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IKEA Porter's Five Forces and Value Chain Analysis

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This presentation briefly will elaborate how IKEA has adopting Porter's Five Forces and Value Chain Analysis in order to maintain its competitive edges over its rivals in furniture market all over the globe by providing good quality furniture at a lower price tag. Hence by bringing in innovative design, improved functionality, low cost operating expenditures and offering excellent quality at lower prices, IKEA's has proved to be a success.

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IKEA Porter's Five Forces and Value Chain Analysis

  1. 1. IKEA Porter’s Five Forces And Value Chain Analysis By: ROSLIN HISHAM B ABD HAMID GP02687 For: (TTTU6414) MANAGEMENT INFORMATION TECHNOLOGY NATIONAL UNIVERSITY OF MALAYSIA
  2. 2. • IKEA, a global furniture retailer, is established on 1943 by introducing the concept of offering wide range of functional, well designed and low cost home furnishing products. • The IKEA concept journey continues with its global operations in 40 countries with 330 stores and 154,000 workers with sales turnover is recorded as USD27.5 Billion for year 2012. • Initiated its operations as a seller of home furnishing products, IKEA today diversifies its products into fabricated housing and food. • This report will take a strategic analysis of IKEA through employing Porter’s Five Forces and Value Chain Analysis Tools. ROSLIN HISHAM B ABD HAMID- GP02687 | (TTTU6414) INFORMATION SCIENCE AND TECHNOLOGY 2/17
  3. 3. …AN INTRODUCTION • Porter’s Five Forces model is a generic framework that deconstructs industry structure into 5 (five) underlying competitive forces or variables” (Nemati and Barko, 2004, p.29). These five underlying forces are: • competitive rivalry among existing firms; • bargaining power of suppliers; • bargaining power of customers; • the threat of new entrants into the industry; and • the threat of substitute products and services ROSLIN HISHAM B ABD HAMID- GP02687 | (TTTU6414) INFORMATION SCIENCE AND TECHNOLOGY 3/17
  4. 4. a d i a g r a m i l l u s t r a t i n g PORTER’S FIVE FORCES MODEL ROSLIN HISHAM B ABD HAMID- GP02687 | (TTTU6414) INFORMATION SCIENCE AND TECHNOLOGY 4/17
  5. 5. IKEA Porter’s Five Forces Analysis Can Further Be Elaborated By Each Of The Forces Such As In The Following Manner • Rivalry among existing firms is intense in the global market of discount furniture and the major players in the industry include Euromarket Designs Inc, Galiform plc, Wal- Mart Stores Inc, Argos and others. However, currently IKEA is the undisputed market leader in the industry of discounted furniture in the global scale. ROSLIN HISHAM B ABD HAMID- GP02687 | (TTTU6414) INFORMATION SCIENCE AND TECHNOLOGY 5/17
  6. 6. IKEA Porter’s Five Forces Analysis Can Further Be Elaborated By Each Of The Forces Such As In The Following Manner • The threat of new entrants into the industry is low, and the chances of emergence of new competition for IKEA is insubstantial as the current market is saturated and significant amount of financial investments and expertise are required to become a discounted furniture retailer in a global scale. ROSLIN HISHAM B ABD HAMID- GP02687 | (TTTU6414) INFORMATION SCIENCE AND TECHNOLOGY 6/17
  7. 7. IKEA Porter’s Five Forces Analysis Can Further Be Elaborated By Each Of The Forces Such As In The Following Manner • The bargaining power of IKEA customers is strong, as the competition is intense and the customers have a wide choice of alternative options offered by global furniture retailers, as well as, local furniture producers. ROSLIN HISHAM B ABD HAMID- GP02687 | (TTTU6414) INFORMATION SCIENCE AND TECHNOLOGY 7/17
  8. 8. IKEA Porter’s Five Forces Analysis Can Further Be Elaborated By Each Of The Forces Such As In The Following Manner • IKEA suppliers do not possess substantial bargaining power as there are numerous factories around the globe with the capabilities and resources to form partnership with IKEA. At the same time, IKEA pursues the strategy of forming strategic long-term relationships with its suppliers. ROSLIN HISHAM B ABD HAMID- GP02687 | (TTTU6414) INFORMATION SCIENCE AND TECHNOLOGY 8/17
  9. 9. IKEA Porter’s Five Forces Analysis Can Further Be Elaborated By Each Of The Forces Such As In The Following Manner • the threat of substitute products and services are low as there are not too many products and services available that can substitute the demand for furniture, home appliances and a range of other products like are offered by IKEA. ROSLIN HISHAM B ABD HAMID- GP02687 | (TTTU6414) INFORMATION SCIENCE AND TECHNOLOGY 9/17
  10. 10. IKEA Value Chain Analysis ROSLIN HISHAM B ABD HAMID- GP02687 | (TTTU6414) INFORMATION SCIENCE AND TECHNOLOGY 10/17
  11. 11. • The concept of Value-Chain analysis is introduced by Michael Porter (1985), who divides activities of the firm into two categories: PRIMARY ACTIVITIES and SUPPORT ACTIVITIES. • PRIMARY ACTIVITIES are necessary elements for producing the products and offering services, • SUPPORT ACTIVITIES assist businesses to become successful in the marketplace. ROSLIN HISHAM B ABD HAMID- GP02687 | (TTTU6414) INFORMATION SCIENCE AND TECHNOLOGY 11/17
  12. 12. P O R T E R ’ S VALUE CHAIN ANALYSIS DIAGRAM ROSLIN HISHAM B ABD HAMID- GP02687 | (TTTU6414) INFORMATION SCIENCE AND TECHNOLOGY 12/17
  13. 13. PRIMARY ACTIVITIES VALUE CHAIN ANALYSIS ACTIVI TY IMPLEMENTATION BY IKEA Inbound Logistics • Distribution of products to the stores from 42 distribution centres. • 10,000 item product line manufactured by over 1,000 suppliers. Outbound Logistics • Preferred method for customer to transport their products themselves. Operations • Operations in more than 40 countries, 208 companies operated stores in 26 countries while remaining stores operated by franchisees • IKEA does not manufacture its own products Marketing and Sales • Targeted at families with lower income, students and singles • Low prices. • Family-friendly store environment. Services • Information provided through catalogues and displays. • Self-help service. • Support Activities • Low number of sales assistants in stores ROSLIN HISHAM B ABD HAMID- GP02687 | (TTTU6414) INFORMATION SCIENCE AND TECHNOLOGY 13/17
  14. 14. SUPPORT ACTIVITIES VALUE CHAIN ANALYSIS ACTIVI TY IMPLEMENTATION BY IKEA Firm Infrastructure • Hierarchical organisational structure. • Large scale stores in size. Human Resource Management • High level of commitment to HR practices • Effective staff training and development programs Technology Development • Research and development activities initiated in Sweden. • Extensive use of information technologies in various business processes and research and development. Procurement • No need for raw materials as IKEA does not produce own brand products • Long strategic relationships with all suppliers ROSLIN HISHAM B ABD HAMID- GP02687 | (TTTU6414) INFORMATION SCIENCE AND TECHNOLOGY 14/17
  15. 15. Since IKEA products are based on the low prices, we can imply that IKEA has adopted THE LOW COST-LEADERSHIP STRATEGY as a competitive IKEA advantage. Value Chain Analysis Starting with the Primary Activities, inbound logistics; IKEA has large shipments and massive warehouse to product their products. Operation runs in various countries. In procurement; IKEA purchases from numerous sources having a strong bargaining power with suppliers. Technological development; learning and experienced amortized over large volume. Human resource management; providing intensive training to emphasise cost savings means and firm infrastructure; having to centralised cost controls. ROSLIN HISHAM B ABD HAMID- GP02687 | (TTTU6414) INFORMATION SCIENCE AND TECHNOLOGY 15/17
  16. 16. • IKEA’s vision has contributed in improving lives for the many people in practicing sustainable environment. • IKEA plays a vital role in ensuring its products are sustainable and takes the leadership role to educate its suppliers to understand how and why sustainable production is vital. • These factors are the key differentiators that has made IKEA’s different from its competitors. IKEA is one of the trustworthy company that is responsible for their product and its impact on the environment. ROSLIN HISHAM B ABD HAMID- GP02687 | (TTTU6414) INFORMATION SCIENCE AND TECHNOLOGY 16/17
  17. 17. • http://www.ukessays.com/essays/marketing/value-chain-if-the-company-marketing- essay.php • http://research-methodology.net/ikea-porters-five-forces-analysis/ • http://www.ukessays.com/essays/marketing/pestel-swot-and-five-forces-analysis- of-ikea-marketing-essay.php • Porter, ME, 1985, Competitive Advantage: Creating and Sustaining Superior Performance, Free Press • http://www.writework.com/essay/ikea-and-porter-s-five-forces • Profile: IKEA, 2011, Innovation Leaders, Available at: http://fp05- 527.web.dircon.net/ikea_company_profile.htmL Accessed, July 1, 2011 • http://www.studymode.com/essays/Ikea-Five-Forces-466211.html ROSLIN HISHAM B ABD HAMID- GP02687 | (TTTU6414) INFORMATION SCIENCE AND TECHNOLOGY 17/17

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