Strategic Management Report: In-depth Analysis of IKEA's Strategy

This report presents a strategic analysis of IKEA, a multinational furniture company. It begins with an executive summary outlining IKEA's business model, which focuses on providing affordable, innovative furniture. The report then delves into the company's strategic analysis, including a VRIN test to assess competitive advantages, such as digital capabilities, international presence, and customer community. Porter's Five Forces model is used to analyze the industry's competitive landscape, identifying key threats and opportunities. The report recommends a hybrid strategy combining best-cost provider and focus differentiation. Further analysis includes evaluations of IKEA's staffing and leadership practices, with suggestions for improvement. The report concludes with recommendations for agile teams, new product development, technology upgrades, and an increased digital presence to maintain and enhance IKEA's market position.

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Executive summary
IKEA is a furniture multinational company established in 1943 and based in Swedish that is
designing and trading furniture that is ready to assemble, home accessories, and kitchen
appliances. The report will discuss the strategic analysis of IKEA, where the company aims to
provide a large product range to customers with innovative design at affordable prices.
The resources of Ikea that are identified to be a strong competitive advantage for the company
include digital use capabilities, international and domestic presence, position amongst
wholesalers and retailers, customer community, and precarious raw material aimed at positive
implementation. Moreover, it was identified that Ikea should follow a hybrid strategy that
includes a combination of two of these strategies. On the majority, the company must adopt the
best cost provider strategy. This could be one of the best strategies as the company vision is to
provide affordable goods for customers. Some recommendations to IKEA included agile and
cross-cultural teams, new product development, technology up gradation, and increase in digital
presence.

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Contents
Executive summary.........................................................................................................................1
Introduction......................................................................................................................................3
VRIN Test........................................................................................................................................5
Porters Five force.............................................................................................................................6
Recommended generic strategy 300............................................................................................8
Critical Evaluation...........................................................................................................................9
Staffing........................................................................................................................................9
Leadership..................................................................................................................................10
Recommendations..........................................................................................................................12
Conclusion.....................................................................................................................................14
References......................................................................................................................................15
Appendix 1 : Ikea VRIN Analysis.................................................................................................19

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Introduction
Strategic management is the rapid planning, observing, evaluating and controlling everything
that is essential for the company to achieve its objectives and goals. This would include
formulating and implementing key initiative considered by the company to achieve goals
(Bailey, 2018). The report will discuss the strategic analysis considering a company case.
IKEA is a furniture multinational company established in 1943 and based in Swedish that is
designing and trading furniture that is ready to assemble, home accessories, and kitchen
appliances. As per the statistics, Ikea has now considered as the largest retailing company of
home furnishing across the globe. The key product range of IKEA include chairs, table, beds,
household good, and cabinets and are doing business in forty nations across the world. The
competitive advantage of IKEA is the quality of goods at low prices to enhance the standard of
living of individuals (ikea, 2019).
IKEA vision includes making people’s life better through innovative business ideas and products
offering. The company aims to provide a large product range to customers with innovative
design at affordable prices (Chari & Feng, 2018).
The furniture industry in which the company performs is a competitive industry. Some of the
major competitors of the company include Wal-Mart, amazon, and Tesco. For 2015, the statistics
reflect IKEA was on the second position in the Australian market. The market share of the
company can be analysing from the graph presented below:

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Figure 1: (Source: (roymorgan, 2019)
The market share of the company in Sweden is thirty three percent, as the company focus over
the customer needs and behaviours than assessing their competitors.

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VRIN Test
VRIN test is one of the business analysis tools that are helpful in assessing the competitive
advantage of the company due to the company’s resources and capabilities. Here VRIN stands
for valuable, rare, inimitable, and non-substitutable.
Resources or capabilities of IKEA that are to be analysed include (as presented in Appendix 1)
 Digital use Capabilities – This capability of the company is a valuable asset for the
company as it is increasing continuously and can gain opportunities. This is not rare as
competitors of the company can invest in technology. In-house analytics and AI could be
problematic for competitors to imitate which makes is a sustainable competitive
advantage for the company (Chatzoglou & Chatzoudes, 2018).
 International and Domestic Presence – IKEA has diversified business across the globe,
which is helpful for the company to minimize the risk of the economic cycle in various
nations. This is rare the competitors however can imitate resource for the company,
which makes it a strong competitive advantage.
 Effective Application of Digital Approach – the digital strategy of the company is
valuable for the company as it is difficult to compete for local companies. This strategy is
not rare and can be imitable by the competitors as most of the companies are using such a
strategy like Amazon. This resource is an essential part of the industry but it is not
considered to be a competitive advantage.
 Prospects in the Adjacent Trades – This competence can be valuable to IKEA as it can be
responsible for enhancing revenue streams for the company. This is not rare resources

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and can be imitated but this competency has the potential to become a competitive
advantage in the near future.
 Position amongst Wholesalers and retailers – The Company has good relations with
wholesalers and retailers and has potential channel partners that make it difficult for the
competitors to imitate.
 Customer Community – Customer is Co creating the goods of IKEA. This can be one of
the strongest competitive advantages as this company is providing the unique facility of
reassembling the furniture by themselves, and it can be hard to copy by the competitors,
which makes it non substitutable as well.
Some other resources which are analysed (refer to Appendix 1) includes
 Pricing Strategies
 Logistics and distribution Expenses Competitiveness
 Access to Precarious Raw Material aimed at Positive Implementation
 Talent to Accomplish Legal and Regulatory Requirements (Akkermans et al., 2015)
Porters Five force
Porter’s five-force model is a framework to analyse the industry of Ikea. This model includes
five major forces that will affect the business of Ikea in the furnishing industry.
1. Competition from Rival sellers – The competition in the furnishing industry is very high.
There are various other large and global firms like Ikea that can gain a competitive
advantage over Ikea, due to which Ikea has to constantly work upon its strategy to
overcome this threat. Some of the competitors as discussed in the previous section

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include Wal-Mart, Wayfair, and Amazon that are the global and large retailer around the
globe (Mandere & Indiasty, 2014).
2. Competition from potential new entrants to the industry – The number of companies
offering furniture is increasing which means that the entry to the industry is not very
difficult. However, for Ikea, this force dis not at greater extent as the company has built
its own barrier through economies of scale. This means the company is a cost leader in
the industry, which does not let the new entries to gain a competitive advantage over
IKEA. Therefore, it can be said that the threat of new potentials are low to medium
(Porter & Heppelmann, 2014).
3. Competition from producers of substitute products – Furniture is a product which is
usually not substituted by the customers. People will be in requirement of furniture
lifetime, for which Ikea is providing affordable goods with a good quality product.
Moreover, the company has focused over the innovation and introduce the modern
furnishing option that cannot be substituted. Therefore, it can be said that the threat of
substitute producers are very low for Ikea (Dobbs, 2014).
4. Suppliers’ bargaining power – Ikea is a retailer with a large production level and high
volume retailer. In general the stores of the company have more than 10000 products,
when it comes to keeping the prices of the goods lower. The price can be kept lower by
adding target amount of stock by Ikea and the company has been able to manage the
relationships with the suppliers that let the company to keep the cost to the raw materials
low. This would include wood in the majority but the company is dealing with numerous
suppliers that make this threat of suppliers bargaining power low (Ogutu & Mathooko,
2015).

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5. Customers’ bargaining power – The power of customers in case of Ikea is strong. The
reason being the aim of Ikea is to provide lower prices products to the customer for their
maximum satisfaction. However, Ikea is not the only firm with this objective, and various
companies in the industry are trying to keep the prices low to attract customer, which
makes customers at a higher position when it comes to bargaining power.
Recommended generic strategy
The Michel porter’s generic strategies are as follows:
1. Overall Low Cost Provider Strategy
2. Focused Low Cost Strategy
3. Broad Differentiation Strategy
4. Best Cost Provider Strategy
5. Focused Differentiation Strategy
Ikea should following a hybrid strategy that includes a combination of two of these strategies. On
the majority, the company must adopt the best cost provider strategy. This includes providing
goods and services at the lowest possible price in the industry. This could be one of the best
strategies as the company vision is to provide affordable goods for customers. Moreover, the
Ikea resources analysed before like international and domestic presence, logistics and
distribution expenses competitiveness, pricing strategies would be helpful for the company to
gain competitive advantage through cost leadership (Betton, 2017).
Another strategy that the company must be adopted at the time would be a focus differentiation
strategy. This would include providing innovative products according to the customer need of

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that particular region. This would promote localization when it comes to designing of the
products. The company’s another motive is to focus on innovation that could be achieved
through a focus differentiation strategy. Moreover, current resources and capability would
support this strategy for instance, international and domestic presence, and customer community
(Bombiak, 2018). Innovation is the key to be successful in the competitive industry in which
Ikea is performing. This combination would be effective for Ikea as if the companies or any local
company of any nation try to gain competitive advantage considering the price of the product,
then the quality and innovative product design can be helpful for the company to attract and
retail customers. For example, in the case of the Ikea store in China, there are various local
culture identified through the product design to target customer through localized design (Aksoy,
2018).
Critical Evaluation
Staffing
Staffing is the process considered by human resource management of the country to obtain,
utilize, and maintain a competent and satisfied workforce. (Choi & Park, 2016)
The staffing policy of Ikea included finding personnel those are not only competent but also
considered culture while staffing people. Moreover, the company staff the employees from
various staffing consultancy firms in order to gain the best human resource team. Moreover the
company believe that is easy to develop skills of an individual but integrating culture is not
always possible. The company assess the values and personalities of the employees and analyse
if they are culturally fit in the Organizational culture of Ikea (Brown & Dant, 2014).

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The benefits of staffing practices of Ikea could be beneficial for the company through
 Enhanced customer satisfaction – The staffing policies of the company is integrating
culture in their work and would be helpful in executing the strategy of Ikea. The
employees with great values believes and skills will help in increasing the satisfaction
level among the employees (Dorochoff, 2016).
 Increase innovation – the staff competency has made the innovation possible in the
organization that is beneficial for the company to implement differentiation strategy of
the company (sloanreview, 2019).
 Localization – The Company considers the employees from the local region that is from
the country in which Ikea is performing. For example in china, the recruited staffs are
majorly Chinese to promote localization. This can encourage the focus differentiation
strategy of Ikea (ikea, 2019).
The staffing policy that can be improved by the company includes
 Increase cost to the company – The Company consider recruiting a large number of
employees and highly competent staff through consultancy firms. Moreover, the
recruitment process is quite a time consuming and increase the cost to the company. This
can hamper the cost leadership strategy of Ikea.
Leadership
Leadership in Ikea talks about charismatic and transformational leadership style followed by its
founder, “Ingvar Kamprad.” He has found to be the reason for the company’s success and
product innovation. For Ikea, usually the leadership style adopted is Autocratic. According to
this style, the manager takes the decision and the employees are asked to abide by that. This style

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was observed in Kampard as well, where he takes the ultimate decision and followed by the rest
of the organization. Moreover, the company has adopted various programs for leadership
development like outdoor experiential programs. This program took place in a particular time
span and is generally takes six to seven days. Some other programs included a rational program
for enhancing leadership skills with cross training in different departments. Tap veterans advice
program was set up to act as a mentoring program for potential future leaders of the company
(hbr, 2019).
The strategy is executed and the chances of success of the strategy implementation depend on
leadership execution. It was observed that the Kampard’s personal tenacity, leadership skills, and
business savvy account for the success of Ikea but only one charismatic leader is not enough for
the organization to run. There are various stores of Ikea around the globe that has to be organized
and run through various leaders (Day, 2014).
The leadership of the organization would be helpful for the company to execute the
recommended strategy. The focus differentiation strategy can be accomplished through an
innovative idea and the style that the leader is adopted. It is recommended for the leaders to
adopt a democratic leadership style in this case. The reason being, ideas have be gained from
every possible area that is through customers, market and employees of the company. The ideas
from employees would only be possible to reach to leaders if the democratic leadership style is
adopted (Dickmann et al., 2008).
Considering cost leadership strategy, the autocratic leadership style would work, which the
company already have. The current leadership style is helpful in accomplishing the cost
leadership strategy of the company. In order to keep the cost minimum the process and tasks