Based on Michael Porter’s discussion of the characteristics of an effective stra

Question

Based on Michael Porter’s discussion of the characteristics of an effective strategy, does IKEA have a good strategy for growth?
Explain.

To what extent is IKEA following the five steps of the strategic-management process?

What are your thoughts about IKEA's vision and mission statements?

Which of Michael Porter’s four competitive strategies is IKEA trying to follow? Discuss .

To what extent does the SWOT analysis support IKEA's strategies? Explain your rationale.

What is the greatest takeaway from this case in terms of strategic management?

Explanation / Answer

Michael Porter developed a 5 force model, which helps companies access the market competition and define strategies to keep up with the changing market.

It also helps industries to determine the market forces which could impact the ability of business to remain profitable and how to formulate strategies to ensure business remains profitable.

Porters 5 force framework

Market rivalry / Competitive rivalry

Threat of New Entrants

Threat of Substitutes

Bargaining power of buyer

Bargaining power of supplier

Ikea is world’s leading brand and has become a symbol in home furnishing industry. It’s the most trusted brand in industry segment and has set new benchmarks for the industry. Ikea has built the trust in customers over a long period of time and people have a deep trust by the best service and quality offered by Ikea. Ikea certainly also follow the Porters framework to remain on top position in this agile market.

Analyzing the Ikea scenario based on the porters frame work

Competitive Rivalry

Even though Ikea is the well-known and most trusted brand in home furnishing industry, there are other players / companies in market which give tough competition to Ikea by offering various offers / schemes and discounts on home furnishings. Ikea continue to maintain upward growth trends and remain profitable by offering best service (pre and post-sale) and best quality thus remain the global market leader.

Threat of new Entrants

Since the market is into home furnishing there is always a threat of new entrants in business both at local and global level. Though there are multiple existing players already present in market, but it’s difficult for new entrants to match up to these existing big brands like Ikea who have the financial stability and their brand have become the industry standard. Its next to impossible for new players to enter market and matchup to the level what Ikea is at after having extensive experience and expertise in industry.

Threat of Substitutes

As there are very few changes in the basic utility and design of products being sold for home furnishing there are very less chances of substitutes. Though there is innovation in industry and extremely high value / classic / vintage design products with multi utility are available but it’s unlikely that the core customers of Ikea which Ikea focuses on would shift their preferences. Various options and wide range of product designs available at Ikea are another reason of customer loyalty.

Bargaining Power of Buyers

Ikea is known for its best quality at cheapest price, one of the main reason for customers / buyers to remain loyal to Ikea is the lowest price offered. Though some local and global players are present in market which offer attractive deals and discounts which sometime attract customers. If Ikea increases the prices drastically then there is a chance customer would switch to other players, but lowest price is part of business model of Ikea.

Bargaining Power of Suppliers

Ikea being a global brand and leader in market have the upper hand in industry and have various supply chain available hence suppliers do not much bargaining power. Since the industry doesn’t operates on any niche skill, and product development is easy and multiple options are available in market hence Ikea can easily partner with these industries and continue business. However Ikea operates for mutual benefit for both supplier and Ikea along with end customer.

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