Table of Content

1 Introduction ..................................................................................................................... 2

PART 1 – Recent past strategic development history of IKEA and its outcomes ............. 3 2 3 4 5 6 7 8 Strategic development history an overview .................................................................... 3 Pattern of strategy development in IKEA ....................................................................... 3 Anders Moberg’s era, low cost high quality strategy ..................................................... 4 International expansion strategy of IKEA ...................................................................... 4 IKEA’s corporate culture a way to its sustainability ...................................................... 5 IKEA’s product differentiation strategy that attracts the customers ............................... 6 Summary of IKEA’s recent past strategic development ................................................. 6

PART 2 – Current strategic situation of IKEA..................................................................... 7 9 PESTEL analysis on furniture industry .......................................................................... 7

10 Porter’s five forces for IKEA in furniture industry ........................................................ 8 11 SWOT Analysis for IKEA ............................................................................................ 10 PART 3: Strategic directions for the future ........................................................................ 13 12 Strategic clock to develop competitive strategy options............................................... 13 13 Strategic direction using Ansoff Matrix ....................................................................... 14 14 Evaluating the strategic choice ..................................................................................... 15 15 Conclusion and Recommendation ................................................................................ 16 16 Bibliography ................................................................................................................. 17

opportunities and threats of IKEA. Based on the above results. Part one evaluates the recent past strategies that IKEA pursued and its outcomes. Finally a strong recommendation is been given to IKEA about its future strategic choice. sustainability and acceptability in its context. 2 . current strategic position is been identified by analysing the macro and micro environmental factors that influence the performance of the organizations and identifying the strengths. Part three deals with developing future strategic choices that suits IKEA’s goal and mission and those choices are been evaluated to identify the suitability. It identifies the strategic development process involved in its past and its consequences.1 Introduction This paper consists of three major parts that leads to the strategic development process for IKEA. Part two evaluates the current strategic position of IKEA. weakness.

1993). IKEA had focused on young furniture buyers and also it targeted them to market its products. Moreover. However. functional home furnishing products at cheap price” 3 . 1980). pp. Some of those were long-term changes and far-ranging implications for organisational structure and control. IKEA had an understandable purpose and structured value in both business achievements and both customers and employees relationship. Retail commentators and business analysts said that the success is based on its well established long-term strategy that has clear focus on its customers and the skill in implementing the strategies successfully (Economist. rather than fundamentally changing direction (Johnson & Scholes. 3 Pattern of strategy development in IKEA Strategic development process of organisations is better to describe and understood typically in terms of continuity. For example. at that time he started selling pens. Once an organization has adopted a particular strategy.PART 1 – Recent past strategic development history of IKEA and its outcomes 2 Strategic development history an overview IKEA is a leading furniture retailer that operates globally. Kamparad used the same retailing concept in all countries (Norman & Ramirez. which is a major change. 67-68). the growth of the company was incremental and it adopted a particular strategy “To offer a wide range of well designed. First catalogue is been realised. 1997). IKEA pursued many strategies in the past to obtain the current top position. The company was founded by Kamprad in 1943. However. IKEA emerged one of the most successful companies in retail business. Company like Burton Group transformed from manufacturing to retailing. it depends upon the successfulness of the adopted strategy. While looking into IKEA’s growth it was organic growth. In the beginning the stores were built in Scaninavia and it’s been expanded wherever it got opportunities. In 1951. Kamparad penned all the text himself. The company is been transformed into a huge company that generates 23 billion Euros per annum. it tends to develop from and within that strategy. There is a tendency towards momentum of strategy (Miller & Friesen. Christmas cards and seeds from a shed on his family in Southern Sweden. 2011. In IKEA’s case the company transformed itself from a small corner shop to a giant retailer. the company gradually expanded to a giant retailer.

IKEA was one of the leading companies to become a global player. So Anders Moberg started looking opportunities in international markets for expansion. in a country like this if a business is very strong and successful then it is reasonable to expand into international markets at some point.800 suppliers in 45 countries at approximate 20 to 40 percent lower cost compared to its competitors. Anders Moberg dressed informally. IKEA planned to deliver low-cost and high-quality products by redefining its relationship with its suppliers by establishing 30 buying offices around the world. it is time for the company to expand its market. Anders Moberg became the CEO. low cost high quality strategy In 1980’s IKEA remained economical in its spending. Now. IKEA found much bigger growth potential outside Sweden. it made the shirt manufacturer to be employed to produce seat covers. IKEA built its brand through its uniqueness on its products and its low cost high quality strategy. 1993). he used to clock in just like other employees. IKEA chosen most economical suppliers over traditional suppliers. his simplicity and business tactics of understanding the customers and fulfilling their expectations encouraged the customers. Through the above strategy the company attracted most of the cost sensitive customers and obtained a significant market share. 5 International expansion strategy of IKEA Sweden is a very small country and it is logical. The company believed that the brand 4 . The company’s incremental strategy is been detailed in the following sections.and stick to it by improving its resources and capabilities to meet its strategic requirement. IKEA managed to procure 12. The company attained its break-even and started offering the best designs in low price that attracted most of the population. Suppliers leased equipments and they were trained to bring the quality up to world-class standards. and he used to travel on economy class air-tickets and expected his executives to do likewise (Norman & Ramirez. The following section details the expansion strategy of IKEA. It is an impractical practice however. IKEA developed its core competence with good quality and cheap price. it relocated to Denmark to save Swedish taxation. once suppliers join into the IKEA network they got access to global markets and received technical assistance.000 items from 1. he used to stay in economically class hotels in international trips. Thus. 4 Anders Moberg’s era.

In 2005. integrating them into products and delivering them to the stores with less cost of inventory management. acted as logistical control points.85 million. IKEA re-organized its supply chain as it was supposed to cope up with the widely dispersed sources of components and high-volume orders made it imperative for the company to have an efficient logistics system for ordering parts. These provided storage facilities. It produced the furniture in fibreboard and particleboard for the first time in same year. 15 percent of the turnover is being reinvested in expansion (Norman & Ramirez. In 1999. 2003). It was printed in 38 various editions in 17 languages of 28 countries. This was one of the key strategies to improve the working ability of the employees towards the organisation goal. IKEA recovery was launched in 100 stores in Europe in 2003 by which repaired and recycled instead of waste the materials. 6 IKEA’s corporate culture a way to its sustainability In 1996. 2008).awareness has always been higher than the company’s actual size and sales volume (Kling & Goteman. These new products launched every year shows that the IKEA recognized the environment needs and made the valuable was considered the major marketing medium tool. Catalogue was spent 70% of the annual marketing budget. IKEA split into three groups. holding unit costs down and helping stores to anticipate needs and eliminate shortages (Baraldi. comprising the retailing operations. it would continue to have influence-rich roles in the governance of IKEA. In 5 . reducing the need to store production runs for long periods. IKEA made all type of home products available under a roof. preserving both its profitability and egalitarian culture. and third one in banking and finance. Andres Dahlvig became a new president and CEO for IKEA group of retail stores. The new structure meant that the Kamprad’s family would not access to the capital of the business or the right to inherit it. consolidation centres and transit hubs and aided integration of supply and demand. In October 9. IKEA catalogue. an organisation holding the franchise and trademarks. IKEA shopping online was introduced in the year 2000 which made easier way to buy the products from home itself. 1993). However. He planned to expand the company using its internal funding itself. total sales profit of that special day form the worldwide stores was divided equally amongst all co-workers and hard working employees which was €84. 1999. The next. IKEA has achieved this through its world network of 14 warehouses. Kamprad believed that IKEA will survive. IKEA labelled foods were launched about 150 foods with high quality in 2006.

110 million copies of catalogues were distributed which was three time higher than bible prints available in United Kingdom (IKEA. 8 Summary of IKEA’s recent past strategic development IKEA identified its customer’s expectations and developed an inimitable core competency through low cost high quality strategy to fulfil its customer needs. economically. IKEA products are functional and appealing. IKEA’s products are based on a functional approach to design. Its international expansion strategy supported the company to create global brand awareness and to increase its market share. Its unique corporate culture and diversity in management roles enable the company to compete more flexibly. The company organized its resources and capabilities to support its core competency. 6 . Its designs products those are attractive. IKEA is the home furnishing specialist. the company is committed to have a good relationship with its suppliers to purchase good quality products. and enable many people to improve their home life through practical solutions to everyday problems. 2011). IKEA makes sure that the quality of the product must be appropriate for the intended use (IKEA. practical and easy to use. 7 IKEA’s product differentiation strategy that attracts the customers IKEA’s product range is developed to be extensive enough to have something that appeals to everyone and to cover all functions in the home. 1993). Its diversified products and unique presentation played an important role in its success. The products are modern not trendy so they are practical enough for everyday use. They don’t have unnecessary features and they give genuine solutions for specific home furnishing needs and are made of the most suitable materials for their purpose. The company developed good relationship with its suppliers to get cheap products. distribution and retail costs to benefit its customers through low price (Norman & Ramirez. So. IKEA believes that products don’t appeal unless it represents good value for money. 2011).2008. IKEA’s concept of marketing is that “We do our part” by focusing on our part by designing consumer valuable products through inexpensive materials in a novel way ad minimising production.

Social refers to the factors such as demographics. Porter’s five forces is used to analysis the micro-environment. strategy development is the process of seeking attractive opportunities in the market. social. exchange rates and differential economic growth rates around the world. It provides a broad list of influences on the possible success or failure of the strategies. It also helps to identify the resource availability to pursue a new strategy. internet that influences the strategy. aeronautics. 2008). Technology refers to the elements such as automobiles. It also interrelated with the external environment as if the environment changes the internal capabilities and resources need to develop in order to match the external environment (Johnson. & Whittington. So. & Whittington. Scholes. The external factors of an organization matters most to the success of a strategy. SWOT analysis can be used to analysis the internal strengths. weakness and external opportunities. restrictions upon a company that may influence the strategy (Thomas. environmental and legal elements of a macro-environment. they are PESTEL analysis which is used to analyse the macro-environment. threats of an organization (Johnson. Legal refers to the legislative constraints.PART 2 – Current strategic situation of IKEA It is essential to understand the strategic position of an organization before choosing strategic direction for future. 7 . technological. ageing population and changing cultures that influence the strategy. There are two basic views to identify the strategic position of an organization. 9 PESTEL analysis on furniture industry PESTEL stands for political. Environmental stands for pollutions control and policies related to green issues that may influence the strategy. It weights the internal capability of an organization. understanding about external environment matters a lot in formulating future strategies. 2007). Internal environment of an organization should be evaluated to identify the internal strength and weakness of an organization. 2008). There are several tools that could be used to analysis the external and internal environment of an organization. Scholes. Attractive opportunities are those favours the internal capabilities on an organization. economical. In these elements Politics refer to the influence of government policies upon the strategy. Economy refers to the macro-economic factors such as business cycle. one is external factors of the organization and the second is internal factors.

2011). 10 Porter’s five forces for IKEA in furniture industry Porter (1980) states that. Today. or both. The group recycles 84% of the waste generated in its stores. made from recycled materials. threat of new 8 . IKEA derived economic thoughts and strategies managing the lacking of the external economic presents. The company produces low cost high quality products which is affordable by the society. Technological factors IKEA continuously adopts latest technologies and educate its suppliers to follow the same. Social Factors IKEA understands its customer’s social life and implements its design according to their needs. IKEA has successful in international and domestic business portfolio. The five competitive forces in this framework are the bargaining power of buyers. The company incrementally updates its supply networks to obtain cheapest transportation. Economical Factor Economic downturn globally hits the IKEA’s sales. IKEA hopes that Indian political unfavourable will be revolutionized soon to make foot prints in the country (Economist. Environmental factors Due to pressure from global environmental situations IKEA has moved towards sustainability. UK. However IKEA is adopting the current trends and moving towards sustainability. 71% of all IKEA products are recyclable. bargaining power of suppliers. “Porter’s Five Forces framework helps to identify the attractiveness of an industry or sector in terms of competitive forces”. It considers the various cultures in world and manufacture products accordingly. and Canada etc.Political factors There are fortunate political situations in European countries and Middle East countries. IKEA is focusing middle class and young buyers to deliver its goods in increasing economic countries such as China. In that way the company could able to manufacture cheap products and world-class quality within the time line.

Switching cost between retailers are very less in this industry. IKEA has access to lot of suppliers that increases the bargaining power of IKEA. IKEA Threat of new Entrants Low ! Bargaining power of buyer High ! Competative Rivalry High ! Bargaining power of Suppliers Low ! Threat of Substitutes Low ! Bargaining power of buyers Since there are huge competitions in the furniture industry from direct furniture manufacturers and retailers to customized designer retailers. Bargaining power of suppliers Since there are lot of furniture and home appliance manufactures in developing countries like China and India.1 Porter’s Five Forces. threat of substitutes for the industry’s product or service and competitive rivalry in an industry. 9 . the buyer has low of leverage in switching from one retailer to another. Fig 10. The company is well experienced in developing small suppliers into a highly competitive world class producer that increases the wide access.entrants into an industry.

However. companies should establish the best supply chain and supplier relationship to become competitive. Competitive rivalry Due to lot of retailers in this industry the market is highly saturated and the rivalry through price war is high. To be successful in this industry. It is used to respond strategically to the environment by reducing the identified threats and taking advantage of the best plausible opportunities (Valetin.Threat of substitutes Threat of substitutes in furniture and home appliance industry is very low. 10 . Identifying opportunities and threats is a valuable part when thinking about strategic choices for the future. Threat of new entrants Due to huge capital involved in this industry it is hard for a new company to enter a new market. The goal of SWOT analysis is to identify the degree to which the strength and weakness are relevant to or capable of dealing with the changes occur in a business environment. Companies developed their own core competencies and focuses on a particular market to increase its market shares. 1998). 2001). Due to huge disinvestment cost involved there is threat for new entrants. People look for most convenient and appropriate furniture that suits their home. the competitive rivalry is quite high in this industry. 11 SWOT Analysis for IKEA It identifies the key issues of a business atmosphere and the strategic ability of an organization that are like to influence the strategic development. SWOT analyse is only effective when it is comparative in relation to its competitors (Jacobs.

facilities. convenience. 11 . IKEA has been pursuing sustainability in a big way since then. Barriers to enter lucrative growth market 3. IKEA was accused of being a landfillwaste generator because it made large volumes of products that did not last for long time. Strong in customer satisfaction 3. Declining sale densities in the UK SWOT IKEA Threats Opportunities 1. IKEA has been working towards sustainability since 1999. To reduce the associated poor publicity. Focus on sustainability Weaknesses 1.Fig 11. Significant market presence 2. CSI looks at satisfaction across different aspects of the retail proposition range. ambience. In 2009.500 home furnishing products in about 301 stores in more than 36 countries. IKEA invested $77 million in clean technology start-ups like solar. Location disadvantage 2. price. Unfavourable market trends Strengths: . service.1 SWOT analysis for IKEA Strengths 1. Focus of sustainability In response to pressures on global retailers to co-exist with the environment. quality. The IKEA concept is based on offering home furnishing products at low prices. the group ensures maximizing production equipment. A strong presence gives the group considerable bargaining power and an advantage in terms of customer recall. To help keep prices low.Significant market presence IKEA sells more than 9. Impact of economic slowdown in major markets 2. and layout that provide an overall satisfaction score for each of these. Strong in customer satisfaction IKEA was ranked 9th in Datamonitor’s retail brand Consumer Satisfaction Index (CSI) which measures how satisfied customers are with the retailers they use. Increasing online sales 1. using raw materials efficiently (IKEA. 2011). Diversifying sourcing base 2. Previously.

Ikea. The sales density increased during 2002-04 and started declining since 2005. IKEA just operate 18 stores in UK. The group recycles 84% of the waste generated in its stores (Datamonitor. Opportunities – Diversifying sourcing base IKEA sources a substantial portion of its products from low cost manufacturing centre China. Weakness – Location disadvantage Most of the IKEA stores are located outside the city. A diversified supplier base will reduce IKEA’s dependence on China and increase its bargaining power (Datamonitor. Since this strategy reduces the cost of operations. 2010). 9. IKEA has also started transacting on its website. is expected to become a stronger supplying partner. India. To benefit from this trend. 12 . Declining sale densities in the UK Since 2005. Retail e-commerce revenue is expected to grow at an annual rate of 8%. It is because of high land cost and traffic IKEA still struggles with convenience problems. the company has to look into its growth strategy to increase its sale density in UK. or both. the IKEA’s average sale density in the UK is declining so the group deviated from its previous plan and just opened 1 store instead of 32 stores planned previously. IKEA sourced 30% of its products from Asia being China (21%) as its major supplier. Increasing online sales Online retail spending is expected to increase world-wide. So. 2011 and 2012. In 2009. www. Through online sales IKEA can also overcome the issues faced by customer due to out-skirts stores and inconvenience. Opening more stores distribute the IKEA customers and decline the sales density. To reduce its overdependence on China for the first time in several years. 2011). the group intends to strengthen its sourcing relationship with India. Retail e-commerce revenue in the US was increased of 4. respectively (Datamonitor.5% and 9. 2010). Out-skirts stores are disadvantaged because of long travel considerations of customers (Economist.Today.2% in 2010. 71% of all IKEA products are recyclable. 2010). which currently accounts for 3% of IKEA’s worldwide purchases.1% between 2008 and 2009. made from recycled materials.

and Faulkner D. Fig 12. There are basically three choices should be made (Johnson. Scholes. 2008). (1995) The essence of competitive strategy. it has to develop core competencies that are not been inimitable by its competitors easily. & Whittington. 1995). The base of competitive advantage in business-level can be identifies using strategic clock tool (Browman & Faulkner. 12 Strategic clock to develop competitive strategy options If an organization to position itself in the competitive market.. The choice about how the developed strategies are to be pursued.. They are.PART 3: Strategic directions for the future Decisions about an organization’s future and the way in which it needs to respond to the pressure and influences of external environment.1 Strategic clock to develop competitive strategy options Source: Bowman C. prentice hall. 13 . The choice of markets and products of an organization.    The choice of how an organization positions itself in relation to competitors.

in more precise level these strategies are developed into different potential method of development to support the generic strategies. focused differentiation and failure strategies. it should pursue sustaining price-based advantage (Johnson.Where the strategic clock illustrates price and product benefit relationship in eight ways. Sustaining competitive advantage: Organizations that try to achieve competitive advantage may try to hold it for long time. IKEA has started pursuing into Indian 14 . the hybrid strategy. However. (1988) corporate strategy. In which it is classified in to 5 major areas such as Price-based strategy. 13 Strategic direction using Ansoff Matrix Based on the current strategic position and opportunities in the future it has to develop its market through online sales. 2008). So there are three different areas of sustaining competitive advantages they are based on the organization’s current strategic position. Scholes. IKEA also has opportunities to develop its supplier base by expanding its global sourcing.1 Strategic direction using Ansoff Matrix Products Existing Existing Markets New Market development Diversification Market Penetration New Product development Source: Ansoff H. Fig 13. Corporate level strategies can be developed using Ansoff matrix. In this the organization could decide whether it has to concentrate on the product development or market development or diversification (Ansoff. IKEA’s strategic direction is towards hybrid strategy where it produces high quality products in low price. Differentiation strategies. If an organization plans to sustain its cost leadership. Alternative methods of strategy development The above Ansoff matrix concerned with strategic choices at the generic level. 1988). & Whittington.. penguin There are huge opportunities visible towards online shoppers and there is chance for IKEA to increase its market share by launching existing products in a new market.

2008). there can be uncertainties in online sales upon expected return. It also fulfils the issues related to store locations as the customers who feel inconvenient to reach outskirts stores can access online for sourcing. al. the risk involvement is quite low. Financial feasibility analysis and Resource deployment analysis are the tools used to evaluate the feasibility of a strategy (Johnson et. 2008). al. To fulfil the customer needs it is necessary for IKEA to increase its online sales facilities. Feasibility analysis It is concerned with whether the company has the capabilities to deliver a strategy and whether the strategy could work in practice. As the company is going to invest in developing websites and online shopping facilities. the expectation for sales growth is high and the stakeholders will be happy that the company could increase its revenue with increased profitability. 14 Evaluating the strategic choice Evaluating the strategies is necessary to analyse whether the developed strategic choice will succeed in future. Since IKEA is pursuing a market development strategy through online business. al. 2008).. However... The company also have enough financial resources to adopt strategic alliance with suppliers and (Johnson et. 15 . Strategic alliance enables IKEA to develop good relationship with suppliers and can produce goods at competitively cheaper and good quality. It can develop its supplier relationships through strategic alliance with Indian manufacturers to increase its bargaining power. This can be analysed in three main criteria’s they are. IKEA has financial capabilities and infrastructure to pursue the online market development strategy and expanding its supplier base. Suitability analysis It is concerned with whether a strategic choice that is been developed is addressing the key issues related to the strategic position of an organization. Acceptability analysis It is concerned with whether the expected performance outcomes such as return or risk of a strategy and the degree to which these strategies meet the stakeholder expectation (Johnson et.

The above strategies may support the company to obtain its goal. IKEA could able expand its supplier base into other developing countries like India to obtain buyer bargaining power among its suppliers.15 Conclusion and Recommendation Based on the above analysis IKEA could pursue market development strategy by concentrating on online business. The company has enough resources and capabilities to pursue these strategies in future. 16 .

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