and White, 2016). It can help in providing a upper had to
organizations so that they can enhance their overall strengths and qualities, increase their
capabilities in an appropriate manner. IKEA’s most feasible position is achieved by them when it
comes to delivery of products and services (Huikkola and Kohtamäki, 2017).. Resource based
formwork of IKEA is as follows:
Intellectual resources
Unique style and design furniture are one of their main and unique intellectual resource. They
have maintained excellent relation with government and their suppliers.
Physical assets
They are one of the largest and well- known furniture retailers present and known globally
(Kimosop, Korir and White, 2016). They have approximately 433 stores present globally. It is
one of the best sources of franchise and they have approximately 40 stores franchised globally.
Financial assets
In 2019 they made overall revenue of €41.3 billion. In 2019 they experienced increase in overall
sales of 15 percent but this year due to Covid-19 pandemic they have experience loss of
approximately 10 percent.
Human resources
They provide excellent customer service and focus upon maintaining excellent employee
relationship though reward system
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LO3
P3 Applying Porter’s five forces model for evaluating the competitive force in Ikea business.
Ikea is a type of Furniture manufacturing and retail brand with maintain leading position in
global level. Company was introduced in 1943 and establish as best furniture seller across the
global world (Kitsios and Kamariotou, 2019). It is mainly focused on it’s products that was on
minimalistic design, self-service concept and other self-assembly. In order to achieve its long
term growth and success.
Ikea can use the Porter’s five forces model to analyse micro internal environment and
affecting on industry.
Threat of New Entrants-
There is high level of hurdles for new entrant within global marketplace. in this way, it
can identify that threat of new entrant is low. As per analysing Ikea as furniture market in term of
capital, process, and skills. It became easier for Ikea to enter business into market but it makes
threat of new entrant which become higher. In this organization, the capital is not considered or
required at small level (Peng, 2020). There are various threats face by Ikea in different countries.
But it does not means to require skilled labor and essential sufficient amount of capital. In this
way, Ikea would have increased their demand within international level.
Threat of Substitutes-
There is no specific substitute for Ikea in term of human being, company is needed for
identifying customer’s demand, preference. According to them, Ikea have continuously changing
their design, process and quality of product. In this way, it has rapidly increasing the demand of
goods. It is an essential to Ikea for understand the innovation in the product but they have not a
substitute and focus on the improvement.
Ikea is tried to replace their item and implement innovative design which help for
attracting more consumers. Nowadays, it has been increased the demand of AI wooden item
which become subtitle for natural wood (Peng, 2020). Another way, there is no other close
substitute for item which takes as threat of substitute in low level. By using this model, it can
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easily analysing the external environment and overall enterprise environment of Ikea which is
favourable but increasing more complexities.
Competitive Rivalry-
As per analysis, Ikea have increased the global revenue of collection approximately
545.40 billion in 2018. Which is mainly focused on the massive size, Ikea is a leading enterprise
which always increasing their market share at international level. The existence of country, there
are various local manufacturers with strong roots in market which providing high competition to
Ikea. So as company will focus on the change their style of business procedures.
As per analysis, competitors of Ikea such as Amazon and Walmart. By increasing
presence of local and multination brand has been intensified its competition in marketplace. In
this way, it has been reduced the profit level of Ikea. Therefore, competitive rivalry is higher.
Bargaining power of Suppliers-
The bargaining of supplier is becoming higher due to increase the Ikea sell their raw
materials to different international as well as local manufacturers. Wooden is main source of
product development so that it automatically increase demand of supplier in marketplace (Kitsios
and Kamariotou, 2019). that’s why, company will understand the strength of supplier and
identify current position of business in term of develop or create an effective relationship. so as it
help for accessing item and make positive impact in global marketplace.
Bargaining power of Buyers-
Usually, the bargaining power of buyer is high because there are already several
manufactures established their presence in both local as well as international level. In this way,
selling of products are done successfully. It means that buyer have different options to switch
from one enterprise to another. In this way, it can be identified the switching cost of buyer low
which further increases as bargaining power of buyers. In Ikea, there is a lack of innovation in
furniture items which are contributed to its strength of bargaining power of buyers. Therefore, it
can identify that bargaining power of buyer is low because of high competition in marketplace.
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M3 Devise appropriate strategies to improve its competitive edge and market position on the
basis of outcome.
Ikea can improve their business competitive edge and establish market position on the basis of
positive result or outcome. By using Ansoff matrix as consider planning that help for Ikea to
identify its product and market strategy. It should be considered the different strategy options
available for enterprise.
Market Penetration-
This type of strategy implies selling their existing goods within existing marketplace.
Ikea use this strategy to improve their business performance while implementing as effective
marketing strategy in general ideas. Sometimes, it is particularly play an important role for
increasing the efficiency of market penetration for Ikea retailer.
Product Development-
Ikea involves the developing new item to sell into existing marketplace. This company is
focused on the growth of business so that they can launch a new items. In order to attract more
and more consumers. Ikea as furniture manufacture to develop or design different kind of home
products and launch in marketplace.
Market development-
Market development is a type of another strategy associated with identifying new market
but launch its existing items. In this way, it has been established engagement with potential client
and trying to open various physical stores in different marketplace. Recently, Ikea is also opened
19 new stores in 2018 (Kitsios and Kamariotou, 2019). This organization is forecasting to enter
into developing market and fulfil all essential need or demand of client.
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