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Question:

Discuss about the Report for IKEA of Strategic Analysis.

 

Answer:

Overview

IKEA is a MNC, founded in 1943 in Sweden, which primarily designs and sells furniture, home appliances and accessories. According to a survey conducted in the year 2008, it was the world’s largest furniture retailer. The modern architectural designs that the firm adopts is the major competitive advantage for it over the other companies of the same genre in the domestic and local markets. The company also primarily focuses on its interior design works and has always tried to keep it eco-friendly. The company functions at low prices so that majority of the people can afford it.

Strategic Purpose

Mission, Vision and Values

Vision in a business is an element which states that what a business wants to achieve and on the other hand the mission statement states what a business does, how and why. Providing quality home furnishing products at a price that could be easily afforded by all is the basis of IKEA vision, business idea and concept. After having a clear vision, it becomes quite essential for a firm to translate the business ideas into a mission. IKEA’s mission is to develop the skills of all the participating members of the firm, so that they become the most reliable asset for the company and collaborate to provide a wide range of home decorating products to the customers at a low price (IKEA Staff, 2012).

A set of values is also needed along with a precise mission and vision for a company. The values for the company are based on a belief that there is some or the other kind of value associated with everyone which can be used for the development of the society. Togetherness and enthusiasm are the two integral elements of the values of the company. IKEA believes that by working together the employees of the firm gets the power to solve seemingly unsolvable problems. The leaders also work according to the values and create an atmosphere of well-being (Business Case Studies LLP, 2016).     

Relationship between Strategic Statement and functional objectives

The functional objectives of the company include the following:

  • To produce cheap and affordable products for all types of the consumers in the target markets.
  • To ensure a better life and living conditions for those who cannot afford expensive products.
  • Ensure full satisfaction of the customers by delivering goods and services in compliance to their changing needs and perceptions.
  • Set low prices for their products as compared to its competitors (Ukessays Team, 2015).

As the mission and vision of the firm also aims to provide the best quality of products to its customers and even ensure a better ambience at the workplace employees, so the functional objectives are also framed by the executives keeping in mind the importance of these strategic statements and highly adhering to them for better revenues and profit generation. The vision of the firm simply aims to form a better quality of life for most of the people around the globe and hence the objectives are highly customer-oriented that involves a thorough analysis of their needs and wants from the furniture retail sector.

External Analysis

Analyzing the external factors for a firm involves breaking a complex, interrelated reality into a set of issues that could be dealt in an easier way to make the analysis manageable. The two tools for the external environment analysis of IKEA are given below:

Macro environment Analysis (PESTEL Analysis)

The macro-environment of the company is influenced by a number of factors and the analysis of such forces is called PESTEL Analysis. The assessment of the factors in which a company operates gives a number of possible growth areas of the firm and also helps to evaluate the possible obstacles while introducing its products to new markets.

PESTEL Analysis

Political

·         The rate of corporate tax impacts profits, hence lowering the after-tax income.

·         Tariff and Trade barriers imposed by a country’s government increases the prices of a number of goods being brought from other countries through a process of import.

Economic

·         Economic growth has a direct impact on the business.

·         In the UK, the rapidly growing economy is providing higher standards of living and higher employment rate.

·         The cost of labor is yet another factor. A number of skilled labors are available in countries like China and India. This provides IKEA with a wider profit margin (Mamady, 2014).

·         Inflation rates in UK deformed the consumer behavior, destabilized markets and generated avoidable shortage of resources.

Social

·         Demographic variables of a country are likely to influence strategic decisions of a firm.

·         Ageing population is less likely to buy furniture.

·         The reduced income levels of people often force people to place furniture on a low rank in their priority list.

Technological

·         Retailer’s online stores provide enormous selling operations for the seller.

·         The use of social media as an unconventional marketing channel has helped the firm to reach the customers situated in the remote areas (Takreem, 2015).

Environmental

·         IKEA has always been targeted for not following the environmental laws and has been scrutinized for its contribution towards the carbon emission, disposal of hazardous manufacturing waste, etc.

Legal

·         Laws framed for consumer protection restrict the functional operations of the business in many ways.

·         Legislative requirements demand the business objectives to be in higher compliance with the local legal obligations prevailing in the explored markets.

Porter’s Five Forces Analysis

This is an analytical tool that is frequently used to analyze the impact of a number of stakeholders on the activities of the firm. For such a purpose, it analyzes the industrial structure in accordance with the 5 competitive industrial forces. Below is the depiction of these five forces along with their intensities (Jafry, 2009).         

Competitor Revilery        

(Chen, 2016)

Porters Five Resources

Internal Analysis

Strategic Capabilities of the firm

IKEA has adopted a number of unique designs that have provided it a great competitive advantage over the other rivals in the market. There are a number of IKEA’s resources and capabilities that add value to the firm. This includes:

  • Style at affordable price allows the consumers to buy their desired products at a very simple rate.
  • The firm also promises to give an enjoyable shopping experience to its current as well as to its potential consumer.
  • The firm has a strong Inventory system which helps the consumers to take home furniture immediately.
  • The experts and the other officials in the firm have made the employees to experience a great global expansion. This will help the leaders gain knowledge for further successful launches of the firm in the newly explored markets.

The unique resources of this firm has succeeded in rendering a number of capabilities to the firm.  This element revolves around a successful retail strategy which works in the direction to make the company, world’s largest retailer (Basket, 2015). The company, unlike the other leading giants which focuses on adding more and more product lines to their businesses, highly sticks to its core concept of “affordable and varied home furnishing”.

Business functions of the company

To be in compliance with the vision of the company that is to provide better quality of affordable life to everyone across the globe, the firm works quite hard to achieve quality at an affordable price for its customers. This is done by following a number of business functions in an orderly manner. These functions are:

  • Optimization of the entire value chain of the company (Inter IKEA Systems, 2014).
  • Establishing and retaining a long-term supplier relationship.
  • Investing a good amount in the highly automated production.
  • The company also re-invests a majority of its profits in the existing and new IKEA stores as well as in the product development (Group, 2016).

Critical Analysis of the Generic Strategies

The Bowman’s Strategic clock is an elaboration of Porter’s generic strategies and was developed to consider the competitive advantage of the firm in relation to cost advantage or differentiation advantage.

Critical Analysis of the Generic Strategies

From the above figure it is quite clear that the strategy IKEA is pursuing is the hybrid strategy which is based on a fact that the goods and services are to be delivered at a low cost but simultaneously in a higher perceived value than the cost competitors. This is basically done to increase the reputation among the consumers and hence increase the market share by expanding its customer base.

The evidences to the fact are:

  • Firstly, IKEA has always followed a strategy to design its products in the simplest and innovative way by using the unwanted or the discarded materials. This has helped the firm to cut the costs to the lowest value and also find the cheapest suppliers of their products (Baroto, et al., 2012).
  • Secondly, the firm has succeeded in amalgamating its strategy of cost reduction with the elements of design culture and hence has successfully delivered beautifully designed products that are inexpensive.

To sustain their competitive advantage and meet the consumer needs, the firm has adopted the following practices:

  • The company has designers who work in a collaborative and team spirit environment in order to design the best possible and affordable products for its customers.
  • The company is quite old and this has helped it to build a strong relationship with myriads of suppliers across the globe. The firm has a choice to choose the best manufacturer compatible with their products and services.
  • The firm is equipped with a number of innovative designers that have the capability to utilize the discarded materials in an effective manner.
  • The Swedish culture has always believed in simplicity and hence its tenet has always helped in keeping the cost down.

Strategic Choices (Ansoff’s Matrix)

“Slowly, surely, sustainably, but also with ambition” is the IKEA’s thought. The future of IKEA in this competitive world is quite bright. It needs to include a number of strategic operations in the current and potential markets because the competition is increasing and the business trends are in a dynamic state. The company has a potential to defeat its rivals in a number of ways. The company has a business plan that could not match any other retailer around the globe and the firm has to work in certain areas of technology and marketing strategies to retain its position in the global markets.

Ansoff’s Matrix

Ansoff’s matrix is a strategic planning tool that provides a framework to help the firm’s executives to devise future strategies for the firm. The IKEA uses this tool to determine its products and market growth strategy. Below image reveals the important aspects of the company’s growth strategies:                

Examination of the following options:

Market Penetration

When a firm decides to continue selling its existing products in the existing markets, then it deliberately follows a strategy of market penetration. The firm has followed a strategy of selling more to existing store visitors. Perhaps, the current strategy of the firm focuses on introducing a number of promotional and innovative activities in the existing stores to focus mo

New Product Development

The company has always performed well when it comes to the introduction of new products in the existing markets. The newest furniture and décor offerings has always played a lead role in attracting customers in the existing markets and also has created numerous possibilities for the company to attract new markets.

New Market Development

IKEA has believed to take its existing format to other global markets and hence this forms the strategy for its market development. The firm has also explored the Turkish markets for better profits. Although the firm wants to stick to its own strategies and format but in dynamic markets like China, the company has agreed to tailor its marketing mix strategies according to the needs of the buyers (Fangfang, 2013).

Diversification

Innovation has always been a crucial element for the people working at the IKEA. The same is seen when the firm has tried to introduce a concept of selling food and opening restaurants in the firm’s stores. This diversification strategy has allowed the consumers to eat and try myriads of new delicacies while they shop furniture for their home.

Strategy evaluation

From the above four suggested strategies, the most widely accepted one could be diversification. This strategy promises to run for a long-term because the products being introduced as well the markets being explores, both are new (Chew, 2011). Given below are the three criteria which could be used to assess the success rates of this future strategy plan:

Suitability

The Diversification strategy is suitable as it fits quite easily with the mission of the firm that is to provide a better quality of life to all the people around the globe. As the statement itself says that the firm wants to reach every possible market across the globe, hence this could only be done if it includes a wide variety of new product lines in its operations. The idea of opening a restaurant inside the store will give another source of income to the firm (Cantt, 2014).

Acceptability

As the company is quite new, hence people have a number of expectations associated with the firm. Introduction of a new product-line will make portray the firm to be an efficient risk-taker that can work in all possible directions to cater the needs of its customers in a number of innovative manners.

Feasibility

As it is already known that the company has a number of basic as well as unique resources which it can employ in a number of innovative ways to establish and run new product-lines, hence the diversification strategy could create a strong competitive advantage for the firm against the similar kind of furniture retailers in the new markets it is going to explore in the coming decades.

 

Conclusion and Recommendations

The recent years have shown a reduction in growth of sales. The major reason behind this deceleration was the downturn in the European economy. Another notable reason and the major weakness of the firm is that the functional operations of the firm are quite similar in all the continents with only slight differences. The marketing strategies are framed and controlled by the executives of IKEA, Sweden. Hence, there are a number of instances where the firm has failed to understand the changing perceptions of the consumer behavior and hence observed a substantial reduction in its revenues and profit rates. However, IKEA has a strong intention of developing and expanding its business in China, Japan and Russia. This fact could be used wisely by the advisors to accelerate the company’s performance.

Another notable issue related to the firm is to keep up the standard and quality of the goods and services which was brought about so far. The organization has a tendency to go out of the track if the links with the founder is lost. Hence, in such a case the firm can approach a good consultancy firm which can keep a balance in the operation of the firm at different global markets.

The company has strength of its hybrid strategy which is both successful as well as quite difficult for the competitors to imitate. The company has been able to stand ahead of the competitors because they target the middle class people and provide them differentiated products at an affordable price.

With globalization there is a notable change in the culture within the countries. As the company sticks quite close to its functional operations and do not easily adopt changes in its designs, hence there is a risk in the existence in the new markets for the firm if they do not understand the preferences of diverse customers and introduce products and services according to their needs.

 

References:

Baroto, B., Abdullah, M. & Wan, H. L., 2012. Hybrid Strategy: A New Strategy for Competitive Advantage. International Journal of Business and Management, 16 October, 7(20), pp. 1-14.

Basket, C., 2015. Compare and contrast IKEA's operations performance objectives with those of 'traditional' competitors. How is this influenced by the company's overall competitive strategy?. Compare and contrast IKEA's operations performance objectives with those of 'traditional' competitors. How is this influenced by the company's overall competitive strategy?.

Business Case Studies LLP, 2016. Vision, Values and Mission in Driving Strategy. Vision, Values and Mission in Driving Strategy.

Cantt, W., 2014. Critical Evaluation of the International Strategy of IKEA and its Re-Entry Into the Japanese Market: Marked by Teachers.

Chen, J., 2016. Ikea Pestel & Porter's 5 Forces: Academia, Available at: https://www.academia.edu/10538798/Ikea_Pestel_and_Porters_5_Forces

Chew, P., 2011. Transcript of IKEA. Transcript of IKEA, 30 November, Available at: https://prezi.com/kgk3fx9hlzhg/ikea/

Fangfang, L., 2013. Assembling a strategy for the future. Assembling a strategy for the future, 15 November, Available at: https://africa.chinadaily.com.cn/weekly/2013-11/15/content_17108320.htm

Group, I., 2016. IKEA: Our Business in brief. IKEA: Our Business in brief.

IKEA Staff, 2012. International suply chain management, Available at: https://www.staffs.ac.uk/schools/business/resits/postgrad/InternationalSupplyChainMgmtIKEACaseStudy.pdf

Inter IKEA Systems, 2014. Company Information: IKEA. [Online]
Available at: https://www.ikea.com/ms/en_JP/about-the-ikea-group/company-information/

Jafry, A., 2009. SWOR, PESTEL, Porter's 5 forces and value chain analysis of IKEA: IKEA, Available at: https://www.afsheenjafry.com/IKEA.pdf

Mamady, 2014. PEST analysis of IKEA. PEST analysis of IKEA, Available at: https://businessenvironment2.blogspot.in/2014/11/pest-analysis-of-coca-cola.html

Takreem, 2015. PESTEL Analysis of IKEA. PESTEL Analysis of IKEA, 13 May, Available at: https://ineverknewit.com/2015/05/13/pestal-analysis-of-ikea/

Ukessays Team, 2015. The External And Internal Analysis Of The Organization Marketing. The External And Internal Analysis Of The Organization Marketing , 23 March.

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