Frameworks for External and Internal Environment Analysis

This document provides an overview of the frameworks for external and internal environment analysis in business strategy. It discusses the macro environment factors and their impact on the business, as well as the internal capabilities of an organization. The document also includes a case study on IKEA's business strategy.

Business Strategy
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Table of Contents
Table of Contents.............................................................................................................................2
TASK 1............................................................................................................................................1
P1. Frameworks for external environment analysis....................................................................1
TASK 2............................................................................................................................................5
P2. Frameworks for analysing the internal environment along with organisational capabilities.
.....................................................................................................................................................5
TASK 3............................................................................................................................................8
P3. Model of Porter's five forces.................................................................................................8
TASK 4............................................................................................................................................9
P4. Range of concepts and theories along with strategic plan.....................................................9
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13
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INTRODUCTION
A process or summary of running a business effectively there is required proper planning
and formulation which helps to state the position of a company and how it can be grow is
considered as a business strategy (Charter, 2017). This is important for organisation to focus on
needs and wants of people who are interested to buy new and other thing that helps to run a
business effectively. Good planning and strategies provides a clear roadmap, involving of set of
guiding rules and principles which helps to continue and run business continuously. To
understand about business strategy IKEA is taken that is retail sector Furniture Company in
Sweden that sells different types of furniture to customers and increasing profits. The
management of such organisation make plans to improve their productivity and implement them
so profitability can be increased. It covers following topics such as different frameworks in
relation to macro environment, five forces model that helps to take competitive advantages,
Ansoff’s growth matrix and strategic management plans which helps to run a business
effectively and increases profits.
TASK 1
P1. Frameworks for external environment analysis.
About IKEA’s – IKEA is a Swedish Dutch company that designs and sells ready to
assemble furniture, home accessories and kitchen appliances. This organisation was founded in
Sweden in the year 1943. This is world’s largest company that sales its furniture at retail cost and
getting profits. This organisation is operating business in 52 countries that contains about 12000
products and services to customers by uploading on websites. This organisation formulates
different types of policies and strategies which helps to increase the productivity and profitability
by bringing new strategies.
Vision – “To create a better everyday life of people by offering different designs of
assemble furniture which helps to maintain the good life standard and style”.
Mission – “To offer well designs, functional home finishing products at price so that people can
easily afford this, can make better their life” (Feldman, Amit and Villalonga, 2016).
Objectives –
 To makes a better lifestyle of people within the year 2021.
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 To increases the organisational productivity and profitability by offering better
quality of furniture.
 To improve the profit share and market share up to 60%.
Macro environment - The atmosphere in relation to macro that exists beyond business borders
and has enormous impacts on the company's operations and results is represented as a macro
environment (Charter, 2017). Different elements considered as climate, which has a viable
impact on the approaches that the organization is either enforcing or willing to implement. This
is important for organisation to analyse and monitor the external environment which helps to run
a business effectively (Grant, 2016).
PESTLE analysis – This is a framework, uses by organisation to analysis the
environment and getting information which factor can impacts on business. This contributes as a
system that is primarily used for the purpose of scanning environmental components and
evaluating main transition drivers as defined PESTLE analysis. This allows businesses to
evaluate current conditions across external boundaries and future improvements. The PESTLE
analysis in context to IKEA retail company has explained:
Political – This refers as to the proportions offered by politics which are related to governmental
rules. This indicates the political climate of a nation that affects the policies, methods, tactics,
behaviour and processes adopted by a company. In the UK, it has been examined that there is a
robust and equitable government framework that provides the automobile sector with sufficient
incentives to meet growth and development goals. The positive impacts of political factor on
IKEA retail company is in UK, government has formulated free trade regulations and stability in
government rate which helps to sale furniture in other countries and location, increases
popularity and sale of organisational effectively. It can affect the business adversely such as
increasing tax rates and sales tax rates can minimize the profitability of IKEA’s furniture
(Grayson and Hodges, 2017).
Economical – An economic aspect defines a country's whole economic success by increasing
bargaining power of customers. This involves GDP rates, disposable income, interest rate,
inflation rates etc. that all affects the business if there is a little bit change. United Kingdom's
economy is seen as highly integrated and business driven that support people to spend their
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disposable income to buy the designable furniture and other this which increases business
activities. At the same time, this high interest rate can limits the selling activities of IKEA
because it has to pay high amount on taken loan which is affected business strategies negatively.
Social – Factors that scrutinize the country's social climate and gage factors that influence like
demographic dynamics, consumer analyses, public disposition, etc. Populations in the UK have
diverse tastes, desire and optimistic feelings for super cars. Different elements are considered
that are belongs to society where organisation should provide products and services accordingly
so people can feel satisfy that impacts well. The positive impacts is, UK’s people are developed
and well-mannered who are demanding well designed and assemble furniture which is provided
by IKEA company so, selling activities of organisation is increasing continuously. This help to
increase the organisational productivity and profitability effectively (Feldman, Amit and
Villalonga, 2016).
Technological – Inside this dimension, technological development and automation are
involved that is needed to bring out in organisation in order to introduce new products and
services. The impact of technology on IKEA business as managers has introduced wonderful and
unique designs of furniture that attracts customers. Moreover, automation helps to inform people
about new designs and products which are manufactured by organisation that increases number
of customers and retain them continuously. The new and innovative technologies are necessary
for them to remain in the industry for a long time which helps to improve the organisational
productivity and profitability. Therefore, by adopting technology strategy, IKEA has increased
its business and clients who are showing their interest in such designs.
Legal – Legal variables are characterized by factors having near inter-linkage with
political components are important to follow and increase business activities. They are affecting
the market climate internally and externally. It is the responsibility of the UK's political structure
to control regulatory actions for the retail sector so they can do their business properly. It is
necessary to obey numerous statutory laws, such as the Jobs Act, the Advertisement Standards
Act, the Food Protection Act and many others which increases customer beliefs. This factor
impacts positively on IKEA business such as following equal wages, anti-discrimination, data
protection, safety act which helps to run a business and maintain good position of company. On
the other side, not following such acts and legal consideration at the time of running activities
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can impacts negatively that decreases organisational productivity such as employees switch
towards other companies and customers can lose their beliefs.
Environmental - It involves Parameters related to ecological issues are variables for the climate.
Situations like extreme conditions, climate change and others are certain environmental factors
that affect all businesses 'activities. Changing climates and cutting tress to make furniture designs
affected the business environment negatively due to which government has put some regulation
which are required to follow and maintain their business. There are numerous plans being
undertaken throughout the UK to improve an environment-related condition which also improves
business activities (Hill, 2017).
Stakeholder analysis
In organisation stakeholders are important who are playing vital roles and increasing
organisational capabilities. These are person who have contributed in organisational activities
which helps to improve the productivity. This is a tool uses to assess the powers and interest of
shareholders and make rights business decisions. Shareholder matrix that illustrates interest of
some shareholders are as defined:
Interest Level
Power Level HIGH LOW
HIGH Owners Sponsors
LOW Employees Consumers
High Power with high interest: Owners and managers of IKEA retail company are considered
as strong forces, and element that has keen interest in designing and applying plans accordingly.
They have high level of interest who focuses on each organisational which helps to increase
productivity and sales effectively. Such stakeholders consider external circumstances and then
advised others to focus on those activities to achieve benefits that would have a beneficial effect
on established strategies (Johnson, 2016).
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High powers with low interest - Sponsors are the only one with maximum power but
they have least interest in industry's activities. In IKEA’s sponsor are those people who have
high power but low interest in business activities. They are playing a vital role in organisation by
giving amounts to management so activities can be continue effectively.
Low powers with high interest – IKEA’s workers are part of these group of stakeholders
matrix they have low powers and high interest in organisational activities. They have tremendous
knowledge and ideas for increasing the quality of production as well as shortly finishing all the
operations that favourably affect emerging development strategies. Employees perform their
business activities which help to increase the organisational productivity and profitability
(Morden, 2016).
Low power with low interest - Organizational clients have both low influence and limited
confidence in business tactics. In IKEA’s organisation consumers only consider tactics when
making buying choices regarding furniture designs and development which as they achieve
satisfaction by delivering products. They shows their interest and activities in different types of
products and services which helps to improve the business effectiveness (Müller, Buliga and
Voigt, 2018).
TASK 2
P2. Frameworks for analysing the internal environment along with organisational capabilities.
Internal environment - Internal atmosphere is described as organizational conditions
internally which have an enormous impact on the decisions. It is made up of insider influences
that include society, job methods, business strategies, human capital, and environment. To
evaluate the internal environment of IKEA organisation SWOT analysis is defined as:
SWOT analysis – This is considered as a framework which states the capabilities of
organisation by defining strength and weakness. If a person is going to start something then it
should focus on internal capabilities that means should get information about resources capital,
technology and threats that can arises while running a business. By using SWOT analysis
strength, weakness, opportunity and threats are as explained:
Strength Weakness
 The management of IKEA retail  In IKEA, management are facing
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company have customer knowledge
which help to make design of furniture.
 Constantly using technology and
innovation to drive cost down that
increases organisational productivity.
 Good integration in supply chain
 It has diversified product portfolio
challenges due to negative publicity.
 Decreasing quality that can be reason of
low sale of furniture
 Standard products that attracts only
high class people.
 Having competitors who are selling
same kind of products.
Opportunities Threats
 Retail markets grew up by 5% more in
emerging market that opened a huge
opportunity for IKEA’s to increase its
revenue growth.
 Management are working on online
sales by growing the business.
 Expansion to grow the grocery market
by offering products at retail prices.
 Having many cost retailers such as
Walmart, Tesco, ASDA are also
providing home ware products that
creates intensifying competition.
 People buys low quality and low prices
products that creates threats for
organisation.
VRIO analysis
This is a framework which is used by organisation to know the valuable, rare, inimitable and
organised resources which helps to improve the capabilities and effectiveness. Evaluating the
tools and skills that the organization has in the competitive market is an empirical process. Using
this tool, IKEA organisation will gain insight into the core opportunities and skills that will have
long-term competitive growth advantages. Mostly, corporate strategy is adopted by managers of
IKEA company who bring innovation and new process to improve the organisational
productivity:
Capabilities Valuable Rare Inimitable Organised
Patents ✔ ✘ ✘ ✘
Global
distribution
channel
✔ ✔ ✘ ✘
Brand image ✘ ✔ ✔ ✘
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Product
manufacturing
designs
✔ ✔ ✔ ✔
Valuable – In IKEA, organisation there are many resources which are used by
management in order to run their business and increase profitability. This organisation have
some special resources which are highly important and appropriate helps to maintain a business
such as patent, global presence, brand image and product manufacturing designs that are
valuable for organisation and helps to increase the organisational productivity. Patent in furniture
retailing company helps to increase the sales as it reduce the competitive interference. The
distributional channel of IKEA is helping as it sales products in wide location and maintaining
their business. Management have global presence which attracts many customers by increasing
sales. Moreover, products which are manufactured by organisation are also valuable that attracts
high class of people and helps them to get standard products at retail cost.
Rare – This refers as products and services which are provided by organisation are not
available easily that reduced competition in intensive market. IKES is retailing company that
offers home ware products to customers such as designing furniture by creating global
distribution channel. To run a business, it is important to have a global presence so customers get
interacted effectively and run their business properly. This increases internal capabilities of a
running business and increases profitability also (Ortiz‐de‐Mandojana and Bansal, 2016).
Inimitable - This means tools or resources which cannot be replicated by anyone are an
inimitable component. Patents and global distribution channel are the IKEA's preferred
marketing networks that are imitable because many firms will make massive investments to
clone them. Brand image is inimitable resource of company that cannot be replicated by other
one, helps to increase the organisational capabilities productivity by increasing number of
customers (Trevisan, 2016).
Organised – In organisation different types of resources are available that helps to run a
business and increase the organisational effectiveness. This is important for management to
organise and manage the resources and activities of organisation so it can maintain high
productivity and profitability. In IKEA, it is important for management to focus and organise
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products design which attracts customers on continuous basis which helps to improve the
internal capabilities and performance (Wood and Logsdon, 2017).
TASK 3
P3. Model of Porter's five forces.
Every organisation wants to take competitive advantages for this, it need to formulate
different strategies and planning that can help to run a business continuously and maintain a
profits. To take the competitive advantages porter’s five forces model is used by IKEA
organisation that consist five forces to get the strength and weakness in order to run a business.
Explanation of five forces in context to IKEA institution has been defined as:
Bargaining power of buyers – The bargaining power of buyers is low in context to IKEA
organisation, because it designs unique and beautiful assemble furniture that attracts customers
and ready to pay extra. So, competitive advantages are getting by management of IKEA
organisation by selling their products at fixed cost as they wants (Charter, 2017).
Bargaining power of suppliers – In business environment, the bargaining power of
suppliers is low because there are less organisation who designs furniture that become benefits
for suppliers to get raw material at contract prices which they have decided. If suppliers are not
ready to sale at those price then they can switch the suppliers that helps to run a business
effectively give competitive benefits (Feldman, Amit and Villalonga, 2016).
A threat of new entrants – Globalization has enhanced the company's propensity to
perform activities on both the domestic and international markets, making it possible for
multinational car makers to diversify their industry on the home market. The threat of new
entrants in market is low that is impacts on IKEA business negatively. In market, to establish
furniture business there is require good knowledge about designs, products, human resource and
capital that can be get by other organisation. So it can be threat for IKEA business that anyone
can enter in to market and establish their business (Grant, 2016).
Threat of substitutes – People are living their life by getting designing products and
services that make easy and better their life style. In context to IKEA organisation, there is high
substitution such as groceries and other item that can be used by people that creates competition
and reducing productivity (Grayson and Hodges, 2017).
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Competitive rivalry – In business environment there are many organisation who are also
selling same kind of products such as ASDA, Tesco, Walmart etc.. Such organisation are selling
home ware products to customers that is creating high competition in order to sale the products
and services. Therefore, threat of competitive rivals is high in market that creates competition
level (Hill, 2017).
Therefore, IKEA organisation is taking competitive advantages by adopting a best and
appropriate forces which helps to analysis the capabilities and increase profits.
TASK 4
P4. Range of concepts and theories along with strategic plan
Porter’s Generic strategy – This is important and valuable strategy that can apply by
organisation on their products and services in order to attain the business goals. In IKEA,
organisation management are using porter’s generic strategy in order to get competitive
advantages by creating and sustaining superior performance that is defined below:
Cost leadership – This strategy is related to cost of products and services which can
attracts the customers and increase productivity. In IKEA, management is required to focus on
cost of their products as it should sale the products at lower cost that can attracts customers by
increasing market share (Johnson, 2016).
Differentiation – This strategy is used by organisations to get the competitive advantages
by making their products and services different from others or competitors. This strategy can
used by IKEA by offering better quality and designing of furniture which can help to get the
competitive advantages and run their business effectively (Morden, 2016).
Focus strategy – This strategy is the combination of cost and differentiation where
organisation should sale their different designing products at low cost that can make happy and
attracted to customers and encourages them to buy the products easily. IKEA, should adopt this
strategy by offering low cost and designing products in order to take competitive benefits
(Müller, Buliga and Voigt, 2018).
From the above, IKEA is adopting Differentiation strategy which by offering unique
design of furniture and home ware products. These attracts customers and increase the
organisational productivity by influencing customers and make right business decisions.
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Strategic management plan - This is a strategy and plan which is designed by management in
order to complete their task and attain the business goals. In context to IKEA organisation, a
strategic management plan is prepared by management in order to attain the business goals. The
goal of organisation is to offer better quality and priced furniture. Moreover, to bring new home
ware products that can attracts customers to get such products. To accomplish this object a plan
is introduced by management that is defined below:
Procedures Description
Vision The vision of IKEA is to design and assemble unique
furniture set for classic and high class of people.
Mission The mission statement of the firm is to become best in
diverse business areas (Ortiz‐de‐Mandojana and Bansal,
2016).
Objective  To increase selling activities up to 45% in 2021.
 To capture market share by 10%.
 To get the competitive advantages by offering better
design of furniture.
 To maintain high customer base and product range.
Strategy From introducing new design of furniture and home ware
products different strategy is adopted by management of
IKEA organisation such as:
 Extensive marketing
 Adopting differentiation strategy
 Digital marketing
Tactics To complete task and attaining the business objectives the
management of KEA company have adopted tactics that
helps to increases the value and business activities effectively
and make higher profits. The tactics which is applied by
manager are:
 Low pricing tactics – According to this, management
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should sale their products by adopting low pricing
techniques which can help to attracts the customers
and increase business activities by increasing number
of customers.
 Marking mix – This is another tactics which is used
by organisation to attain their goals such as:
Product: IKEA has decided to introduce new designs of
furniture and improve the distribution channel that attracts
customers.
Price: This organisation has set the competitive pricing
strategy that compares others and set the prices accordingly.
Place: Such products and services will be provided in
Sweden and UK firstly.
Promotion: By using social media as well as digital
marketing techniques, promotions will be done. This will
help to increase the number of customers.
People: Architecture, interiors, marketing manager,
administration department etc. are considered as main people
of IKEA organisation who helps to run a business.
Teh manpower of selected firm will be provided adequate
training programs to design the new model with precision so
that high contentment will be delivered.
Process: To design and decorating homes lean principle will
be used.
Physical evidence: It will be because consumers get satisfied
by purchasing new one designs.
Evaluation Key performance indicator will be used to analyse
performance that will help to maintain the organisational
productivity and attaining the business goals.
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CONCLUSION
From the report it can be concluded that strategies are the important which helps to
complete the task in effective time period. In absence of business strategy a business cannot be
grow and be sustain in competitive environment. PESTLE analysis and stakeholder analysis are
used to get the how it impacts on business and their contribution in business activities. Business
plans helps to run a business and attain goals.
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REFERENCES
Books and Journals:
Charter, M., 2017. Greener marketing: A responsible approach to business. Routledge.
Feldman, E. R., Amit, R. and Villalonga, B., 2016. Corporate divestitures and family control.
Strategic Management Journal. 37(3). pp.429-446.
Grayson, D. and Hodges, A., 2017. Corporate social opportunity!: Seven steps to make
corporate social responsibility work for your business. Routledge.
Hill, T., 2017. Manufacturing strategy: the strategic management of the manufacturing function.
Macmillan International Higher Education.
Grant, R. M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
Müller, J. M., Buliga, O. and Voigt, K. I., 2018. Fortune favors the prepared: How SMEs
approach business model innovations in Industry 4.0. Technological Forecasting and
Social Change. 132, pp.2-17.
Morden, T., 2016. Principles of strategic management. Routledge.
Wood, D. J. and Logsdon, J. M., 2017. Theorising business citizenship. In Perspectives on
corporate citizenship (pp. 83-103). Routledge.
Ortiz‐de‐Mandojana, N. and Bansal, P., 2016. The long‐term benefits of organizational resilience
through sustainable business practices. Strategic Management Journal. 37(8). pp.1615-
1631.
Johnson, G., 2016. Exploring strategy: text and cases. Pearson Education.
Trevisan, E., 2016. The Irrational Consumer: Applying Behavioural Economics to Your Business
Strategy. Routledge.
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