Business Environment: IKEA's Internal and External Analysis Report

This report provides a comprehensive analysis of IKEA's business environment. It begins by defining different types of organizations, including private, public, and voluntary sectors, and explores their characteristics, size, and scope. The report then examines the relationship between various organizational structures within IKEA, such as human resource management, sales and marketing, research and development, and finance. It also delves into the macro-environmental factors affecting IKEA, using PESTLE analysis to identify political, economic, social, technological, legal, and environmental influences. Furthermore, the report conducts a SWOT analysis to assess IKEA's internal strengths and weaknesses, and it correlates these micro-factors with the external macro-environmental factors, offering a holistic view of the company's position and challenges in the business landscape.

BUSINESS AND BUSINESS ENVIRONMENT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
LO 1.................................................................................................................................................3
P1) Presenting three different types and purpose of organization..........................................3
P2) Presenting size and scope of business organization.........................................................4
LO 2.................................................................................................................................................5
P3) Presenting relationship between different organizational structures...............................5
LO 3.................................................................................................................................................7
P4) Positive and negative factors of macro environment factors ..........................................7
LO 4.................................................................................................................................................9
P5) Internal and external analysis of IKEA to identify strengths and weaknesses................9
P6) Strengths and weaknesses interrelate with external macro environmental factors........11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Business environment plays an important and crucial role in every firm. The present
report helps to understand the meaning of business environment and how it affects the
environment of IKEA. It is a furniture company which offer different varieties of furniture and
sell it online. It also explains different types of organizations such as private, public and
voluntary with its size and scope. The report also explains the relationship between different
organizational functions and how they are interrelated with each other. It also emphasizes
company's positives as well as negative aspects by using PESTLE Analysis. With the help of
SWOT analysis, the report also helps to determine its strengths and weaknesses and describing
how these micro factors are directly interrelated with macro factors.
LO 1
P1) Presenting three different types and purpose of organization
There are many different types of business organizations; some of them are mentioned
below:
 Private Organization: This type of organization is owned by individual and is not
controlled by state or central government. The main aim is to earn money and generates
revenue that helps to maximize its profit. Under private sector, there are two types of
different sectors such as joint stock companies and partnerships. As compared to public
sectors, private companies should not follow legal formalities which are assign by
government and these are so easy to run (Calabrese and et.al., 2018). The latest example
of private companies are IKEA, Sainsbury's, TESCO etc. are top leading private
companies of UK.
 Public Organization: this type of organization runs with the support of government and
their main aim is to serve public. They did not work to generate revenue as they are non-
profit sector. The latest examples are charitable trust, trade unions etc. The legal structure
of this organization is quite difficult to explain because there is lot of formalities, which
should be completed by the government itself.
 Voluntary Sectors: it is the third type of sector as it does not count in public sector or
private sector but it always takes care and fulfills all the needs of market economy
(Mbaye and Gueye, 2018). Now a days it is the most growing sector and it include

services such as technical research, medical service, agriculture etc. The purpose of this
sector is to benefit and enrich the entire society with no government intervention. The
latest example are foundations, some social welfare organizations, faith based
organization such as church, temples etc.
 Sole trader: It is the simplest form of business structure which is quite easy and
inexpensive for set up. It is legally responsible for all the aspect of their business and
even the owner is also liable for all the losses and profit.
 Partnership: It is a formal arrangement in which more than two parties are mutually
agreed to manage and operate the business by sharing equal ratio of losses and profit.
 Private limited company: This type of companies are run individually and business
entities also limits the owner liability . The maximum limit for their shareholders are up
to 50 and also restrict shareholders from the publicly trading shares.
 Public limited company : These type of companies have 7 minimum members and have
only 3 directors but there is no limit of minimum members. Apart from this, the public
company is not authorized to start its business operation just because of grant of
certificate if incorporation.
P2) Presenting size and scope of business organization
Basis of
comparison
Private Public Voluntary
Size The size of private
companies in UK is quite
large because and these are
operating in large business
firms as well.
The public listed
company occupy one of
the biggest area and these
are operated in large size.
The size of voluntary
company are medium
because they are
started initially.
No of
employees,
directors
In private firm, there are
minimum 2 members and
2 directors with 200
In public firms, there are
7 minimum members and
3 minimum directors with
In voluntary firms,
there is no limit of
peoples.

maximum members or
workers.
unlimited members.
Objectives Its main objectives is to
earn profit and maximizes
their business
Its main aim is to serve
for the welfare of the
customers.
This firm mostly work
for the welfare of
society.
Scope Private firm have large
scope as compared to
public.
Public companies also
have large scope
There is limited scope
in voluntary sector.
Private sectors: the size of this sector is quite wide as compared to others in UK because
most businesses are converted into private sectors and its scope is also wide. The main aim of
this sector is to generate revenue and maximizes profit. They serve for the welfare of a
customer’s but their objective is to maximize its sales (Kew and Stredwick, 2017).
Public sectors: this sector provides products and services for the welfare of public as
their main aim is to serve public only. The size and scope of public sector is large in UK because
their motive is to provide the best quality of products to public. They did not work to generate
more revenue and their market share is also wide.
Voluntary sectors: the size and scope of this sector is increasing year by year and as per
the annual report is has been concluded that there are about 165,801 voluntary organizations in
UK. This sector mainly works for the benefit of society (Tung, Tang and King, 2018). For
example, charities, social welfare organization they all are run for the welfare of public and
followed by culture and recreation.
M1
There are different business organizations such as public sector, private sector and
voluntary sectors. Public sectors are work for the public while private sector is work for their
own benefit and its main motive is to generate more revenue. Voluntary sector provides the best
facility for the befit of society only. They all provide the best quality of products and services for
the welfare of public.

LO 2
P3) Presenting relationship between different organizational structures
Different organizational functions:
Functional structure: It is one of the most common organizational structure and these
also helps to operate well in some stable environment so that the strategies are also implemented.
Using this structure, the company also raises their productivity and raises the profit of the firm.
But on the other side, it also creates many management issues and creates clashes of unit
coordination.
Matrix structure: It is the combination of two and many types of organizational
structure so that it provide proper balance between then such that IKEA also follows this
structure in which one manager handles functional activities and other tries to execute those into
the working area.
Different organizational structure of IKEA are mention below:
 Human resource management: it play an important role in the organization. This
management recruit skilled and desirable employees for the organization which help
them to increase its service and production (Calabrese and et.al., 2018). IKEA always
focus on their employees in order to check their performance as well as work. HR
management should make sure that they should hire qualified people for the post and
train them in order to attain all the objectives of company.
 Sales and marketing department: this department help to sell their product and services
to the customers. The company tries to deliver best services and quality as per the
customers need, requirements and preferences which help them to increases its sales and
production (Mbaye and Gueye, 2018). The company also uses various types of
promotional methods such as advertising, newspaper, magazines in order to let people
know about their new products.
 Researcher and Development (R&D) Management: this department mainly works to
develop new products and services for the company and also to improve the existing
services which are already present in a market. R&D department also search new
methods and then give advise to the company to implement those after examining their
pros and cons because this will help to increase the profitability rate of IKEA.

 Finance and accounts department: this department help in evaluating overall financial
position of a company. This department assign proper budget to each department and
help to acknowledge all the expenses which is being done by a company to sell or
purchase any product (Kew and Stredwick, 2017).
Interrelationship between different department: These above organizational structure
are interrelate with each other such as R&D department first research by examining its pros and
cons whenever the company try to implement new strategy. Then R&D department give advise
to the production department and tell about customers view point and then new product is
introduced in a company. After introduced new service or product sales & marketing department
help to introduce those in existing market by using promotional activities so that people come to
know about new service and increases its sales (Tung, Tang and King, 2018). After introduction,
the financial department help to determine the actual sale of new product and says whether the
product is successful or not.
D1
All the organizational structures are interrelate with each other and these help to increase
its sales as well as production for the company. These department also help in taking good
decision for the welfare of company and take a business in further level of success.
LO 3
P4) Positive and negative factors of macro environment factors
Macro environmental factors are external factors that affects the outer environment and
internal as well. This factor can be evaluated by using PESTLE analysis and helps IKEA to
understand its positive as well as negative factors and these are mentioned below:

Political Factor: Political factor generally includes sudden change in the rules and
regulations of the government that should be implemented in other business but a company like
IKEA who operates 40 stores worldwide might find it difficult to follow such rules. Due to this
factor, sales and profits both are affected (PESTLE analysis of IKEA, 2018).
Economic Factor: for MNC’s, global recession is one of the biggest challenges and
economic factor affect both revenue as well as profit of IKEA. As the company manages its
price so well and as a result was least affected by recession. Sudden fluctuation in economy of
country also affect IKEA's profit. The economic condition of market is another factor that affects
the pricing policies of an organization.
Social Factor: the company always provides its best product and facility to society. Even
it also promises to provide the best stylish and high quality of furniture at low and affordable
prices to their customers. The company also attracts some social group of customers who
belongs to different culture and societies and always try to fulfill all the need and requirements of
their customers.
Technological Factor: IKEA always uses the latest technologies and system in order to
provide the best stylish quality of products to their customers (Smith, 2017). It also provide an
Illustration 1: PESTLE Analysis
Source: PESTLE Analysis, 2018

online platform to their users to shop, which help them to save money as well as time and giving
them a real life shopping experience.
Legal Factor: there are so many legal factors that affect all big brand organizations such
as labor laws, product quality, health and safety law etc. But IKEA follows the rules and
regulations as well as laws, which are made by government.
Environmental Factor: Sustainability is an important focus point of IKEA. The
company also planned that the energy used inside IKEA will come from renewable source of
energy and for this, it has already invested a large amount in wind & solar panels (Saleh and
Watson, 2017).
LO 4
P5) Internal and external analysis of IKEA to identify strengths and weaknesses
SWOT analysis is done to identify IKEA strengths and weaknesses. This analysis helps
the organization to understand that furniture is their biggest asset and it helps to generate more
revenue and maximizes its profit.
Illustration 2: SWOT Analysis
Source: SWOT Analysis, 2018

 Strengths: the company provides the best and stylish quality furniture at low and
affordable prices to their customers. The company also has its brand image and excellent
product design who offer in online mode to save money as well as time of people. The
company has variety of design in their product range, which makes them unique in the
target industry (SWOT analysis of IKEA, 2018). Even the company has strong financial
position as well as strong revenue growth.
 Weaknesses: the greatest weakness of IKEA is their performance in the Asian market
where the company is not up to mark. The company provides its innovative products and
there is a need to diversify its product range as per the local taste, which will not only
help to attract lots of customer but also increase the competition in market.
 Opportunities: there is a huge scope of opportunities for IKEA. The company focuses
on “Green Business Model”, which helps to attract more customers and expand its
business at international level. They may also opt for strategic partnership with other
brands in order to promote their business (Komljenovic, Loiselle and Kumral, 2017).
 Threats: The major threat, which a company faces, is the demand of premium products
with improved economic conditions. There is a huge competitive pressure from the
competitors’ brand, which makes IKEA unable to build a strong brand in Asian markets.
SWOT analysis of Amazon
Strength Weaknesses
 It is one of leading online retail
company in UK.
 The firm uses cost leadership,
differentiation and focus cost strategy.
 The firm has superior logistics and
distribution system that helps to attain
wide customers attention towards them.
 There are many products which fail and
leads a business towards loss.
 Company's operating margins are
remained weak from many times.
Opportunities Threats
 Because of its high customer base the
firm also acquire new business.
 The firm have good financial position
 Faces tough competition from other
online business.
 It also have some regulatory threats and

and that is why it creates opportunities
for releasing new products.
due to stronger dollar it affect the
business financial performance.
M4
IKEA has a strong brand image in market and is always try to improve its brand
awareness in Asian market. By offering the best stylish quality of products to their customers at
low and affordable price will help to take better decisions for the company. Even the company
takes the best market strategies in order to increase its brand awareness in China.
P6) Strengths and weaknesses interrelate with external macro environmental factors
Strengths and weaknesses of IKEA are directly related with external macro factors. The
strengths of IKEA is having a brand image in market and always offer the best stylish product to
their customers which is directly interrelate with political macro factors. The sudden change in
tax rate of government directly influences the brand image of a company as well as its
profitability. The company always focuses on sustainability, which is directly interrelating with
legal factors. The strengths of IKEA consists of focusing on the use of latest technologies in their
stores, which is directly linked with technology factors as the company uses advance technology
to attract their customers (Prajogo, 2016). As IKEA makes its clear vision and mission statement
which help for the social factors of macro environment by creating clear objectives of their
company.
For example, As IKEA operates in the global level and offer variety of products which is
the strength and it is directly interlinked with its political factor under which it has to follow
different rules whenever entering into new country. Apart from this, the firm is online retailer
firm and to gain high competitive advantages, it is quite necessary for it to keep adapting new
techniques into its business in order to raise its brand image. On the other hand, IKEA's
weaknesses such as to low control over their business activity in every country which has to be
deal in. Sudden change in the economy of country will affect the financial status of company
whereas technological factors also affect the promotional activities of IKEA.
D2
Macro factors such as political, economical, technological and social factors affect the
external environment of IKEA where as micro factors such as strengths and weaknesses affect

the internal factors of IKEA (Smith, 2016). These both factor somehow affect the whole
environment of IKEA and also affect profitability of a company.
CONCLUSION
By summing up above report, it has been concluded that macro and micro factors affect
the business environment externally as well as internally. The report deal with big brand
company IKEA who provide its best and stylish quality of furniture through online mode and it
operates more than 40 store worldwide. The report help to understand different types of business
organization with their size and scope. It also explain the interrelationship of various functions of
IKEA and how they link to organizational structure. The report describe strength and weaknesses
of IKEA and hoe they are interrelate with macro external factors. It has been concluded that
strength and weakness of company are directly related with their macro factors.

REFERENCES
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Online