PREFACE

Being the student Business Strategy and Policy we have assigned a project

report on practical understanding along with the theoretical study. In this

report we had a strategic analysis on IKEA Company.

We have tried our level best to make an analysis of the company. We have

elaborated and analyze thoroughly about strategic articulation and

implementation in IKEA.

During the working of project report, we learnt about the business strategies

and policies implementation in a company and how to lead from the front.

And because of working on this project report, it helped us to understand the

concepts of the subject more clearly.

ACKNOWLEDGEMENT

Finally, by the Grace of Al-mighty Allah we did manage to finish the project

report. We got to study “IKEA”. We think of extending it a bit and exploring

more facts about it and bring more authenticity to this study, but because of

the immediate dead line, we have handicapped to this effort. Nevertheless

it’s a healthy learning experience and we are very thankful to our resource

person Mr. Omar Farooq for his sincere gratitude and guidance through out

the project. We are also thankful to our friends that supported us through

out the project and helped us a lot in information elicitation process. Especial

thank to Mr. Muhammad Adnan Aslam (Finance Officer of PGC). At last we

are very grateful to our parents who pray for our success day and night.

We hope we’ll able to complete the project as expected from us. Because we

are not in that stage to do work without making mistakes, but most

importantly if some one knows that he knows nothing or very few thinks he’s

ready for the mistakes, which we’ll make when ever he do any thing. So, we

know that we’ll make a project which will be full of blunders so please let us

know that and consider all these mistakes as our first statement analysis and

learning experience.

Thanks!

TABLE OF CONTENTS

Sr. No CONTENTS Page. No

1 Executive Summary 4

2 Introduction 5

3 History 6

4 Vision/Mission Statement 8

5

Strategic Analysis

1. Corporate Strategy

2. Business Strategy

9

10

6

Analysis of Blue Ocean Strategy at IKEA

1. Differentiation Strategy

2. Low Cost Strategy

11

13

7 Business Objective 15

8 Market Creation 16

9 SWOT Analysis 17

10 Porter’s Five Forces Analysis 22

11 P.E.S.T.L.E Analysis 23

12 Did They Really Negate Porter? 24

13 Generic Strategy Concept 24

14 Recommendation of different Strategy to IKEA 26

14 What we learn? 27

EXECUTIVE SUMMARY

IKEA of Sweden is a top retailer of furniture, home furnishing, and house wares. The

company has its design teams for its own items, and markets them in about 140 its

chain stores in 30 different countries of the world. In addition, IKEA sells its goods

through mail-order, distributing its catalogs every year in the areas surrounding its

store locations. The company’s goal is to provide high quality items with affordable

prices. IKEA group is undoubtedly one of the top furniture retailers in the world. With

its unique combination of form, function and affordability, IKEA distinguished itself

from other furniture retailers. The brand name IKEA is meant for its massive, bright

and inviting stores.

The scope of this report is to study that how the Strategic Management followed and

implemented at an organizational level for (IKEA), what are their current strategies,

how much these are effectively contributing to meet the needs of customers, to

compete latest trends.

To start it, the first need for this project report was to study and analyze the case

study given on IKEA. In this project report we did our best to apply complete analysis

on the company’s case study, where it was required. Our major source of information

was case study, Internet search engines and websites was also a source of

information for our report.

While studying the topic we ascertained that how to learn with Strategic

Management practices, theories, ideas, concepts, philosophy, and their effective

implication with proactive and holistic approaches to meet the needs, create,

communicate and deliver values to customers, consumers and making the

organization profitable.

This research work gives us the capability to differentiate between successive, no

successive parameters of Strategic Management and to understand and suggest its

various learning aspects.

INTRODUCTION:

IKEA of Sweden is a top retailer of furniture, home furnishing, and house wares. The

company has its design teams for its own items and market them in about 140 its

chain stores in 30 different countries of the world. In addition, IKEA sells its goods

through mail-order, distributing its catalogs every year in the areas surrounding its

store locations. The company’s goal is to provide high quality items with affordable

prices. To low down the cost, the company buys items in bulk; delivers and stocks

items disassembled using flat packaging. The customers who visit the store also

deliver Ikea’s items by his/her own transportation and assemble items by him or

herself.

The company is owned by founder Ingvar Kamprad’s Netherlands-based charitable

foundation, Ingka Holding B.V. Inter IKEA Systems is the owner of Franchiser of the

IKEA concept. IKEA retailers in the worldwide function on a franchise basis, the most

IKEA retailers belong to the IKEA Group. IKEA Group’s company, the Amsterdam-

based Stichiting Ingka Foundation, also owns the home furnishing company Habitat.

IKEA is famous for its affordable furniture which consumers are required to assemble

for themselves.

Ingvar Kamprad believes that: "Most things still remain to be done - a glorious future!

Time is your most important asset. Split your life into10-minute units and sacrifice as

few as possible to futurities"

The corporate culture of IKEA is built upon this philosophy all the way from design

teams to suppliers and to the customer. A continuous strife for improvement in all

areas of the value chain is an effective way to shape the industry to better fit IKEA'S

future strategies. Due to the uniqueness of IKEA'S strategic positioning, being the

largest competitor in its field, the firm has the advantage of setting the phase of the

industry.

Bureaucracy is fought at all levels in the organization. Kamprad believes that

"simplicity and common sense should characterize planning and strategic direction"

In addition, the culture emphasizes efficiency and low cost which is not to be

achieved on the expense of quality or service.

Symbolic policies such as only flying economy class and stay at economical hotels,

employing young executives and sponsoring university programs has made cost part

of corporate culture and has further inspired the influx of entrepreneurship into the

organization.

For instance, all design teams enjoy complete autonomy in their work, but are

expected to design new appealing products regularly.

HISTORY:

A Sweden man, Ingvar Kamprd, established IKEA in 1943. The original name of

IKEA was IKEA, Ingva Kamprad. “The word IKEA was an acronym of his name and

address: Ingvar Kamprad and Elmtaryd, Agunnaryd-the name of his farm and the

name of the village it was located within”.

IKEA published its first mail-order catalog in 1947. A newly invented ballpoint pen

was added to various products in the catalog. After 3 years, he established a

foundation. The purpose of the foundation was for the future direction of IKEA by

adjoining furniture and home furnishing to the mail-order line. Kamprad took his

items to the St. Eric’s Fair in Stockholm and won over customers with quality and low

budget furniture items. In 1953, he started to operate a small factory for

manufacturing furniture and opened a small furniture and home-furnishing showroom

in Almhult. In 1963, the first overseas IKEA store was in Norway. The store was

located around Oslo. In 1969, IKEA operated a store in Denmark. After three years,

a store opened in Switzerland. In 1977, IKEA ran a store in Germany. Stores were

opened in Austria in 1977. In 1976 and 1978, a store opened in Canada and

Singapore. In 1979, a store was operated in Netherlands.

Rapid growth of IKEA was between 1980 and 1990. In 1980, IKEA opened a store

in the Canary Island. One year later, the company started to run on both France and

Iceland. In 1983, the first IKEA store was in Saudi Arabia. After one year, the

company located a new store in both Belgium and Kuwait. Between 1987 and 1989,

the company opened a store in Hong Kong and Italy.

IKEA’s concept which is innovative style and quality of its furniture with low cost and

the experiences of operating stores in Canada led IKEA to open a first store in

Philadelphia, Pennsylvania, USA.

IKEA continued to expand the stores in the worldwide especially Asian countries. In

1994, IKEA opened a store in Taiwan. Two years later, the company ran new stores

in Finland, Malaysia, and Spain. In 1998, IKEA first opened a store in Mainland China.

Traditionally, IKEA uses the print media. Catalogue and Newspapers have been

valuable tools and still going to be popular marketing tools. Due to information

technology’s rapid development, the company decided to introduce its web site in

1997. The web site aptly named ‘World Wide living Room web site.’ The customers

can view products’ lines, pictures of items, new product information, and order on

line.

It launches a major event of its all-new products in fall every year. In 2000, the

company promoted an online sweepstakes registration in support of this annual

event. It also e-mailed a hundred thousand customers to alert them the sweepstakes

offer the new products in the store. It sends outbound e-mail to a key customer who

has visited the site and required the company sent the e-mail. In Asia, the company

uses WAP and 3G, a mobile phone system; e-mail the information to the customers’

mobile phone.

IKEA is still aggressively penetrating new markets in the world with innovative

products with low cost.

VISION STATEMENT:

“To create a better everyday life for the many people.”

MISSION STATEMENT:

“IKEA's mission is to offer a wide range of home furnishing items of

good design and function, excellent quality and durability, at prices so

low that the majority of people can afford to buy them (IKEA 1994). The

company targets the customer who is looking for value and is willing to

do a little bit of work serving them self, transporting the items home and

assembling the furniture for a better price. The typical IKEA customer is

young low to middle income family.”

STRATEGIC ANALYSIS:

Q No. 1: What were the corporate policies of IKEA and how will they

integrate with their corporate strategy and business strategy?

1. CORPORATE STRATEGY:

“Strategic or institutional management is the conduct of drafting, implementing and

evaluating cross-functional decisions that will enable an organization to achieve its

long-term objectives.”

IKEA’s CORPORATE STRATEGY:

In start Ikea’s corporate strategy was to start a mail-order business by selling a

numbers of products like seeds, pencils and wallets. But after that IKEA’s corporate

strategy was to manufacture inexpensive and suitable furniture all over the world

having strong and unique brand recognition internationally and diversity in its product

with distinctiveness of deigns of furniture.

Market Creation

Output

Mission

Vision Corporate Policy

Corporate Strategy

Business Objective

Business Strategy

Feed

Back

IKEA corporate strategies also include the single global strategy for all targeted

countries by targeting the same consumers for its products.

2. BUSINESS STRATEGY:

“A term used in business planning that implies a careful selection and application of

resources to obtain a competitive advantage in anticipation of future events or

trends”.

IKEA’S BUSINESS STRATEGY:

As far as the business strategy is concern IKEA want to develop its products at low

cost but at the same time IKEA focus on delivering product differentiation because of

competitive edge which automatically leads IKEA towards Blue Ocean strategy.

Blue Ocean Strategy value Innovation to differentiate low-cost.

The IKEA customers have to only pay the actual price of furniture and extra costs of

delivery and assembling are eliminated because of the distinctive business style of

selling self-assembly flat packs of the products, carried away by the consumers

itself.

Blue Ocean Strategy in the strategy is different from the Red ocean strategy. A

remarkable feature is its simultaneous pursuit of differentiation and low cost, thus the

behavior of enterprises integrated into a system.

IKEA's as a furniture industry giant successfully experience of concern not only for its

competitors but also to other areas of business to a very good inspiration. IKEA is

able to achieve such a brilliant performance. The fundamental reason is their

implementation of a set of sustainable value creation of blue ocean strategy that is

the rules to break the shackles of traditional industry and minimize business costs,

while in order to differentiate products and services to fully satisfy the target

customer groups, market demand.

ANALYSIS OF BLUE OCEAN STRATEGY AT IKEA

IKEA'S DIFFERENTIATION STRATEGY

I. THE PRODUCT CONCEPTUAL DESIGN

Growing convergence in the product under the conditions alone product features to

meet customer needs, has not effectively formed the core competitiveness of

enterprises. Cultivation for better customer loyalty, the best way is the product of the

functional and emotional characteristics combined, guarantee the quality and

functionality based on a product-media, the corporate culture is passed to the

customers from the emotional to meet customer needs, thereby ensuring the

customer's brand dependence.

In accordance with past market rules, furniture industry should have been committed

to providing the functionality of the products but taking into account the IKEA

furniture in people's daily lives special meaning and strive to use an artistic taste of

the furniture to the customer to create a comfortable, warm home atmosphere,

thereby distinguish themselves from other companies.

Blue Ocean Strategy advocates to break the traditional, seemingly defined borders,

from the perspective of customer needs, to seek cha

nnels for value innovation, and here's customers include not only the buyers of

products also includes products, users and influencers, through the right to re-

examine the traditional customer base will help to identify potential business

opportunities and profit margins, open up a new blue ocean.

II. DIFFERENTIATED SERVICES

Through low-cost strategy IKEA has won a large number of low and middle income

customers. On this basis, IKEA's own target customer groups turn to external

radiation: first, for the same low-income consumers, IKEA launched a low-cost in-

store delicious catering services, which makes a lot of the original do not want to buy

IKEA Furniture populations, because there are low-cost, fast food and become

IKEA'S customers; Secondly, taking into account the fun of shopping, IKEA uses

self-service model, with a detailed product description to replace the traditional staff

tailor services to attract a lot of customers are accustomed to self-service

procurement; At the same time, IKEA's products are divided into different units, all

kinds of furniture, combining nature, customers can be a good combination of

elements copied into their own homes, eliminating the laborious design energy, and

this has led some originally did not like to bother people on the furniture, IKEA also

become a loyal customer.

Through the above methods to those at IKEA to seek the edge of the market, and

yet can provide a significant income customer base. Therefore, from the perspective

of customer needs to create a blue ocean, first of all should be concerned about the

potential business market space, in the maintenance of existing customers, while the

greatest degree of digging out the company's customer base perimeter, and then

turned to meet the differentiated needs of these customers.

III. PLAY A GOOD "CORPORATE CITIZEN" ROLE

Blue Ocean strategy requires that companies look to the future, on the one hand the

positive prediction of external trends, the other hand, in-depth analysis of trends,

looking and customer value and enterprise business models related to meeting point.

At the same time, in order to form a true sense of the blue ocean strategy, but also to

ensure that these trends must be a company's business must have a decisive role,

and irreversible, and with a clear line.

With the increase in the degree of democratization of society, the role of enterprises,

some changes have taken place, as an important component of the social system,

the behavior of enterprises directly affect people's social production and living

activities. Therefore, the enterprises in operation, not only to consider the interests of

shareholders and employees should also be fully integrated into the greater social

environment, in a "citizen" status to assume more social responsibilities.

In recent years, people have concern for the environment growing, not only some

non-governmental organizations, many ordinary consumers to buy products, they

also noted that the external behavior of enterprises. Furniture industry needs a lot of

raw materials, and these raw materials from the initial procurement to the latter part

of the design, production is closely related with the surrounding environment. IKEA

earlier aware of long-term development of environmental protection for the

importance of business and developed a relatively complete and practical working

standard. In addition, IKEA has also carried out all over the world to promote the

development of forest management plans.

Based on market conditions and consumer habits of keen insight, IKEA successfully

played a "corporate citizen" role, and then from the perspective of environmental

protection research and development of products have been adjusted to meet the

clients and the community the potential demand in this regard. The facts prove that

the concept of IKEA furniture, environmentally friendly products are increasingly

affected by global consumers.

IKEA'S LOW-COST STRATEGY:

Blue Ocean Strategy In order to maximize the profit potential, companies should be

differentiated in the formulation of the strategy taking into account the low-cost

strategy, first, the implementation of strategic pricing, and thus to achieve cost

leadership advantage. In order to effectively control costs, we must clear the order of

costs and prices, that is, prices to be determined by the traditional cost, but first

consider the price pushed the cost of setting goals.

Here's the use of such a profit model of blue ocean strategy of IKEA's low-cost

strategies for specific analysis.

I. STRATEGIC PRICE

In order to offer customers a truly low-cost products and services in the design of

IKEA products will be fully considered prior to the capacity of customers to price and

product features combine to set the expected selling price, so that the resultant

target cost will be higher than the other enterprises is much lower, while the

subsequent production processes will be within the target cost as much as possible

to ensure product performance and quality.

II. STREAMLINE MANUFACTURING OPERATIONS AND THE COST OF

INNOVATION

In the production workflow, the IKEA's strategy has three aspects: first, to find

relatively inexpensive raw materials. IKEA constantly seeking new materials and new

technology to reduce product costs, under the premise of guaranteeing quality, IKEA

into account not only timber, but also make full use of composite plastics and other

raw materials. Second, adjust the production layout, production base located in low

cost areas. In addition, IKEA has also adopted the model of flat packed storage and

transportation of products. Flat-based packagings will not only help the world adjust

the layout within the scope of production, while reducing storage and transportation

space, greatly reducing product costs.

III. CO-OPERATION WITH SUPPLIERS

Co-operation enables an enterprise to take advantage of other business advantages

and the benefits of economies of scale, reduce production capacity and other

enterprises in the gaps. This can bring high efficiency of the enterprise's production

capacity, on the other hand to promote the implementation of cost leadership

strategy.

IKEA in over 50 countries and has about 1350 suppliers and established a rational

long-term cooperative relationship. In addition to co-operation with suppliers, the

IKEA also encourages competition among providers, and to order to measure up to

those lower-priced vendors, which not only guaranteed the IKEA products are based

on the lowest cost, but also will be the most efficient production and delivery to

distribution centers throughout.

Through this model, IKEA is not only integrate their logistics systems, while low-cost

strategy for in-depth integration into business operations into every process, to

achieve the purpose of achieving the target cost.

To integrate its corporate and business strategy IKEA developed and efficient

business model, in which it has strategically devised ways to cut out cost at each

step of the value chain. Because IKEA’s corporate strategy was to introduce daily

needs furniture to mass market level at low price the operation management develop

a business model to reduce the operational cost at each level by reducing the

wastage while producing product and utilize the wastage in other products and its

designers create innovatively economic designs of furniture in total a different way,

make design which can be made in flat-packed forms and could be assembled by

the customer itself.

3. BUSINESS OBJECTIVES:

Business objectives are a way for an organization to define its goals and direction. A

company uses a combined strategy at every level of its operation to achieve its

objective. It determines how a company will allocate its resources and what

strengths, weaknesses and opportunities it may have. A business objective is usually

not altered once implemented, setting a clear course for the organization.

IKEA’S BUSINESS OBJECTIVES:

IKEA’s long-term objective is "To be the first choice for home furnishings in the

hearts and minds of its customers." IKEA is very keen on meeting a high standard of

quality and to produce long lasting products, which are very durable and keen to

keep with trends in fashion and to make sure they're at the cutting edge of design

and technology.

Specifically IKEA’s key objectives are to:

• IKEA create monopolistic market

• Identify target consumer types and geographic areas for distribution of

catalogue

• Identify types and areas with poor sales potential

• Increase sales return on catalogue expenditure

• Training and engaging their co-workers to work with environmental issues.

• Reducing cost with usage of wastage.

• IKEA create new market.

• IKEA produce at low cost and in innovative styles.

• Offer solutions and know-how that help customers live a more sustainable life

at home

• Use natural resources in a sustainable manner within the entire value chain

• minimize the carbon footprint from all IKEA related operations

• Take social responsibility, and act as a good global and local citizen

• Be transparent to all stakeholders, and communicate

• More to customers and co-workers

4. MARKET CREATION:

IKEA starts its market creation from b2b business through mail order services.

The primary concern of marketing is to protect the IKEA corporate identity but also to

communicate our vision, business idea, brand values, concept and trademarks. By

informing journalists of news and information within IKEA through press releases,

website information, catalogue distribution and product launches, IKEA is able to

communicate with a huge audience through their readers.

All IKEA policies live up to this standard from the products we sell to our internal

travel and recruitment procedures.

All areas of the IKEA marketing department work together to give consistent

messages to its customers and strengthen its brand identity. By focusing on

communicating the key messages of the IKEA concept, our vision, and business

idea it can work together to create IKEA vision of " A better everyday life for the

many people."

5. OUTPUT:

“The volume or dollar amount of production during a specific period.”

IKEA’S OUTPUT:

But in IKEA cost leadership and differentiation strategies are focused and both use

simultaneously which leads IKEA to the average growth rate of estimated to be 11%

from 1999 to 2005 which shows the sustainable growth in longer period of time.

6. FEED BACK:

Looking after their customers by doing things right the first time, ensuring that they find it

easy to shop, seek help and/ or complain, regularly monitoring and seeking customer

feedback on the businesses performance, understanding what customers want and what

they expect of IKEA.

IKEA have proven to the public that they can, and do look after their exiting customers well,

also whilst trying to accommodate for new customers. Shopping at IKEA is very different to

shopping at some of their competitors' stores in the way that IKEA choose to stand back and

wait for the customer to come to them with any problems or what they would like to

purchase. This has obviously proven to be a well thought through idea, as it appears to be

working well.

SWOT ANALYSIS

IKEA's goals of sustainability and environmental design are central to its business

strategy. It has launched a new sustainability plan to take the company through to

2015. This will combine social, environmental and economic issues.

IKEA uses SWOT analysis to help it reach its objectives. This is a strategic planning

tool. It helps the business to focus on key issues. SWOT is the first stage of planning

and looks at the Strengths, Weaknesses, Opportunities and Threats involved in a

project or business venture.

Strengths and weaknesses are internal aspects. This means that they are within the

control other business. They may refer to aspects of marketing, finance,

manufacturing or organization. Opportunities and threats are external factors. This

means that they are outside the control of the business. These may include the

environment, the economic situation, social changes or technological advances,

such as the internet.

A business can create opportunities and counter threats by making the most of its

strengths and addressing its weaknesses. For example, one of IKEA’s key strengths

is its strategic aim to use no more material than necessary in the production of each

item. In addition, it develops its product plans to increase its use of waste or recycled

materials.

• One particular table, the NORDEN table, uses knotty birch wood. The knots in this

wood usually mean it is rejected by other retailers and manufacturers as unsuitable

for use. However, IKEA has made the knots part of its design feature.

• OGLA chairs are made using wood waste from saw mills and LACK tables use a

‘sandwich’ of stiff card between wood sheets to reduce the amount of solid wood

needed.

1. STRENGTHS

Strengths could include a company’s specialist marketing expertise or its location.

They are any aspect of the business that adds value to its product or service. IKEA’s

strengths include:

• A strong global brand which attracts key consumer groups. It promises the same

quality and range worldwide

• Its vision – ‘to create a better everyday life for many people’

• A strong concept – based on offering a wide range of well designed, functional

products at low prices

• A ‘democratic design’ – reaching an ideal balance between function, quality, design

and price. IKEA’s ‘Cost Consciousness’ means that low prices are taken into account

when each product is designed from the outset.

These strengths contribute to IKEA being able to attract and retain its customers.

One way IKEA measures its strengths is the use of Key Performance Indicators

(KPI). KPIs help IKEA to assess the progress of its vision and long-term goals by

setting targets and monitoring progress towards these. An example of one of IKEA’s

KPIs is the percentage of suppliers that are currently IWAY approved. The IWAY is

the IKEA Way of Purchasing Home Furnishing Products. This guideline defines the

social and environmental requirements IKEA expects of its suppliers.

IKEA has strengths right through its production processes:

• Increasing use of renewable materials – IKEA improved its overall use from 71% in

2007 to 75% in 2009.

• ‘Smarter’ use of raw materials – IKEA increased the use of recycled or reclaimed

waste products in energy production across all stores from 84% in 2007 to 90% in

2009. Volume commitments – IKEA believes in creating long-term partnerships with

its suppliers in order to achieve this. By committing to buying large volumes over a

number of years IKEA can negotiate lower prices. This also benefits the suppliers

because they enjoy the greater security of having guaranteed orders.

• Economies of scale – for instance, bulk buying at cheaper unit costs.

• Sourcing materials close to the supply chain to reduce transport costs.

• Delivering products directly from the supplier to IKEA stores. This slashes handling

costs, reduces road miles and lowers the carbon footprint.

• Using new technologies – for example, IKEA’s OGLA chair has been in its range

since 1980.

The chair has changed through the years to reduce the amount of raw materials

needed.

2. OPPORTUNITIES

A business uses its strengths to take advantage of the opportunities that arise. IKEA

believes that its environmentally focused business conduct will result in good returns

even in a price sensitive market. As the company states:

‘There is a true business potential for IKEA in providing solutions that enable

customers to live a more sustainable life at home. IKEA is developing effective

solutions for customers in order to support them recycling or reusing used products,

aiming at no products ending up at landfill and the recycled materials used in

producing new IKEA products.’

Some of the opportunities that IKEA takes advantage of through its sustainability

agenda are:

• A growing demand for greener products.

• A growing demand for low priced products. Trends in the current financial climate

may result in consumers trading down from more expensive stores

• Demand for reduced water usage and lower carbon footprints.

IKEA has a number of areas of focus to its work with sustainability, each of which it

supports in various ways:

1. Solutions for a sustainable life at home – IKEA gives online tips and ideas for this.

2. Sustainable use of resources. IKEA aims for zero waste to landfill, wastewater

treatment and programs to reduce its use of water.

3. Reducing carbon footprint. IKEA aims to reduce energy use, use more renewable

energy, cut its use of air transport and reduce packaging. Its green transport initiative

includes an aim to reduce business flights by 20% in 2010 and 60% by 2015.

4. Developing social responsibility. IKEA’s policy includes support for charities such

as the World Wildlife Fund, UNICEF and Save the Children.

5. Being open with all its stakeholders. This involves building trust through good

communication with consumers, co-workers, key opinion formers and the press.

Being sustainable is a central part of IKEA’s image.

3. WEAKNESSES

IKEA has to acknowledge its weaknesses in order to improve and manage them.

This can play a key role in helping it to set objectives and develop new strategies.

IKEA’s weaknesses may include:

• The size and scale of its global business. This could make it hard to control

standards and quality. Some countries where IKEA products are made do not

implement the legislation to control working conditions. This could represent a weak

link in IKEA’s supply chain, affecting consumer views of IKEA’s products. The IWAY

code is backed up by training and inspectors visiting factories to make sure that

suppliers meet its requirements.

• The need for low cost products. This needs to be balanced against producing good

quality. IKEA also needs to differentiate itself and its products from competitors.

IKEA believes there is no compromise between being able to offer good quality

products and low prices.

• IKEA needs to keep good communication with its consumers and other

stakeholders about its environmental activities. The scale of the business makes

this a difficult task. IKEA produces publications in print and online (for example

‘People and the Environment’) and carries out major TV and radio campaigns to

enable the business to communicate with different target audiences.

4. THREATS

If a company is aware of possible external threats, it can plan to counteract them. By

generating new ideas, IKEA can use a particular strength to defend against threats in

the market. Threats to IKEA may stem from:

• Social trends – such as the slowdown in first time buyers entering the housing

market. This is a core market segment for IKEA products

• Market forces – more competitors entering the low price household and furnishings

markets. IKEA needs to reinforce its unique qualities to compete with these

• Economic factors –the recession slows down consumer spending and disposable

income reduces.

IKEA addresses these issues in many ways. It manages weaknesses and threats to

create a positive outcome.

Social trends: IKEA is building online help to guide customers to a more sustainable

life. Here it can focus on home improvement in the slowing housing market. It

supports customers with tips and ideas on its website to reduce their impact on the

environment. This will also save them money. Staffs are trained on sustainability,

both on what IKEA is doing and how they can take responsibility to become

sustainable for themselves.

Market forces: IKEA is large enough to enjoy economies of scale. This lowers

average costs in the long run through, for example, better use of technology or

employing specialized managers. Economies of scale also give a business a

competitive edge if cost savings are then passed on to customers in the form of

lower prices. This puts up high barriers to entry for smaller companies entering the

market.

Economic factors: IKEA’s low prices create appeal amongst its customers in tough

financial times. It is vital to keep prices as low as possible when the retail sector is

depressed. IKEA’s pricing strategy targets consumers with limited financial

resources. Its products will also appeal to those with higher budgets through good

quality and design. The company must ensure that it is always recognized as having

the lowest prices on the market in the future.

Communication plays an important role here.

PORTER’S FIVE FORCES ANALYSIS

P.E.S.T.L.E. ANALYSIS

POLITICAL

It depends on country cultures such as in the case of

China: pricing , high duty rates and PRC bureaucracy

ECONOMIC 

The recession 

Globalization (integration) and national responsiveness ( differentiation ) such as in China case

Economies of scale such as buying bulk at cheaper unit costs

SOCIAL 

Creating opportunities for employees

Support for charities such as the

World Wildlife Fund, UNICEF and Save the Children

TECHNOLOGY

Quality technology 

Communication

LEGAL 

Applicable laws and regulations applied through factories inspections

ENVIRONMENT

 Environmental activities 

Responsibility to environment

Q No: 2: Did they really negate the porter?

Answer: According to Michael Porter’s new term of ‘Stuck in Middle’ which states

that firms which use both cost leadership and differentiation or focus strategies at a

same time is stuck in middle and fails because it will not be able to sustain a

competitive advantage for long period of time. But in IKEA cost leadership and

differentiation strategies are focused and both use simultaneously which negate the

porter’s term because IKEA’s average growth rate was estimated to be 11% from

1999 to 2005 which shows the sustainable growth in longer period of time.

Q No: 3: What is Generic Strategy Concepts? Give your Analysis.

Answer: Generic Strategy includes three strategies:

o Low Cost Strategy

o Differentiation Strategy

o Focus Strategy

LOW COST STRATEGY:

When a firm leads from its low cost of the product by reducing production cost,

marking cost, administrative cost and other operating cost then it is called to be

following a “lower cost or cost leadership strategy.”

This strategy is beneficial to earn more profit than competitors while at the same time

it is also very useful in resisting the entry of new competitors in the business. Directly

linked to its mission statement, IKEA has built its cost leadership position on these

steps. It is furnishing the customer with a quality product with components derived

from all over the world utilizing multi-level competitive advantages, low-cost logistics,

and large simple retail outlets. IKEA 's strategy clearly demonstrates that the

perception that cost leadership equals poor quality in products and services is

incorrect. High quality is associated with input and process variables. Cost reduction,

on the other hand, does not mean reducing the quality of these variables, but rather

do things better, and more efficiently. Cost leadership is a part of the management

process and culture

DIFFERENTIATION STRATEGY:

Differentiation involves making your products or services different from and more

attractive those of your competitors. How you do this depends on the exact nature of

your industry and of the products and services themselves, but will typically involve

features, functionality, durability, support and also brand image that your customers

value.

To make a success of a Differentiation strategy, organizations need:

Good research, development and innovation.

The ability to deliver high-quality products or services.

Effective sales and marketing, so that the market understands the benefits

offered by the differentiated offerings.

In accordance with past market rules, furniture industry should have been committed

to providing the functionality of the products, but taking into account the IKEA

furniture in people's daily lives special meaning, and strive to use an artistic taste of

the furniture, to the customer to create a comfortable, warm home atmosphere,

thereby distinguish themselves from other companies to.

IKEA use Blue Ocean Strategy which advocates to break the traditional, seemingly

defined borders, from the perspective of customer needs, to seek channels for value

innovation, and here's customers include not only the buyers of products also

includes products, users and influencers, through the right to re-examine the

traditional customer base will help to identify potential business opportunities and

profit margins, open up a new blue ocean.

FOCUS STRATEGY

Companies that use Focus strategies concentrate on particular niche markets and,

by understanding the dynamics of that market and the unique needs of customers

within it, develop uniquely low cost or well-specified products for the market.

Because they serve customers in their market uniquely well, they tend to build strong

brand loyalty amongst their customers. This makes their particular market segment

less attractive to competitors.

As with broad market strategies, it is still essential to decide whether you will pursue

Cost Leadership or Differentiation once you have selected a Focus strategy as your

main approach: Focus is not normally enough on its own.

Q No: 4: Can your recommend different strategies for IKEA to

capture and diversify? Explain.

IKEA has a strong brand and a range of products that appeal to the mass market.

This has worked for the company; however, So IKEA should not develop a niche

market in regions where the purchasing power is likely to rise even further.

RISKS OF IKEA STRATEGY:

The risk involved with a focus strategy in that the needs of customers within a narrow

competitive segment may become more similar to those of industry-wide customer

as a whole. As a result, the advantages of a focus strategy are either reduced or

eliminated. At some point, for example, the needs of IKEA’s customer for stylish

furniture may diminish, although their desire to buy relatively inexpensive furnishings

may not. If this change in needs were to happen, IKEA’s customers might buy from

larges chain stores that sell somewhat standardised furniture at low costs. If this

happens, it is clear that IKEA should rethink its entire strategy and before reorganise

current stores in term of size, structure and objectives.

Q No: 5: After doing the previous 4, explain what have you learnt about IKEA corporate strategy and how their corporate strategies were aligned two ways to corporate and its business strategies. Did they achieve their objective? What was the objectives strategy intent of their strategies? How do you see them as a success keeping the competition away? Yes or no in your opinion. Justify your statement with clarity and relevance.

ANSWER: IKEA is a well-known global brand with hundreds of stores across the

world. In order to improve performance, it must assess its external and competitive

environment. This will reveal the key opportunities it can take advantage of and the

threats it must deal with. IKEA responds to both internal and external issues in a

proactive and dynamic manner by using its strengths and reducing its weaknesses.

Through this, IKEA is able to generate the strong growth it needs to retain a strong

identity in the market.

IKEA’s passion combines design, low prices, economical use of resources, and

responsibility for people and the environment. The company’s products, processes

and systems all demonstrate its environmental stance. For example, clever use of

packaging and design means more items can fit into a crate, which means fewer

delivery journeys. This in turn reduces IKEA’s carbon footprint.

IKEA believes that there is no compromise between doing good business and being

a good business. It aims to go beyond profitability and reputation. IKEA is intent on

becoming a leading example in developing a sustainable business. This will create a

better everyday life for its customers. IKEA has discovered a business truth – being

sustainable and responsible is not just good for customers and the planet, it is also

good for business.

These are some of the considerations on strategy and strategic decisions in the

context of the IKEA case study.

• Strategic decisions affect the long-term direction of an organization. IKEA set out

along a path which was difficult to reverse. In the 1950s and 1960s the company

was, essentially, a Scandinavian furnishing retailer. By the late 1990s the whole

thrust of its strategy had shifted to a global scale and IKEA was facing the

challenge of how to develop into the twenty-first century.

• Strategic decisions are normally about trying to achieve some advantage for the

organization, for example over competition. IKEA had been successful not

because it was the same as all other furniture retailers, but because it was

different and offered particular benefits which distinguished it from other retailers.

Similarly, strategic advantage could be thought of as providing higher quality

value-for-money services than other providers in the public sector. Strategic

decisions are sometimes conceived of, therefore, as the search for effective

positioning in relation to competitors so as to achieve advantage in a market or in

relation to suppliers.

• Strategic decisions are likely to be concerned with the scope of an organization’s

activities. Does (and should) the organization concentrate on one area of activity,

or should it have many? For example, for years IKEA had defined the boundaries

of its business in terms of the type of product (‘furnishing items of good design

and function’) and mode of service (large retail outlets and mail order). While not

owning its manufacturing, it did have an in-house design capability, which

specified and controlled what manufacturers supplied to the company. There

were signs by the late 1990s, however, that IKEA was extending its product

scope from furnishings into other product areas, as with its experiments with

housing. Over the years it had also substantially widened its geographical scope

to become one of the few truly multinational retailers in the world.

• Strategy can be seen as the matching of the activities of an organization to the

environment in which it operates. This is sometimes known as ‘the search for

strategic fit.’ While the market for furnishings was mature, with little prospect of

overall growth, the management of IKEA had seen that the retail provision of

furnishing in most countries did not meet the expectations of customers.

Customers frequently had to wait for delivery of items, which were highly priced.

The market provided another opportunity. Customer tastes were relatively

common in different countries except in specialized segments of the market:

buyers wanted everyday furniture which was well designed and looked good, but

which was reasonably priced.

IKEA also knew that it faced significant differences in its markets. By the 1990s

the number of countries in which IKEA was represented was a great deal larger

than in the company’s early days. This meant that IKEA had to understand

buying habits and preferences from a much wider base.

This link between overall strategy and operational aspects of the organization is

important for two other reasons. First, if the operational aspects of the

organization are not in line with the strategy, then, no matter how well considered

the strategy is, it will not succeed. Second, it is at the operational level that real

strategic advantage can be achieved. IKEA has been successful not only

because of a good strategic concept, but also because the detail of how the

concept is put into effect – the strategic architecture – in terms of its logistics of

buying and servicing, shop layout and merchandising to supplier and customer

relations, all developed over many years, is difficult to imitate.

SUCCESS FACTORS

High quality furniture that reasonably priced and readily available(cost

leadership)

Emphasizing, simplicity, durability and safety

Its standardized strategy of internationalizing minimized costs

Marketing mix (catalogues, stores…)

Excellent international procurement

Excellent supply chain management and IT infrastructure