Elaborate the strategy planning in which the discussion will be made on IKEA’s case study.
Strategic management includes the implementation and the development of the key objectives and initiatives taken by the top management of the company on behalf of owners, on the basis of consideration of resources and evaluation of the external as well as internal environments in which the organization competes (Shepherd and Rudd, 2014). This paper will evaluate the case study of IKEA Company by using appropriate models so that the core understanding regarding concept of the strategic management can be made. The role of company analysis is wider as it helps to understand the position of the company in the market and along with that it helps them to recognize the opportunities and threats coming their ways which would be helpful in giving ideas of the present and potential scenario of the industry. Home furnishing was an extremely fragmented market with competition going on locally rather than worldwide. At last, the conclusion will be drawn with great understanding after analysing the entire report and along with that recommendation will be made for making better improvement for future purpose.
The main objective of this report is to analyse the case study of IKEA Company by using appropriate model which will be helpful to give better understanding about the strategic analysis. Another objective of this report is to elaborate the role of porter’s five forces and porter’s generic strategy model in the IKEA Company for the purpose of showing the use of them in real life experiences.
Home furnishing was considered as a wide market globally with retail sales in the year of 2007 in excess of $US600 billion in items like household textiles, furniture and floor coverings. IKEA Company had about 2.5% of world sales by its more than 25 stores in around 24 countries and sales in excess of double of 20 billion. It has been analyzed through case study that the growth of the company has faltered. The flat sales might represents as given subside in furniture markets around the world. However, IKEA should be advantageous from trading down, the exclusion of smaller competitor and new store openings. It has been found through this case study that the revolution of the furniture in number of countries of IKEA by making ‘flat pack’ furniture chic. The problem has been found that how company will manage the competition both from cheaper competitors and from traditionally created furniture.
IKEA is an international company that sells ready to assemble furniture, appliances of kitchen as well as accessories of home (Hitt, Li and Xu, 2016). The company is the largest furniture retailer in the world as it has more than 400 stores in 49 countries. The IKEA Company of Sweden is known for its modernist design for various sorts of furniture and appliance and its interior design work which is consigned to eco friendly simplicity. The company produces more than 12000 products of furniture with various interior qualities. More than 2.1 billion visitors visit its websites and buy products. The company is famous for its operational particulars, corporate attributes and cost control that presented IKEA to slighter its range uploaded by average of 2% to 3% in the time of growth of global (Ehsan Ullah, Karlsson And Olanrewaju, 2016).
Industry analysis is considered as the market assessment tool that is being used by businesses and analyses to comprehend the competitive dynamics of an industry (Stadtler, 2015). It facilitates them to get a sense of what is going in an industry that is demand-supply statistics, state of competition of the industry and degree of competition with the industry with other involving industries. The current landscape of the industry is dynamic and the latest trend of furniture is attaining momentum in the market is the quick popularity of online retailing. The fast digitization and amplifying penetration of mobile devices, involving tablets and smart phones, have outcome in the appearance of e-commerce channels for selling and marketing goods, like school furniture. The manufacturers and retailers of furniture are involving the digital space evaluating its potential. There are many online vendors such as Alibaba and Amazon that have facilitated the buyers, retailers and customers to link in trade in easiest and convenient way which will give outcome in the growth of the market (HuffPost, 2012).
Pestle analysis of IKEA Company
Political
Impact of political controversies affecting the brand:
IKEA Company has been affected by political controversies in the relation of its operations in the recent past. It has been found that in the year of 2012 some of its products were shaped by political captives in East Germany in 1970s and 1980s. The revelation has affected its global brand likeness and status (Hellström and Nilsson, 2011). In another historic example, when IKEA was built in the 1940s its founder, Ingvar Fedor Kamprad was included in Pro Nazi movement in Sweden at those times.
Economical
Currency impact due to Brexit might outcome in amplified prices:
The uncertainties in the politics have a negative impact upon consumer confidence resulting in decreasing of sales. It has been found that the major market of IKEA is in UK and Brexit is considered as to have both a short term along with the long term impact upon the retail industry of UK. The amendments in the currency will influence how IKEA can import as well as export goods, leading to amendments in both prices along with the strategies. The consequence of Brexit has in fact described a marked bend in retail with falling sales by 1.4% in the starting of first three months in the year of 2017 (Konzelmann, Aridi, Craypo and Wilkinson, 2008).
Emerging economies set for reasonable to strong growth of the economic:
Rising markets such as China and India are anticipated to deliver moderate strong growth over the next decade. It has been found that t he CAGR growth of South Asia and China are 5.7% and 4.6% respectively over the next 20 years (HuffPost, 2012). With amplifying disposable income in these markets, the spending is increased significantly in furniture and household products which open the opportunities for companies such as IKEA.
Social
IKEA is situated in the centre of the city from which one can easily approach transportation facilities to reach from one place to another (Etgar, 2008). The company is offering the facilities of assembling the furniture which cannot be liked by everyone. Along with that the social factors include the social mobility, lifestyle, attitudes & beliefs, demographics and cross-cultural communications (Gummesson, Kuusela and Närvänen, 2014). Company has strong influence of the western style and culture is evident among the people of Sweden.
Technological
The high end advancements of technology in Sweden enable the IKEA to operate an effective e-commerce, distribution and payment systems. Quick development of the social networking in recent times is also apparent in the Sweden. The company has invested in Augmented and virtual reality to make more effective designs of furniture in Sweden as well as other branches of its in other countries (Reimann and Rolfson, 2016).
Legal
In the context of labour laws, IKEA can face challenges with labour unions due to presence of private unorganized players (Shepherd and Rudd, 2014). Customer protection regulations are more benefited for the company as it helps in doing work with full of safety. Taxation laws are not favourable to the investment for the company.
Environmental
The main focus of the IKEA is on sustainability and social responsibility which increases its reputation significantly. The demand of countries has increased for the companies to meet the environmental regulations such as the reduction of the carbon emission and the introduction of the greenly and friendly procedures to manufacture the product. IKEA is able to comply with such approaches and focus on waste management.
Core competencies
IKEA has focused its strategy on core competencies that have been influenced in the form of strategy to maintain productivity. The company expands its capabilities global retailer by entailing value to the supply chain. It is developing a low-cost business model that helps customers to gather the rewards of high superiority intend furniture at some of the least prices obtainable (Maon, Lindgreen and Swaen, 2009). The major core competency of IKEA is building firm brand equity by unique promotions and revolutionary advertising campaigns that identify diversity.
Resource and capabilities
Resources are defined into two categories such as tangible and intangible resources. Intangible resources are those which can be physically seen or touched and in the context of IKEA Company, tangible resources are Wood, Cotton, Waste and food which can be considered as a material to develop the finished goods. Intangible sources are those which have no physical existence and with respect of IKEA Company, intangible resources are human resources which have the responsibility to handle the operation of the company (Businesscase, 2018).
Strength
The major strength of company is brand value as IKEA is presently at 46th position in the world in brand value in which its value stands at $11.9 billion. The financial condition of the company is strong as in the year of 2015; it has been found that the revenue of the company was around €32.7 billion in 2015. The product price of the company is most effective by which the clients get a high ROI on the funds they spend on the furniture. Company’s R&D process is very strong as they are continuous research and innovation for the purpose of bringing prices down for the customers (Lo and Power, 2010). The marketing is strength of the company as it has concentration on beyond the line and under the line marketing process to make a strong brand for itself.
Weaknesses
There are many operations of IKEA in many countries and this is the main reasons they keep getting into local troubles in some of them which increase the negative image of the company in the view of outsiders. The company is found in corruption case in the country of Russia and recently it has been found from the news for concerning an all men catalogues in Israel sarcastic their ultra-orthodox Jewish community. An environmental issue is another weakness of the company that makes bad image of the company (Leonidou, Christodoulides, Kyrgidou and Palihawadana, 2017). The fundamental rule of IKEA is to stay the cost little but with amplifying raw material costs it would be difficult for the company to maintain the standards.
Opportunities
IKEA is manufacturing eco-friendly products for encouraging the healthy environment that increase the well-reputation of the company all over the world. The company gives opportunity to the customers to assemble the products as per their desire. It enhance the fulfil demand of the customer by being cost conscious customers. Due to good image of the company, IKEA has opportunity to expand its business globally. Company can develop its outlets in the market of India and China as these countries per capita income is low in comparison of other developed companies.
Threats
Counterfeit is the threat of the company as many local companies are approached the products of IKEA and made copied products. It is required for the company to keep updated regarding new technology to stay ahead. Changing laws is the major threat for the company which may have a negative impact on the prices of the company.
Threat of direct substitute products or services
The range of products which is being offered by IKEA is lower and it is because there are not so much product and service available which is capable to make happy the demand for home appliances and furniture. On the other hand, it can be said that amplifying numbers of online application and internet based products and services show an indirect substitution for a specific kind of products provided by IKEA. For instance, enhancing popularity of e-books reduces the demand for IKEA bookshelves to a specific extent.
Rivalry among existing firms
There are a number of competitors available in the market for furniture such as target, Tesco, Wal-Mart and Sainsbury that sell some sort of furniture. Moreover, competitors as well for IKEA that involves but not limited to Ashley furniture, Argos, and Rooms to go. In addition, there is a wide range of local small sized furniture manufacturers that being the major reason for competition to IKEA as well as there are some Giants online retailers such as Alibaba, Amazon and eBay.
Threat of new entrants
The threat of new entrants in the case of IKEA is relatively low because new entrants need to put high level of struggle to reach the position of IKEA. They need to invest more in furniture industry with latest technology (Porter, 2008). On the other hand, the small retailers can become the major threat for the company as they can earn high reputation from the customers. However, the new market entrants would not be capable to advantage from the economy is of scale to the same extent as IKEA at least at the time of the starting stages of operations.
Bargaining power of suppliers
Suppliers have the capability to influence results of a company by amplifying cost inputs. Despite this, there are number of alternatives available of supplier globally which express that suppliers do not hold much bargaining power towards IKEA. IKEA is able to maintain the long term strategy with their suppliers (Dobbs, 2014). It can be said that the threat of supplier is comparatively low because of the situations of the suppliers because the IKEA’s corporate credo encouragement of close relations with suppliers of their product is of great importance to them.
Bargaining power of buyers
The bargaining power of customers is considerable high because of intense competition between IKEA and its Rival counterparts. For a long time, the company had to face negative publicity that impacts the brand reputation of the company. As per the UK consumer insight report elaborated by judgment, ok study of customers of IKEA in the UK expressed that the customer of IKEA are not satisfied with both the products and services of the company and buying products from other companies (Purce, 2014). It shows that customers of the IKEA Company can switch from one place to another due to not getting what they want.
Porter’s generic strategy model
The relative position of the organization within its industry decides whether a profitability of the organization is above or below the industry average. The essential basis of above-average productivity, in the long run, is a sustainable competitive advantage. There are major 2 kinds of competitive benefit organization can possess Low cost and differentiation. The two fundamental kinds of reasonable advantage connected with the range of performance for which an organisation determines to attain them, which lead to 3 generic Strategies for attaining at least standard performance in the industry that is cost leadership, differentiation and focus (Rothaermel, 2015). The hybrid strategy of IKEA entails Cost leadership strategy and differentiation strategy.
Cost leadership strategy: On the basis of porter’s generic strategies which were introduced by Michael Porter, IKEA is the company that follows the cost leadership strategy. The main concept of the idea is to find out the suppliers who could manufacturer effective design sub-assemblies at the lower cost and customers need to assemble the products themselves. This sort of method is helpful for the IKEA Company to save the delivery cost not for only the producers but also for the customers. It permits manufacturers to decrease the amount of cost as soon as customer could pay for the products on much lower price with high quality and by applying this strategy company is enough capable to attain various segments of customers (Kristin’s Blog, 2016).
Differentiation strategy: Differentiation strategy is followed by the IKEA Company to some extent. The way of manufacturing the products IKEA Company is innovated as every stores of the company has an exclusive building with the noted brand symbols and signs. The strategy of showing the products to the customers is different as company prefer prototype rooms which are stylish and miscellaneous. It offers number of choices to the customer for decorating their home. As a result, the company is capable to get their potential customers.
Focus strategy: In addition, company is following the focus strategy on differentiation as well for illustration, in IKEA stores in China, Customers have many option of Chinese traditional designed furniture which increases the customer satisfaction.
The hybrid strategy is difficult to intimate by competitor as initially they need to make good position in the market. The company can face the threat of getting stuck in the centre but a innovative and managerial control are considered as the methods of sustaining a hybrid strategy. By using innovative technique, company can protect themselves from any hazards in an appropriate manner.
Conclusion
In the limelight of above discussion, it can be concluded that the current landscape of the furniture industry is dynamic and the latest trend of furniture is attaining momentum in the market is the quick popularity of online retailing. The report has been made on IKEA Company for the purpose of describing the internal and external analysis. The role of porter’s fiver force model is wider as it helps to analyze the industry in an efficient manner. It has been found that the relative position of the organization within its industry decides whether a profitability of the organization is above or below the industry average and strategy analysis has been done by taking help of porter’s generic strategy model.
It has been recommended to the company to focus on the marketing strategy and forecast the opportunity for the enlargement of the company. It has been found that the IKEA Company is not proactive in innovating new products and in global expansion. It is required for the company to conduct market research on monthly basis and find the way to enter in to new market. The company got negative publicity many times that is why it is required for the company to consider many aspects at the time of launching new products and start to focus on CSR of the company to get good social image.
References
Businesscase, 2018. Vision, Values and Mission in Driving Strategy An IKEA case study. Available [online] https://businesscasestudies.co.uk/ikea/vision-values-and-mission-in-driving-strategy/strateg.html. Accessed on 28th May, 2018.
Dobbs, M., 2014. Guidelines for applying Porter’s five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), pp.32-45.
Ehsan Ullah, E., Karlsson, B. and Dada Olanrewaju, D., 2016. Foreign Market Entry Strategies.: A Case study of IKEA entering Indian Market. Available [online] https://www.diva-portal.se/smash/get/diva2:942136/FULLTEXT01.pdf Accessed on 28th May, 2018.
Etgar, M., 2008. A descriptive model of the consumer co-production process. Journal of the academy of marketing science, 36(1), pp.97-108.
Gummesson, E., Kuusela, H. and Närvänen, E., 2014. Reinventing marketing strategy by recasting supplier/customer roles. Journal of Service Management, 25(2), pp.228-240.
Hellström, D. and Nilsson, F., 2011. Logistics-driven packaging innovation: a case study at IKEA. International Journal of Retail & Distribution Management, 39(9), pp.638-657.
Hitt, M.A., Li, D. and Xu, K., 2016. International strategy: From local to global and beyond. Journal of World Business, 51(1), pp.58-73.
HuffPost, 2012. IKEA’s Environmental Sustainability Strategy Includes Plan For Energy Independence By 2020. . Available [online] https://www.huffingtonpost.com/2012/10/25/ikeas-environmental-susta_n_2018703.html. Accessed on 28th May, 2018.
Kristin’s Blog, 2016. IKEA–A success of Porter’s Generic Strategies Combination. Available [online] https://blogs.ubc.ca/junlingliu/2016/10/02/ikea-a-success-of-porters-generic-strategies-combination/. Accessed on 28th May 2018.
Leonidou, L.C., Christodoulides, P., Kyrgidou, L.P. and Palihawadana, D., 2017. Internal drivers and performance consequences of small firm green business strategy: The moderating role of external forces. Journal of business ethics, 140(3), pp.585-606.
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Porter, M.E., 2008. The five competitive forces that shape strategy. Harvard business review, 86(1), pp.25-40.
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