Porters Profit and Vrio Model

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1.What are the strategic capabilities of IKEA?

From the VIRO table (appendix 1) IKEA's strategic capabilities are grouped into the following categories -

•Brand/quality reputation
•Financial strength
•Production capacity.

Brand/Quality reputation

IKEA operates (in 2002) 154 stores in 22 countries and serviced 286 million customers. With a 14% share of the market (in America), there is huge opportunity for growth via a continued marketing campaign to leverage off its brand, differentiating itself from other distributors by highlighting it's unique price and business acumen.

Financial strength

IKEA-with a revenue stream of $12 billion would have a strong balance sheet which could allow capital raising for options such as a focused marketing campaign, buying market share by organic growth and new store strategy. IKEA also has the ability to control their own distribution network to control the supply chain from production to consumer.

Increasing its market share, by growth (50 stores by 2013 in America) and creating a continued infiltration in the American consumer's minds and utilising that company's infrastructure will increase its presence, and this will have the effect of improve economies of scale and hence improve profitability and return on investment.

Production capabilities
By the selection of its own design, and price advantage (20% to 30 % below other distributors), it has the ability to purchase from currently approximately 1800 suppliers from around the world, thereby ensuring the best prices flow onto the customer. I

2.Recommend a business strategy for IKEA.

IKEA has several options available for its future business strategies, including –

•Increase its market share through expansion
•Targeting new markets
•Improve distribution networks

Increase in Market Share

Ikea need to understand the American consumer trends and then formulate their corporate strategy accordingly and pursue it vigorously (current campaign seems to work pretty well). The furniture industry is fragmented with a large number of distributors and this represents an opportunity to increase market share by buying strategically.

Targeting Market Segments

IKEA has only 14 % of the American market therefore; consumption per capita will grow steadily which will requires targeting new market segments and design of separate products for that segment.

Improve Distribution Networks

IKEA need to improve the sales/distribution chain and develop a better widely educated distribution strategy and enter partnerships with transportation companies for exclusive distribution rights. (This may ensure the cheapest mode of transportation for the customer)

Appendix 1.

Profit Model

Ikea's strategic capabilities can be summarised using the PROFIT and VIRO frameworks as below

Physical Resources

The size, location, technical sophistication and flexibility of plant and equipment

•Large retail outlets located in the suburbs and cities, in America •Company established in 1943 – demonstrating longevity and ability to survive •14 th Largest retailer with "monster stores" (page 9)

•Modern facilities including childcare and café's
•Unique store layout

The location and alternative uses for land and equipment

•Alternate uses available for retail facilities – generally a retailer has large showroom facilities which could later on be used for other purposes. •Location, generally in city and suburbs.

Reserves of raw materials/ inventories

•Finished product are sourced both locally and imported
•sufficient supply to meet retailing demand which is seasonal •good level of alternate local suppliers (+- 1800 suppliers)

Reputational Resources

Brand name

•strongest asset of the company is its brand name
•long serving Scandinavian company renowned for its price vs. quality product •Iconic modern "flat pack" systems
•Large number of products

Trade marks,...
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