Understanding Business Environment

This paper discusses the concept of business environment and its importance in managing company activities. It explores different types of organizations and stakeholder analysis. The business environment of IKEA is analyzed using PESTLE analysis and Porter's Five Forces model.

Understanding business environment

Understanding business environment
Executive summary
In this paper the discussion will be made on the concept of business environment. It has been
seen that business environment plays an important role and it should be analyzed by the
companies so that it can be easy to manage the activities. So, in this paper different types of
organization will be discussed like private, public and involuntary sectors. In the next phase of
the report the discussion will be made on the stakeholder analysis by considering the Nestle
Company as the real example. Then IKEA Company will be considered and the tools will be
considered like Porter five force model and Pestle analysis. These tools will help to evaluate the
overall business environment of the company. In the last phase the key performance indicators
will be discussed in relation to the IKEA Company. So, the paper will be based on the concept
related to understanding the business environment.
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Understanding business environment
Table of Contents
Executive summary.........................................................................................................................1
Task 1...............................................................................................................................................1
Task 2...............................................................................................................................................3
Task 3...............................................................................................................................................5
PESTLE ANALYSIS OF IKEA..................................................................................................6
Importance of Porter five force model.........................................................................................7
Porter five force model of IKEA..................................................................................................7
Task 4...............................................................................................................................................9
Key performance indicator of IKEA............................................................................................9
References......................................................................................................................................12
Appendices....................................................................................................................................14
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Understanding business environment
Task 1
It has been analyzed that business organizations can be classified according to various types of
criteria. There are various types of organizations under classification systems which are
considered.
 Public sector
It has been stated that public sector comprises of the companies that are owned and also the
interference of the government takes place. The government focuses on offering services to the
citizens. In this it has been seen that with the process of outsourcing, the public sector
organizations will engage their enterprises to offer goods and products to its citizens. The public
sector companies are the organizations which are publicly listed companies and also it is the
company whose ownership is concerned with the general public in context to various shares and.
The legal structure of the organization is concerned with the distinct legal entity which is
separate from the overall shareholders and officers. Also, public sector can vary according to the
countries and it depend on the legislation that governs the companies of the state owned and it
also emphasizes on offering services that can benefit the entire society (Bullock, Stritch and
Rainey,2015). The best example is related with offering education to members of the general
public. Also, the example of the public sector of the company consist of the sectors like coal
industry, oil and petroleum industry, steel industry, banking industry and thermal power industry.
 Voluntary organization and charitable sector
The voluntary and charitable sector focuses on the social activities and also it is considered as the
companies named as NGO’s. It has been noted that these companies emphasizes on providing
services to the people who are living in the society. These companies are different from the
private organizations as the main objective of the voluntary companies is to offer services
without the aim of earning the profits. Voluntary companies also focus on social corporate
responsibilities which uplift the society. For example: JB Hi-Fi emphasizes on controlling the
entire CSR operations which assist in achieving the positive outcome. These companies are also
different from the public sector companies as NGO’s do not focus on any government bodies but
they maintain the welfare of the society. These companies also accept the charity from the
different businesses but public sector do not emphasize on getting charity from the businesses
(Raharjo and Eriksson, 2017).
 Private sector
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Understanding business environment
The private sector companies are owned by non-governmental companies or by small number of
the shareholders. It is the part of economy that is managed by the shareholders. The main aim of
the company is to earn profits and these companies focus on the needs of the society but they do
not play the role of NGO’s. Private companies are managed by the individuals and groups who
emphasizes on generating the profits. It has been seen that in this sector there are sole
proprietors, partnerships and also small and medium sized businesses (Roness, 2017).
For example: McDonalds, is one of the owned companies owned by the shareholders and
individuals. The main aim is to earn profits and there are 30,000 restaurants on the global
platform.
Task 2
 Stakeholder
Stakeholders are the people who have interest in the overall activities of the company.
Stakeholders can impact the actions, objectives and policies of the company. The examples are
creditors, employees, owners and suppliers (Cho and Auger, 2017).
 Shareholder
The shareholder is an individual or institution who has the authority that are legally owned and
also they have the shares of the stock in public and private companies. Shareholders can be also
related with the members of the company and they have the responsibility to pass the resolutions
at the general meetings by giving votes to the shareholders (Iliev et al., 2015).
 Stakeholder technique
It is one of the techniques which are used for stakeholder identification and also evaluating the
overall needs. It is considered to search all the key stakeholders which can be primary and
secondary and they have the interest in the problems which are related with the entire projects
(Burns and Dewhurst, 2016).
 Stakeholder analysis process of Nestle
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Understanding business environment
(Source: Indiamart, 2018).
The first step of stakeholder analysis is planning. It can be seen that in Nestle, the planning is
done so that the right approach can be considered. It is necessary for the company to emphasize
on planning process as it can help in maintaining the overall activities of the company in the
competitive market. In this approach, the planning is done by the company in context to the
principles of transparency and good corporate governance (Cooper, 2017).
Then second step is related with Select and define. In which the company focuses on
considering the best approach suitable for the stakeholders. Also by considering the best
approach it can be simple for the company to maintain the relation with the stakeholders for long
time. Nestle consider the right approach and discuss the planning process with the management
team. In Nestle company the decisions are considered by the considering the views and opinions
of the stakeholders (Kent and Zunker, 2017).
The third step is related with identifying the key stakeholders. So, Nestle identified the key
stakeholders group who are communities, consumers and general public, employees,
government, industry and trade associations and intergovernmental organizations (Thomason,
2018).
Select and implement tool is the fourth step in which Nestle also emphasized on the examples
related to engagement. Like the tools which are used by the Nestle company is related with 200
companies who have joined the alliance for youth initiative and it is launched by the nestle
company. It has assisted more than 62,000 young European to find the jobs. Collect and record
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Understanding business environment
the data is also the next step in which the Nestle company maintain the records through different
campaigns of their stakeholders (Nestle, 2018).
Matrix table
 Stakeholders Influence What do we
need?
 communities High Commitment
 customers High Engagement
 employees High Efficiency
 Government
Medium /
Low
Rules and
policies
 Trade
associations
Medium /
low
Commitment
 Inter-
governmental
associations
Medium/
low
Rules and
regulations
Evaluation of the matrix table stage in this it can be stated that the stakeholders mentioned in
table has different influence and also the company requires commitment and engagement. In the
last stage it can be seen that company achieve growth with considering the stakeholders as one of
the important part of the company (Nestle, 2018).
Task 3
The company selected for the task is IKEA. It can be stated that it is important for the company
to focus on the analyzing the business environment as it can help in managing the entire
activities of the company. It is imperative for IKEA to evaluate the overall business environment
as it can be seen that by analyzing the risks can be reduced in the competitive market. If the
business environment is not analyzed in a proper manner then it can be difficult to reduce the
threats prevailing in the market. So, the first reason is related with reducing the threats which
exist in the competitive market. The next reason is related with enhancing the overall profits of
the company. It has been noted that IKEA analyze the business environment before introducing
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Understanding business environment
the products, so it can be stated that it is necessary for the company to focus on analyzing the
business as it can help in enhancing the overall profits prevailing in the market. The third reason
is related with grabbing the opportunity which is prevailing in the market. By having proper
analyzes of the business it can be seen that business can grab the right opportunity which can
also enhance the overall growth in the highly competitive market. So, these three are the reasons
which are imperative for the IKEA and it offers growth opportunity in the competitive market
(Rothaermel, 2015).
It can be stated that there are various macro environmental factor that influences the overall
activities of IKEA. So, to evaluate this, PESTLE analysis is one of the best models that can be
used to identify the factors which impact the activities of the company.
PESTLE ANALYSIS OF IKEA
 POLITICAL FACTOR
It has been seen that the political factor which has affected the business is related to level of
bureaucracy, degree of corruption and also the import restrictions in the markets. IKEA has been
engaged in the problems related to political factors. In 2012, the company admitted that they use
the prison labor in the East Germany in 1970s and also in 1980s to manufacture its goods. Also,
the allegation was made on Ingvar Kamprad that he was one of the active recruiter for the group
of Swedish Nazi and it has also given negative impact on the overall brand image of the
company (Research methodology, 2018).
 Economic factor
It has been observed that company faced the issue in relation to exchange rate fluctuation which
took between EUR and USD. Also, one of the economic factors which impacted the overall
activities of the company is related to interest rates, tax rates and level of unemployment. The
fluctuation of the overall cost in the raw material like wood and metals IKEA considers is also
the important aspect that has affected the business operations. Also, at last it can be stated that
the revenue of IKEA are affected by the inflation rate in the countries where activities are
managed (Research methodology, 2018).
 Social factor
It has been noted that the preference and taste of the customers has impacted the overall activities
of the company. In Russian Catalogue, the company also eliminated the same sex couple from
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Understanding business environment
the magazines. Homosexuality is also known as one of the shameful act in Russia. Also, the
company changed the appearance of the catalogue which can suit the thinking of the Russian
people. So, the change in the taste and preference of the customer impacts the overall process of
the company (Research methodology, 2018).
 Technological factor
It has been analyzed that IKEA faced the issue related to maximization the overall satisfaction
level of the customers. So, from paper catalogues, the company focused on offering the review
system, word of mouth referrals as it can help in promoting the overall activities and services of
the company in the competitive market. It is the best approach considered to attain growth in the
market (Frue, 2018).
 Legal factor
The legal threats are faced by the business in the highly competitive market. It has been noted to
improvise the overall process of the company, the laws and regulations are considered by the
company. IKEA has physical stores in which it is important to follow the labor laws as it can
help in maintaining the overall activities. The problem in IKEA is also related with the poor
product quality which has also resulted in the injuries and death. So, to ensure safety the
company considers the safety laws so that brand image can be maintained in the market (Frue,
2018).
Importance of Porter five force model
It can be noted that five force model plays an important role in managing the overall
activities of the company. Porter force model helps to emphasize on the competitive environment
of the company and also it impacts the overall profitability. It can be evaluated that the
bargaining power of the suppliers and buyers impact the company overall ability in reference to
the increase in prices and also in managing the overall costs. With the help of porter five force
model it can be easy to analyze the competitive factors that are taking place in the business
environment. Porter five force models also emphasize on maintaining the overall competitive
forces and minimize the competition level which exists in the market. The porter five force
models also determine the industry attractiveness and also it offers insight of the entire
profitability. So, it supports the overall decision about the entry and exists of the overall market
segment (Jarzabkowski and Kaplan, 2015).
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Understanding business environment
Porter five force model of IKEA
 Threats of the substitute products and services
The threat of substitute products and services in IKEA is low. In this it has been seen that there
are not many products and services present that can satisfy the requirement for furniture and
home appliances. Also, it can be observed that the enhancement in the online applications and
internet based products have indirect substitution for the specific offered to IKEA. Example: The
increase the popularity of the e books reduces the overall demand for IKEA book shelves. The
absence of the overall switching costs for the consumers can enhance the threat of substitution
(Research methodology, 2018).
 Rivalry among the existing firms
It has been observed that rivalry against the existing companies is intense. There are many
supermarkets like target, Tesco and Wal-Mart who sell different types of furniture. There are
also direct competitors of IKEA who are present in the market like Argos and Ashley furniture
and rooms to go. It can be stated that there is large number of the local small sized furniture
manufacturers who have tough competition with the online retailers like Amazon, Ebay and
Alibaba. So, it can be stated that in global furniture industry bran the overall growth rate of the
industry is not substantial and it also intensifies the overall competition in relation to the present
market players (Research methodology, 2018).
 Threat of new entrants
It can be analyzed that threat of new entrants in the furniture and manufacturing industry is
significant. To enter into this industry, it can be stated that there is no or less legal requirements
or the barriers which take place in the competitive market. Also, the market entrants would not
benefit from the overall scale of economies to the same extent as the company focuses on the
overall economies at the time of initial stage of activities.
It can be observed that overall access to the channel of distribution and the need of capital
showcase the barriers for the overall new markets entrants. So, it can be stated that threat of the
new entrants into the furniture and home appliances is significant and also it focuses on cost
leadership strategy which is insubstantial because of the immense role of the overall scale of
economies. So, it can be stated that threat of the new entrants is significant.
 Bargaining power of suppliers
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Understanding business environment
The bargaining power of the supplier is low. It has been observed that the company is one of the
popular companies and have good relations with the suppliers on the global platform. It can be
noted that IKEA has almost 1380 suppliers in 2008 and these suppliers are present in almost 54
countries with 21% of the market share is in China. Also, the company has the manufacturing
company known as “Swedwood manufacturer”. By having their own manufacturer, the company
threats the suppliers by entering into the industry. So, the benefit of having the own
manufacturing company can create low cost and can also sell at low price products in the market.
 Bargaining power of the buyers
It has been evaluated that there are many retailers in the industry who are engaged in the overall
price war against each other. There are also many retailers present in the market and the
customers have the choice between the different companies. So, with various opportunities
present with the company, the power of the buyer is moderate to high in this sector. The
customer will prefer the IKEA Company as it is offers low cost product along with the discount
of the customers (Research methodology, 2018).
Task 4
Key performance indicator of IKEA
It can be stated that key performance indicator is concerned with the overall concept of analyzing
the success of the company and its employees in meeting the set goals and objectives in relation
to the performance. So, by considering the IKEA Company it can be stated that they use this tool
so that it can be easily to evaluate the overall outcome against the targets (IKEA, 2018).
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Understanding business environment
Figure 1
(Source: Ikea, 2018).
According to figure 1, it can be stated that in relation to the food suppliers, IWAY has been
approved and also the company focuses to attain the compliance by the end of FY15. In relation
to the IMS suppliers, it can be seen that the share of IWAY has been improved in relation to the
suppliers of the indirect materials and also the services has been enhanced in FY15. Also, in
relation to the environmental key performance indicators the company has the goal to have
almost 30% FSC certified virgin fiber used in the catalogue and it has been reached in FY11 and
also the share of the overall recycled paper has been reduced for the quality and availability
reasons (IKEA,2018).
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Understanding business environment
Figure 2
(Source: Ikea, 2018).
According to the figure 2 it can be stated that the overall share of the women in IKEA has been
enhanced and also it helps to attain the set targets in the competitive market. The company has
achieved success in context to long term and short term performance. In long term it can be
simple for the company to fulfill the needs of the customers as the company has more vacancy
for the candidates. So, it can be stated that current growth reporting practice is balanced in
relation to the financial and non-financial measures of the performance as it has been observed
that the company coworkers are working with the survey related to voice which will help to
enhance the overall activities of the company in the highly competitive market. It will directly
enhance the overall profits of the company. In relation to the non-financial concept it can be
stated the company has 131,000 coworkers in 41 countries and they are emphasizing on diversity
and in recruiting the talent personnel for the managing the overall activities of the company. so,
it can be stated that performance of the company is balanced and also it can be easy to attain
growth in the highly competitive market. But it can be recommended that company should focus
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Understanding business environment
on giving proper training to the employees so that it can be easy to boost the productivity and
also culture of the workplace. It will boost the overall motivation level of the employees towards
the work (IKEA, 2018).
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Understanding business environment
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Appendices
(Source: Research methodology, 2018).
16