An IKEA case study

SWOT analysis and sustainable business planning

Strategic Management

Describe what is meant by a swot analysis?

SWOT ANALYSIS is one of the most used forms of business analysis. A SWOT examines and assesses the impacts of internal strengths and weaknesses, and external opportunities and threats, on the success of the "subject" of analysis. An important part of a SWOT analysis involves listing and evaluating the firms strengths, weaknesses, opportunities, and threats. Each of these elements is described: Strengths: Strengths are those factors that make an organization more competitive than its marketplace peers. Strengths are what the company has a distinctive advantage at doing or what resources it has that is strategic to the competition. Strengths are, in effect, resources, capabilities and core competencies that the organization holds that can be used effectively to achieve its performance objectives. Weaknesses: A weakness is a limitation, fault, or defect within the organization that will keep it from achieving its objectives; it is what an organization does poorly or where it has inferior capabilities or resources as compared to the competition. Opportunities: Opportunities include any favorable current prospective situation in the organizations environment, such as a trend, market, change or overlooked need that supports the demand for a product or service and permits the organization to enhance its competitive position. Threats: A threat includes any unfavorable situation, trend or impending change in an organizations environment that is currently or potentially damaging or threatening to its ability to compete. It may be a barrier, constraint, or anything that might inflict problems, damages, harm or injury to the organization.

2. Explain the difference between internal and external factors. Internal Factors are the strengths and weaknesses that internal to the organization. Whereas External Factors highlights the opportunities and threats presented by the external environment to the organization. The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives. What may represent strengths with respect to one objective may be weaknesses for another objective. A firms strengths and weaknesses (i.e., its internal environment) are made up of factors over which it has greater relative control. These factors include the firms resources; culture; systems; staffing practices; and the personal values of the firms managers. Meanwhile, an organizations opportunities and threats (i.e., its external environment) are made up of those factors over which the organization has lesser relative control. These factors include, among others, overall demand, the degree of market saturation, government policies, economic condition, social, cultural, and ethical developments; technological developments; ecological developments, and the factors making up Porters Five Forces (i.e., intensity of rivalry, threat of new entrants, threat of substitute products, bargaining power of buyers, and bargaining power of suppliers.)

External general and industry environment

Political Factors: Increasing globalization and protectionism, presents a challenge as well as an opportunity to IKEA. The challenge will be to compete against unknown forces and to source the best quality/financially viable products from world over. IKEA can enter the markets of emerging companies through joint ventures or partnerships to explore these new markets. At the same time, however, the company has to be wary of protectionist policies of many host countries it operates in since there is a real risk that countries may impose high tariffs on goods imported in an attempt to spur domestic production. However, IKEA may stand to lower its costs as governments begin to lower taxes or provide subsidies to help businesses stay afloat in this economic crisis. Economic factors: The fluctuating commodity and raw material prices all over the world result in rising purchasing costs for IKEA. This will have an impact on the margins of the organization and might lead to passing over the cost to consumers by increasing prices of most things in the supermarket. Furthermore, fluctuating commodity and raw material prices leading to an overall situation of increasing prices, resulting in decreased competitiveness. Social Factors: As Ikea forays into the lesser tap markets of China and India, social factors may also come into play. Asian societies are generally more savers than spenders and in such economic certainty; Asian consumers may be unwilling to spend on new furniture, preferring to save for a rainy day. At the same time, the more affluent consumers who are able to spend may be unwilling to buy products from Ikea which has a reputation of requiring self-assembly. Technological Factors: RFID (Radio Frequency Identification Device) technology can be used for significant benefits to the supply chain of IKEA. If adopted, this technology will lead to fewer inventories for the supermarket firms resulting in lower cost for the company which could translate into cheaper prices.

3. Analyse ways in which ikea has managed to minimize threats to its business
Using the porters six forces model, the following analysis was madefor ikea based on the factors: Power of the buyers: There is a little power because of the exiting low-price options. Furniture and other small items have an alternative and consumers have limited alternative choices that make the IKEA unique among its competitors. In addition the low price strategy is another way of the company to response in buyers need. Power of supplier: IKEA has its thousands of suppliers that set standards in delivering the material. Once in a while, for some products, the IKEA bids for the contracts with multiple

companies to craft the same products. Most of the supplier work in IKEA and compete with other suppliers, and they have a little bargaining power. Because of the low pricing, IKEAs profit margin also affects the price in raw material than by prices in labor. Rivalry: the IKEAs furniture competitorsoffers different styles and functionality corning targets a new low cost in terms of furniture line; cratel& Barrel offers a furniture in box which is subject in higher prices Ethan Allen aimed at a more upscale market; Wal-Mart is equipped in a big box furniture that is categorized under the general store must hav e items, but dont have much of a style. IKEA is the most successful in delivering the complete package for the customers that reflects on weak rivalries. Substitutes: There is no specific product that can be a substitute for furniture but IKEA at least, have to keep up with the latest trends, to avoid becoming out of style. Another advantage is that through their cutting and leading technology, IKEA could copy any new style fairly and move each the product into its stores. New Entrants: Another furniture company is rolling on low-cost strategy and should compete with the IKEA as the excellent company in delivering the furniture and house wares. IKEA stores do not reach many small towns and this is an opportunity for the new competitors to move into small and midsize cities with smaller stores and less selection. But not easier in city because new entrants have to establish a vast supply chin and create a unique brand name. Relative power of stake holder: IKEA has being opened 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. Based on the analysis, we have suggested the following suggestion for IKEI: In order to gain high market share in different country, IKEA need to emphasize a pull marketing strategy by launching a campaign that promotes furniture as a fashion statement. By pull marketing strategy people will be aware of good quality furniture. Asia is considered as emerging market and has largest consumers base with more than three billion populations, IKEA need to build many stores in these countries to facilitate easy access to stores without time consuming. For IKEA to have competitive advantage, they should design a web site which can help the customers to design their own furniture (customization), with the dimensions and the colors they need. This will give them large market segmentation that the customers would like to design their furniture.

IKEA is known by their stylish and affordable furniture retail business. So to sustain in this position IKEA need to upgrade its products continually based on costumers test and preferences.

4. Discuss the contribution of swot analysis to ikea business growth