International Contents 1. INTRODUCTION.. 3 2. OBJECTIVE.. 4

                                     

 

International
University of Applied Sciences Bad Honnef

 

 

A REPORT ON EVALUATING IKEA’S STRATEGY
FOR GROWTH

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 Research
on IKEA

Submitted to: Prof. CLAUDIA REIN

 

BY

 

JOBY JOY

RIJIL JOSEPH

NAMAZ JOSHY

RAJATH SAVANTH

 

 

 

 

 

 

 

JANUARY 2018

 

 

Table
of Contents
 
1.
INTRODUCTION.. 3
2. OBJECTIVE.. 4
3. STRATEGIC
ANALYSIS.. 4
3.1
Strategic Environment 4
Industry
Analysis – Porter’s 5 forces. 5
Market
Analysis. 6
Competitive
Analysis. 9
Market
Positioning. 10
3.2 Strategic
Resources. 10
Tangible
Resources: 10
In Tangible
Resources: 10
Brand value: 10
SWOT
ANALYSIS.. 12
4.
Innovations & Opportunities. 13
Innovative
Record. 13
Evaluation
of technology/knowledge/digitalization. 14
Market
opportunities. 14
5. Ikea’s
Strategies. 14
Value Chain
Integration.. 14
Building on
Revenue Generating Opportunities. 15
Mix of
Prescriptive & Emergent strategies. 15
6. Critical
Comments. 15
7.
Conclusions. 16
References. 18
 

 

 

 

 

 

1. 
INTRODUCTION

IKEA is a world-renowned
furniture retailer which is established based on offering functional, high
quality and low-cost home furnishing products. It was started in 1943 by
17-year old Ingvar Kamprad.

It was in 1948
when Mr.Kamprad added furniture to his product line. The first catalogue was
published in 1949. Gillis lundgren a 22year old designer originally helped
Kamprad to do the photo shoot for the catalogue but, later he became a chief designer
of many furniture for IKEA. Its main goal was to provide stylish quality functional
design that can be cost effective. IKEA started to exhibit and sell its furniture’s
at home furnishing fairs in Sweden in 1957. In 1958 IKEA opened its first store.
The original idea behind the store was to have a location where customer could
have a look and feel of the IKEA furniture set up. Kamprad added a restaurant
to the store so that customers could sit, relax and refresh when shopping. The
restaurant was a huge success and, it became an integral feature of all
IKEA stores soon. IKEA opened its first store in Stockholm in 1965. By now,
IKEA was generating the equivalent of $ 27 million and had already opened a
store in neighbouring Norway. IKEA also experimented with a self-service pick
up solution, allowing shoppers to enter the warehouse, load flat packed
furniture on to trolleys and then take them through the checkout. It became so
popular that soon it became the company norm in all stores. By 1973, IKEA was
the largest furniture retailer in Scandinavia with eleven stores. The company
enjoyed market share of 18% in Sweden.

As of now, IKEA operates in
more than 40 countries with 411 stores 194,000 workers (November 2017).  The revenue as of 2016 is recorded to be
$35.074 billion up from $4.5billion in 1995.

 

2. 
OBJECTIVE

This report aims to evaluate
IKEA’s strategies. The study involves methodical approach to analyse whether IKEA
had a coherent strategy for its huge business empire or it just lost its vision
and mission. Strategic tools such as PESTEL and Porter’s five forces have been
used for industry analysis. For company analysis, SWOT has been done. Looking
at huge market size of IKEA’s business, top three segments have been considered
for analysis.

 

3. STRATEGIC ANALYSIS

 

For strategic analysis,
the environment and resources are analysed separately based on various
strategic tools.

3.1 Strategic Environment

PESTEL
Analysis

 

 

Political factors

 

The political
factors have no influence over the industry. Though it is known fact that IKEA
is supervised by the government, the political environment of IKEA is
favourable because political
parties have agreements made between the government and the MNC’s and there is a developed political system in America
and Europe over a long time which guarantees an optimal market place.

 

 

Environmental
factors

Environmental
factors like forestry, supplier conduct issues, community development and
carbon emission accountability are very important for an organisation like IKEA
to be successful. Hence, keeping all these things ahead IKEA has always been
environmental sensitive which makes better use of energy and raw materials
which in turn helps the organisation to reach its “GREEN TARGETS” and results
as a total positive impact on the environment.

Social factors

The social
analysis depends on a lot of factors (age, family size, income, etc.) which
again depends on different countries because the European/Scandinavian and the
Americas have different cultures. While the Scandinavians lay more stress on
the design and perfection of the furniture the people of USA emphasize on the
functional ability of the product. For example, according to Mintel Oxygen’s
report in 2015 the old aged people are less likely to buy furniture which are
classy and trendy whereas the younger generation are more demanding to have a
classy and trendy furniture.

Technological
factors

IKEA has an
up to date online website which allows the customers to view catalogues to
order online, to check the availability of the required stock before going into
the store and they also have a customer service team to respond and clarify all
the doubts of the customers on-call or email. IKEA has been upgrading and
updating itself with the technology of the world which is helping them to move
up with the current technology trends.

Economic factors

One of the
biggest economical factor for IKEA was the financial recession of 2008 which
was stated in New York Times and that it was becoming more worse. To add to
that, IKEA failed to understand the effect of floating rate of
currency across-countries. Also, the prizes for importing the raw materials
from Sweden were going up because the Swedish Kroners was getting strong
against the US$.

Legal factors

IKEA is a
globally recognised business which means that IKEA has to be abide and follow
many rules and regulations depending on the countries the company has been
operating in for smooth and successful running of the business.

 

Industry Analysis – PORTER’S
Five Forces

Industry
Rivalry

In the European/Scandinavian countries there are many companies
which are into the furniture industry and there are many number of retailers in
the market. The situations are the same in the Americas. Along with small
retailers there are Walmart, Costco and Home Depot. And on top of all these,
retailers import furniture’s from China and sell in the market at a very low
price. This clearly depicts the Rivalry within the industry.

Threat of New Entrants

There are no such
strong barriers to get an entry into this industry. But the level of
competition among the retailers may scare off new entrants. The initial
investment required is not much. Hence, anyone can open a furniture shop with
little investments. But to become a big leading player in the industry; the
investment needed will be high, developing relationship with the suppliers,
selecting proper feasible places for outlets. For all these to achieve, it will
require a lot of capital and patience. Hence the threat of new entrants would
be high if they are willing to do business for a long term.

 

Threat of Substitutes

Since the beginning of
mankind, humans have been using furniture. All the furniture industries are
moving to plywood from wood. IKEA specialises in manufacturing functional,
high-quality, less expensive furniture. IKEA brand perception trendy surpass
Argos affordability and John Lewis quality due to unmatched service
functionality and product quality. Hence it is safe to say that there are no
threats of substitutes.

Bargaining power of Suppliers

IKEA has a very
well-established relationship with its suppliers throughout the world. Till
2016 IKEA has 1510 suppliers in 55 countries 26% of which are in China and the
suppliers of IKEA are constantly competing to maintain their relationship with
the furniture giant. Adding to that IKEA also owns Swedwood manufacturing
company.

 Bargaining
power of Consumers

Many number of
retailers are involved in the war or price against each other, but the
bargaining power of IKEA is also considered to be low because of IKEA’s
unbeatable expertise and experience as the company manufactures low-cost and
high quality flat-pack products. Also, the buyer power is controlled by IKEA
because of their many number of self-owned retail stores.

 

3.2. Strategic
resources

Strategic resources are
the key elements which are the essential pathways to achieve the target
strategic objectives. Further these resources lead the organization in a
consistent and long term sustainable competitive advantages across the global
markets. In general, for any company the standard resources are the financial
strength, niche workforce coupled with enterprise domain provide a competitive
edge.

Tangible and Intangible resources –

The tangible resource
of IKEA includes wood, waste, cotton and food which are used to produce the
finished products and the intangible resources would be the man power which are
being used to operate and run the organisation.

 

5.IKEA’s STRATEGY

Introduction

Ikea use a strategy of
providing large home furnishing products at an affordable price. When
implementing this strategy, they also keep also keep in mind quality, design
and value. This concept is spread to every aspect of ikea such as their product
design, sourcing, packing and distributing and even their business model.

There 3 main internal
elements for Ikea strategy which are,

Offering the lowest prices: Cost effectiveness is the main competitive
advantage of Ikea compared to other furniture retailers. They are able to
provide products at low cost with combination of economies of scale and
technological integration, which again highlight their proper use of
strategy in a highly competitive environment.
Increasing variety of products:  Ikea provides large range of products for the
worldwide customers. There are 9500 products across in IKEA portfolio and
the company renews its product range annually. The company is also
increasing its presence in food and catering industries. Ikea also earned
a whopping 1.7 billion euros from its food and catering industries in
2016.
International market expansion strategy: The home improvement and furnishing chain has
engaged in new market development in recent times. IKEA Group has 340
stores in 28 markets worldwide, 22 Pick-up and Order Points in 11
countries, 41 Shopping Centres in 15 countries and 38 Distribution sites
in 18 countries.

 

Value
Chain Integration

The vision of Ikea is to
create a better everyday life for many people. The value chain integration is
emphasized in the following aspects: –

Life at home – By providing a range of affordable home furniture
and kitchen items at reasonable price, Ikea makes life at home much easier
and effective.
Democratic design –  Ikea
combines quality, form, function, sustainability and low price for its
wide range products which in turn gives its customers a democratic design.
Even customers can get their furniture as they want it to be.
Production &
Distribution – Ikea also gives value to its production
by keeping the production at low cost and effective in turn to get more
revenue from sales, use of recycling items also has increased since few
years which is another cost-effective way. Distribution network is well
maintained with 38 Distribution centres in 18 countries.
People & Planet
positive – Ikea has given
importance to the customer preference in their working approach as well as
delivery of the different products to its worldwide customers. Apart from
that, ikea also use recyclable items for making its plastic products and
has taken many measures to protect the environment with renewable items.
Growing together – Ikea has also brought the idea of creating a
environment friendly approach among its employees and customers and they
are also striving hard to achieve a complete environment friendly
production by 2020. By reducing the hazardous chemicals in their
productions with other less harmful substances, create less carbon
emission from their own factories, customer accessibility, reduction of
waste by using more renewable or recyclable raw materials in production.

 

Building on value
generating opportunities

Acquisition

IKEA has
acquired San Francisco-based TaskRabbit and TaskRabbit will remain an
independent company.

Ventures

IKEA has entered in a joint
venture with a Chinese company called TCL, which will provide integrated
HDTV and entertainment system.

IKEA
has also announced they will establish a chain of hotels in Europe without
their name or logo, which will run by independent hoteliers.

Food markets

Every IKEA store will have a
restaurant at the exit of the store which provides traditional Swedish food,
IKEA stores in different countries also provide their local cuisines along the
Swedish dish.

Solar systems

IKEA started selling solar
panel packages in UK stores by mid-2014, Now these packages can be ordered from
online has been made available in entire United Kingdom.

 

Mix of perspective and
emergent strategies

There 3 major strategies used
which are Cost leadership, differentiation and Hybrid (combination of both cost
leadership and differentiation). Ikea is using Hybrid strategy as the main idea
or concept of Ikea is to sell different varieties or range of products at an
affordable price.

Again when implementing or making
a strategy into practice has to considered for different market segments, there
are 3 markets: –

Saturated market

The Company
defines market in highly developed countries as saturated market. E.g./ Europe,
North America, Australia.

 Stable Market (Transition
Economies)

The Company
defines market in developed countries as stable market. E.g./ Malaysia, China,
Taiwan.

 Emergent Market
(Developing Economies)

The Company
defines market in developing countries as emergent market. E.g./ India, Brazil,
Philippines.