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Table of Contents
1.0 2.0 Executive summary ..................................................................................................................... 2 Introduction ................................................................................................................................ 4

3.0 Environment analysis ........................................................................................................................ 7 3.1 Adapting to the environment ....................................................................................................... 7 3.2 Influencing the Environment ........................................................................................................ 7 4.0 Strategic planning at IKEA ................................................................................................................. 8 5.0 Ikeas Concept of cost efficiency ....................................................................................................... 9 6.0 Ikeas situation analysis.................................................................................................................. 10 7.0 Macro environment /external environment Analysis .................................................................... 11 7.1 Pestle analysis ................................................................................................................................. 11 7.2 industry analysis.......................................................................................................................... 12 7.3 Globalisation Drivers Analysis ..................................................................................................... 12 7.4 Porters Diamond Analysis .......................................................................................................... 13 7.5 Porters competitive forces and strategies ...................................................................................... 13 7.6 strategic Group analyses ............................................................................................................. 14 7.7 Perceived Value analysis ............................................................................................................. 14 7.8 identify related external factors. ................................................................................................ 14 8.0 internal Environment analyses ....................................................................................................... 16 8.1 Resources Audit .......................................................................................................................... 16 8.2 Competencies Check: .................................................................................................................. 16 8.3 Value Chain Analysis ................................................................................................................. 17 8.5 Critical Success Factors ............................................................................................................... 17 9.0 SWOT Analysis................................................................................................................................. 18 10.0 Conclusion ..................................................................................................................................... 19 References ............................................................................................................................................ 20 Appendix ............................................................................................................................................... 21

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1.0 Executive summary

IKEA of sweden,home furnishing retail stores was founded by Ingvar Kamprad(ofBmtaryal Agunnaryd,sweden)in 1943 has thrived well and grown into a successful ,global network spanning over 36 countries with its 265 shopping centares,hosting 410 million shoppers a year. IKEA with its retailing concept sells a lifestyle and make contemporary design on affordable luxury to the global middle class consumers around the world enjoy its good taste and recograre value. Ikeas sales are growing approximately 15%yearly and maintain operating margins of 10% which are among the best in home furnishing. IKEA maintains these profits even while it cuts prices steadily Ikeas culture, promulgated by kampard,includes egalitarianism, steely competitiveness, relation cost cutting frugality and design culture. IKEA is well known for its cut pries and it goes deeper when it wants to hit rivals in certain segments. It helps that frugality is deeply untrained in the corporate Dna as the obsession with design. The cost obsession fuses with the design culture. Design is accepted if they can be made affordable. Ikea 12 full time designers along with so freelances work hand in hand with its production teams to identify the appropriate materials and least costly supplies. With a network of 1300 suppliers in 53 countries Ikea works overtime to find the right manufacture for the right product. Simplicity, a tenet of Swedish design, helps keep cost down. They look to find innovative use for discarded and unusual materials. IKEA will need to source twice as much maternal as today in 2010, if sales keep growing at their historical average. They cant increase by more than 20 stores a year because supply is the bottle week. Since Russia is a source of timber, IKEA aims to turn it into a major supplier of furnished products, thus, IKEA would be able to overcome the supply contain (bottleweek) and envisage on keeping the pace of sales growth intact. Adding to the challenge, the suppliers and designers have to customize some IKEA product to make them sell better in local markets. Line manager units peoples houses in the U.S and Europe to peek into their closets. The American market poses special challenge for IKEA because of the huge differences inside U.S Americans what more comfortable sofas, higher quantity textiles, more spacious entertainment units, now U.Smanagers are paying more attention to the tiniest details.
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IKEA has stumbles before. Foray into Japan 30years ago was a disaster. Japanese wants high quality and great material and not low price and particleboard. If IKEA would have realised this market needs, it would have averted disaster. Adoptability to market needs is just as important as culture, cost obsession and competiveness. IKEA does not, currently have conspicuous competitors. Store visit to any IKEA will provide with an enthralling experience the world over-spacious slow. Rooms, sheer number of items, gentle coercion fully accessorized displays, restaurant playrooms and ect.Ikea can extended its product ranges(diversification)such as rags,carpets,and other interior decorating item.They can diversify home furnishing to offices, factories, steel furniture and target af fluent and lower income groups. Because competition may increase and ikea is also seeing more competition than ever,for instance,in Japan nations has a lock on low cost furniture. The great challenge of IKEA as it become larger and more diverse is how to keep the core founding values alive. IKEA is still run manager who were trained by kamprad himself and personal devoted to the founder.Asthe direct link with Kampar disapper,the culture may start to fade. IKEA they fore should plans for successive, succeeding leadership reviewed mission, vision and goals. Product densification, novel marketing strategies market penetration and well planned short kea and long-term strategis .Ikeas culture should evolve with time.

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2.0 Introduction

Ikea began in 1943 as a retail home furnishing store and it has grown into successful global net work stores with its unique retailing concept and enthralling millions of shopping around the world with good taste and recognize value. IKEA paves way to access to affordable contemporary design. Ingvar Kampard the founder of ikea is considered as the most influential tastemaker in the world today is still the cheer leader for the practise that defines IKEA culture. IKEA is still run by managers who were trained and groomed by Kamprad himself and who are personally devoted to the founder. What man market-retailer has had more success globally? Let us see it in the analysis what factors have contributed to its immense success. IKEA has stumbled badly before and is just now gaining up for a return to Japan. Our analysis of Ikea is based on informations available in 2005 - for the fiscal year ended 31th august 2005.place heisinburg, Sweden. The Swedish society is comparatively more affluent and a noteworthy tenet Swedish design is simplicity which helps cost down. Situation Ikea, since its inception in 1943, has strived penetrate the market with its distinguished designs and affordable prices. IKEA has had its slip-ups too. But right now its 226vstores in Europe,asia ,Australia and the U.S.A are thriving hosting 410million shoppers year .Ikea s sales are growing at a healthy rate of 15% annually and its operating margins of 10% are among the best in home furnishing . To keep growing at that pace, IKEA is accelerating store rollouts. If sale keep growing at their historical average ,by 2010 IKEA will need twice much materials asset needs today. Due to supply constrain, it cant increase by more than 20 stores a year, though it may alum to Russias source of timber in to a major supplier of furnished products Ikeas chain of stores enthrals shopped with a similar experience the world over-identical buildings huge space, sheer number of items baby rooms, fully accessioned displays seducing the shopper, unexpected items you never knew you needed. Gentle Coercion

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making you believe nothing in expensive restaurant finality to keep going, flat packed items easily to haul are all characteristic of ikeas charm and attractiveness . Ikeas culture of steely competiveness, cut prices relentless cost-cutting, going deeper when it wants to hit rivals in certain segments, deeply ingrained frugality coupled with obsession of design, all stand to benefit the customers by way of affordable prices and contemporary designs. IKEA has a net work of 1300 suppliers in 53 countries working overtime to find the right manufacture for the right product simplicity helps keep cost down. Designers struggle to find innovative uses for discarded and unusual materials. Critical issues Ikeas line manager visited peoples houses In the U.S.A and Europe to peek into their closets. The American market poses speual challenges for IKEA because of the hug

differences inside the U.S.A American want more comfortable sofus ,higher quality textiles ,more spacious entertainment units.thus IKEA has to distinguish the varied needs of the customers and have to design their furnitures accordingly there is no single design/style that is acceptable by all .customers do not low price and particle board .Sensing the pulse of customers is important. The question is whether IKEA can thrive well like this? Ikea has stumbled before a foray into japan 30 years ago was a disaster. Probably IKEA was not sensitive enough to local Japanese needs. They do not look for shoddy gearing up for a return to japan next year (2006).now the managers are and should be paying close attention to the tiniest details. Referring to the market competition, the retailer (IKEA) accounts for just 5-10% of the furniture market in each country in which it operates. The awareness of our brand is much bigger than the sige of the company says CEO; Andhes Dahivig.this shows the complacency of the management. Sales revenue rises by 15% while profit margin by 10% .IKEA would not be able to increase by more than 20 stores a year because of the constraint imposed by material suppliers. IKEA is seeing more competition than ever; for instance, in Japan nitori Co has a look on low cost furniture how can IKEA face these challenges

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Ikea faces the problem of the Hybrid strategy. Ingvar Kampar founded IKEA in 1943 with the credo of creating a better life for many and Kamprad, through officially retired, is still the cheerleader for the practises that define Ikea culture-namely egalitarianism, steely competitiveness, relentless cost cutting and frugality. The cost obsession fuses with the design culture.Ikea is still run by managers who were trained and growled by kampard himself-and who are personally developed to the founder. As the direct links with Kampard disappear the culture may start to fade. Then there would be an emerging culture that would be more suited the changing environment. Another aspect that intrigues us is how to keep the core founding values alive. One way to overcome the issue is by keeping the core values intact and making adaptable changes to suit the changing environments. These are discussed under the environment analysis.

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3.0 Environment analysis

The organisation environment relationship is Important for the reason that the environment creates uncertainty for organisation managers, who must respond by designing the organisation to adapt to the environment or influence the environment. Organisation must manage environmental uncertainty to be effective .uncertainty means that managers donot have sufficient information about environmental factors to understand and predict environmental needs and changes(Duncan 1972;Daft 1994.1995) Two basic strategies for coping with high environmental uncertainty are to adapt the organisation to change in the environment and to influence the environment to make it more compatible with organisation needs. Refer (appendix 1 the external environment and uncertainty)

3.1 Adapting to the environment

If the organisation, IKEA faces increased uncertainty with respect to competition, customers, suppliers or government regulation managers can use several strategies to adapt to these changes including boundary-spanning roles, increased planning and forecasting a flexible structure and merges or joint ventures.

3.2 Influencing the Environment

The other major strategy for handling environmental uncertainty is to reach out and changing these elements causing problem. Widely used techniques for changing the environment include advertising and public relatives and political activity. Refer: Appendix 11: organisational responses to environmental change

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4.0 Strategic planning at IKEA

Strategic planning in for profit business organisation, like IKEA typically relates to competitive actions in the market place. Strategic thinking means to take the long term view and see the big picture, including IKEA and the competitive environment and to consider how they fit together. Understanding implication is an important start towards strategy thinking. Within the overall grand strategy of IKEA, executive define an explicit strategy-the plan of action that describes resources allocation and activities for dealing with the environment and attaining the organisational to execute activities differently from its competitors (Porter, 1996). Refer: Appendix ii the strategic management process of ikea The strategic management process began when executives at IKEA evaluate their current position with respect to ikeas mission goals and objectives. They then scan the organisations internal and external events may include a need to redefine the mission or goals or the formulate a new strategy at the corporate business or functional level and the finally is the implication of the new strategy.its is important to review ileas mission, vision and goals. Ikeas vision statement paving way for most people to have access to affordable contemporary design. The company objective is to provide home furnishing at the lowest cost possible the cost obsession fuses with the design culture. Awareness of our brand is much higher than the size of our company Anders Dahivig (CEo)indicates that the company is not much interested in expanding futher-currently the retailer accounts for just 5-10% of the furniture market in each country in which it operates. Refer: Appendix iv factors shaping the change of Iekas Strategy

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5.0 Ikeas Concept of cost efficiency

IKEA, as a basic concept what to keep it costs as low as possible .that is why it is able to provide to many people an access to affordable contemporary design. At the same time it provides them with good taste and recognizes value. It tells a life style Kamprads credo of creating a better life for many is almost evangelical. Ikeas culture includes steely competitiveness, relation cost-cutting. It goes deeper even it wants to hit rivals in certain segments. It helps that frugality is ingrained in the corporate DNA as the obsession with design. No matter how impaired and appreciated finds its way into the obsession with design. The cost obsession fuses with the design culture-both are inseparable, no design, no matter how empires and appreciated finds its way into the showrooms if it cannot be made affordable.Designess and in house production teams work hard or identify the appropriate materials and least costly supplers.Ikea work hard to find the right manufacture for the right product .Simplicity helps keep costs down. Nearly all the big items are flat. Packed which saves shipping costs and enables shoppers to have their own staff home. I keas designers are looking for innovative use for discarded and unusual materials. This low cost philosophy may be target to global middle class but not the affluent society like the japans and Americans.

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6.0 Ikeas situation analysis

Situation analysis typically includes a search for strength, weakness, opportunities, and threats(SWOT)that affect Ikeas performance. It is important to all organisations, but in crucial to that consideration because of the varied and diverse environment in which they will operate or to an organisation like IKEA which is in the global market over six decades. External (information about opportunities and threats may be obtained from a verity of sources including customers, suppliers banks, friends in other organisation, consultants or association meetings. Executive at IKEA acquire information about internal strengths and weakness from a variety of reports including budgets, financial ratios, profit and loss statements and survey of employees attitude, and satisfaction. Though frequent face to face discussing and meetings with people at all levels of the hierarchy executives build an understanding of the Ikeas internal strengths and weakness. Refer-Appendix-iii

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7.0 Macro environment /external environment Analysis

Ikeas managers need to understand how the environment strongly influences their companys strategies and operations. A firms environment represents all of the internal and external forces factors or conditions that extent some degree of impact on the strategies, decisions, and actions taken by the firm(PITTS and LEI,1996).The purpose of an external environment analysis is to identify/develop a finite list of opportunities that could benefit Ikea and threats that could also be avoided. IKEA should be able to respond either offensively or defensively to the factors by formulating strategies that take advantage of external opportunities or that minimise the impact of potential threats. External analysis can be divided in macro environment and industry analysis. The purpose of studying the external environment analysis is to identify the factors which have significant impact on Impact on IKEA. In analysis the external environment, we delve into PESTEL analysis, industry analysis, globalisation diverse analysis, porters diamond analysis, Strategic group analysis, perceived value analysis and identifying related external factor s. Refer: appendix v external Environment, appendix VI internal environment

7.1 Pestle analysis

Lying around an organisation as layers is the environmental influences and trends. The most general layer is the macro environment when understanding of political, economic, social technological, environmental and legal influences(PESTEL)can provide an overall picture of the variety of forces at work around our retailer, IKEA this can also cost light on the key divers of change and provide the basis for examining the fustic impact of environmental force on Ikea and the home furniture industry. Every firm in every industry is exposed to the rising globalisation wave and its does present some exciting opportunities to ikea . Refer: Appendix vii pestel analysis

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7.2 industry analysis

Industry is a organisation or business units producing close substitutes (Hubbard, 2000) The aim of this analysis is to assess the industry environment and answer the following question. What are the forces within the industry which are determining the profitability of the industry? How are the forces changing, and expected change over time? How will those changes affect future profitability? Most organisations will be competition within their industry. It is imperative that managers do understand the competitive force acting in the sector and the attractiveness of the sector. ikeas sales account for just 5-10% of the future market in each country in which it operates. According to Anders Dahiving (CEo) awareness of our brand is much bigger than the site of our company. If is said that IKEA is for more than a furniture merchant. It sells a lifestyle that makes the customers to have good taste and recognize value and the aim of IKEA is to provide affordable contemporary design to the global middle class. IKEA operating margins of about 10% are among the best in home furnishing. Within the industry IKEA maintains some form of attractiveness towards customers, Gentle coerciona way of making you feel that nothing is expensive and with the credo of creating a better life for many IKEAs culture of steely competitiveness, relation cost cutting and cost obsession fused with the deep style culture make the retail store stand out in the industry. IKEA is feeling competition now. Thus industry analysis becomes all the more important.

7.3 Globalisation Drivers Analysis

IKEA started in 1943 in Sweden and gradually expanded its retail stores across the globe with it unique character tics of enthralling customers with good taste and recognize value. Business in the global arena involves special risks, uncertainties and difficulties because of complicated economic, legal political and socio cultural forces. Futher, the Global environment changes rapidly. Such an the formation of Eu ASEAN,Etc, there arises a need for market globalisation since customer needs and performances are becoming almost
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similar and consumer tastes are becoming streamlined. In the home furniture sector, though there may be some degree of homogeneity among buyers, variation in design, style, quality and value may occur. For instance the needs of Americans and Japanese are different from others. Refer Viii Appendix on Drives of globalisation.

7.4 Porters Diamond Analysis

Porter suggests that the national home base of an organisation plays an important role increasing an advantage on a global scale. Porters Diamond suggests that there are inherent reasons why some nations are more competitive than other and why some industries within nations are more competitive than others. For example, Japanese technology is comparatively advanced and hence their electronic items and automobiles are famous worldwide-consumers trust their technology, quality and performance this is another example of how the impact of micro environment factors on the competitive environment can be understood strategically. Refer to appendix: ix on Porters Diamand analysis.

7.5 Porters competitive forces and strategies

Michal E.Porter studied a number of business organisation and proposed that business level strategies are the result of five competitive forces in the companys environment (Porter , 1987) Five competitive forces are Potential new entrances Bargaining Power of buyers Bargaining power of buyers Threat of substitute Products Rivalry among competitors These five forces help determine an organisations position when compared with its competitors in the industry environment Refer: appendix X
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7.6 strategic Group analyses

The term strategic group is used or capture competitive patens that are visible across a set of firms competing against each other on an industry issue basis or within a segment. Strategic group are popular for analysing an industrys competitive structure. Strategic group analysis is a basic frame work that should be used in diagnosing competition, positioning and the profitability of the firm within an industry. Since the firms within a group are selling similar products to the same customers, the competitive rivalry, the rivalry, the greater is the threat to each firms profitability. Second, the strong this of the five forces (competitive) differ among strategic group. Strategic group analysis helps to understand who are the most direct competitors of any organisation and how likely or possible it is for an organisation to more form one strategic group to another. Refer: appendix Xi

7.7 Perceived Value analysis

Critical success factor (CSFs) is those product features that are particularly valued by a group of customers and therefore, where the organisation must excel to outperform competition. The extent to which the offering of different providers addresses the factors valued by customers can be visualized by creating a strategy canvas. It is simple but useful way of comparing differences between customers9market segments) with differences between providers/strategic group. Refer: appendix xii

7.8 identify related external factors.

The external environment of a business consists of two interrelated sets of variable that play a principal role in determines the opportunities and threats, and constraints a firm faces. Variable originating beyond and usually irrespective of any single firms operating situation (political, economic social and technological forest) from the remote environment .Variable influencing a firms immediate constitute the operating environment .these two sets of forces provide many of the challenges faced by 9a particular firm) IKEA attempting to attract or acquire needed resources and striving to profitability market its goods and services.

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The retailer, IKEA, responds to changes in the external environment .IKEA is competitive uses resources frugally and eliminates waste of natural resources frugally and eliminates waste of natural resources in any form, uses cheep, economical technologies including recoiled materials. IKEA is also seeing more completion than ever. Thus IKEA should gauge these changes in the external environments.

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8.0 internal Environment analyses

All organisation have strengths and weaknesses in the functional areas of business .No enterprise is equally strong or weak in all areas (Daind, 1999).The internal environment within managers work includes corporate culture ,production technology organisation structure and physical facilities. Of all these corporate culture has surfaced as extremely important to competitive advantage. The internal culture must fit the needs of the external environment and organisation strategy. When this fit occurs, committed employees create a high performance organisation that is hard to beat (Wiener, 1998; meek 1988, sherwood1988).The internal analysis /audit requires finance, production/operations, and research and development .Key factors should be prioritises so that firms most important strengths and weakness can be determined collectively. Refer: appendix: xiii

8.1 Resources Audit

Resources come in many firms from common factor inputs that are widely available and easily purchased to highly differentiated resources .like brand names that are developed over many years and are very difficult to relocate (collies and montzomery,1998).Resources can be calcified into two categories: tangible and intangible, tangible resources are the easiest to value and often are the only resources that appear in Ikeas balance sheet. They include company reputation, brand name culture and technical. Refer appendix: xiv

8.2 Competencies Check:

An organisations core competency is something the organisation especially well in comparison to its competition. A core competency represents a competitive advantage because the organisation acquires expertise that competitors do not have. A core competency may be in the area of superior R&D mastery of a technology, manufacturing efficiency or customer service(Thompson & Strickland,1992).Firm like IKEA will enjoy a sustained competitive advantage only if their capabilities are valuable ,rare, lack substitutes and are difficult imitate.

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8.3 Value Chain Analysis

Value is the difference between what is paid or incurred in costs and what is received in benefits from the performance of a product obtained from involvement in the organisation (Hubbard,2000 P61)A company can create more value for its customers either by lowering the costs or by making the product more attractive through superior design, functionality quality and the like ,so that customers place a great value on it and consequently are willing to pay a high price .IKEAs product are more attractive. it sells a lifestyle to its numerous customers they have good taste and recons value . They target global middle class .they have good taste and recognize value. They target global middle class. The cost obsession fuses with the design culture. They make their products affordable. In order to understand how IKEA builds up its capabilities to compete, one must identify the specific types of activities that make up Ikeas competitive posture. Refer to appendix: XIII value Chan analysis

8.5 Critical Success Factors

Ikeas critical success factors are numerous. IKEA sells a life style that customers around the world embrace as a signal that theyve arrived, that they have good taste and recognize value. Stores visit to IKEA enthrals shoppers and shoppers and scholars alike-a similar expenence world over its credo of creating a better life for many is enshrined and its culture reflects equalitarianism, steely competitiveness, relentless, cost cutting.

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9.0 SWOT Analysis

Method of analysing an organisations competitive situation involving assessing organisational strengths and weaknesses, opportunities and threats. Internal strengths and weaknesses-strengths are positive internal characteristics that the organisation can exploit to achieve its strategic performance. External opportunities and threats opportunities are charctertics of the external environment that have the potential to help IKEA achieve or exceed its strategic goals. Refer: Appendix III

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10.0 Conclusion
Accounting to the analysis (situation analysis) carried out on IKEA it is found that IKEA has a strong brand recognition, a well known name over sixty years ,a clearly define marketing strategy, inherent philosophy of maintaining low cost and a wide range of products with affordable contemporary designs. IKEA targets global middle class with low cost materials, and nearly standardised products. IKEA has a low market shares (5-10%) best operating

margin (10%) and no single well-defined competitor. now it has started to feel the existence of competition. It has the bad experience of a foray 30 years ago in Japan .IKEA is therefore, compelled to look into diversified needs of the markets and extend its market segments. 11.0 Recommendation IKEA should strive increase its market share and not to be complacent. It must try to accommodate its sales growth (historical) by opening more branches and the resource material constraint (bottle neck) many are overcome by exploiting the positionality of manufacturing in Russia, which has plentiful resource of timber. Target market should be extended, visa toward the affluent society, too IKEA should be flexible and sensitive to varying market needs, like satisfying heterogenic American market and high quality demanding Japanese. Competition is cropping up and IKEA should be armed to the teeth to face competitors market analysis would help. Plan a more diversified strategy like diversified products (carpets and other interior decoration) and market penetration-from home furnishing to hotels furnishing and industry furnishing.

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References
David, R.D.(2005). Strategic management: concepts and cases. (10 th edition): Prentice Hall of India

Hubbard, G. Rice, J. & Beamish,P. (2005). Strategic management thinking analysis action. (3rd edition). Pearson education Australia Daft, Richard L. (1995). Organizational Theory: Cases & Applications. (4th edition.) : West Publishing Company

Philip Bromiley.(2005). The Behavioral Foundations of Strategic Management (10th edition) Blackwell Publishing, Malden

L.J. Bourgeois. (1980) Strategy and Environment: A Conceptual Integration, Academy of Management Review. (Volume 5): University of Pittsburgh

Collins, D.J., Montgomery, C.A. (1998), "Competing on resources: strategy in the 1990s"(Volume 73), Harvard Business Review, About IKEA. (2010). Retrieved July 29, 2010 from:
http://www.ikea.com/ms/en_GB/about_ikea/the_ikea_way/history/index.html

Ctinkota,M.R ,Rankainen J.A (1995)strategic management ,St.paul west

Ferguson.A(2001);Strategy;SoverignStuff;Business Reviewweekly no38

Gatewood R.D ,taylor .D (1995),management ,butt ridge,irvin131-2

Hill M.A ,Ireland R.D (1995)Strategic management ,stpaul west

Holt D.H(1998).intertional management text and cases;Fort worthdryden press.

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Appendix
Appendix

Exhibit: The external environment and uncertainty

High uncertainty

Adapt to and influence Environment

Rate of change of factors in environment

Low uncertainty

LOW

Number of factors in organization environment

HIGH

If IKEA faces increased uncertainty with respect to competitions, customers, supplies or government regulations, managers can use several strategies to adapt to these changes including boundary spanning roles, increased planning or forecasting structure and mergers/ joint ventures.

Appendix
Exhibit: (Organizational) IKEAs responses to environment changes

Advertising Public relations

IKEAs structures for adapting to the boundary spanning roles forecasting/ planning flexible structure merger, political activity

Trade association Techniques for influencing the environment

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Appendix
Exhibits: The strategic management process

SCAN EXTERNAL ENVIRONMENT Evaluate current Mission Vision Goals Grand strategy SCAN INTERNAL ENVIRONMENT Core competence Synergy Value creation National Global

INDENTIFY STRATEGIC TABLES Opportunities Threats

Define new

SWOT
INDENTIFY STRATEGIC FACTORS Strengths Weakness

Mission Vision Goals Grand strategy

We can now turn to strategy formulation within the strategic business units in which the concern is how to compete. In our case it is mainly the home furnishings and related product. The same three generic strategic growths, stability and retrenchment apply at the business level but they are accomplished thought competitive action s rather than the acquisition or divestment of business. One model for formulating strategy in PORTERS competitive forces and strategic, which provide a framework for business unit competitive action (given later in the analysis)

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Appendix V
Exhibit: Factors shaping the choice IKEAs company strategy. STRATEGY SHAPING FACTORS: EXTERNAL TO THE COMPANY, IKEA
Economic societal Political Regulatory and community Considerations Competitive Conditions and overall industry attractiveness Company opportunities and treats to the companys well being

THE MIX OF CONSIDERATION THAT

Company resources strength, weakness, competences and competitive capabilities

Conclusions concerning how internal and external factors stack up that implication for strategy Shared values and company culture

Identification and evaluation or strategy alternatives

Creating a strategy that fits the overall situation

Personal attributions, business philosophies and ethical principles of key executions

Source: Thompson A.A. Strickland A.J (2001, p. 60) Strategic management, McGraw Hill, NY

Traditional in conventional business strategy the first phases comprises of analyzing trends in the industry and then scrutinizing enterprise business process to identify gaps between the form and best practice leaders. The third phase culminating in the implementations of the business plans to bring about the necessary organizational changes. In environment business design, core competencies are analyzed. Fairly rigid infrastructure and process are than created in order to produce their products. Designed ends with the delivery of the product through relevant channels to customers

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THINK STRATEGILALLY ABOUT THE INDUSTRY COMPETITIVE CONDITIONS The key questions What are the industry dominant economic features? What is the competitive like and how strong are competitive forces? What is causing the industrys competitive structure? Which company is the strangest and weakest position? What strategic moves ire rivals likely to raise next? THINKING STRATEGICALLY ABOUT IKEAS OWN SITUATION Key question How is IKEAs present strategy working? What are IKEAs strength, weakness, opportunities and threats? How strong is IKEAs competitive position?

WHAT IS THE BEST WHAT STRATEGIC OPTIONS DOES IKEA REALLISTICALLY HAVE? Is it looked to improving the present strategy or is there room to make strategic changes for IKEA ? STRATEGY FOR IKEA The key criteria Does it have good fit with the companys situation? Will it help build a competitive strategy? Will it help to improve IKEA;s performance?

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Appendix V
General Environment Technological
Task Env

CUSTOMER S Internal Environment

COMPETITORS

Socio cultural

International

MARKET

LABOUR

Employees

Culture

Management SUPPLIER S Legal/ Political Economic

Location of the organization general task and internal environments

The external environment of an organization includes all elements existing outside the boundary of the organization that have the potential to effect the organization (Daft, 1980). The environments include competitors, resources, technology and environment and economic conditions that influence the organization (Bourgeois, 1980). The external environment of IKEA can be further considered as having two layers that is dispersed widely and indirectly affects the organizations and includes social, economic and demographic facts that influence all organization in the furniture sector equally. Though they do not affect IKEAs daily activities but will have profound effects in the long run. The task environment of IKEA includes sectors that conduct transaction with the retailer on a daily bias and directly influence its basic operation and performance. When we look at the
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internal environment of IKEA, it includes these elements within the boundaries and comprises current employees behavior and determines how well IKEA will be able to adapt to the external environment. Ingvar Kamprad, who founded IKEA is described as the most influenced tastemaker in the world because of his contribution to customers good taste and recognize value. Kamprad is still the cheer leader for the practices that define IKEAs culture. IKEA culture includes egalitarianism steely competitiveness, frugality which is deeply ingrained in the corporate DNA as the obsession with design IKEA is still run by managers who were trained and groomed by Kamprad himself and who are personally devoted to the founder. Thus they have and exhibit a culture change overtime as the influence of their leader diminished an emergent culture may surface out.

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Appendix V: CORPORATE CULTURE OF IKEA When we analyze the internal environment of IKEA, we are practically looking at the strength and weakness. We have to indentify and clarify IKEAs resources in terms of strength and weakness. We have to addition few question including What are the core competencies of IKEA? Does IKEA have any sustainable advantage? What foes the VALUE CHAIN of IKEA look like? What does the organization structure of IKEA look like? What are the values of IKEA? Research and development , operation, human resources, information systems and financial issues

visible
Artifacts, such as dress, office layout, symbols, slogans

Culture that can be seen at the surface level of IKEA

Invisible
Expected values Underlying assumptions, and deep beliefs , propagated by leader/ founder

Exhibit: Level of Coporate culture at IKEA

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Appendix V
LEGAL Competition law Employment law Health and safety Product safety POLITICAL Government stability Taxation Foreign Trade organizations Social welfare policies

SOCIO CULTURAL FATORS Population demographics Income distribution Social mobility Lifestyle changes Attitudes to work and leisure Consumerisms Level of education

ENVIRONMENT Environment protection laws Waste disposal Energy consumption

The organization (AKEA OF SWEDEN)

ECONOMIC FACTORS Business cycles GND trends Interest rates Money supply Inflation Unemployment Disposable income

TECHNOLOGICAL Government spending on research Government and Industry focus on technological effort New discoveries / Development Rates of obsolescence

PESTEL analysis aim to find out what environment factors are affecting the organization and which of the profound effect at the present time and which will have impact in the next few years.

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1. Political / Legal Environment IKEA was founded in 1943, since then it has undergone o much political/ legal influence. In 2005 (more precisely) operates its 226 stores in Europe, Asia, Australia and US and hosting around 410 millions shoppers a year. As it operates in countries with diverse political situations, it has to need to taxation polices, social welfare polices and to the influence of foreign trade organization. Such as EU, WTO, who regulate the flow of goods and services. Anti monopoly and anti merger laws are intended to increase competition than ever. IKEA could evaluation to increase its activities to countries which have relative stable political environment and favorable legal environment. 2. Environment factors Economic factors prevailing in a country influences the aggregate demand for durable goods, such as house furnishing. Which the stage of the business cycle is in the upsizing growth or peak (crest) the demand for furniture increases within the improvement purchasing power as consequences of greater earning power. Currently most developed countries are facing economic recession which may result in plummeting of sales of home furnishing. Similarly are the effects GNP trends, interest rates, money supply, inflation unemployment and disposable incomes. For instance, if the governments adapt an expansionary (fiscal) or monitory policy by lowering interest rates this can cause ripple effects in the economy as results of consumers spending is more on durable goods 3. Social Cultural Factors These factors have profound influence on consumers purchasing pattern, population demographic indicate the age wise, distributions of population, an increase in the number of young married people and who intends to settle in permanent houses of their own would cause an increase in department if domestic furniture social mobility, life cycle changes, attribute to work and leisure consumerism and levels of education all extent significant influence on the demand for furniture and hence the sale of IKEA. IKEA sells al lifestyle and enthralls shoppers with good taste and recognized value. IKEA targets global middle class and their buying habits. The taste and preference of Americans and Japanese are different

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from those of other though within America choices vary widely. IKEA should take notice these variations when formulation strategic. 4. Technologic Changes This includes government spending on research, government and rates of obsolescence and these exert profound affection IKEA is activities IKEA is more particular about costs, the material used, the technology or production and assembling, IKEA save cost by making used the technological development IKEA is engaged in relentless cost cutting and the cost obsession is fused with the design culture. IKEA is very particular on finding the right manufacture for the right product through improved modern technology. IKEA looks for innovative uses of discarded and unusual materials. Simplicity in design and manufacture helps to keep it cost down

5. Environment factors Furniture industry has a great impact environment, since it depend largely natural raw material (resource)for their production is why IKEA is unable to keep pace of its growth (historical) rate for want of supplier (constrain) and limit the number of new retail stores opened annually. However it was looking for Russia as a supplier of timer environment factors includes environment protection laws, waste disposal energy consumption. IKEA adopt a policy of funding with the design structure. According designing attractive products which are inexpensive and functional is a challenge to IKEA. No design no matter how inspired finds it way into the show room. If cannot be made more affordable. IKEA Is challenging its designers to find innovative uses for discarded and unused materials thereby converging resources IKEA feels that wasting resources is moral sin frugality is as deeply ingrained in the corporate DNA as the obsession with design. Hence IKEA to the environment polices of most counties. 6. LEGAL Aspect This include competition law, employment laws health and safety laws, IKEAS has its stores in numerous counties over the global with differing legal systems and has to follow the

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respective laws and regulations. Therefore IKEA would have to adapt to their employment and safety laws, competition laws etc. when IKEA contemplates to enter a new market, the managers should first lean the trade practices

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Appendix V
Exhibit: GLOBALISATION DRIVERS ANALYSIS MARKET GLOBALISATION o o o Similar customers needs Global customers Transferrable marketing COST GLOBALISATION
Scale economies Sourcing efficiencies COUNTRYspecific costs High product development cost

GLOBALISATION OF GOVERNMENT
Trade Policies Technical policies Host government polices

GLOBAL STATEGIES OF IKEA

GLOBALISATION COMPETITION o o o Intended Indene Competitors global High exports/ imports

Source: based on G.YIP Total Global strategy Prentice Hall, 2003

As we have seen above key drivers of change that are increase the globalization of some markets are Market Globalization Cost globalization Globalization of competition and Globalization of government policies

Market Globalization When an organization likes IKEA choose a strategy of GLOBALISATION, its product design and advertising strategy are standardized throughout the worlds (Ohmae, 1990). This
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approach is based on the assumption that a single global market exist for most consumer product like home furnishing. Market globalization takes various reasons. There is an increasing HOMOGENEITY of consumer taste in certain goods like soft drinks, KFC. With home furnishing there exists some diversity in their choices, because tastes, fashion and style differ from region to region. Even within America, there exist the huge difference inside the U.S and hence the American Market poses special challenges for IKEA. Unlike the global middle clan which IKEA targets mainly, Americans want more comfortable sofas, higher quality textiles and more to market demands made IKEA a foray into Japan 30 years ago which was a disaster.

Cost globalization Since some organization will have greater access to and or be more aware of the competitive advantages. Cost globalization many give potential for competitive advantages. For IKEA to reap the benefits of economies of scale, standardized production is required. IKEA looks for ways to provide customers with affordable contemporary designs IKEAS relentless cost cutting is well known. It goes deeper when it wants to hi rivals in certain segment. The cost obsession fuses with the design culture. Designing beautiful products that are in expensive and functional is a greater challenge. This is what IKEA is undertaking. They accept on design only when it is affordable. A team of designers and freelancers work tirelessly to fund the appropriate materials and least costly suppliers. IKEA work overtime to fund the right manufacturer for the right product. SIMIPLICITY helps to keep the cost downs. IKEA tries to make use of discarded and unused materials to make innovative use of them.

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GLOBALISATION OF COMPETITION Changes in the Macro environment are increasing globalization, which in turn, encourage further globalization. If the level of exports and imports between countries are high, it increases interaction between competitors on a more global scale. IKEA is carrying on business on a global scale; hence it is competing globally and thus places globalization pressures on competitors. IKEAs culture is egalitarianism, steely competitiveness, relentless cost cutting, and deeply ingrained frugality in the cooperate DNA as the obsession with design all these tend to place IKEA in a competitive position. IKEA is also seeing more competition than ever. This IKEA should plan and is doing to bravely have global competition. In Japan NITORI Co has a look on low cost furniture

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Appendix X
Exhibit: Porters diamond analysis: The determinates of national advantages

IKEAs Strategy Structure and rivalry

Factor CONDITIONS

DEMAND CONDITIONS

RELATED and SUPPORTING INDUSTRIES E.g Timiber Supplier supplier, designed, manufactures

Porter suggests that the national home base of an organization plays an important role in creating advantage on a global scale. This home base provides factors within which organizations are able to build on and extend to provide such advantages. There may be FACTORS CONDITIONS that help explain the basic of advantage on a national level. These provide initial advantages that are subsequently built upon to yield more advanced factors of competition. For example, In Japan, where IKEA is gearing up for a return this year and in Sweden where IKEA originated from, legislations on labour (employment) are strictly adhered to and difficult to lay off labour these IKEA would be compelled to make greater impetus towards automation wherever possible home DEMAND CONDITIONS provide the basis upon which the character tics Swedish, known for their

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SIMPLICITY and thereby lowest cost have provided the necessary impetus for IKEA to further global dominance of these factors. One successful industry may lead to advantage in related and supporting Industries. For example If IKEA is to keep its pace of growth and increase its number of stores, it needs more resources materials and can look for Russians to provide manufacturer goods (furniture) as the company is enclosed with timber. Otherwise IKEA would face a bottle neck in supply. From counties to counties the character tics of form strategy, industry structure and rivalry and this can help explain base of advantage. Domestic rivalry and the search for competitive advantage between suppliers and buyers, leading to innovation IKEA is always on the lookout for innovative product, process and designs with a view of keeping costs down and to make product affordable.

The characteristics for identifying strategic groups are different from those in other strategic group in the same industry, as for example with home furnishing sector. The scope of activities and resources commitment may be different from industry to industry, sector to sector. When we look at the scope of activities, extent of product diversity exists in furnishing sector. Home furnishing includes product with varying designs styles, appearance and purpose. But basically each group tends to serve the same purpose. E.g. Sofas, IKEA covers a number of countries over the global and is ever expanding hence the extent of geographic coverage. IKEA mainly target global middle class and hence has a main single segment hence differ in the number of market segment saved. As for the distributor channels used IKEA deals mainly directly worth the customers and doubt makes use of intermediaries. Hence sells its product through its own outlets. Extent of branding IKEAs is a well known name in the furnishing industry. Marketing effort is well directed to meet customers needs. Yet more has to be done with respect to other segment such as more effluent societies and other furnishing buyers such as hoteliers, hospital and industry. Extent of vertical in IKEA as it exenterates with cost cutting and more
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efficient was of production. Size of the organization, IKEA is highly appreciable permeated in numerous countries over the last few decades.

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Appendix X Exhibit: Porters competitive forces and strategies

POTENTAIL NEW ENTRANTS

THREAT OF NEW ENTRANTS THREAT OF SUBSTITUTE PRODUCTS

SUBSTITUTE PRODUCTS FROM OTHERS INDUSTRY

IKEAs rivalry versus Industry competitors

BARGANING POWER OF SUPPLIERS

BUYERS
THREAT OF POWER OF BUYERS

SUPPLIERS

POTENTIAL NEW ENTRANTS The potential barriers to entry into a sector/ industry are the capital requirements and economies of scale. Its costly to enter into oil refinery or car manufacturer than to start a retail trade. IKEA was founded in 1943 and since they it has grown bigger market and bigger by expanding its number of stores and entering the global market and its sales are growing at a healthy clip. New entrants are difficult to enter, since IKEAs steady competitive and is engaged in relentless cost cutting. It goes deeper when it wants to hit rivals in certain segments. IKEA has a market share of 5-10% in each country and does not have single major

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competitor. Yet IKEA is seeing more competition than every as for instance, NITOTI co in Japan has look on low cost furniture Bargaining power of buyers In formal customers become empowered customers. As advertising and buyer information educates customers about the full range of price and product options available in the market place, their influence on an organization increase. IKEA provide its customers with good taste and recognize value compiled with affordable contemporary designs and its targets global middle clan. It maintains its customers by enthralling worth attractive stores, huge collection of items, lowest possible prices. Buyers of IKEA furniture are numerous and nearly 410 million shoppers visit their stores annually and the buyer are numerous and come from different social levels making their bargaining power at a minimum level

Bargaining power of supplier The concentration of suppliers and the availability of substitute suppliers are significant factors is determining suppliers power. A sole supplier (MONOPOLIST) will heave and can exert great power. Other factors include whether a supplier can survive without a particular purchases or whether the purchaser can threaten to self. Manufacturer the needed supplier. IKEA always intends to keep it costs down by relentless cost cutting devices. Frugality is as deeply ingrained in the corporate DNA as the obsession with design. The cost obsession fuses with the design culture. With a net work of 1200 suppliers in 53 counties IKEA works overtime to fund the right manufacturer for the right product. Hence IKEAs demand for both material resources and manufactured goods. Hence the bargaining power of suppliers is minimal and not coordinated since suppliers are geographically, widely scattered over the globe.

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Threats of substitute product The power of alternatives and substitutes for an organizations product may be affected by cost change or trends. IKEA is keenly and steely competitive and looks for affordable designs, products and manufacturer. It exhibits retention by cost, cutting, frugality, simplicity and cost saving in all the ways possible down to earth economizing on recourses. Home furniture does not have a PERFECT substitute, through can be replaced with plastic or steel items. But the materials needed for wooden furnishing can be substitution to a certain extent but they wont amount to perfect substitution. Hence the threat of substitute product in have furnishing is again minimal. IKEA in always on the lookout for innovative materials such as discarded and unused materials. Rivalry among competitors The scrambling and jockeying for position often exemplified by what Porter called the advertisement slugfest. These rivalries are influenced by the preceding four forces as well as by cost and product differentiation. IKEAs sales in each country which means the remaining sales are accounted by other competitors yet there is no single major competitor to name. IKEA is keenly competitive, keep its prices affordable, eliminates waste in any form and targets middle clam consumers. Since it focus on this segments such as the affluent sector is not targeted and they may be aimed by the competition. IKEA should be sensitive to theses variation on customers need and demands.

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Appendix X
Exhibit: Some characteristic for identifying strategic groups STRATEGIC GROUP ANAYLSIS

It is useful to consider the extent to which organization differ in terms of characteristics such as SCOPE OF ACTIVITIES Extent of product diversity Extent of geographic coverage Numbers of market segment served Distributor channels used

RESOURCE COMMITMENT Extent of branding Marketing effort Extent of vertical integration Product or services quality Technological leadership Size of organization

Source: Based on M.E. Porters competitive strategy 1980

The characteristics for identifying strategic groups are different from those in other strategic group in the same industry, as for example with home furnishing sector. The scope of activities and resources commitment may be different from industry to industry, sector to sector. When we look at the scope of activities, extent of product diversity exists in furnishing sector. Home furnishing includes product with varying designs styles, appearance and purpose. But basically each group tends to serve the same purpose. E.g. Sofas, IKEA covers a number of countries over the global and is ever expanding hence the extent of geographic coverage. IKEA mainly target global middle class and hence has a main single segment hence
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differ in the number of market segment saved. As for the distributor channels used IKEA deals mainly directly worth the customers and doubt makes use of intermediaries. Hence sells its product through its own outlets. Extent of branding IKEAs is a well known name in the furnishing industry. Marketing effort is well directed to meet customers needs. Yet more has to be done with respect to other segment such as more effluent societies and other furnishing buyers such as hoteliers, hospital and industry. Extent of vertical in IKEA as it exenterates with cost cutting and more efficient was of production. Size of the organization, IKEA is highly appreciable permeated in numerous countries over the last few decades.

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Appendix X STRATEGIC VALUE ANAYSIS

It is imperative to see value through the eye of the customer. Although this might be a self evident statement, it may be hard to achieve for various reason. IKEA may not be able to make sense of the complex and varied behaviors they experience with markets. IKEA may be unclear about who is the strategic customer Value of the product/ service is often concerned and conceived internally by groups of people worship under IKEA such as designers, manufacturer, etc and not tested with customers IKEA;s concept of value changes over time either because they become more experienced or because offerings by IKEAs competition become available which may offer better value.

Appendix XIII

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