a situational and strategic analysis of ikea

7/26/2019 A Situational and Strategic Analysis of Ikea

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A SITUATIONAL AND STRATEGIC ANALYSIS OFIKEA AND THE FUTURE

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ANTHONY AYODELE, IKEA AND THE FUTURE Page 1


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A SITUATIONALANDSTRATEGICANALYSIS OFIKEA AND THEFUTURE

ABSTRACT: This situational andstrategic analysis examines thepresent situation of furniture andfitting market leader IKEA providingrecommendations on how thecompany could strategically maintainits lead on a long-term basis in an everchanging uncertain future.

AUTHOR: ANTHONYAYODELECOURSE: BUSINESSORGANISATIONAL POLICYSUPERVISOR: PETERAKINSOWONMODULE: PM 204


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TABLE OF CONTENTTABLE OF CONTENT ................................................................................................................................ 3INTRODUCTION ....................................................................................................................................... 5

1 THE COMPANY ................................................................................................................................ 7

SITUATIONAL ANALYSIS .......................................................................................................................... 8

1.1 MODULES/TOOLS USED TO ANALYSE IKEA ............................................................................. 8

1.1.1 SWOT ANALYSIS .............................................................................................................. 8

1.1.2 PESTEL ANALYSIS ........................................................................................................... 11

1.1.3 PORTERS FIVE FORCES .................................................................................................. 15

1.2 EXTERNAL FORCES AFFECTING IKEA AND PORTERS FIVE FORCES ........................................ 15

MATURITY STAGE AND PRODUCT LIFE CYCLE OF IKEA ..................................................................... 16

PUNCTUATED EQUILIBRUM OF IKEA ................................................................................................ 17

RECOMMENDATIONS ....................................................................................................................... 19

2 APPENDIX ...................................................................................................................................... 22

2.1 IKEA PRODUCT LIFE CYCLE/FUTURE CHART .......................................................................... 22

2.2 SWOT ANALYSIS CHART ........................................................................................................ 24

2.3 PESTEL ANALYSIS CHART ....................................................................................................... 25

2.4 MICHAEL PORTERS FIVE FORCES CHART .............................................................................. 26

2.5 PERSONAL EXPEREIENCE OF IKEA CUSTOMERS .................................................................... 27

3 Bibliography .................................................................................................................................. 28


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Table of Figures(Cover from top left clockwise)

Figure a IKEA showroom SOURCE: (Wikimedia, Wikimedia, N/A) ...................................Cover Figure b IKEA Store front SOURCE: (IKEA, IKEA, N/A).....CoverFigure c IKEA Model SOURCE: (IKEA, IKEA, 2012)..CoverFigure d IKEA Bedroom furniture SOURCE: (IKEA, IKEA, 2009) ....CoverFigure e IKEA Flags in front of store SOURCE: (Times, 2010) ....CoverFigure f IKEA plain furniture SOURCE: (Brandman, 2013) ..CoverFigure g IKEA Home furnishing pix SOURCE: (Wikimedia, Wikimedia, 2007) ..Cover

Figure 1 Product Life Cycle Chart ............................................................................................................................................. 22Figure 2: SWOT Analysis Chart ................................................................................................................................................. 24Figure 3 PESTEL Analysis Chart ................................................................................................................................................ 25Figure 4: Michael Porter's Five Forces Chart............................................................................................................................ 26
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INTRODUCTION

IKEA is a true story of an individuals dream come true . According to former

Chief Executive Officer (CEO) of the company, Anders Dahvig, t he companys

objective has been to provide good design and quality furniture for those with

limited financial needs (Dahlvig, 2013)

This, Dahvig further states, has been achieved

through the company, seeking to reduce prices

of their products and increase sales volumes by

maintaining a strong cost control hence

delivering the required bottom line results

(Dahlvig, 2013)

As of 2009 the UK had 18 IKEA stores, starting

with the one opened in 1987 in Warrington. A

store was also opened for the first time in Dublin

in 2009. (Chopra, 2009)

The company has come to emerge as the

industry leader in the provision of affordable

furniture for all stratas of the society suitable

QUOTE

The company has cometo emerge as theindustry leader in the

provision of affordable furniture for all stratas

of the society suitable for both office usagesand homes. However,over the years

competitorors havebegun to master the

Ikea Edge,


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for both office and home usage. However, over the years competitors have

begun to master the Ikea Edge, as companies such as Tesco, Walmart, DFS,

Argos and Carrefour (now selling under Ocado, Gateway or ASDA, which

absorbed or took over aspect of the company when it discontinued in operations

the UK Market.) (Townsend, 2009) among others have adapted a low-price

strategy and are venturing fast into the furnishing and furniture terrain.

(Andyboss, 2011)

It is towards ensuring that the company does not lose this position in the nearby

or distant future that this report has been put together on the companys

request. (IKEA, About Ikea, N/A)

In terms of its product life Cycle IKEA could be said to be at its maturity stage

considering the success the initial modest company has experienced over the

past 87 years since when founded. Furthermore this report seeks to ensure that

IKEA does not go under as a result of the external change in the business

environment it operates in.


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1 THE COMPANY

The Swedish originated company has since come to emerge as force to

reckon within the area of affordable furniture .

IKEA originated from Sweden and was founded in 1926 by Invar Kamprad . It

has since emerged as force to reckon with in the area of affordable furniture. At

87, Kamprad presently is reportedly touring IKEA stores worldwide which as at

2011 stood at 320 in 26 countries with over 140,000 employees by the year 2012

(Torekull, 2011)

The company has adapted a design style for its products which is in line with the

tastes of its home country Sweden functional and simple, not fashionable or

centred around attraction. These are values that IKEA has exported beyond its

shores, providing an insight into the realistic taste of the average hardworking

Swedish National who believe in being frugal by making best use of resources

available. (SA, 2012)


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SITUATIONAL ANALYSISA Situational Analysis has been drawn up to assess the present state of IKEA.

Modules/Tools used for such include A SWOT Analysis, PESTEL and Michael

Porters Five Forces.

1.1 MODULES/TOOLS USED TO ANALYSE IKEA

1.1.1 SWOT ANALYSIS

Below is a SWOT Analysis of IKEA:

1.1.1.1 Strengths

IKEAs strength could be found in its provision of highly functional, quality

furniture at affordable prices. In addition the company has established a

goodwill and market brand name that is virtually second to none. T

he company has a very efficient Value Chain system which is constantly

reviewed toward ensuring clients get highly competitive services for majority of

the its products, providing IKEA with a Competitive Advantage in the industry.

(Jafry, 2012)

Though operating in many cases, under a franchise arrangement in some

countries, the uniformity in terms of product design and quality across the world

has enhanced the companys strength and its dependability among consumers.


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The operational strategy has also been similar, enabling the consumers to know

what to expect. (Jafry, 2012)

In its products IKEA provides portable, packed-flat furniture that is set to be

assembled by buyers. (100 T. T., N/A)

1.1.1.2 Weaknesses

IKEAs weakness could be seen it s limited or inadequate support policy

as well as its limited visibility through promotions and Marketing. Stores are

few and sparsely located (only three in UK) while each one, despite its massive

stores and numerous floors, has few staff whose involvement towards

enhancing customers buying experience is limited. The technical nature of

packaged furniture which in most cases with IKEA requires assemblage -

through the observation of detailed instructions - could put a good number of

customers off. Many, employ and pay a third party to assist with assembling

purchased products or would rather visit a more customer-supportive/ friendly

furniture company. The absence of detailed written instructions or video

directions to accompany these products is also a w eakness on the companys

part.


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1.1.1.3

Opportunities

IKEA may identify opportunities in providing greener products for its clientele

and further educating the public on waste reduction in the area of furniture

usage. (100 T. T., 2013)

The company can take it DIY approach of furniture assemblage to another level

by recognising the various forms of learning identified in different people being

Video, Audio and Kinaesthetic (VAK) and providing instructions on such basis

(more on this later.)

Furthermore, the company needs to work on establishing a good

communication link with its consumers and workers all being the stakeholders

of the company. The building of trust in this regard is crucial to the companys

continuous development. (100 T. T., 2013)

1.1.1.4 Threats

Threats to IKEA include the downturn economic recession experienced

throughout the United Kingdom and Europe. This has affected the consumers

purchasing power and in turn, general sales in the industry. As stated earlier

more competitors are delving into the home and office furniture industry,


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equally providing budget cost downturn pricing, thus penetrating considerably

into IKEAs market share. (100 T. T., 2013)

Another threat of the company borders on its size and scale. A super scale sice

that experts believe waters down innovation (Hammond, 2013) IKEA is steadily

becoming a household name throughout the world. The challenge to maintain

standard and quality while providing low cost products increases with every

territory ventured into. (Journal, 2011)

1.1.2 PESTEL ANALYSIS

1.1.2.1 Political Factors

The Political climate of the host country of any company has a direct impact on

its performance. The influx of foreigners from European countries on one hand

and the clamp down on illegal immigrants by the conservative government in

the United Kingdom on the other have brought about a negative impact on the

provision of labour for the industry. (100 T. T., 2013)

Corporate and consumer tax along with business legislation which differs from

country to country are also other influencing factors. In all, these have borne

an influence on the structure of IKEA. They have also, in one way or the other,

impacted competition by affecting the enabling environment.


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1.1.2.2 Economic Factors

Weak economies across Europe has weakened purchasing power, in turn,

affecting consumers disposable income. The increasing rate of employment

currency rates and fluctuating oil prices have equally negatively impacted the

economy. Being the environment in which IKEA operates, these factors have had

an influence. The cost of labour which has a wide disparity in places such as

Poland and China differs greatly to what is obtainable in London or the United

States. These are some of the economic factors that affect IKEA (IKEA, About

Ikea, N/A)

1.1.2.3 Social Factors

Inter-country migration, for example from the countryside to the city, in search

of jobs due to the close down of industries in the former could drive the

demand for functional low cost furniture in the city, where most of IKEAs

business is found. (Chopra, 2009)

The absence of good infrastructure in host countries where IKEA is found could

also hinder the companys growth. The extent of road network s, the presence

of National highways and good transportation network structure are factors


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that have a direct impact on IKEA successfully doing business in any host

country. (Pattairman, 2013)

1.1.2.4 Technological Factors

The utilization of the internet has promoted the easiness and freedom with

which people make their decisions. Since this can be accomplished by using

advanced and modified technologies. (Jafry, 2012)

The demographics of the society based on age, income, family size, etc are also

factors that influence a companys performance such as IKEA, as the

preponderance of old-aged pensioners in a society would result to a lower

demand than that of a society made up of teenagers and middle class yuppies.

IKEA would do well to understudy each environment it finds itself. Products

should be made available based on effective demand. (Jafry, 2012)

The introduction of RFID Technology in supermarkets and stores has made the

shopping experience easier while it has enhanced shelving and product

identification for companies. More frequently, companies are taking advantage

of this technology, coming up with variations of its usage towards providing the

customer with a better shopping experience. An example is Argos which has


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introduced the provision of digital stores that enable customers to walk in and

pick up goods ordered online with little or no Customer Service interface.

Environmental

Increasingly, there has been a demand for organisations to meet up with

environmental regulations such as the reduction of carbon emissions and the

introduction of recycling/greening friendly procedures within their factories.

IKEA would do well to comply with such, especially as it has to do with the local

sourcing of raw materials and the manufacturing of their products/the manner

in which they dispose dangerous waste products. The introduction of

environmental friendly packaging material is also desirable. (Jafry, 2012)

1.1.2.5 LEGAL FACTORS

Legislations in various countries affect companies operating within them.

Protective legislations and standards may vary from country to country. The

1979 UK Sale of Goods Acts is a clear example of a legal tool that impacts on

companies such as IKEA operating in UK.

The implications of such are vast and vary including resultant legal battles over

consumer rights, fines, damages, and court injunctions initiated by third


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parties. Employee protection acts are also part of legislative issues that could

affect operating companies.

1.1.3 PORTERS FIVE FORCES

1.2 EXTERNAL FORCES AFFECTING IKEA AND PORTERS FIVE FORCES

1.2.1.1 Competition

The competition affecting IKEA has been analysed above. IKEAs Unique Selling

Point (USP) has been in the area of its ability to provide down-turn, low price

strategies to marketing. Many more high street retailer outfits however have

adapted a similar approach to marketing furniture and fittings and hence IKEAs

market share is seriously being threatened.

1.2.1.2 Threat of Substitute Products

Many have argued that there is no substitute to furniture per se. Rather, the

ability to provide up-to-date modern furniture in comparison with competition

is the major threat manufacturing companies face in the industry. In the case

of IKEA, taste and design differences is the nearest to any substitute possibility

one may come by. (Andrade, 2012)


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1.2.1.3

Degree of Competitive Rivalry

The Economic recession experienced in developed countries has seen the need

to adapt low cost/pricing strategies in Furniture and Fitting companies

inevitable. In the place of DIY services provided by IKEA some have provided high

discount long-term credit goods such as DFS. Others like Argos have adopted

flat-pack packaging designs similar to IKEA and, with their venturing into

furniture and fittings on a larger scale, have reduced the edge IKEA has over

competition.

1.2.1.4 Threat of new entrants to the Market

There is a low threat posed by new entreats into the furniture and fitting

market considering the high cost involved and economies of scale enjoyed by

exiting companies. The market is believed to be saturated and the cost of

highly skilled labour required in the industry is high. (Jafry, 2012)

MATURITY STAGE AND PRODUCT LIFE CYCLE OF IKEA

As stated earlier, IKEA could be said to be in the matured stage of its Product life

Cycle. It has entered into a stage where it has experienced rapid growth and

stabilized in the market. IKEA has also differentiated its products from those

offered by competition. The company has made its products stand out among


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the rest, being able to carve a niche for itself in the Furniture and Fitting industry

(Marketing, 2013)

However it is at this stage that the company needs to be careful to ensure that

in the face of change it does not enter into a declined state but rather that of

innovation that leads to further growth. This is turn would lead to high brand

loyalty as seen in the diagram below:

Figure 1: BRAND AND THE PRODUCT LIFE CYCLE (Innovation, 2013)

PUNCTUATED EQUILIBRUM OF IKEA

Another tool that could be used to analyse what the future of IKEA should look

like having applied Strategic Management principles to fulfil its objectives is the

punctuated Equilibrium.


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This theory suggests that a group or company continues in a stabilised state until

disrupted by a factor. In the case of a company it could be an external factor

within the industry that brings about change. When this happens (which is

usually preceded by a period of uncertainty or instability or the flux stage) the

company enters the transformational stage where it either experiences a

strategic fit: being its ability to match resources with its opportunities; Strategic

wear out: when a particular strategy applied is no longer useful towards fulfilling

the companys objective or , Strategic Drift: when a successful company

responds too slow to changes that impact the company.

To ensure IKEA experiences a Strategic Fit at the transformational stage, is the

purpose of the recommendations of this report.


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Figure 2 Punctuated Equilibrium Graph (Fredrick, 2013)

RECOMMENDATIONS

As previously stated IKEAs main strength has be en to use a downward trend,

low cost strategy pricing to maintain the market leader position. It has however

converted its competition by price compression approach (which is supposed to

be only on short term basis) into a long- term policy. (Akinsowon, 2013)

A this point the company needs to go back to the drawing board and come up

with another strategy to maintain its position. It also needs to among others

things:


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Improver in the area of Customer Service.

Set up outlets (may be on a third party basis) such as showrooms where

customers can save cost in terms of transportation but enjoy a more

personal service and detailed instructions in the area of assemblage.

Provide in-house assemblage instructions for their products (some

customers were seen being asked to dissemble a product in the return

and repurchase section with no assistance from staff) for those who want

clarification while on site.

Employ and train more customer interfacing friendly staff, realising that

Customer service is not negotiable or an area that can be over-

emphasised.

Draw long-term strategic plans, being innovative and creative in their

approach to the future to avoid decline.


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2 APPENDIX

2.1 IKEA PRODUCT LIFE CYCLE/FUTURE CHART

Figure 3 Product Life Cycle Chart Material source: (Timetoast, 2013)


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2.2

SWOT ANALYSIS CHART

Figure 4: SWOT Analysis Chart


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2.3

PESTEL ANALYSIS CHART

Figure 5 PESTEL Analysis Chart


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2.4 MICHAEL PORTERS FIVE FORCES CHART

Figure 6: Michael Porter's Five Forces Chart


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2.5 PERSONAL EXPEREIENCE OF IKEA CUSTOMERS


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Akinsowon, P. (2013, November 7). Strategic Managment Lecture. Strategic Managment . London,London, UK: Peter Akinsowon.

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Brandman, M. (2013, January 8). Wordpress . Retrieved November 2013, 2013, from Wordpress:http://mybrandman.wordpress.com/tag/furniture/

Chopra, R. (2009, December 12). IKEA Case Study . Retrieved November 25, 2013, from Slideshare:http://www.slideshare.net/riddhimachopra/ikea-case-study

Dahlvig, A. (2013, November 17). What is the IKEA Edge. London, N/A, n?A. Retrieved fromhttp://www.youtube.com/watch?v=KTqehqLZ930

Fredrick, D. (2013, N/A A/A). iAIRBLOG. Retrieved December 2013, 2013, from Wordpress:http://instituteair.wordpress.com/2009/05/19/punctuated-equilibrium-theory-applied-to-business/

Garun, N. (2012, February 22). IKEA. Retrieved December 4, 2013, from Digital Trends:http://www.digitaltrends.com/lifestyle/ikea-furniture-assembly-vlog-prove-its-instructions-are-totally-indecipherable/

Hammond, R. (2013, December 5). Do Tesco's Latest poor sales figures show the danger ofcompanies becoming to large. City News , p. 21.

IKEA. (2009, March 7). IKEA. Retrieved November 16, 2013, from Bedroom Design:http://www.bjoku.com/the-awesome-ikea-2010-bedroom-design/colourful-bedroom-idea-from-ikea/

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IKEA. (N/A, N/A N/A). About Ikea . Retrieved November 18, 2013, from Ikea:http://www.ikea.com/ms/en_GB/about_ikea/the_ikea_way/history/index.html

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Wikimedia. (2007, July 02). Wikimedia . Retrieved November 16, 2013, from Wikimedia:http://commons.wikimedia.org/wiki/File:Ikea_multistory_Leeds.jpg -top right Ikea Storefront (picture)

Wikimedia. (N/A, N/A N/A). Wikimedia . Retrieved Novemeber 2013, 2013, from Wikimedia:http://commons.wikimedia.org/wiki/File:HK_IKEA_Kowloon_Bay_Store_201006.jpg - Pix onIkea store (picture)

a situational and strategic analysis of ikea

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