Business Environment Analysis: IKEA's Operations and Strategies

This report provides a comprehensive analysis of the business environment, exploring both internal and external factors that influence business operations, using IKEA as a case study. It begins by defining the business environment and highlighting the importance of understanding its components. The...Read More

Business and Business
Environment

Table of Contents

INTRODUCTION
Every business environment requires effective policies, strategies, system and working
practices thus it can survive in the competitive business environment. It is a mixture of internal
and external components which influence firm's activities and functions in a large manner. It is
very important for the organisation to understand and determine the potential impact of these
components so as it can easily carry out its function in the competitive market. The following
project provides a depth knowledge and understanding about the internal and external
components of the business organisation and its influence on the business activities and
functions. In addition to this various kinds of organisation , their objective, scope and structure
and purpose has been also discussed in this report. The interrelationship and link between these
organisation functions and its objective and structure has been also studied in this report.
Moreover, positive and negative influence of macro environment components on the business
operation of Ikea has been also studied in this report. Generally the major objective of this report
is to understand that how business environmental component affect the operation of business
and by which criteria firm can cope up with these influence. With the help of SWOT and
PESTEL model, firm can easily analyse and assess its internal competency and strength.
PART 1
Converted in PPT P1, P2, M1
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Task b)Link between organisational functions, objectives and structure
In every business organisation, there is direct link between business functions, objectives
and structure. Organisation function refers to the activities which performed by the employees in
each functional department like marketing, finance, operation, administration, information
technology etc. Organisation functions are largely affected by the business decision, policies,
practices and every employees have to carry out these functions according to company's norms
and practices (Aishah Kamarazaly, Mbachu and Phipps, 2013). Each department has large
number of employees and there is only one manger who is responsible to lead and control the
activities and performance of humans resource. Each functional department are responsible to
attain determined objective and they are set according to the structure. Thus it can be said that
objective of firm is directly related to functions and structure of the company. In the context of
Ikea, there are various kinds of business functions like finance, marketing, information
technology and so on and they are coordinated in order to attain its objective. These organisation
functions and its link with structure and objective are as follows- Finance Function- Financial department in the Ikea have major objective to keep record
of all financial transactions and incomes and outcomes. With help of this function,
company can able to maintain the records and report of all incomes and expenses of
various business activities and measure its profitability by use of financial statement
(Aterido, Hallward-Driemeier and Pagés, 2011). In this department, financial manager
have major obligation to develop financial report and allocate the fund according to the
desired activities of business. It
 Marketing function- Marketing functions refers to the activities which is related to
marketing like promotion, advertisement, sales, public relation etc. The major objective
of this functional department is to promote and sale the product and services in the
market and gain customer attraction toward firm by developing attractive marketing
strategies (Cantwell, Dunning and Lundan, 2010). This function of organisation have
relationship with the operational and financial department because in marketing
department there is need of product and services so operational department provide this
information system which assist in promoting and adversing the product and services in
the market.
 Human resource function- The major objective of the human resource department is to
recruit, motivate, encourage and manage the employees in order to attain the objective of
enterprise. This department have responsibility to develop the policies, practices and
ways to mange the employees in the organisation and motivate them for high

productivity. In every department of the company have requirement of employees so
human resource function is related to each functional department of company (Chavis,
Klapper and Love, 2011)
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 Information technology function- This department have relationship with all department
because its major role is to maintain the information and data of the business and develop
the connection among the various department by effective communication technology
(Dragoi, Rosu and Draghici, 2013). This department have aim to operate the various
technological function in the business. This department have relationship with
administration and operational department.
Task c) Difference and interconnection among organisational functions
As per the above discussion it has been ascertained that there are various kinds of the functions
in the business enterprise such as marketing, finance, operation, administration, information
technology etc. All these department perform their won roles and responsibility but all of these
have common objective which is organisational objective. The structure that is followed by the
organisation are based on the three types which are as follows- Functional structure- the functional structure of the company generally considered in
which entire business enterprise is divided into the various department on the basis of
specialisation that is marketing, humans resource, finance, administration etc. Ikea can
adopt this structure in order to delegate the roles and responsibility to each department in
the company (Kodolitsch, Bernhardt and Detter 2015). Matrix structure- A matrix structure is a company structure in which relationship
between the various department are set up as a grid or matrix rather than in traditional
hierarchy. In this structure company is divided the roles of employees where they have to
report according to the matrix or grid.
 Divisional structure- As per this structure division of corporation based on the project
and segment. In other word it can be said that divisional structure have make the segment
in different department by geographical area. In this structure, all employees have their
own roles and responsibility to accomplish the target.
PART 2
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P4 Positive and negative impact of macro environment
Ikea is a private limited company which deals with furniture product and it has main
objective is to deliver high quality of product and services to its customer and gain the highest
profitability and market share. In order to attain this objective, firm requires to adopt such
strategies and practices through which can compete with macro components. The macro
environment consists with various factors such as political, economical, social, cultural, legal and
environmental. The macro environment refers to the environment which have those factor which
is not controllable by the company or any other individuals. Ikea is a retail outlet and influenced
by the micro environmental factor at large manner. These components may influence the cited
firm in positive and negative manner. As Ikea have operated its business at the global level so at
this level firm requires high level of protection and security from unfair and illegal activities
(LiPuma, Newbert and Doh, 2013). Thus, legal and political factor of macro environment can
provide protection and security to the cited company. On the other hand , technological factor of
macro environment provides the opportunity to use the latest and highly advanced technology in
the new market. With help of this technological force, company can able to bring some
innovation and invention and also it helps in promotional and marketing activities in the market.
Technological component assist firm in improving the existing business operation, production,
marketing, manufacturing activities. On the other hand economical factor also positively
influence to the Ikea. In this context, company have opportunity to use the interest rate of the
country and firm can set effective pricing policy according to the economic condition of country.
As per the above discussion it has been ascertained that there are various benefits to Ikea
through macro environment component. However, it has negatively influenced by this macro
environment too. The major disadvantage of this macro business environment is that firm have
to develop new policies and practices as per the concerned economy (Osterwalder and Pigneur,
2010). Political environment can largely negatively influence because company have to follow
the new regulation, code of conduct, legislation, taxation policies according to the country
political system. Furthermore, formation of new policies, strategies and practices can influence
business performance in the market. Environmental component can also negatively influence to
the Ikea under which firm have to conduct its business operation according to weather, climate
and natural resources. One another drawback of the macro environment is that form have to face
high level competition at global level.
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P5 Internal and external analysis of the Ikea
Internal analysis of Ikea
Ikea is one of the famous furniture retail outlet in the world which deals with furniture. It
has 183000 skilled and qualified employees whose continuously contributing their best efforts in
attaining the objective. It has effective and well experienced leadership team which continuously
motivate and encourage people in order to attain the objective. Cited firm have another major
strength is its excellent branding and advertising activities through which it has able to develop
its won brand image in the market. IKEA owns and operates 392 stores in 48 countries.
(Sørensen, 2012). One another major strength of cited venture is its diversified investment which
enables it to minimise risks in case any one of the business units runs a loss or event that may
threatens it anticipated performance. Cited firm has organised effective training and
development programs for employees through which its employees can able to improve their
strength and working capability. As per the research it has been founded that company have
invested large capital to organise training and employees welfare programs. By this feature it has
developed effective brans image in the market. As per the research it has been also founded that
one another strength of cited venture is high quality information technology infrastructure. The
cited venture recognises the importance of reaching a wider market through the affordable and
wide platform of internet. With the help of online check book system company in its grocery
business increased sales by 20% or 130000 weekly orders in the financial year 2010.With help of
information technology infrastructure, firm can also able to improve its communication network
in the internal level as well as external level.
Ikea have also some kind of weaknesses through which various kinds of barriers occurs
in order to attain the objective. Company is highly negatively influenced by the competition
because there are large numbers of company in the market as Ikea. The company had issue with
inventory management and supply chain management that affected its product in 2004. Rising
furniture prices over the world have impacted on the company's selling at higher prices. On an
international level like china, over proactive and loose nature of the company has not done
adequate. One of the major weakness of cited venture is its changing preferences and choice of
customers. As Ikea is retail outlet which deals with furniture product. Changing customer taste
and preferences related to product can already influence the company production and operation.
These things also affects the profitability and market share of the company.
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External analysis of Ikea:
 In the context of political factor, dept of government and dept of customer are very high
in UK which affect the attitude of customer and business enterprises. Political factor
assist in improving the protection and security of the company but due to developing new
policies and practices, firm have to adopt new system and structure of business. Legal
requirement and political interferences may create weakness of the company (Trkman,
2010).
 In the context of economic factor, company can set the prices of product and services
according to the economic condition of country. In the economic downfall, the increasing
unemployment and inflation in prices of products are the two element which will make
effect on cited firm in a significant manner.
 Technological- This factor create major strength for firm because company have
opportunity to develop some innovation and invention and its can also improve the
process of operation, production, distribution etc (Johanson and Vahlne, 2009).
P6 Explanation of strength and weakness are linked with external and internal factor
As per the above discussion it has been ascertained that there are various kinds of
strength and weakness of the Ikea company. These strength and weakness have directly relation
with internal and external component. Following are some strength and weakness which have
direct relation with Ikea Plc external and internal component-
Linking strengths with external and internal factors:
Ikea have major strength of its high qualified and skilled employees through which firm can able
to improve its performance and profitability. This strength is directly related to the internal
component because employees are internal element of firm which assist in attaining the
objective. The biggest strength that IKEA has is its clear vision, which is to add value to its
customers irrespective of the market conditions. This has translated into an articulate and well-
defined business strategy and an approach to retailing, which is pioneering in its simplicity and
deadly in its targeting of competitors and effective in its positioning.
On the other hand company have another strength is its effective information technology through
which it can improve its communication network. The cited venture recognises the importance of
reaching a wider market through the affordable and wide platform of internet. With the help of
online check book system company in its grocery business increased sales by 20% or 130000
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weekly orders in the financial year 2010. This strength is directly related top the technological
component of the external environment.
Linking weaknesses with external and internal factor
Ikea have major weakness is changing taste and preferences through which it has to adopt
the new production system and manufacturing. This system is related to the cultural and social
factor of the organisation because in this component includes customer taste., region, culture,
perception, occupation etc (Welford 2013). If company operate its business in the different
country then social and cultural factor may become major weakness for the company. On the
other hand cited venture also have weakness related to high food product prices thus this
weakness is related to the economical factor of the external business environment. Moreover,
high rate of competition and availability of rivals in the market is also related to the economical
factor. One another weakness of Ikea is as it operates in multiple countries around the world and
it is a high scale and a large size business meaning that it is difficult to control standards across
locations. Though the company tries its best to implement uniform quality across its product
range and throughout its locations, replicable and scalable control of quality is a key weaknes
M3, M4 Pestle and SWOT analysis
Ikea is one of the famous furniture retail outlet in the world which deals with customer
goods and services like furniture, kitchen appliance and home accessories. It has highly
influenced by the macro environment. It consists with various component which is
uncontrollable and not control by the organisation. The macro environmental component can
influence firm in positive and negative manner. Thus while company operates its business in the
global level then it has to consider and analyse these components.
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 Political factor- Political factor related to the political environment of the country in
which government have large contribution. It includes taxation policies,code of conduct,
regulation, legislation, rules of business and norms which has developed by the UK
government. Whole Ikea company operates it business in the market then this component
may largely influence business operation and firm have to follow the rules and regulation
of government. Economical factor- This component is related to the recessions, inflations, interest rates,
exchange rates, growth rate etc. While company sets the prices of product and services
then it have to consider the economical condition of the country because inflation and
recession may affect the business operation. Further, according to economic condition,
firm can positively and negatively influence (A PEST Analysis Template for Any
Industry or Business. 2016). For instance- unemployment resulted in lowering down the
purchasing capability of customer. Socio cultural factor- It includes customer taste, region, culture, perception, occupation
etc. If company operate its business in the different country then social and cultural factor
may affect the business operation. Company have to conduct the market research in order
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Illustration 1: Pestle Analysis
Source:A PEST Analysis Template for Any Industry or Business. 2016.

to identify the customer need and wants and according to their taste, firm should develop
product and services. Technological factor- While company operates its business in the country then its
technological component can largely influence. With assistance of new and advanced
technology, company can improve its production, manufacturing, marketing,
administration activities. In every department of the firm requires technology thus this
component can affect company's operation. However, according to the development and
change the country, company have to invest large capital on the technology. For instance,
by use of internet, company can offer online shopping to customer.
 Legal- This component includes the legislation and law related to customer, employees
and business. Company have to follow these law and legislation in order to provide
protection and security to employees and customer. For example., sales of good act,
customer right act, employees rights act, discrimination act are some of the example of
legal legislation.
 Environmental- This is related to the natural resources through which firm internal
process can largely influence. It includes weather, climate, water, air, fuel etc. While
company takes any decision related to production , manufacturing, procurement then it
has to consider this component.
Ikea Plc have major objective is to earn the maximum profitability and market share by
delivering high quality of product and services in the market. It aims is to attract the large
number of customer. In order to attain this objective in the competitive market, company have to
analyse its internal condition like strength, weakness, opportunity and threats.
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 Strength- Cited firm have another major strength is its excellent branding and advertising
activities through which it has able to develop its won brand image in the market.
Company have more that 550 supermarket and 350 continence stores across UK.
Sainsburry is one of the famous retail outlet in the world which deals with customer
goods and services. It has 150000 skilled and qualified employees whose continuously
contributing their best efforts in attaining the objective. It has effective and well
experienced leadership team which continuously motivate and encourage people in order
to attain the objective. One another major strength of cited venture is its diversified
investment which enables it to minimise risks in case any one of the business units runs a
loss or event that may threatens it anticipated performance. Cited firm has organised
effective training and development programs for employees through which its employees
can able to improve their strength and working capability. The cited venture recognises
the importance of reaching a wider market through the affordable and wide platform of
internet. With the help of online check book system company in its grocery business
increased sales by 20% or 130000 weekly orders in the financial year 2010 Weakness- Ikea Plc have also some kind of weaknesses through which various kinds of
barriers occurs in order to attain the objective. Company is highly negatively influenced
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Illustration 2: SWOT analysis
Source:

by the competition because there are large numbers of company in the market as Ikea Plc.
The company had issue with inventory management and supply chain management that
affected its product in 2004.Rising food prices over the world have impacted on the
company's selling at higher prices. On an international level like china, over proactive
and loose nature of the company has not done adequate. One of the major weakness of
cited venture is its changing preferences and choice of customers. As Ikea is retail outlet
which deals with customer goods and services. Changing customer taste and preferences
related to product can already influence the company production and operation. These
things also affects the profitability and market share of the company. Opportunity- The Ikea opened stores in china, which is a fast growing economy ans has
huge populations. Open its stores in the large number of countries in the world is one of
the opportunity for business enterprise. Furthermore, company is a retail outlet which
deals with food product also so develop the lower fat and oily food and consider on
health concious food is another opportunity for the company. Distributing its product and
services by use of social media channel and other online channel is another important
opportunity for company. Firm can develop its on shopping application for facilitating
customer and promote for product and services.
 Threats- The major threat for the Ikea Plc is high level recession. Due to this recession
condition, the prices of product and services can highly influenced. One of the another
major threat for company is changing customer taste and preferences. As Ikea is retail
outlet which deals with customer goods and services. Changing customer taste and
preferences related to product can already influence the company production and
operation. These things also affects the profitability and market share of the company.
One another threat is technology because continuously changing technology can highly
influence to the company's operation, production, manufacturing, marketing related
activities.
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Reflective statement
From the above analysed project of business and business environment it can be said that there
are various kinds of internal as well as external both kinds of factors and elements highly effects
to the company in terms of positive and negative manner. Various internal factors like as
financial stability, management, structure and functions of the organisation etc. which lead to
impact on the smooth business process. On the other side, I concluded that several kinds of
external elements are also leaded to impact on the firm and affects to the financial performance
as well. In the current scenario there are two business entities selected such as private and public
and both have different purposes and structures to operate in their particular segment. From the
report I learned that number of factors affects to the firm by which selling of its products and
services also affected which is adverse situation for it. When such kind of conditions arises at the
workplace then it not able to generate revenue and profit in the industry.
Moreover, as a business analyst I identified that in the market or economy if market trend
going downwards then sales of the business enterprise gets reduce which lead to decrease firms
capability in order to generate profit. In context to this, according to the social factor if incomes
level and living of standard both enhances then management needs to give responses according
to their requirements and produce higher quality of the goods and services. In this case, overall,
production and operation process highly affects where cost of production enhances. Due to such
kind of changes profitability and performance both goes down in the industry where it operates. I
analysed that in the market most of the consumers seek towards the quality and cost factor of the
product and services whatever they going to purchase. Further, the technological factors will be
considered at by me in this condition because due to using high and updated technology wastage
products will be reduce. Ultimately cost as well as quality both the aspects will be comes in
beneficial situation and helps to the management up to greater extent in order to achieve
purposes and goals of firm.
Apart from this, I assessed from the current analysis that market share as well as
reputation or brand image also very helpful and significant for any kind of business. When a firm
provide higher quality of services and goods at the lower prices as compare to rivalry entities
then it will able to create brand image in that segment where it operates. When a buyer going to
purchase any product or service then always take care about the quality, brand image as well as
selling price. In context to this, I concluded that various factors of macro environment such as
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political, social, economical, environmental, technological, legal etc. impact on the company by
which profitability affects. For instance, if tariff rate enhances then export and import of the
products and services affects in accordance to that by which sales and revenue of the business
influence. Hence, as per the current study I analysed that various aspects of business
environment lead to make changes in the business process and impact on them.
CONCLUSION
Business environment consist with the internal and external component which can
influence the business activities and function at large manner. From this project report it has been
concluded that Ikea opened stores in china, which is a fast growing economy ans has huge
populations. Cited firm have another major strength is its excellent branding and advertising
activities through which it has able to develop its won brand image in the market. Rising food
prices over the world have impacted on the company's selling at higher prices. It has also been
concluded from this project that it have opportunity to develop the lower fat and oily food and
consider on health concious food.
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REFERENCES
Books and Journals
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