How can Porters Value Chain Model help Explaining the Source of IKEAS Competitive Advantage? (Essay Sample)

Strategic Business Analysis
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Question:
How can Porter’s Value Chain Model help explaining the source(s) of IKEA’S competitive advantage?
Introduction
In the furniture industry, there are various companies that give out a great deal, modern designs and offer good quality furniture at a pocket-friendly price. IKEA is furniture store that has had a long history of addressing furniture and having a friendly policy on its customers. Most companies provide either quality products or cheap products. In the real sense, it is very hard for a company to provide both of this and this is one reason IKEA has survived a lot of economic times since the 1990s. Today IKEA is among the biggest furniture companies operating almost in every region in the world (IKEA 2010).
IKEA products are designed to a concept of democracy that achieves an effective integrity form, proper functionality, and quality materials and relatively pocket-friendly materials.
The Value Chain approach seeks to analyze manufacturing or services offered by organizations. An efficient system is made up of several subsystems which comprise of inputs, outputs and transformation processes. Value chain activities are the main factors that determine the costs of products an organization offers and mostly affect the final profit of an organization makes. Companies take part in various actions when changing inputs to outputs. Porter (1985) categorizes as either primary or secondary/supporting activities. Porter (1985) further mentions the primary activities as inbound logistics, outbound logistics, operations, services and sales and marketing. Among secondary activities are procurement, infrastructure, technological development and human resource management. Kippenberger (2009, pp.33 – 34), divides the ‘Competitive Advantage’ into two which are cost advantage that Porter defines as the ability of business to offer goods and services that are similar or better compared to their competitors at a relatively lower cost. Another division of Competitive advantage is the ‘Differentiation Advantage’, which can be defined as the ability for an Organisation to deliver high-quality goods and services because they exceed or are different from the substitute products in the market.
This paper seeks to analyze how IKEA has implemented Porters value chain model to achieve competitive advantage over its existing competitors.
Substitute Products.
This is the existence of products that perform the same function as the product produced by a company. Because various furniture stores give substitute products to what IKEA offers. IKEA has sought to neutralize this by providing a variety of goods that can replace the demand for furniture, home products among other products. For example, IKEA stocks more than 9,500 different products to act as substitutes for the furniture products (Kippenberger 2009, pp.33 – 34).
Suppliers’ Bargaining Power
Günter (2010, pp. 563-701), points out that in order to lower the bargaining power of suppliers IKEA has embarked on various activities. First, IKEA engages suppliers in a long-term contract with the mentality that the larger the volume of supplies the cheaper the supplier would provide their products, this has seemingly worked for IKEA and has helped IKEA to retail pocket-friendly products. Westbrook (2005, p.6), adds that, IKEA offers financial assistance to its suppliers, and this further weakens the bargaining power of the suppliers and creates a friendly and partner working relations. Lastly, IKEA operates in very many regions in the world. This gives them to access many suppliers who produce cheaper products, therefore, weakening the bargaining power of local suppliers.
Customers’ Bargaining Powers
According to Kippenberger (2009, pp.33 – 34), the bargaining power of clients is very high in the furniture industry, and IKEA faces this challenge a lot. But to neutralize the customer's bargaining power, IKEA sells their products at a relatively lower price compared to many furniture stores. Their designs are also quality and modern compared to their competitors.
The Threat of New Entrants
This is a threat to various companies that cut across very many industries. IKEA has a rich history and has built its reputation all over the world. IKEA has a rich history that most people can relate to therefore creating a chain of loyal customers (Westbrook 2005, p.6).
How IKEA utilizes Porters Primary Activities to Achieve Competitive Advantage.
Inbound Logistics
Involve the relations with suppliers and comprise of activities carried out to store and distribute inputs. In each and every IKEA stores you will get an employee responsible for in-store logistics. Their Key mandate is to ensure that there is an efficient and reliable flow of stocks. In general, IKEA has about 1,046 suppliers located in 52 different countries (Günter 2010, pp. 563-701).
Outbound Logistic
These are the activities necessary for collecting, storing and distributing the product or output. To facilitate efficient outbound logistics, IKEA has produced its products catalogs in 29 different languages to cater to their various customers. Also, to keep their products, low IKEA does not offer transport services when a client purchases a product (Black 2010).
Operations
IKEA operates in four distinct divisions which are the retail section, Property Division, Franchise sector and the finance department. The company conducts its business in 52 different countries. 296 of these countries has 208 IKEA stores which are managed by the corporation. The remaining is being operated by the franchise department (Günter 2010, pp. 563-701). Black (2010) adds that in order cut on production costs which affect the final price of the product and the profit margin realized, IKEA reduces the process of moving and shipping of products. Around 60% of all products are manufactured in Europe where most stores are. IKEA itself does not make furniture products and rely solemnly on the suppliers.
Sales and Marketing
Westbrook (2005, p.6) argues that IKEA’s main target are the low income earning people who apparently make up the largest population of any country. To increase the customer’s preference IKEA displays their products in a realistic room environment in a showroom. The showrooms have a variety of items arranged according to various categories which widen the preferences...