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.

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. • 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. …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. 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. 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. 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. 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. 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. 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. IKEA Value Chain Analysis
ROSLIN HISHAM B ABD HAMID- GP02687 | (TTTU6414) INFORMATION SCIENCE AND TECHNOLOGY 10/17

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. 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. 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. 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. 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. • 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. • 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