Strategic Analysis: IKEA
Category : Analysis Examples, External Analysis Examples, Ikea Case Studies
Strategic Analysis: IKEA
Each industry attempts to use unique, distinctive, and effective business strategy which will enable them to stay in the competitive market, specifically in the global market. In this regard, the goal of this paper is to provide a strategic analysis for Ikea. The analysis will use SWOT Analysis, value chain, porter’s five forces model, and stakeholder’s analysis.
Ikea is one of the known global home furniture and household goods retailer which is a privately owned company. It was established by Ingvar Kamarad Sweden and in year 2008 the company owned 244 Ikea stores in 24 nations and the management is still planning to open 23 new stores. The company has also 32 stores on 16 nations and these stores were still managed and owned by franchisees outside the Ikea Group which extends the global reach of Ikea to 35 territories overseas. The Ikea Group has also been able to diversify their products beyond furnishings and furniture into food products and prefabricated housing. The company has been able to ensure that they have franchise agreements among most of the overseas operations to ensure capitalization of local marketing expertise and practices of the franchisees. The concept and trademark of Ike is owned by Ikea Systems BV and the operations of the company are basically controlled by Ingka Holding.
Primarily, the company is based on providing broad rang of well-designed, functional home furnishing goods at an affordable cost to attract more customers. This concept of the Ikea is the foundation of their business operations which includes product designing, manufacturing, transportation, retailing, and assembling. The company sees to it that they work hard in attaining their business goals and providing quality products and services among their target market.
In order to analyse the capabilities of IKEA, different marketing tools will be considered. This includes the value chain analysis, SWOT Analysis, Porter’s Five Forces Model, and Core Competencies analysis.
Value Chain Analysis
To be able to understand various activities and business operations of an organization, in this case, IKEA, the value chain analysis can be used. Porter (1980) described the activities of organization as the "value Chain", which may be classified into primary activities (that create, transfer or support something of value) and support activities (that assist the primary activities by providing resources or infrastructure). The value chain is useful in outsourcing decision. Understanding the linkages between activities can lead to more optimal make-or-buy decision that can result in either a cost advantage or a differentiation advantage. Some or all of the primary and support activities may apply to a particular firm, depending on the complexity of the firm and its industry. Nevertheless, all of a firm’s activities are assigned a place within the value chain with regard to their economic impact on cost, and potential benefit to differentiation. In other words, the categorising of activities is in accordance with their contribution to a firm’s competitive advantage. This systematic and integrative approach to value-chain analysis allows all possible sources of competitive advantage to be revealed (Anderson, et al, 1993).
Based on the given case, it has been noted that the operations of the IKEA includes product design, manufacturing, transporting, retailing, and distribution. The company strategy includes the development a price tag before producing the product that suits such price. The product developers of the company as well as their designers directly work with their supplier so as to assure that generating the low prices begins on the factory floor. The company is also considering maximising production equipment through the use of raw materials effectively and using technical innovations as well as the best possible product design. The management tries to have an efficient production process, minimising their waste, and considers flat-pack transportation and self-assembly. For instance, the Ikea of Sweden develops the range of Ikea that consists 9,500 product ranges. The company has also been able to diversify their products by engaging into food services. The company value chain also provides customise products for their international market, which allow the company to attract more and more customers.
According to Kim and Weaver (2000), the administration and management of a particular business organization entails full utilization of the resources of the company in order to lead, direct, and control operations to meet the set objectives. Based on the given case study, it can be said that IKEA has been able to use strategic approach to sustain their competitive advantage. One of the capabilities IKEA is how the leaders of the company do their business. Guided by their vision and mission, the leader and management of the industry clearly illustrate integrity in all their actions. The management has also strong commitment in promoting the company values and the value of diversity among the employees and staffs. In addition, the management of the company has been able to understand the priorities of the business and make every decision in line with the strategic direction by giving consideration to the effect on all aspects of the business and on other stakeholders.
Another sustainable capability of the company is its continuous focus on the importance of both internal and external customers to ensure that these customers remain loyal to them. The company also makes it sure that they motivate, inspire, coach, guide, and support their staffs to realise the mission of the IKEA. Furthermore, the company’s ability to identify and recognise contributors is another factor that sustains the company’s competitive advantages. The ability of the management to diversify and differentiate their business strategy to dominate the global market can also be considered as the major capabilities of the IKEA.
In this report, the analysis of the current situation of Ikea will be done using different marketing tools. Herein, IKEA will be analysed through the use of SWOT (Strengths, Weaknesses, Opportunities, and Threats) Analysis. The purpose of this internal and external analysis is to see what the organization has to work with as it begins to position itself to deal with the opportunities and threats identified through the analysis of the external environments. Specifically, it helps identify what existing strengths and weaknesses might impact the organization's value creation capabilities.
As mentioned, IKEA has been one of the leading brands in household furniture’s in its global operations. One of its strength is its being a very profitable company, in both its domestic and international branches. In addition, IKEA is a global brand established upon a reputation of quality products and services with almost 10,000 product range and 244 stores in different regions. Furthermore, one of the strengths of IKEA is its strong ethical values integrated with its business strategy which include cost leadership and product differentiation.
The strength of the company can also be attributed to their ability to distribute their product effectively in the global market. One of their strengths is their ability to diversify when the company has been able to launch their private label food items in 2005. The offerings of the company include Swedish dishes which include meatballs, smoked elk sausage, roll-mop herring, and crisp breads.
Although IKEA encompass much strength, the company has also its weaknesses. One of the weaknesses of the companies is the notion that IKEA remain vulnerable to the plausibility that the creativity and product development may falter over time. In addition the company has also lacking the ability to look for a business portfolio for various regions, like in the case of IKEA so as to spread business risk.
With the management system and the marketing strategies implemented within IKEA as well as with the strengths that the company, it can be said that IKEA has bigger opportunities to still dominate the global market in terms of providing quality household furniture as well as food products and services to its residents, commercial and industrial clients or even have an opportunity to be the most competitive brands in the global market. With the continuous innovation of the company and the support that it shows to different needs of the region, the company can gain loyalty from their customers to make them more competitive in the marketplace.
The continuous initiatives of the company in diversification of its revenue resources also open new opportunities to make the business become stronger to outgrow all its rival companies. Such opportunities will include the development of new products, leveraging the company’s investment in the low cost leadership and differentiation, and other business opportunities in both non-core and core areas. In line with IKEA, the household furniture as well as food products and services have the opportunity to expand their market in the global level, and it can be said that IKEA is on its way ahead of its competitors in terms of international expanding.
One of the threats of that IKEA may face is the emergence of a new and stronger company which offered a more diversified household furniture as well as food products which is cheaper than the existing companies. If these companies will not be able to provide the latest trends in this kind of business industries, the company may experience some industrial threats.
In order for the company to maximise its strengths and minimise or totally eliminate its weaknesses, the company must be able to use or impose a strategic management system that will help them enhance their business operations.
Based on the given case about IKEA, it has been noted that aside from the management of the company, the customers of IKEA plays a crucial role for attaining the organizational goal of IKEA. The management skills and abilities of the leaders of the company have made IKEA become the largest, powerful competent household furniture as well as food company in the world further, the loyalty of the customers and the trust it gave to the company has helped the company maintain its competitiveness. The role of the staffs and employees are the ones that make the company continuously achieve the needs and demands of the customers. The suppliers and other stakeholders support can be considered as additional factor that makes the IKEA what it is right now.
It can be noted that an industry is a group of firms which market its products and services closely substituted from one another. According to Porter (1980), some firms tend to become more profitable and gain competitive advantage than their rivals companies. With this, a company like Ikea should always bear in mind that the industry will only survive in the global market by using a strategy that will sustain their competitive advantage and position. Through the use Porter’s Five Forces Model, the analysis of the industry aspects of the IKEA will be analysed.
New Market Entrants
The first element of Porter’s Five Forces Model includes threat of entrance of new industries. Apparently, the objective of IKEA is to build a position in the household furniture as well as food shops service industry and to be recognised as company which would always be competitive in the global market. IKEA is said to be a world-class companies in providing household furniture as well as food products and services in market environment. With this, it can be said that because of the existence of IKEA, having another household furniture as well as food shops is unnecessary unless, the new company which will emerge will have the appropriate and efficient marketing strategy to outgrow both leading companies. Hence, it can be said that the household furniture as well as food shop belongs to a higher entry obstruction because of the existence of competitive companies like the companies and their other rival industries.
It can be noted that the conditions and the present system in the household furniture as well as food shop industries largely determines the extent in which effective competition can be achieved. The bargaining power of a supplier could be a threat for the profit of the company, and both IKEA is very much aware of it. In this manner, IKEA is trying to have a good contract with its supplier, herein; IKEA makes it sure that they are also benefited in the said contract while the suppliers enjoy the agreement with them. In this kind of business, there is a high level of competition in the household furniture as well as food brand supply market.
IKEA still enjoy their competitive position in the global market. In this analysis, it shows that the company still dominate the household furniture as well as food market by providing those quality and innovative services. This means that IKEA is still on top of the competition among other household furniture as well as food retail companies in world. The company enjoys its competitive position in the region and still trying to sustain its competitive advantage among its rivals.
Porter’s also include in his model the concept of the bargaining power of Buyers. Hence, the management of IKEA makes sure of it that their clients and customers in all aspects will be satisfied for the quality service they provide. Specifically, the company has focused their marketing approach on the demands and needs of the buyer for a household furniture as well as food service source that satisfy them and heavily positioned their products in this segment. The company also uses their corporate responsibility as a good public image to make the company more appealing to their customers. The competitive aim of each company is to do significantly a better job of providing what buyers are looking for and, thereby enabling the firm to gain competitive advantage and out compete rivals within the marketplace (Thompson, Strickland & Gamble, 2003).
Threats of substitutes
In terms of threats and substitutes, although the company is aware that there were threats for substitute products or retail household furniture as well as food shops because of its high demand in the global market, specifically now that companies offered household furniture as well as food alternative products and flavours which suit the needs of the household furniture as well as food market.
In accordance with the case study to the business approach and strategies of IKEA it can be said that the company has been able to continue to grow and expand their business in various parts of the world. It can be said that IKEA has been able to use various strategies which enable them to sustain their competitive position in the global market. Based on the conducted reviewed in the previous section, it can be said that IKEA strategy includes differentiation approach and innovative approach.
In doing so, the company has been able to have a sustainable focus on their core business values ensuring that their goals, objectives, and mission are achieved. In addition, the company has been able to sustain good relationship with its target market and all other stakeholders. In addition, the company focus itself on satisfying the costumers by providing them quality products and services in terms of coffer markets and services. The company also focus itself in giving value and importance to their employees and staff, making sure that all the needs of the employees from safety to a good career development is given to them. Furthermore, the company is also focusing on having a strong relation and reputation to its suppliers and other supporting industries.
The strategies used by the IKEA include Intensive and differentiation and diversification strategy, which aims to competently position and promote their products and services in the global market. In addition, they also use the operational management system in order to make their customers aware that they give value to the business operations by reducing the impact of their business operation. The industry has also utilized the Integration strategy and forward integration in order to promote and closely manipulate where all the IKEA products are being sold. To improve financial performance, the company sees to it that they utilise all their resources in a manner that will be beneficial to enhance the performance of the company (See Appendix 1).
Firms respond to conditions in their marketplaces by modifying their competencies such as internal capabilities and linkages with suppliers and associates and the ways in which they position themselves in relation to their competitors specifically their strategic direction. Each of these components is intricately related and ultimately contributes to firm competitive advantage. The goal is to deliver maximum value for the least possible total cost. In this regard, analysis and assessment of the strategies and approach of the company is essential is important to determine which part of the business strategy needs improvement.
In this review, proper assessment has been considered through the use of different marketing tools which lead to the determination of the strategies used by IKEA. This approach has been able to identify which aspect of the company needs improvement and which aspects enable the company to sustain their competitive advantage. It can be said that based on the given case, IKEA strategy is something which is different but effective to achieve their goal of dominating the global market. Giving value to their stakeholders is one of the vital approaches that the company had used. In addition, their ability to innovate and diversify their products has also been identified as part of the strategy of IKEA. In addition, because of the competitive position of the company, there is a strong barrier to entry for a new household furniture as well as food market that would compete with IKEA. As the company is competing in both local and global market environment, Ikea’s viability is to gain more customers from different areas of the world and to provide each customers quality and innovative household furniture products and will satisfy their needs while enjoying reasonable and affordable prices. The company is looking forward to give the customers more from what they are expecting through the use of the technical innovations. Furthermore, the strategy of the company also includes their ability to adapt to the changing needs and demands of their target market even in different parts of the world.
Porter, M 1998, Competitive Strategy: Techniques for Analysing Industries and Competitors. Free Press.
Porter, M. 1985, Competitive Advantage: Creating and Sustaining Superior Performance. New York: The Free Press.
Thompson, AA Strickland AJ & Gamble J 2005. Crafting and Executing Strategy (Fourteenth Edition), McGraw-Hill, New York, pp. C2-C32.
IKEA Sales Figures 1997-2007