Q 1.

SWOT ANALYSIS:

Strategic thinking requires the generation of a series of

strategic alternatives, or choices of future strategies to pursue,

given the company's internal strengths and weaknesses and its

external opportunities and threats. The comparison of strengths,

weaknesses, opportunities, and threats is normally referred to as

a SWOT analysis

The environment in which an organization exists can be

described in terms of the opportunities and threats operating in

the external environment apart from the strengths and

weaknesses existing in the internal environment. The four

environmental influences could be described as follows:

♦ Strength:

Strength is an inherent capability of the organization which it can use to

gain strategic advantage over its competitors.

♦ Weakness:

A weakness is an inherent limitation or constraint of the organization

which creates strategic disadvantage to it.

♦ Opportunity:

An opportunity is a favourable condition in the organisation’s

environment which enables it to strengthen its position.

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♦ Threat:

A threat is an unfavourable condition in the organisation’s environment

which causes a risk for, or damage to, the organisation’s position.

An understanding of the external environment, in terms of the

opportunities and threats, and the internal environment, in terms of the
strengths and weaknesses, is crucial for the existence, growth and
profitability of any organization.

A systematic approach to understanding the environment is the

SWOT analysis. Business firms undertake SWOT analysis to understand
the external and internal environment.

SWOT, is the acronym for strengths, weaknesses, opportunities and

threats. Through such an analysis, the strengths and weaknesses existing
within an organization can be matched with the opportunities and threats
operating in the environment so that an effective strategy can be
formulated. An effective organizational strategy, therefore, is one that
capitalizes on the opportunities through the use of strengths and
neutralizes the threats by minimizing the impact of weaknesses.

Its central purpose is to identify the strategies that will create a firm-
specific business model that will best align, fit, or match a company's
resources and capabilities to the demands of the environment in which it
operates. Strategic managers compare and contrast the various alternative
possible strategies against each other with respect to their ability to
achieve major goals and superior profitability.

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The significance of SWOT analysis lies in the
following points:

♦ It provides a Logical Framework: SWOT analysis provides us with a

logical framework for systematic and sound thrashing of issues having
bearing on the business situation, generation of alternative strategies
and the choice of a strategy. Variation in managerial perceptions about
organizational strengths and weaknesses and the environmental
opportunities and threats lead to differences is approaches to specific
strategies and finally the choice of strategy that takes place through an
interactive process in dynamic backdrop.

♦ It presents a Comparative Account: SWOT analysis presents the

information about both external and internal environment in a
structured form where it is possible to compare external opportunities
and threats with internal strengths and weaknesses. This helps in
matching external and internal environments so that a strategist can
come out with suitable strategy by developing certain patterns of
relationship. The patterns are combinations say, high opportunities and
high strengths, high opportunities and low strengths, high threats and
high strengths, high threats and low strengths. In case a different
strategy is needed, as situation varies.

♦ It guides the strategist in Strategy Identification: It is natural that

a strategist faces a problem when his organization cannot be matched
in the four patterns. It is possible that the organization may have several

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 opportunities and some serious threats. It is equally, true that the
organization may have powerful strengths coupled with major
weaknesses in the light of critical success factors. In such situation,
SWOT analysis guides the strategist to think of overall position of the
organization that helps to identify the major purpose of the strategy
under focus.

SWOT analysis helps managers to craft a business model (or

models) that will allow a company to gain a competitive advantage in its
industry (or industries). Competitive advantage leads to increased
profitability, and this maximizes a company's chances of surviving in the
fast-changing, global competitive environment that characterizes most
industries today.

Faced with a constantly changing environment, each business unit

needs to develop a marketing information system to track trends and
developments, which can be categorized as an opportunity or a threat. The
company has to review its strength and weakness in the background of
environment’s opportunities and threat, i.e., an organization’s SWOT
analysis.

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 Potential Resource Potential Resource
Strengths and Competitive Weaknesses and
Capabilities Competitive Deficiencies

A B

Potential Company Potential External Threats to

Opportunities Company’s Well-Being

C D

Analysis is the critical starting point of strategic thinking.

Kenichi Ohmae

If you’re not faster than your competitor, you’re in a tenuous position, and if

you’re only half as fast, you’re terminal.

George Salk

The idea is to concentrate our strength against our competitor’s relative

weakness.

Bruce Henderson

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Q.2 DIFFERENCE BETWEEN INTERNAL & EXTERNAL FACTORS:

The environment in which an organization exists could be broadly

divided into two parts the external and the internal environment.

Since the environment is complex, dynamic, multi- faceted and has a

far reaching impact, dividing it into external and internal factors enables us
to understand it better. We start with gaining an understanding of the
concept of environment.

The external environment includes all the factors outside the

organization which provide opportunity or pose threats to the organization.

The internal environment refers to all the factors within an

organization which impart strengths or cause weaknesses of a strategic
nature.

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 Figure: Company’s Business Environment

The process of strategy formulation starts with, and

critically depends on, the appraisal of the external and internal
factors of an organization.

EXTERNAL FACTORS consists of demographics and

economic conditions, socio-cultural factors, political and legal
systems, technological developments, etc. These constitute
the general environment, which affects the working of all the
firms.

INTERNAL FACTORS consist of suppliers, consumers,

marketing intermediaries, etc.

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 These are specific to the said business or firm and affects it’s
working on short term basis.

LEGAL

CULTURAL

TECHNOLOGICAL

EXTERNAL
ENVIRONMENTAL
POLITICAL
FACTORS

GOVERNMENT

ECONOMIC

DEMOGRAPHIC

MARKET

ORGANIZATION

INTERMEDIARIES
INTERNAL
ENVIRONMENTAL CUSTOMERS
FACTORS

SUPPLIERS

COMPETITORS

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Q. 3 ANALYSIS OF WAYS IN WHICH IKEA HAS MANAGED TO
MINIMISE THREATS TO ITS BUSINESS:

The success of any Organisation depends basically on the

analysis of the environment in which it is operating, to find out
the strengths, weaknesses, opportunities & threats posing an
organization.

An awareness and a strategic study is most critical for

survival of any organization. Every business has got its own
threats & weaknesses. The threats can only arise if there are
certain weaknesses. Thus, the review of the weaknesses gives
us an understanding of the threats & the ways in which it can
be counteracted.

IKEA is facing the following threats which could be critical

for its survival:

1. SOCIAL TRENDS: Slowdown in first time buyers

entering the housing market which is its core segment.

2. MARKET FORCES: More competition in household &

furnishing markets.

3. ECONOMIC FACTORS: Recession slows down the

consumer spending & disposable income reduces
substantially.

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 IKEA has managed to minimize the threats to its business in
the following manner:

1. SOCIAL TRENDS:

IKEA is building online help to guide customers to a

more sustainable life. Here it can focus on home
improvement in the slowing housing market. It supports
customers with tips and ideas on its website to reduce
their impact on the environment. This will also save them
money.

Staff are trained on sustainability, both on what

IKEA is doing and how they can take responsibility to
become sustainable for themselves.

2. MARKET FORCES:

IKEA is large enough to enjoy economies of scale. This

lowers average costs in the long run through, for
example, better use of technology or employing
specialized managers. Economies of scale also give a
business a competitive edge if cost savings are then
passed on to customers in the form of lower prices. This
puts up high barriers to entry for smaller companies
entering the market.

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 3. ECONOMIC FACTORS:

IKEA’s low prices create appeal amongst its customers

in tough financial times. It is vital to keep prices as low as
possible when the retail sector is depressed. IKEA’s
pricing strategy targets consumers with limited financial
resources. Its products will also appeal to those with
higher budgets through good quality and design. The
company must ensure that it is always recognised as
having the lowest prices on the market in the future.

In the given case of IKEA, it is also worthwhile to consider

the weaknesses inherent in the business due to the nature of
the organization:

1. The size & scale of its global business leads to lapses

in control standards, quality & Weak link in Supply
chain Mngt.

2. Need for low cost raw material

3. Communication with the consumers & stakeholders

about its environmental activities.

IKEA has managed to minimize the threats arising from

these weaknesses in the following manner:

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 1. The IWAY code is backed up by training & Inspectors
visiting factories to made sure that suppliers meet its
requirements.

2. The problem of availability of low cost raw material is

balanced by production of high quality goods which
will nullify the shift in demand.

3. Production of publications in print & online media, TV

& Radio campaigns.

Q. 4 CONTRIBUTION OF SWOT ANALYSIS TO IKEA’S BUSINESS

GROWTH:

The IKEA group currently owns more than 253 stores & 32
franchisees in over 24 countries and has a turnover of over
21.2 billion Euros.

Such figures & high growth are mind boggling for a business
started in 1943 and the key contributor to this business
growth of IKEA is mainly attributable to the SWOT ANALYSIS
being performed from time to time.

SWOT Analysis has contributed to IKEA’S business growth

in the following ways:

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1. IKEA has created the opportunities & countered the
threats by making the most of its strengths &
addressed its weaknesses confidently due to which it
has been so successful.

2. IKEA has identified its strengths & has been innovative

throughout by making constant modifications in its
products for optimum utilization of its resources.

3. It has been using the policy of using no more material

than necessary & use of waste as a result of which it is
able to produce the goods at a lower price and that too
of high quality. Eg: Nordon table, OGLA Chair etc.

4. Thus the strengths contribute to IKEA being able to

attract and retain its customers.

5. It has become a Strong global brand & perceiving this

as an opportunity, it makes full use of the Brand value
created by IKEA.

6. Through the technique of SWOT Analysis, it has

identified its KEY PERFORMANCE INDICATORS which
can show the progress path of the organization which
helps the business.

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7. The IWAY approval was earlier conceived as a
weakness by SWOT Analysis. This weakness has been
overcome by dealing only with IWAY approved
suppliers as a result of which the company is assured
of High Quality Material.

8. Economies of scale – for instance, bulk buying at

cheaper unit costs.

9. Sourcing materials close to the supply chain to reduce

transport costs.Delivering products directly from the
supplier to IKEA stores. This slashes handling costs,
reduces road miles and lowers the carbon footprint.

10. Using new technologies – for example, IKEA’s OGLA

chair has been in its range since 1980.

11. ‘Smarter’ use of raw materials – IKEA increased the use

of recycled or reclaimed waste products in energy
production across all stores from 84% in 2007 to 90%
in 2009.

12. Increasing use of renewable materials – IKEA improved

its overall use from 71% in 2007 to 75% in 2009. A
business uses its strengths to take advantage of the
opportunities that arise.

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13. IKEA believes that its environmentally focused
business conduct will result in good returns even in a
price sensitive market.

Thus, the SWOT Analysis has played a major role in

taking all the above business decisions due to which the
IKEA Group has been flourishing.

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