Strategic Management Ikea Case Study

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Strategic Management

IKEA Case Study

Table of Contents

IntroductionPage 3

IKEA Strategy Description: Porter’s Generic Strategy OptionsPage 4

IKEA Strategy Description: Ansoff MatrixPage 7

IKEA Strategy Evaluation: Suitability Page 9

IKEA Strategy Evaluation: Porter’s 5 ForcesPage 9

IKEA Strategy Evaluation: Capabilities Page 11

IKEA Strategy Evaluation: SWOT-AnalysisPage 12

Stakeholder Expectations:Page 14

Conclusion:Page 15

References:Page 16

Introduction

IKEA has been one of Europe’s greatest recent success stories. Founded by a Swede of German origin in the 1940’s, the company has grown to become one of the largest and most profitable corporations in the world, and elevated its founder to the rank of being one of the richest human beings in the world (Forbes Magazine, 2006). IKEA came to the United Kingdom during a time of great expansion for the company – the 1980’s. Initially only operating one store, the furniture giant now operates 18 within the region, with a UK revenue of £1.15 billion in 2011 (Cripps, 2012; BBC News, 2012). IKEA is now the most popular furniture store in the UK, and has achieved phenomenal growth throughout the European continent – it is estimated that 1 in 10 Europeans are now conceived in an IKEA bed (Rohrer, 2005). In this case study, IKEA’s business level strategy in the UK market will be described and evaluated. A business level strategy refers to how a company intends to compete and sustain competitive advantage over its rivals in an industry, whilst a corporate level strategy refers to a far broader outlook such as whether a company should be operating in a given industry in the first place (Johnson et al, 2011). Only IKEA’s business level strategy for the UK will be analyzed in this work, a detailed description of which will be achieved through Porter’s Generic Strategy Options and the Ansoff Matrix. Through the Generic Strategy Options, IKEA’s corporate ethos of wishing to lead its competitors on price, as well as its obsession with cutting costs - instilled by its frugal founder Ingvar Kamprad –, will be demonstrated. The Ansoff Matrix meanwhile will help demonstrate the company’s strategy for growth – showing how IKEA operates mainly a Market Penetration strategy within the UK, while having employed all 4 throughout its corporate history in the region since it came over from continental Europe. These strategies will then be evaluated for their suitability, achieved through a detailed external analysis of the UK’s competitive sphere through Porter’s 5 Forces, followed by a SWOT analysis for the retailer.

IKEA Strategy Description:

Porter’s Generic Strategy Options

Famous Harvard professor Michael Porter has been at the centre of strategy evaluation for over 3 decades now (Harvard Business School, 2012; BBC Learning English, 2012). Though Porter has touched on many fields within the strategy arena, a large amount of his research and theories have dealt with the topic of how companies attain and sustain competitive advantage in an industry over their rivals. One such tool Porter devised in the 1980’s to measure and understand the phenomenon are the Generic Strategy Options (Porter, 2004). Porter identified 3 generic strategies that companies generally engage in for competitive advantage, namely Cost Leadership; Differentiation and Focus, which will briefly be defined and subsequently related to the IKEA case study (see below for an illustrative table).

The ‘Cost Leadership’ strategy is defined as a firm setting out to become the low-cost producer for its industry; generally achieved through a variety of tactics such as economies of scale (i.e. as production increases cost per unit goes down), proprietary technology (i.e. beneficial technological innovation), and preferential access to raw materials (Porter, 2004). Meanwhile, through ‘Differentiation’ strategy, a company...
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