Strategic capabilities
IKEA has more than 330 stores in 40 countries in the world. Besides, it offers a wide product range from furniture, sanitary products, to kitchen utensils, etc (Jonsson, Rudberg & Holmberg, 2013). However, the most critical strategic issue confronting IKEA is the lack of innovation. Therefore, the value chain analysis will be used to diagnose the strategic capabilities of IKEA firstly and then make use of the strategic capabilities to sustain IKEA’s competitive advantages and address of strategic issue of a lack of innovation.
The value chain refers to the internal processes and activities which are taken by an organization in full support of the products and services it offers. The processes or activities are generally divided into two types: primary activities and support activities. Primary activities are closely related to the transformation of inputs into outputs, delivery of products, and after-sales services, for instance, while support activities function as supports for primary activities. Below is the value chain analysis for IKEA
Figure 1: Value Chain Analysis for IKEA
 

Primary activities	Support activities
Inbound logistics: IKEA has a computerized system for suppliers and warehouses. It has two biggest suppliers in the world, one being China and the other being Poland. Besides, IKEA has a perfect warehouse management system which is used by IKEA stores all over the world. In 2006, the accuracy rate of the operation of the system was up to 99.9% (Mangan, Chandra & Butcher, 2008).	Procurement: IKEA has a lot of suppliers for its products. The biggest one is China, and the second biggest one os Poland.
Operations: IKEA products are positioned to be of low cost, elegance, high quality, and modern design (Berger, 2011), and the operation processes just follow the product positioning	Technology development: IKEA rarely has any technology developments in its formula for success
Outbound logistics: IKEA has distribution channels of both physical stores and online stores, and its orders are handled in these stores.	Human resource management: on the whole, employees in IKEA are young. The average age of IKEA store managers is 32.
Marketing and sales: the propaganda in IKEA takes a radical, sometimes leftist imagery. Moreover, it sells its products in more than 330 stores in 40 countries around the world.	Firm infrastructure: IKEA remains to be a private company until now, and it lacks in hierarchy in top management.
Service:IKEA provides both standard and common parts and has a global supplier network. However, the delivery and assembly processes are done by the customers (Edvardsson & Enquist, 2008).

Based on the above value chain analysis, it can be concluded that there are a lot of factors that are contributing to IKEA’s competitive advantage, for instance operations, marketing and sales, and procurement. However, it is not exploiting all of its strategic capabilities. Therefore, in order to make full of of the strategic capabilities to sustain competitive advantage and encourage innovation, IKEA is suggested to implement both capability development and talent(HR) development.
 
v  Capability development
 
In order to gain more competitive advantages, IKEA should try to find better suppliers who can provide higher quality materials at lower costs. Besides, IKEA is encouraged to keep long term relationships with its suppliers since it is good for both IKEA and the suppliers. On one hand, IKEA will have better quality products. On the other hand, this will add more internal value to the suppliers. In addition, IKEA can develop its capabilities by improving inbound logistics, outbound logistics, and services. The major parts IKEA should focus on are the delivery of products to customers’ homes and the assembly process for customers (Wagener, 2008). Last but least, technology development appears especially important in IKEA’s way towards more innovations. For one thing, technology development will help build a better logistics system. For another, IKEA ‘s products are in urgent needs of innovation, which is highly dependent on technology development.
v  Talent (HR) development
Employees in IKEA are young. As shown in the case, the average age of IKEA’s store managers is 32. However, IKEA’s products are lacking in innovations. This situation means that the employees in IKEA should fucus more on innovations, not only in products, but also in logistics and services. Firstly, human resource managers should recruit more innovative talents. Secondly, they should devote efforts into developing the employees’ innovation abilities. Last but not least, rewards for innovations are also highly appreciated (Price, 2011).
 
Strategic directions
At the corporate level
IKEA’s strategic directions at the corporate level should be product development and diversification.
In terms of product development, IKEA is encouraged to offer higher quality products with even modern design at lower prices. Most importantly, there should be some innovations in its products rather than the one-size-fits-all concept. Even modern product designs and continuous product innovations will enable IKEA to be more appealing to the young customers. Besides, it is also a reflection of the development of IKEA products. Diversification is mainly divided into two types: related diversification and unrelated diversification. For IKEA, the related diversification would surely be its logistics. It should expand its business range of logistics and provide door to door delivery service for the customers. At the same time, they can offer assembly service to the customers as well. As for the unrelated diversification, IKEA should develop towards the strategic directions of expanding its retailing and setting up more online stores. On one hand, this is an effective way of advertising IKEA’s brand and image. On the other hand, online stores are important distribution channels and can therefore increasing sales.
At the business level
In IKEA;s case, the business level strategic directions should be price differentiation and product differentiation.
As has already been analyzed in this report, IKEA has positioned itself to provide high quality product at low prices. The products are elegant and modern designed, and more importantly, they are designed for the young people from all walks of the society. For those young people who are ambitious to become members in the middle class, a visit to IKEA is perfect. With the strategic positioning and organizational vision in mind, IKEA should continuously pursue product differentiation and price differentiation in the coming three years.
With the rapid development of home furnishings market, a lot of emerging furnishings manufactures and retailers arise and therefore competition becomes even fierce. The emergence of cheaper competitors is a big threat for IKEA. As a result, IKEA needs to further reduce its prices by looking for cheaper suppliers and reducing costs. The other strategic direction for IKEA is product differentiation. Firstly, product differentiation can be reflected on the designs of the products. IKEA should make more and more new designs. Secondly, product differentiation can be reflected on the packages of products. The packages for IKEA products are very important, especially in the transportation process. Besides, it is also one way of advertising IKEA brand. Last but not least, IKEA can try to offer more collocation methods of its products for the choices of customers (Hakansson, 2010). It will bring convenience to customers and is also a reflection of IKEA’s business idea to design simple daily life for its customers.
 

Reference
Berger, A. (2011), Operations Management, 3^rd. GRIN Verlag, London.
Edvardsson, B. & Enquist, B. (2008), Value-Based Service for Sustainable Business: Lessons from IKEA. Routledge, London.
Hakansson, H. (2010), Managing Technological Development: IKEA, the Environment and Technology, 1^st. Routledge Advances in Management and Business studies, New York.
Jonsson, P., Rudberg, M., & Holmberg, S. (2013), ‘Centralised supply chain planning at IKE’, Supply Chain Management: An International Journal, vol. 18, no. 3, pp. 337-350.
Mangan, J., Chandra, L. & Butcher, T. (2008), Global Logistics and Supply Chain Management, 5^th. John Wiley & Sons, Ltd, USA.
Price, A. (2011), Human Resource Management, 8^th. Cengage, London.
Wagener, D. (2008), IKEA: Competences and Capabilities, 2rd. GRIN, New Delhi.