This document discusses IKEA's business model and sources of competitive advantage. It describes IKEA as a global furniture retailer founded in Sweden in 1943 that designs and sells ready-to-assemble furniture and home goods. IKEA pursues a cost leadership strategy through sourcing components globally, manufacturing efficiently, and minimizing inventory costs. Its strong supply chain and global network of stores and distribution centers are key competitive advantages. IKEA has found success by targeting young customers and making furniture accessible and affordable while also creating an enjoyable shopping experience. However, weaknesses include a lack of customer focus and product innovation.

1. IKEA CASE STUDY –
QUESTION 1
THI HANG VU

2. PURPOSES
• Understand IKEA’s business model
• Investigate its sources of competitive
advantage
• Understand reasons behind IKEA’s
success
• IKEA’s main weaknesses.

3. ABOUT IKEA
• Founded in 1943 in Sweden.
• Is a multinational group of company that designs and
sell ready-to-assemble furniture, appliances and home
accessories.
• Has more than 389 locations all over the world (2016).
• Its concept is to offer wide range of functional, well
designed and low cost home furnishing product

4. IKEA BUSINESS MODEL
GENERIC STRATEGY
- Cost leadership : involves becoming the lower cost
organisation in the domain of activity.
- IKEA’s cost drivers include :
 Input cost:
+ Source component from widely dispersed suppliers located in
different countries.
+ Improve its manufacturing techniques
+ Minimize the cost of inventory
 High volume
 Disassembled components

5. SOURCES OF COMPETITIVE ADVANTAGE – STRATEGIC CAPABILITY
TANGIBLE
• IKEA's supply chain management is
one of its solid sources of competitive
advantage.
 1046 suppliers in 52 countries
 32 distribution centres in 16 countries
 345 stores 42 countries
Ensure capability to meet customer
demand
Effective network for distributing
products.
Physical resources

6. STRATEGIC CAPABILITY – TANGIBLE RESOURCES
• Financial resources:
 Experienced a 15% sales increase between 1990-2005
Revenues: 29.29 billion EUR
Ensure a positive cash flow for its operation activities
 Invest to maintain and expand the business all over the world with continuous
R&D activities.

7. STRATEGIC CAPABILITY - COMPETENCES
• How the leaders of IKEA do their business with clear vision and mission,
• Its continuous focus on the importance of both internal and external customers
to ensure that these customers remain loyal to them
• They motive, inspire, coach and support staffs.
• Good relationship with suppliers
• Good relationship with the government and friendly neighbour with community
=> Make the best use of available resources to bring value to customers and
benefit for the company.

8. FREE ASSEMBLY FURNITURE
Offers a larger choice
Immediate delivery
At a lower cost.
 IKEA use its business models to
turn customers as free laborers
 Making them much more valuable
and profitable

11. VRIO ANALYSIS
Which of IKEA’s resources and capabilities add
value ?
- Style at low cost – desirable products
- Enjoyable shopping experience
- Inventory system – customer can take home
furniture immediately
- Experience with global expansion – necessary
knowledge for successful launches in new
market.
To what extent are IKEA’s resources and
capabilities Rare ?
- Style at low price point is relatedly rare
- Ability to take home furniture immediately is not
so rare (Target, Home Depot)
• Imitability :
- Style is moderately imitable
- Shopping experience maybe be
copied by new entrants.
- Experience (with strategic model,
global operations) is difficult to
acquire
• Organisation
- IKEA Group has an ownership
structure that ensures independence
and long term approach.
=> IKEA seems to control its key
resource/capabilities.

12. WHY IS IKEA SUCCESSFUL ?
• Solving the worst part of buying furniture
As people used to see furniture as an investment
for the next 20 years, they tended to be anxious
and indecisive.
IKEA brings a seminal change in home
business
• Hitting the right demographic
- Clever target customers : young people

13. WHY IS IKEA SUCCESSFUL (CONTD)
• Not expensive, but not too cheap
• Stores are a destination
- As e-commerce becomes more popular,
shoppers need incentive to come into stores
- IKEA has elaborate showroom and cafeteria
- IKEA is a standalone store

14. WEAKNESSES
• IKEA is not all customer focused
- IKEA is mainly cost focused.
- In 21st century, firms are more focused on customers’
needs, wants and preferences.
• IKEA lacks product innovation
- IKEA’s product strategy is so much obsessed with low
cost price

15. WEAKNESSES (CONTD)
• IKEA never took economic issues into consideration before being
faced with the problem.
Example: In US, the goods were priced in the Swedish kronor, which
was strengthening against the American dollar.
=> Bring up an opportunity to be more profitable in the future.
=> Satisfy customers’ needs to remain their loyalty and explore new
invested markets, make them more competitive.