IKEA Comprehensive Analysis 1

IKEA COMPREHENSIVE ANALYSIS

Student’s Name

Organisational Strategy & Decision Making

Professor’s Name

School

The City and State

07 May 2015
 IKEA Comprehensive Analysis 2

Abstract

Furniture is a core appliance in homes, and the consumers of this product want a product that

conforms to the home needs. Consumers want good designs, low-priced and Eco-friendly

products to maintain their homes aesthetic value. The report seeks to find out how IKEA the

largest designer and seller of home furnishings can maintain the attributes of quality designs,

low-priced and Eco-friendly for sustainable growth and customer satisfaction. The report first

provides the core competencies of IKEA home furnishing through a brief review of its purpose

and history. Next, SWOT analysis is provided, which reveals that IKEA strengths outweigh its

weaknesses. External analysis section provides the threats of the recession globally, the

reduction of disposable income for the consumer and changes in the social trends. The goal of

IKEA is to ensure the sustainable environment and increase it brand recognition globally. The

next part of PESTLE analysis can provide the required legal laws to be followed i.e. the UK

Sales of Goods Act and Employee Protection Act. Porters Five Force provides the need for

assessments of existing firms, suppliers and buyers. To achieve a competitive advantage in the

complex environment, IKEA must be willing to determine their valuable core competencies i.e.

Eco-friendly, low-priced and well-designed furniture products and nature these competencies to

fruition.

Keywords: Sustainable, Eco-Friendly, Strategic, Well-designed, Low-priced, IKEA

Contents
 IKEA Comprehensive Analysis 3

Introduction......................................................................................................................................4

IKEA................................................................................................................................................4

SWOT Analysis...............................................................................................................................4

Internal Audit -Strengths & Weaknesses.........................................................................................5

External Audit -Opportunities & Threats........................................................................................6

PESTEL Analysis............................................................................................................................7

Porters Five Forces........................................................................................................................10

Discussion .....................................................................................................................................12

Evaluation......................................................................................................................................13

Conclusion ....................................................................................................................................14

Recommendations .........................................................................................................................15

Bibliography..................................................................................................................................16

Appendix A....................................................................................................................................18

Appendix B....................................................................................................................................19

Appendix C....................................................................................................................................20

IKEA Comprehensive Analysis

 IKEA Comprehensive Analysis 4

Introduction – IKEA

IKEA is a group of companies that is multinational and deals with furnishing of furniture, home

accessories, appliances and small motor vehicles (IMIT 2003 p. 1). The company was founded in

the year 1943 by Ingvar Kamprad, and it is currently controlled by INGA foundation (Ayodele

2015 p. 2). IKEA core purpose is offer furniture and appliances designs that have modern

architecture, and it provides Eco-friendly interior designs (IKEA Website 2015). According to

IKEA UK (2015 p. 77), IKEA has over 9, 500 products available at 18 stores in UK, and the first

store to be opened was in 1987 at Warrington. IKEA operates in 46 countries with 351 stores and

visitors over 565 million have visited the stores.

The expansion of IKEA is tremendous with its opening of new stores numbering 21 in new

different 11 countries (IKEA UK 2015 p. 77). The growth of IKEA organisation is necessitated

by its low prices offered through its business model couple with Eco-friendly and well-designed

products making if favourable to many customers (Ayodele 2015 p. 7). The situational analysis

of IKEA helps to provide a strategic analysis focus on the internal and external environment

surrounding the organisation in terms of designs, suppliers, cost, stakeholder, customers and

competitors. According to Capon (2008), strategy involves the formulation of an integral

direction to enable organisations achieve its goals and objectives in the complex environments.

SWOT Analysis

The section will deal with the internal and external audit of IKEA environment. The SWOT

analysis assists IKEA to achieve its business strategy of environmental and sustainable designs

(Ayodele 2015 p. 9). A simple structure for IKEA SWOT analysis table is available in Appendix

A.

Internal Audit -Strengths & Weaknesses

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IKEA internal audit involves the aspects of the brand, the designs, the cost, the quality, the

performance and innovative technologies. According to IKEA UK (2015) there exists a strong

brand for the IKEA organisation as it seeks to expand globally thus attracting key consumers

groups. According to Ayodele (2015 p. 9), IKEA provides functional products that are well-

designed to meet the expectations of the key customers. The designs are affordable to many has

IKEA has capitalized in the reduction of its manufacturing cost and the manufacturing plants

development, which ensure the recycled material use.

IKEA uses innovative technologies i.e. iPhone application catalogue, which facilitates the

experience of the customer when shopping (Johansson, Hansson, Hansson and Thelander 2008).

Additionally, IKEA applies Key Performance Indicators (KIP) to measure its strengths, which

result in specific and measurable strengths. The ability of IKEA to balance design, quality, cost

and functionality has provided it an upper hand in competitive advantage within the furniture

market, which is highly competitive.

However, the highly competitive furniture business has a few weaknesses for IKEA

management, where it cannot manage its stakeholders due to the global business magnitude. The

organisation cannot handle the product differentiation and the issues of suppliers not abiding by

the IWAY code of IKEA Group (IKEA 2015). The IKEA cannot control the quality and

standard all over its stores. IKEA suffers other weaknesses of lack of sufficient communication

mechanism and exchange of environmental activities information among the stakeholders and

the consumers (Ayodele 2015 p. 11). There is inefficient communication caused by the huge

operations of the business, which affects organisations with many franchises (Jonsson and

Kalling 2006 p. 3). In the UK market, there is high competition from Argos furniture retailer,

which tops in sales and visits (IKEA UK 2015). Additionally, another competitor is the DFS,
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which lowers the share of the market for furniture product for IKEA to 3 in 10 buyers (Johansson

et al. 2008).

External Audit -Opportunities & Threats

According to Ayodele (2015 p. 10), the world today require greener product, and thus IKEA get

a better opportunity as it mostly rely on the provision of Eco-friendly products. Additionally,

IKEA benefits with its environment sensitivity products more to its manufacture of green

products that are low priced (Ayodele 2015 p. 10). The sustainability plan of IKEA is to reduce

carbon emissions and water wastage coupled with better stakeholders, consumers and suppliers

relationships (IKEA 2015). Thus, increase competitiveness, sustainability and higher profits.

Another opportunity lies in the growing desire for discounts, quality and better customer service,

which can provide IKEA with a way to influence the purchasing decisions of consumers.

Additional opportunity comes from the trends of furniture purchase at various franchise stores,

which are performing better i.e. DIY discounted stores (IKEA UK 2015).

However, IKEA has better opportunities in the future but threats of global recession and issues of

suppliers are threatening IKEA sustainable plans of IKEA (IKEA 2015). Another threat is

concerning social trends, where the customers who are first-time are not interested much in the

housing market (Ayodele 2015 p. 11). Economic forces also a threat to IKEA due to the lowered

disposable income and competition forcing IKEA to reform value chain and increase innovative

technology optimisation (Johansson et al. 2008). IKEA faces a barrier of entrant into the

furniture industry due to the strategic development required for furniture cost lowering and

provision of quality furniture.

PESTLE Analysis
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According to Ayodele (2015 p. 11), PESTLE involves the techniques of management of external

factors, which may influence the organisation performance. The IKEA external factors in this

analysis include technological, economic, political, social, legal and environmental all affecting

its performance. According to Johnson, Scholes and Whittington (2008 n.d.), the macro-

environment is an external environment direct affecting organisation. A simple structure of

IKEA PESTLE analysis is provided in Appendix B at the end of the report.

Political

The political impact of IKEA business is the laws of regional tax and the corporate tax, which as

structured according to subsidiary model (Ayodele 2015 p. 11). Barriers to trade and tariffs for

the protection of local consumers and the consumers will pay prices that are high (Reynoso 2009

p. 473). Thus, IKEA business, which rely on local manufacturers are not impacted much by

barriers of trade and tariffs. Another issue of political effects is the political instability of nations

IKEA operates in i.e. Poland fall of communist government led to effects of the relationship

between buyers and suppliers. The political instability involving frequent strikes, shut down of

cities, and protests affect the perception of the organisation by consumers negatively.

Additionally, the regulations of FDI for retailers that are single-brand affect IKEA business. The

support and dismissal of progressive reforms by political parties can negatively impact

businesses.

Economical factors

The growth of economy increases the employment rate and thus higher living standard for the

citizens, which influence business as purchasing power for consumer increase with increase their

disposable income (Reynoso 2009 p. 473). According to Thelander (2009 p. 200) IKEA is

impacted in places where economies are emerging and the growing positive future. Another
 IKEA Comprehensive Analysis 8

economic factor is the labour cost in China and India, which impacts profits margins of IKEA

due to the availability of skilled labour that is low-cost. Another aspect is the rising inflation

rates, such as UK, which destabilises the market, consumer behaviour is deformed reading to

expenses increase and slow economy (Ayodele 2015 p. 11). Lastly, the other area of importance

in economic analysis id the market trends and the currency changes in various nations.

Social Factors

People are accustomed to lifestyle changes and growing trends of social, fashion and cultural,

which impacts the choice of consumer spending habits. Consumer tastes and preferences for

furniture are changing rapidly, with people opting for furniture’s that are easy to assemble and

less bulky furniture. Customers love certain brands that are foreign depending on their country of

origin. Another social aspect to look at is the different demographic values i.e. aged people do

not buy while young want trendy products (Ayodele 2015 p. 12). Also, some countries where

IKEA have poor infrastructure roads, which affect company transportation needs requiring better

national highways and network structure that is reliable (Ayodele 2015 p. 12). Additionally, the

shift from rural to urban population implies more furniture for less value as people see jobs.

Lastly, there is been a reduction in income levels and people are shifting from buying IKEA

furniture due to it being a less priority (IKEA 2015).

Technological Factors

Consumer mobile payment, which is a technological innovation, provides consumers with easier

experience and access to online stores of retailer’s and a payment method that is reliable

(Reynoso 2009 p. 474). The internet has played a major role in the development of online

purchase and offered social media for businesses. The online store and social media provides

marketing channel that is unconventional where awareness is promoted and development of

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customer’s relationship (Ayodele 2015 p. 13). Additionally, (Radio Frequency Identification)

RFID technology introduction to retail sector benefits corporations in cost reduction, self –

stocking and check out efficiency (Ayodele 2015 p. 13).

Legal Factors

Companies are affected by legislations in each country, where standards and legislations of

protective of sales, goods, and businesses impacts company decisions. UK has a Sale of Goods

Acts that protects the companies and affects IKEA in UK in terms of its operations (Ayodele

2015 p. 15). Additionally, another legal implication is the fines and consumer rights protections

of which occur when organisations change law compliance, practices of business and reputation

of their image (Reynoso 2009 p. 474). Lastly, according to Ayodele (2015 p. 15), we have

legislations of employee protection acts, where IKEA accused of group values contradictions.

Environmental Factors

Carbon emissions accountability and development of community ethical operations promotes

IKEA sustainability and success. IKEA is observed in its directions towards the sustainable

environment through protection of the environment by recycling, hazardous waste from

manufacturing proper disposal and regulations of carbon emissions (Ayodele 2015 p. 14).

Compliance with the environment regulations is essential to ensure you are in agreement with the

local government and your company CSR ethical behaviour (IKEA 2015). Raw materials

sourcing are regulated and there in need to introduce friendly environment material for

packaging.

Porter’s Five Forces

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Porter’s five forces provide knowledge of the organization competitive position and power or the

ascendancy in situations of competition in terms of suppliers, customers, competitors and

substitutes (Porter 2008). According to Johnson, Scholes and Whittington (2008 n.d.), Michaels

five forces of frameworks allowed strategic analysis of the competitive nature of the business

and used to formulate strategies. The IKEA five forces of porters are discussed below, and

Appendix C provides a structure of the forces at the end of the report.

Threats of new entrants

There exist low threats to new entrants in the IKEA furniture and fitting business due to its high

investment of capital, saturation of the market and requirement of skilled labour (Ayodele 2015

p. 16). A global market such as IKEA is hard to have competition due to its discounted values

and stores –DIY.

Bargaining Power of Suppliers

IKEA bargaining power of suppliers is weak as the suppliers compete on getting the best deal

from the enormous company. IKEA can outsource raw material from various suppliers, which

they fill comfortable and convenient with (Dudovskiy 2014 n.d.). In other case, IKEA suppliers

form a strategic relationship according to IKEA values thus ensure some suppliers have

bargaining power (IKEA 2015). Through empowerment, IKEA can optimize their resources and

grow their profits. The suppliers face transportation issues and restrictions of products in some

countries.

Bargaining Power of the Buyers

According to Porter (2008 n.d.), customers or buyers are influenced by the quality of the product,

the price the appearance, the effect on the environment. Bargaining power is high as due to the
 IKEA Comprehensive Analysis 11

availability of different substitutes for the buyers to choose. The economy of Europe is

dwindling thus less support.

Threats of Substitutes products

According to Ayodele (2015 p. 15), substitute product is of a weak threat to IKEA due to the

IKEA modern furniture, which is up-to-date. According to Johnson, Scholes and Whittington

(2008 n.d.), demand for particular products is reduced by substitutes, if they are fewer substitutes

the better the demand. IKEA has capitalized in the provision of better designs, quality furniture,

functional furniture and trendy surpasses many of its competitors i.e. Argos (IKEA Website

2015).

Competitive Rivalry between Existing Players

Existing players in the furniture industry i.e. Argos, Euromarket Designs Inc., and Galiform offer

quality and low-priced products. IKEA has grown more in Japan and China markets due to USP

(Unique Selling Point) and DIY (Do-it-Yourself) services (Ayodele 2015 p. 15). However, other

competitors are adapting the methods of IKEA and thus proving a competitive platform in terms

of marketing and consumer satisfaction. The competitive rivalry is expected to diminish due to

the recession affecting the behaviour of consumer and resulting to low priority in spending on

furniture.
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Discussion

The internal and external analysis of IKEA home furnishing company provides an in-depth view

of the opportunities, strengths, and weaknesses and threats. According to Reeves and Deimler

(2011 p. 136), globalization, transparency and emergence of new technologies can monitor and

challenge the practices of organisation sustainable management. Organisations are fighting to

become profitable with economical and rapid experiments of business models, services and

products (Reeves and Deimler 2011, p. 138). According to Ayodele (2015 p. 7), key strengths of

IKEA is strategic measures of development of manufacturing plants, which reduce cost and offer

recycling optimization. IKEA, use of innovative technologies i.e. Catalogue iPhone, which

strategically helps the organisation to attract more customer through the consumer experience.

Next, Porter five forces provide the organisation power probability, and IKEA new threat of new

entrants is weak due to its capital intensive business model (Ayodele 2015 p. 16). The

purchasing power of the buyers is strong in comparison to the many available furniture

substitutes to choose from, but they have managed to control buyer power through quality and

low-cost and many stores. IKEA rivalry from competitors i.e. Argos and EuroMarket Designs

are high due to the availability of other low-priced products (Ayodele 2015 p. 15).

However, IKEA market is competitive and has issues in the management of it stakeholder and its

suppliers in term of its IWAY code. According to Srivastava (2005 p. 58), the management of

organisations need to know their critical core competencies and should nurture the valuable core

competencies.
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Evaluation

How can IKEA be strategic in maintain a sustainable company and make the profit?

According to Brahma and Chakraborty (2011 p. 7), there is a need for strategic management,

through Resource-Based view (RBV). It assists to offer a competitive advantage in the

international market. IKEA has made some remarkable progress to follow through its strategic

direction, through the development of eco-friendly furniture business, which is low-priced

offering it a competitive advantage in terms of sustainability and resourcefulness. Next, it has

resulted to use the renewable material has improved in 2009 to 75% from 71% in 2007 (IKEA

UK 2015 p. 78). IKEA direction in the use of raw materials that are smarter through recycling of

products is a big step toward environmental sustainability. Additionally, IKEA has implemented

a strategy of zero wastage and the reduction of carbon footprint through 60% reduction in air

transport in 2015 (IKEA UK 2015 p. 78).

Furthermore, another strategic direction is the ability of IKEA to strike a balance on it cost, value

design and functionality giving it a competitive and cost advantage in the competitive market.

Additionally, IKEA has strategically created low-price to target the consumers whose finance is

limited and strategically offer value-based to stable customers by providing better designs and

quality. IKEA is heading in a positive strategic direction as it builds online guide to help

customers to live a sustainable life. It has impacted the Global environment, social and economic

changes in the host countries where IKEA has franchise and business operations.
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Conclusion

In conclusion, IKEA is the leading brand in home furnishing with numerous stores all over the

world. There is a need for internal and external audit of IKEA strengths and weakness to

understand its global environment. This industry is very volatile and complex in terms of

political, environmental and social issues. The SWOT, PESTLE and Porters analysis are

provided to help IKEA formulate its strategic management. In terms of growth opportunities,

market dynamics, competitors, social issues, suppliers and how it will deal with the external

threats. IKEA strengths must be capitalized, and the weaknesses reduced. According to the

analysis of IKEA, their passion rests in the production and manufacture of economical, low-

priced designs for its furniture, which are eco-friendly. The zero wastage and carbon reduction

is a sustainable practice that will ensure it is at par with global strategies of carbon emissions. In

this way, IKEA can strategically manage the product-market. The evaluation provides that IKEA

has adopted a dynamic and proactive approach towards maintaining a competitive edge.

However, IKEA can cement its global brand through employing the opportunities and transform

its diverse weaknesses into strength. Organisations must be willing to adapt to globalization, use

of new technologies and employ transparency in their organisation. To achieve a competitive

advantage in the complex environment, IKEA must be willing to determine their valuable core

competencies i.e. eco-friendly, low-priced and well-designed furniture products and nature these

competencies to fruition.
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Recommendations

The trendy age group in the today market prefer new furniture design models that are affordable

and environmental-friendly. IKEA need to provide the specified products continuous to ensure

customer satisfaction. IKEA must maintain their low-price due to the changing priority following

recession. Consumers disposable income is reducing and thus to attract more customers in future

the designs, quality and cost must be acceptable. In their retail stores and its operations, the

working conditions needed to be in control and required standard adopted to maintain quality.

The marketing of the company among the IKEA consumers and stakeholders should be

encouraged through online platforms as this is the era of social media. There is a need for IKEA

to employ the suggested strategic management measures to ensure sustainable business.

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 IKEA Comprehensive Analysis 17

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Appendix A

Swot analysis for IKEA furniture furnishing (Ayodele 2015 p. 24)

Strengths Weakness

- Strong Brand attracting Key consumer groups - Cannot manage stakeholders and product

- Use of Key Performance Indicators (KIP) differentiation

- Manufacturing cost reduction through - Stakeholders and Suppliers not abide to

Material Optimization IWAY IKEA group code

- Use of innovative technologies i.e. iPhone - Competition from Argos in UK

Catalogue - DFS biggest advertise of furniture

- Cost Consciousness - Ineffective communication about

environmental issues to customers

Opportunities Threats
-Rising desires for quality, Offers and discount - Global recessions and supplier issues

and customer service - Shifts in social trends

- Demand for eco-friendly products, which are - Economic factors leads to consumers

low-priced lowered disposable income

- Carbon emissions and water waste reduction - Strategic development required for low

- Improved furniture purchase at franchise furniture cost and increase quality

stores - Competition on the rise

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Appendix B

PESTEL analysis for IKEA Home furnishing (Ayodele 2015 p. 25)

Political Economical
- Corporate tax , barriers of trade and tariffs - Recession due to government fiscal and

- Subsidiary IKEA model abiding to regional policy of monetary

tax laws - Emerging economies high disposable income

- Foreigners Policies by ruling party for consumers

- Political instability affects relationship of - Cost of labour, skilled labour at low –cost in

supplier-buyer China and India

- High inflation rates in UK

Social Technological
- Rural –urban population shift for product at - Consumer mobile payment for easier

less cost and demographics effects experience for customers

- Changes in Cultural trends, fashion for - RFID innovations for online to reduce cost

furniture easy-to-assemble - Social media for unconventional marketing in

- Road network infrastructure customers relationship

Environmental Legal
- Climate pollution changes for accountability - Sales goods Act of UK for quality products

toward carbon emissions and consumer rights

- Recycling, waste disposal compliance -Employee protection Act as per group values

- CSR attitude by host country - Policies for Raw material sourcing

Appendix C

Porter’s Analysis, IKEA Five forces (Ayodele 2015 p. 26)

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Weak Threats of entry

-Intesive investment required for
global furniture
- Highly skilled labour is required
- Market saturation
- DIY discounted stores
- Recessed economies

Strong Compettive Rivaly of

Weak Power of Barganing Power Exiting Firms Strong Buyers Bargaining Power
for Suppliers -Argosm, Euromarket Designs
- High number of substitute to
Inc., have quality and low priced
-Acess of resources is wide designs chooce from
- Restriction of countries for - Global recesion changing - IKEA manufacture quality
products consumer buying prefrences furniture
- IKEA DIY and USP adapted by
- Transportation problems competitors
-Economy is dwidling in Europe

Weak Threat of Substitutes

- IKEA well designed and quality
characterstics
- Trendy furniture