ATHE Level 7

Diploma in Strategic Management

Module: Strategic Marketing
Title : Presentation on internal
and external environment.
A case study on Ikea
Presented To
Raziur Chowdhury

Presented By:
Gurjant Singh
Aulakh
Student ID:

Table of contents
Title
Introduction of the company
2.1 Approaches to internal environmental
2.2 Approaches to external environmental
2.3 Internal and external analysis

Slide Number

INTRODUCTION OF IKEA
The company is the world's largest
furniture retailer. Founded in 1943 by
17-year-old Ingvar Kamprad in Sweden.
IKEA has 300 home furnishing
superstores in 35 Countries and was
visited by some 583 million shoppers.

Industries
served

Retail

Geographic
areas
served
Logo

Worldwide

Industries served
Headquarters

Retail
Netherlands

Geographic areas
served CEO
Current

Worldwide
Mikael
Ohlsson

Headquarters

27.628 billion (2012)

Current CEO

Mikael Ohlsson

Revenue

Netherlands

Profit
Revenue

27.628
3.202
billion (2012)
billion (2012)

Profit
Employees

3.202 billion
(2012)
139,000
(2012)

Employees

Main
Main Competitors
Competitors

139,000 (2012)

Argos, Ashley Furniture Home Stores,

Argos, Ashley
Furniture
Home Stores,
B&Q,
Bobs
B&Q,
Bobs
Discount,
John
Lewis,
Pier 1
Discount, John Lewis, Pier 1 Import, Rooms To Go and
Import,
many others.Rooms To Go and many others.

BUSINESS ENNVIRONMENT
Thecombinationof

internal andexternal factors

thatinfluenceacompany'soperatingsituation.
The business environment can includefactors
such as:clientsandsuppliers; itscompetition
andowners;improvementsintechnology;laws
andgovernmentactivities; andmarket, social
andeconomic trends.

2.1 Evaluate approaches to internal

environmental analysis
The

internal
environmentof
an
organization deals with the management of
resources like human resources, physical
resources, technology, monetary resources
and others that constitute the organization
in order to implement or execute a
strategy.

Approaches for Internal

Environment
1.

McKinsey 7-s

2.

Boston Consulting Group

3.

SWOT Anaysis (Strengths and Weaknesses)

4.

Value chain analysis

Cont ...

McKinsey 7s model
McKinsey

7s modelis a tool that analyzes firms

organizational design by looking at 7 key internal
elements: strategy, structure, systems, shared
values, style, staff and skills, in order to identify
if they are effectively aligned and allow
organization to achieve its objectives
(Koontz,1973).

Cont ...

The McKinsey model, which represents the connections between

seven areas and divides them into Soft Ss and Hard Ss. The shape
of the model emphasizes interconnectedness of the elements.

SWOT Analysis
SWOT

Analysis is a useful technique for

understanding your Strengths and Weaknesses,
and for identifying both the Opportunities open to
you and the Threats you face.(paul Newton &
helen bristoll, 2001)

Cont ...

SWOT
SWOT analysis 2013
Strengths

Weaknesses

1.Customer knowledge
2.Constantly using innovations to
drive costs down
3.Supply chain integration
4.Brand reputation and market
presence
5.Diversified product portfolio

1. Negative publicity
2. Decreasing quality
3. Standard products

Cont ...

STRENGTHS

Swot
Analysis
Implemen
tation on
Ikea

Brand reputation and market presence.According to Interbrand,

IKEA is the most valuable furniture retailer brand in the world,
valued at nearly $US 12.8 billion in 2012. The business operates 332
stores in 38 countries and is present in the major world markets.
More than 600 million customers visit IKEA stores every year.
Worldwide market presence and strong brand reputation ensures
that customers will often choose IKEA over its competitors.

Supply chain integration.IKEA is committed to long lasting

relationships with its suppliers. In this way, the company can order
large volumes and benefit from lower prices and greater quality
while suppliers are assured of guaranteed orders. IKEA sources its
materials close to suppliers to reduce transporting costs. The
company also uses IWAY approach to closely integrate suppliers
with its supply chain. All the efforts of closely integrating supply
chain results in lower costs and a competitive advantage.
Cont ...

Weaknesses

Swot
Analysis
Implemen
tation on
Ikea

Negative publicity.The company has been criticized many times

for issues like poor treatment of employees, questionable
advertising practices or lobbying government authorities.
Negative publicity decreases brand reputation and customer
loyalty.

Low quality of products and services.IKEA is unable to find

compromise between continuous cost reductions while
maintaining the same quality of products. According to UK
Customer Insights report on IKEA by Verdict, IKEAs customers are
less satisfied with its product and services quality than the
average customer in UK buying at other stores. Firms cost
reductions lead to decreasing product quality, which was
followed by higher number of products returned and damaged
brand.
Cont ...

Value-Chain Analysis

Value-chain analysis is an analytical framework that assists

in identifying business activities that can create value and
competitive advantage to the business. It has been noted
that Each step in the manufacture of a product or the
delivery of a service can be thought of as a link in a chain
that adds value to the product or service. This concept of
a how business fulfills its mission and objectives is known
as the value chain

Cont ...

Cont ...

Value chain anaysis on ikea

Primary activities
1 inbound logistics
2 Operations
3 Outbound Logistics
4 Marketing sales

secondary Activities
1 Procurement
2 Human resource
management
3 technology development
4 infrastructure

5 Service

Cont ...

Justification

Finally I want to say that swat analysis is best for ikea. It can give a clear idea
about the market, substitutes and what ikea need to do improve their
position in the market . It can also give them clear definition of their
position. It can explain their brand value, reputation and product portfolio.

2.2 Evaluate approaches to external

analysis

The conditions and events outside

a company that affects the way it
operates.

Approches To external analysis

Pestel

Analysis

SWOT

(opportunities and threats )

Porters

Five forces

Cont ...

SWOT analysis

Opportunities and threats of the Ikea

Opportunities

Threats

Further expansion into

developing economies
Growing online sales
Expansion to growing grocery
market

Intensifying competition
Growth of average consumer
income

Cont ...

Opportunities

Further expansion into developing economies.Retail

markets grew by at least 5% on average in emerging
markets in the last year, opening huge opportunities for
IKEAs revenue growth. The company currently operates in
most of the developed economies but hasnt firmly
stepped into developing economies, except China. There
are great opportunities for IKEA to expand into Brazil,
Mexico, Indonesia and Malaysia to increase its presence in
these markets to sustain future growth.

Growing online sales.Online retail sales account for 17%

and 4% of total retail sales in UK and US respectively.
Online sales grow constantly and with 870 million visitors
to its website IKEA could exploit this opportunity and
benefit from increased sales and lower costs.
Cont ...

Threats

Intensifying competition.Many low cost retailers such as

Walmart, ASDA or Tesco are entering homeware specialists
market where IKEA operates. These large retailers have
similar specifics as IKEA, including low costs, well
managed supply chain and huge market presence and can
easily gain some market share from IKEA.

Growth of average consumer income.Growth of average

consumer income means that people buy less low price
and low quality products, which is exactly what IKEA
offers in its stores. With the rising income people will be
less attracted to IKEA and will turn to retailers that offer
higher quality homeware products.
Cont ...

PESTLE Analysis
A PESTEL

analysis is a framework
or tool used by marketers to
analyse and monitor the macroenvironmental (external
marketing environment) factors
that have an impact on an
organisation. The result of which
is used to identify threats and
weaknesses which is used in
aSWOT analysis.

PESTLE Analysis of Ikea

Political environment
Political stability, Tax policy, Employment and labor law, Tariffs, Trade restrictions,
etc
Economic Factors
These factors include: Inflation rate, Interest rates, Economic growth
Social Factors
Population demographics: (e.g. aging population), Distribution of Wealth, Changes in
lifestyles and trends, Educational levels
Technological factors

Technological Factors include: Automation, Technology incentives, Rate of

technological, change R&D activity.Cont ...

Legal - Many laws and legislations in all the different

countries.

Environment - Since it was founded IKEA has been

sensitive to the environment which leads it in making
better use of both raw materials and energy.

2.3 Explain how internal and external analysis are

integrated

By exploring external and internal analyses, companies are

able to create strategies in pursuit of competitive advantage.
Managers want to control a firms internal strengths to exploit
external opportunities, while justifying internal weaknesses
and external threats. By formulating a strategy that is tailored
to their company, creating a unique fit between the companys
internal resources and the external environment. If a firm
achieves a dynamic fit, it is likely to be able to sustain its
advantage over time. The SWOT analysis encourages managers
to scan the internal and external environments, looking for any
relevant factors that might affect the firms current or future
competitive advantage.
Cont ...

A business can create opportunities and counter threats by making the most
of its strengths and addressing its weaknesses. For example, one of IKEA's key
strengths is its strategic aim to use no more material than necessary in the
production of each item. In addition, it develops its product plans to increase
its use of waste or recycled materials.

One particular table, the NORDEN table, uses knotty birch wood. The knots in
this wood usually mean it is rejected by other retailers and manufacturers as
unsuitable for use. However, IKEA has made the knots part of its design
feature.

Cont ...

Justification

After explaining several techniques i can conclude that the pestel analysis is
best ikea because its cost effective and its promote discussion. Its also gives
visual overview of the company and offers a insight understanding of the
company. But if PESTEL and Swot can be done together it can be more
effective and can fosters collaboration in Ikea.

Conclusion
As it is about all about operating in International Markets, and International
Business, we do notknow which strategy will best suit such multinational
companies that is we do not know whethera Global standardization, or
Internationalization, Transnational, or Localization, whichinternational
strategy is going to work in which corner of the world. All we can conclude
bysaying is that before entering into a new market a firm should do its
necessary homeworks unlike IKEA which always did mistakes first and then
learnt from it. This will save millions andbillions of dollars of a company and
this will also help sustain in the long run and secure itscompetitive advantage
in the global market as well.

References

http://www.businessdictionary.com/definition/business-environment.html#ixzz48uS9uKa
U

https://www.boundless.com/management/textbooks/boundless-management-textbook/stra
tegic-management-12/creating-strategy-common-approaches-89/combining-internal-and
-external-analyses-431-5825/
Charles W.L. Hill, Gareth R. Jones. Theory of Strategic Management with Case.9 th
Edition,South-Western Cengage Learning, 2010

IKEAs official website. Retrieved July 8, 2011 from http://franchisor.ikea.com/