Introduction

IKEA’s VRIO analysis will explore each of its internal resources and examine whether they offer competitive advantages to support the business. IKEA VRIO analysis indicates whether these resources can provide a significant competitive advantage at every step. In conclusion, it summarises whether the identified resources have an advanced competitive advantage, a new competitive advantage, a non-permanent competitive advantage, a competitive equilibrium, or a competitive disadvantage.

About IKEA
IKEA is an international manufacturer of home and office furniture, which was founded in Almhult, Sweden, by Ingvar Kambrat (Kim, 2018). The company has branches in 38 countries and its headquarters are in The Netherlands. Approximately 130,000 people around the world use their products. IKEA is known for its ability to control costs compared to its competitors. As a result, the company has expanded its stores into business units better than their competitor’s. In addition, IKEA currently operates several restaurants in several metropolitan communities in Europe. IKEA is one of the world’s leading retailers in furniture and other some other products and services and their products meet different customers’ needs. According to its VRIO analysis, the company strives to produce the best products at the lowest possible prices. It aims to reduce construction costs and is at the top of the list regarding cost improvement and value chain improvement. IKEA has a highly organised system that ensures that products are available to multiple customers through an effective supply chain logistics.

The VRIO Model
VRIO analysis is an internal analysis method that explores the relationship between the internal characteristics/ components of an organisation that determine its business’ profitability. The essential VRIO components are:

Value
The main question of this component is whether the resource mentioned in this category adds value to the business and helps protect against business losses. In the absence of a valuable resource, the business is worthless. Resources will also become worthless when the company doesn’t gain the trust and attraction of consumers due to lack of value proposition demonstration either implicitly or explicitly.

Rare
The resources/ assets that can be acquired by one or few organisations are rare resources. Therefore, rare and valuable resources provide an intermediate / long term competitive advantage to a business.

Imitable
Under this section, the resources which can be easily imitated by other organisations are included. The resources are imitable due to a combination of three factors:
Past circumstances: Decisions made in the past affect the organisation’s alternatives in the present and the future.

Causal uncertainty: Causal uncertainty occurs when the relationship between the resource organized by the company and its economy is uncertain and competitive advantage is not fully realized. So, this may lead to imitability.
Complexity in social network: The most important resource of a business is its social network, its efficient relationships with each other, the way it operates, and between suppliers and customers. If the organization’s networking is not unique or rare then it can lead to disadvantage and it can then be imitated by the rivals.

Organisable
This category of resources will be associated with other categories to integrate the company’s management and business systems, policies, processes, structure, and traditional organisational culture to achieve sustainable competitive advantage. The company which have resources under this category will have more potential in leveraging success and sustainability in the long run.

VRIO Analysis of IKEA (IKEA, 2021)

Distribution system:
The ability to control and improve distribution and supply chain channels is one of IKEA’s greatest strengths and resources. The range of distribution channels enables IKEA to reach and penetrate various markets and increase the sales and consumption of its products.With strong relationships with suppliers and distributors, the existing business has proven to be a complex and unprecedented distribution network over the years.

Pricing
IKEA has an efficiency to perform better, in terms of economies of scale. The company effectively controls its operating costs which can be achieved through continued expansion and concentration (Yiqiong, 2020). The company incorporates innovations to reduce costs and further improve internal processes and functions. This ability to reduce costs allows IKEA to maintain a competitive advantage over its competitors.

International presence
IKEA has an international presence and operates in various countries and regions. International presence enables IKEA to develop a larger consumer base and generate income in different regions (Singh et al., 2021). It gave the company financial efficiency, more social exposure, and international recognition.

Problem-solving skill
IKEA fosters a credible culture of critical thinking among its staff and leaders. It allows a greater level of collaboration, imagination, and growth in the organization (Kim, 2018). The extraordinary ability of the company to control potential risk should be attributed to the innovations that are generated by productive employees.

Brand reputation
IKEA brand reputation directly results from the high brand integrity and the brand value associated with it.

Adaptability
IKEA has international operations and a high international presence. Therefore, the organisation has the best potential to cater to the different purchase needs of global communities integrated with different cultural norms and qualities (Batarfi & Attia, 2021). As a multinational company, IKEA has shown greater flexibility for operating within different communities through sharing training strategies, identity matching, and different social skills. While an integrated international organisation often guides it to assist various management skills in handling cases, there is no control. IKEA’s diverse ecosystem and its ability to adapt to local communities are exceptional assets that have given the company better access, greater openness, more sustainability in research and development, and a vision for the future.

Financial strength
IKEA has garnered its financial strength primarily through its effective brand positioning and marketing strategies. Tertiary products support the financial strength of the company by identifying new opportunities to improve exports and sales (Hernández & Garcia, 2018). The financial strength of the company is crucial in building a robust process to assess future communications and acquisitions needs to gain a competitive advantage. Financial strength is also important because of the company’s large corporate structure and its support for development. Financial strength is important for IKEA in identifying potential advantages and disadvantages of apparent business opportunities because financial vigour ensures effective business case analysis reporting structure for a firm.

Conclusion

IKEA’s VRIO analysis confirmed that financial assets and other resources mentioned in this assessment represents the company’s competitive advantage. IKEA is one of the world’s leading retailers in furniture and other some other products and services and their products meet different customers’ needs. According to its VRIO analysis, the company strives to produce the best products at the lowest possible prices. It aims to reduce construction costs and is at the top of the list regarding cost improvement and value chain improvement. IKEA has a highly organised system that ensures that products are available to multiple customers through an effective supply chain logistics. They have also mastered the location-based marketing strategy because they use different selling points to sell their products. The company has many branches around the world. It has many customers and suppliers, which contributes to the internationalisation of the business successfully.

References

Batarfi, S., &Attia, A. (2021).Measuring the effect of quality management practices on company financial performance-a case study on IKEA. PalArch’s Journal of Archaeology of Egypt/Egyptology, 18(15), 113-121.
Hernández, J. G. V., & Garcia, F. C. (2018). The link between a firm s internal characteristics and performance: GPTW & VRIO dimension analysis. Revista de Administração IMED, 8(2), 222-235.
IKEA.(2021). About IKEA. Retrieved July 12, 2021, from https://about.ikea.com/en/about-us.
Kim, B. G. (2018). An exploratory analysis on strategic changes of furniture retailer: Focusing on IKEA and Hanssem in Korea. The Journal of Distribution Science, 16(12), 33-45.
Singh, P., Rao, K. S., Xuan, L., Kee, D. M. H., Min, F. J., Xuan, T. Y., …&Pandey, R. (2021). Key Determinants of International Retail Success: A Case of IKEA Retail. International Journal of Tourism and hospitality in Asia Pacific (IJTHAP), 4(1), 18-33.
Yiqiong, W. U. (2020).The Marketing Strategies of IKEA in China Using Tools of PESTEL, Five Forces Model and SWOT Analysis. Retrieved July 12, 2021, from https://www.atlantis-press.com/article/125934515.pdf