Strategic Management Report: An Analysis of IKEA's Business Model

This report provides a comprehensive strategic management analysis of IKEA. It begins with an overview of the company, its mission, and vision. The report then delves into a Porter Five Forces analysis, evaluating the competitive landscape, including the threat of substitutes, rivalry among existing players, the threat of new entrants, and the bargaining power of suppliers and buyers. A PESTLE analysis examines the political, economic, social, technological, legal, and environmental factors influencing IKEA's operations. The report identifies opportunities and threats for IKEA, followed by an assessment of its strategic capabilities, strengths, and weaknesses. Furthermore, the report explores IKEA's current strategies, including low-cost leadership, product, promotion, and market development strategies, and analyzes its competitive advantages. It suggests strategic options using Ansoff's Matrix and addresses major issues faced by IKEA, including ethical and social responsibility considerations. The report concludes by summarizing the key findings and insights into IKEA's strategic management approach.

Running head: STRATEGIC MANAGEMENT
IKEA
Strategic Management
12/6/2018

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Table of Contents
Introduction................................................................................................................................3
Overview of IKEA.................................................................................................................3
Mission and Vision of IKEA..................................................................................................4
Task 1.........................................................................................................................................4
Porter Five Force framework.................................................................................................4
The threat of Substitute Products.......................................................................................4
Rivalry among existing players..........................................................................................4
The threat of New Entrants................................................................................................5
Supplier’s bargaining power..............................................................................................5
Buyer’s bargaining power..................................................................................................5
PESTLE Analysis...................................................................................................................5
Political Factor...................................................................................................................5
Economic Factor................................................................................................................6
Social Factors.....................................................................................................................6
Technological Factors........................................................................................................6
Legal Factors......................................................................................................................7
Environmental Factors.......................................................................................................7
Opportunities for IKEA..........................................................................................................7
Threats for IKEA....................................................................................................................7
Strategic Capabilities of IKEA...............................................................................................8
Strengths of IKEA..............................................................................................................8
Weaknesses of IKEA.........................................................................................................9
Task 2.........................................................................................................................................9
Current Strategies of IKEA....................................................................................................9
Low-cost Leadership..........................................................................................................9
Product Strategy...............................................................................................................10
Promotion Strategy...........................................................................................................10
Market Development Strategy.........................................................................................10
Competitive Advantage....................................................................................................10
Strategic Options for IKEA..................................................................................................11
Ansoff’s Matrix................................................................................................................11

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Task 3.......................................................................................................................................13
Major Issues face by IKEA..................................................................................................13
Problem 1.........................................................................................................................13
Problem 2.........................................................................................................................14
Problem 3.........................................................................................................................14
Features of Ethics and Social Responsibilities of IKEA......................................................15
Core Values of IKEA.......................................................................................................15
Conclusion................................................................................................................................15
References................................................................................................................................16

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Introduction
To define the objectives and mission of a business organization it is very essential to realize
what are its existing situations and the kind of obstacles the company has to face in its
existing environment. With the help of successful organizing strategies, a business can realize
its objectives and mission. Therefore, the company should have knowledge of strategic
management and strategic planning. Strategic planning requires effective strategic thinking as
it is an essential tool of management, which supports executives to identify the priorities and
define key actions required to attain the objectives and mission of the company. Today,
strategic management has been one of the fundamental subjects in the organization’s
management of the vibrant environment (Athapaththu, 2016). This paper entails the concept
of strategic capabilities about the IKEA Company. It will analyze the macro-environmental
factors that affect the operations of the company. Besides this, appropriate framework and
strategic options will be highlighted that can be adopted by IKEAS in the coming future. In
the end, the paper will evaluate some issues related to ethics and corporate social
responsibilities that IKEA has faced in the past five years.
Overview of IKEA
IKEA is a multinational group of furniture industry with headquarter in the Netherlands. It
designs and sells ready-to-assemble furniture, kitchen appliances, and home accessories,
along with various other services. IKEA is the world’s leading retailer of furniture in the
world since 2008. A 17-year-old carpenter in 1943, Ingvar Kamprad, who is listed as the
world’s tenth richest person in 2015 by Forbes, with the worth of around $40 billion,
established the company in Sweden (IKEA, 2018). The business is established in the market
due to its modernist designs for numerous types of furniture, appliances, and its interior
design work is frequently related to eco-friendly simplicity. In addition, the firm is famous in

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the market for its strategies of cost controlling, continuous product development, and
operational details (Bloomberg, 2018).
Mission and Vision of IKEA
IKEA is focused on creating a better life every day for numerous people. The business idea of
the company supports this notion by providing a varied variety of elegant, functional home
furnishing products at affordable prices such that everyone can afford it (Jurevicius, 2013).
Task 1
Porter Five Force framework
Porter's Five Forces model is a standard framework that determines the structure of the
industry into five fundamental competitive forces (Roy, 2011). Porter's five forces of IKEA
are presented below:
The threat of Substitute Products
The threat of substitute products for IKEA is low. This is because the market does not
comprise numerous products that could satisfy the home appliance and furniture demand.
Similarly, it could be debated that increasing online applications and services signify an
indirect substitution for some type of products provided by IKEA. For instance, increasing –
books popularity affecting the IKEA's bookshelves demand at some level. There is a very low
switching cost in this market for the customers, which increases the threat for the company
(Dudovskiy, 2017).
Rivalry among existing players
The competition among existing players in the industry is intense. Most of the large
supermarkets like Target, Sainsbury's, Wall Mart, and Tesco sell few categories of furniture.
Besides this, there are direct rivals for IKEA that comprises Ashley Furniture and Rooms and

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Argos. Moreover, numerous local small-sized furniture manufacturers raise severe rivalry to
IKEA. Besides this, there are online retail giants like Alibaba, eBay, and Amazon. Within the
international furniture industry, the growth rate is not considerable and this increases rivalry
among the existing players (Dudovskiy, 2017).
The threat of New Entrants
The threat of new entrants for home appliances and furniture manufacturing industry is
significant. There are minor or no regulatory hurdles within the industry. However, the new
entrants will not be capable to benefit from the economies of scale at a certain level as IKEA
at least at the preliminary operation stages (Pratap, 2017).
Supplier’s bargaining power
The bargaining power of the suppliers of IKEA is low because they are available in large
number but their weak financial position and small size do not provide them sufficient power.
IKEA can simply shift from one supplier to another while if the supplier misses the business
opportunity from IKEA, it could be a very tough condition for him.
Buyer’s bargaining power
The bargaining power of buyers is insignificant for IKEA, as a huge group they possess some
substantial power, which supports them in focusing towards retaining and attracting
consumers (Pratap, 2017).
PESTLE Analysis
Political Factor
IKEA operates its business activities in around 41 nations. There are political forces in all the
countries and influence the operations of the company. From the activities of supply chain to
the activities of sales, these forces influence all of them. Stability in the political situations

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results in economic stability and eventually, it offers improved profits and sales (Pratap,
2017).
Economic Factor
Economic factors perform a significant role in the environment of business. The situation of
the economy of the world reflects the amount of revenue and profit company will earn.
Numerous of the big brands were in poor condition at the time of recession. It was majorly
due to the recession that had resulted in a decline in the purchasing power of people. Many
people lost their jobs and enforced to reduce their cost of living. IKEA has successfully
managed its prices of the products, which support it in handling the pressure that is created
due to economic fluctuations.
Social Factors
Cultural and social factors have a deep influence on the company and its profit margins.
Before initiating feet towards any international markets, it is essential to receive the local
nuances right. It is essential to give respect to the cultural and social values on the domestic
market. IKEA not always has these domestic nuances right. The business came under fire in
Saudi Arabia for Photoshopping women out of its log and for eradicating a lesbian couple in
Russia from its magazine. As per the communication officer at IKEA i.e. Kajsa Orvarson, the
company has done a lot of mistakes, but today they are trying to become updated and aware
about enhancing things and share their values (Pratap, 2017).
Technological Factors
Today, Technology has become a key aspect in every business organization. From HR to
customer service and finance all over the place companies are utilizing IT to offer superior
service to their consumers. Brands such as IKEA are concentrating on offering a sort of
experience through digital channels that can provide the real-life experience of shopping.

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IKEA is also utilizing better reality to recover the customer service it offers (Dudovskiy,
2017).
Legal Factors
The legal threat is a key issue in front of big brands. It is due to the strict regulations and laws
and even a minor disturbance with the law can be proved costly. Labor laws are an essential
concern however, there are other laws also that need compliance and can increase operational
costs. Quality of the product is also an essential concern. Some cases have been faced by
IKEA that has caused death due to its furniture (Dudovskiy, 2017).
Environmental Factors
Sustainability is today an essential focus zone for every brand because it supports business in
creating a superior image of the brand. It helps in decreasing the operational cost of the brand
but also enhance the image of the company and the whole experience. IKEA also focussed on
the sustainability. According to the Guardian report, the company has invested in climate,
around $1 Billion in renewable energy to support the poor countries to cope up with the
climate change threat (Dudovskiy, 2017).
Opportunities for IKEA
Online channels are developing at a higher rate; IKEA can get into this space and can widely
consider the way they can develop exponentially. If the focus is diverted towards the retail
market they have developed up to 6% in emerging nations in the last some years, thus it is an
untouched market where IKEA can expand its operations and record growth in top-line
(Management Study Guide, 2018).
Threats for IKEA
The low-cost retailers are present in the market in huge number. The frequency of online
retailers has flawed the execution of the cost leadership strategy of IKEA. Along with this, all

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these retailers enjoy similar kind of strengths as IKEA, i.e. high customer base, market
coverage, and low cost (The Times 100, 2018). Some of the low-cost retailers are Tesco and
Wal-Mart who have arrived in the homeware market where IKEA operates its activities.
Strategic Capabilities of IKEA
IKEA has accepted various numbers of exclusive designs that have offered it a excessive
competitive advantage over its competitors present in the industry. There is a number of
capabilities and assets of IKEA that add extra value to the firm’s competencies. It includes:
 Cheap and reasonable prices of the IKEA let customers purchase their anticipated
products.
 The company commits to offering an enjoyable experience of shopping to its present
along with its potential customers.
 IKEA possess a strong Inventory system that supports customers to carry their
purchased furniture immediately. The officials of the company have provided a global
expansion experience. This will support leaders to gain an understanding of the
effective launches of the company in the freshly discovered markets.
 The exclusive resources of this company have prospered in offering numerous
capabilities to the company. This component spins around an effective retail strategy,
which operates in the course to make IKEA the largest retailer of the world. IKEA
does not concentrate on adding more products to its portfolio; rather it sticks to the
core affordable concept and diverse home furnishing.
Strengths of IKEA
IKEA knows its customers very well as compared to its rivals, which offers an advantage to
the organization. The company has made some alterations in its best practices statements and
affiliated its objectives to the purchasing aspect that affect consumers to buy a variety of

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products. Low-cost strategy is another basis that they have been comprised of the business
model. Thus, it has both cost leadership and efficiency with respect to its rivals. The company
always work for the nourishment of the environment and innovated in numerous ways to
maintain low cost and operate in tandem with the environment (Jurevicius, 2013).
Weaknesses of IKEA
IKEA has been criticized numerous times for concerns such as inadequate treatment of
personnel and some practices of advertising that are uncertain. Besides this, they have been
criticized by the media sectors for lobbying with administrative authorities (Bhasin, 2018).
This has resulted in some kind of adverse publicity; hence, they announced their
sustainability action plan by considering farmers in mind.
Task 2
Current Strategies of IKEA
Low-cost Leadership
IKEA has an exclusive model of business that links the requirements of the customers with
the options on the factory floor. With a thorough understanding of the life at home and the
challenges of the limited space, IKEA mostly creates its products on the factory floor. The
preliminary topic for product designers and developers is always the price. With the skilled
suppliers, the company ensures maximum possibilities in the production plants. They adopt
the constructions and sizes of their products such that they can create, transport, and package
them in a well-organized manner (Pratap, 2017). They also make a lot of effort in the
development of the materials, to enhance them and save resources.

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Product Strategy
 Varied sorts of products are provided by the company as per the requirement of the
customers
 Products of IKEA are accessible for diverse society sections
 Products variation as per the requirement of diverse market
 Differentiate product depth and product line
 Stores with low price furniture offer casual furniture and reconvene furniture
 Numerous of the products of IKEA are stylish that helps in making the unique image
of the company (Bhasin, 2018)
 The idea of Flat packaging makes it simple for the customers to transport the furniture
 The furniture is designed by IKEA itself
Promotion Strategy
 Online shopping
 High profile advertisement campaigns
 Online advertisements
 Shoppers are directed properly into the stores of IKEA
 IKEA is offering service of home delivery to its customers
 Customers also receive after-sale service (MBA Skool, 2018)
Market Development Strategy
Entering the new markets and targeting new segments with prevailing products, the possible
aids of worldwide expansion are better market share, buyer awareness, profit, and revenue.
Competitive Advantage
IKEA is presently placed as one of the key players in the furniture industry due to its unique
image and strategies. The strategies that have supported the company in attaining a

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competitive advantage in the market are good service, varied range of products, low price
products, and good quality, unique designs. Besides this, it has a team of developers who
create new products, promotes technological developments, and updating technologies
(Jurevicius, 2017). Most of the products of IKEA are trendy that makes the unique image of
the company in the eyes of the customers.
Strategic Options for IKEA
The future of IKEA in this world of competition is very bright. It must include numerous
strategic operations in the potential as well as current markets because the rivalry is growing
and the developments in the business are in an active situation. The business has a capability
to defeat its competitors in numerous ways. The business has a plan that cannot be matched
by other retailers present across the world and the company needs to operate in few of the
areas of marketing strategies and technology in order to maintain its place in the international
markets (Epine, 2016).
Ansoff’s Matrix
Ansoff’s matric is a tool of strategic planning that offers an outline to support the
administrators of the company to develop forthcoming approaches for the organization
(Kilgore, 2017). The IKEA make use of this toll to define its market growth and product
strategy.
Market Penetration
When a business agrees to endure selling its prevailing products in the prevailing markets,
then it purposely tracks a policy of market penetration (Farris, Bendle and Pfeifer, 2017). The
company has complied with a policy of vending more to the existing visitors in the store.
Possibly, the present strategy of the company concentrates on announcing a number of
innovative and promotional undertakings in the existing stores to concentrate.