Comprehensive Analysis of IKEA Group's Business Environment Report

This report provides a comprehensive analysis of IKEA's business environment, encompassing both internal and external factors that influence its operations. It begins with an introduction to the concept of the business environment and its significance for organizational success. The report ...Read More

Business Environment

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Different types and purposes of organisations.......................................................................1
P2 Size and scope of a range of different types of organisations ...............................................3
TASK 2............................................................................................................................................5
P3 Relationship between different organisational functions ......................................................5
TASK 3............................................................................................................................................6
P4 Identify the positive and negative impacts the macro environment has upon business
operations....................................................................................................................................6
TASK4.............................................................................................................................................9
P5 Internal and external analysis of IKEA Group......................................................................9
P6 Strengths and weaknesses interrelate with external macro factors of organisation.............10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Every business environment is the combination internal and external factors which
affects the business operations. These factors are termed as laws, rules and regulation of
government, social trends, clients , changes in technology, competition and market place. It is
essential to analyse business environment to identify the emerged opportunities from the external
factors and take advantage of them to make their business effective and successful at market
place (Adeoye and Elegunde, 2012). It is essential for the organisation analyse political risk,
taxation issues and changes in legal policies of international market to identify the opportunities
for growth at global level. This given report is based on IKEA, which is one among renown
retailer provides is products worldwide. This company offer easy to assemble furniture, home
appliances and the kitchen utility goods to its customers. There are different types of
organisations such as private, public and voluntary which works for different-different purposes.
These organisations varies on the basis of their size, scope and purposes which are elaborated
under this report. In addition to this, given report also includes various function of the
organisation and their relationship with each other.
TASK 1
P1 Different types and purposes of organisations
Business environment of every organisation varies according to its size and type. Mainly
organisations are divided into three types that is public sector, private sector and voluntary.
Public sector organisation is controlled by the government and its major motive is to develop the
country and its employment level. Organisation of private sector are started with the motive to
earning of profit and expand their business at international level. Whereas, organisation which
are undertaken by voluntary sector are originated with motive of social welfare and serve the
society (Agarwal, Grassl and Pahl, 2012). All these types of various sector are explained with
their purpose and legal structure are evaluated as below:
Public sector
Organisation which are handled and operated by government are termed as public sector
organisation. Under this, organisations started with the motive of serving respective country and
its citizen. Here, Crown Prosecution Service is the public prosecution agency which provides
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legal advices to police in their investigation process. This organisation is large in size as it is
operated by government of UK.
Purpose of company: Public sector organisations are formed to improve the wealth of
the country by increasing employment level and contribute in the development of the country.
Purpose of Crown Prosecution Service are evaluated as below:
 main purpose of this organisation is to advice the police regarding the investigation and
helps them in identifying real suspect in order to decide his punishment (Avramenko,
2012).
 Another purpose is to support the victim to understand his situation and punish the real
criminal.
Legal structure: Every organisation have to follow various legal formats Central government- It controls all the various administrative department of the
government. Central government forms various laws and policies for the local and state
governance for the development of the country. State government- This is the separate unit of government of UK which is controlled by
central government. With addition to this, It also controls education organization to
improve the development of the country.
 Local government- This involves the public administration which covers local area of
economic. Major objective of this government is to improve policies and procedure for
developing economic growth.
Private sector
Organisation of this sector are separate from the government and works in their of
pattern (Boons and Lüdeke-Freund, 2013). Here, IKEA group is the organisation of private
sector which offers its products and services across the world at affordable prices. This
organisations concentrates on expanding their business worldwide to enhance the profit earnings.
Purpose of company: Private sector organisation are profit oriented. Purpose of IKEA
group are evaluated as below:
 Its major focus is on providing affordable products to the customers with quality in order
to achieve organisational goal. Another purpose of this group is the enhance their profit by expanding their business
worldwide.
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Legal structure: Legal structure of private organisation are described as below: Sole Proprietorship: Sole trader is the single person who owns the business. In this, profit
and losses are not shared with anyone. Sole proprietor have to bear all the responsibility
of the business and arranges financial funds for business operations. Partnership: This legal structure involves two or more number of business person who
works together for the common goal and objective (Budhwar and Debrah, 2013). Profit
and liability are shared by the partners according to their ratio. In this, decision making
process involves all the partners.
 Private limited company: It is termed as separate business entity which is owned by its
shareholders. Risk and liabilities are shared among the shareholders according to their
shares.
Voluntary Sector
This sector basically works for the society and their development. Here, Action for
children is working for neglected children, youngster and their families. This organisations
collects charity use gathered amount for their welfare purpose.
Purpose of company: Organisation of voluntary sector works for more than 300000 and their
families in order to provide basic necessity to them Purpose of this company is to provide love, opportunity and support to every kid and
young people of United Kingdom.
Legal structure: There are various types of legal forms f non profit organisation and these are
evaluated as below: Trust: It is considered as non legal entity as it does not involve any agreement. Charitable
trust is handled by group of people who works for social causes.
 Cooperative society: These societies are community people. There main objective is to
provide benefits to its own member only (Cassell and Blake, 2012). Co-operative society
is based on self responsibility, equality, democracy, solidarity etc.
P2 Size and scope of a range of different types of organisations
Business environment of organisations are affected by the internal and external factors
which influences its growth an d profitability. However, business environment varies on the
basis of their size that is small, large, micro and medium. Main objective of every organisation
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grab the available opportunity to increase their number of customers and earn profits. Every
organisation with their size and scope are evaluated as below:
Crown Prosecution Services: This organisation works with the purpose of conducting
criminal prosecutions in England and Wales. Thus, firm give legal advice to police and other
investigating institutions and agencies. While doing this work, their crucial role is to assist these
agencies in identify if an individual is a criminal or not and if in this the person is found guilty
than what are the charges that can be imposed for further procedure. In addition to this, CPS
helps police and agencies in evaluating suitable outcomes (Cohen and Kietzmann, 2014).
Scope: As organisation is not established themselves other than England and Wales so,
they can think of establishing themselves in other country as well.
Size: Firm operates at small level and they are responsible in for making these areas free
from criminal activities. Furthermore they are setting policies and laws for having a control over
illegal activities.
IKEA: It is a multinational company that deals in retail sector and company was
established in the year 1943 and since than they are one of the leading firms in United Kingdom.
Scope: Organisation can focus on developing products other than households for example
they can think of using technology for reducing busy line in billing counter.
Size: Company is big and they have around 194,000 employees and firm is serving
around all over the world.
Action for Children: It is a voluntary organisation that work for the betterment of
neglected children and young people who are living in United Kingdom. Currently, firm is
providing help to approximately 300,000 children including young people and their families as
well.
Size: In this, organisation presently have 7,000 employees are working along with 4,000
volunteers so, it can be said that it is a medium based firm who are focussing on children and
young peoples.
Scope: Currently Action for Children are working on 650 projects that are based in
United Kingdom and nearby places. Further to make themselves more effective in future
organisation can think of expanding their institutions in nearby places.
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TASK 2
P3 Relationship between different organisational functions
Business environment is the combination of internal and external factors which affects
business operations and its profitability. Every organisation is consist of various functions such
as marketing, operations, research and development, finance, human resource, customer service
and IT department (Gan and et. al., 2012). In relation to IKEA, all the above mentioned functions
are interrelated to each other. Some of them are evaluated as below:
Human resource: Major function of this department is to recruit right candidate at right
place selecting them on the basis of their qualification and skills. Apart from this, HR manager
performs various functions like monitoring performance of employees, preparing salary,
conducting training and development sessions etc. In context to IKEA, functions of human
resource are directly linked with the marketing department as they promotes organisation and
attract candidates to work with the company. This helps HR manager to perform their work
properly and achieve organizational goals and objective.
Production: Major function of this department is to produce products and services on
time and in effective manner. Here, Production department of IKEA is linked with the finance
department as this section will provide them proper funding which is necessary to produce the
products on time. Effective production function will reduce the wastage and scrap product it will
reduce per product cost.
Marketing: This department performs various function such as promotion, public
relation, advertisement etc. It helps the company in covering their targeted customer and increase
their sales (Craig and Campbell, 2012). Marketing function is related to the production function
as member of marketing team are directly in touch with the customers and know their taste,
expectation, needs. This guides the production team to manufacture products on the basis of
customers requirement which increases sales.
Finance: Every organisation have to use its funds on proper place for this it is the
responsibility of finance department to provide money to every department on proper time.
Finance department is related to every function of the organisation each department needs funds
to perform their functions in effective manner in order to achieve organisational goals.
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Different organisational structures
Functional structure: In this, organisation divides its employees on the basis of their
speciality and skill. Under this IKEA group can divide the roles and responsibility of employees
on the basis several functions such as marketing, function, finance, research and development
etc.
Hierarchical structure: This structure is in the form of pyramid where every employee
have to report his senior, and that senior have to report his superior (Gupta, 2013). IKEA should
follow this structure as it helps them in monitoring their large number of employees and make
them work in effective manner.
From the above mentioned structure, IKEA group is following Hierarchical structure
which helps them in operating their all functions in effective manner and achieve their targeted
goals.
TASK 3
P4 Identify the positive and negative impacts the macro environment has upon business
operations
Macro environment is being considered as an external factors that can put both positive
and negative impact on business operations. It is much required for business organisations to
look into this factor because it can affect profit margins. It can be said that if companies are
doing business at international level than macro environment can majorly put impact on
operations (Hilton and Platt, 2013). IKEA is dealing in both international and domestic level.
Therefore, it is required for company to go through all the factors that stays connected to external
environment through which may affect their profitability or productivity. In order to understand
the concept PESTLE analysis is being done by administration of this organisation.
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(Source: Scanning the Environment: PESTEL Analysis, 2016)
Pestle Analysis:
Political factors: Government of United Kingdom and of other countries develops rules
and regulations for bettering the economic conditions. This may put impact on business of IKEA.
Therefore, it is required for the company to keep an eye on all the changes and adopt them so
that business can get done in a legalised manner. Positive impact: Cost of products can be reduced and profit margins can get enhanced if
government give any rebate in taxation procedures.
 Negative impact: Companies have to keep their rates competitive in order to maintain the
market according to rules of parliaments of different countries which can be taken as a
negative impact on profitability of IKEA.
For an example: Changes in employment legislations of a country can affect working of
IKEA.
Economic factor: Economic conditions of United Kingdom or of other nations can put
impact on revenues and net profit of companies (Kew and Stredwick, 2017) Therefore, it is
required for IKEA to develop strategies through which they can gain competitive advancements. Positive impact: Doing business in nations that have strong economical conditions can
help IKEA in enhancing its reputations along with profit margins.
 Negative impact: Recession or doing business in a country whose economy is decreasing
can put negative impact on the company. This can lead IKEA to face various
For an example: Change in inflation rate can be negative or positive for business of
IKEA.
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Illustration 1: Macro environmental analysis

Social factors: In modern world, it is pretty much required for IKEA to make some
investments in social related affairs so that to develop a proper relation with the society. Positive impact: Corporate social responsibilities are being considered as one of a kind
thing through which many benefits can easily be gained right on time.
 Negative impact: IKEA needs to look into different aspects which are impacting upon
social people some of factors are there like pollution. This may put impact negatively on
the company.
For an example: Regular CSR activities can be helpful in grabbing good position in front
of society.
Technological factors: Use of digital technology and updates may aid business firms in
grabbing good position in much effective and efficient manner (Lee, Kao and Yang, 2014). With
the help of this, IKEA can gain many advantages. Positive impact: Use of updated technology help IKEA in enhancing customer base.
 Negative impact: Company may increase its expenses if they will regularly make updates
in technological factors.
For an example: Utilising updated tools of technology will help IKEA in gaining
competitive advantages.
Legal factor: Legal structures are present in every single country which can put impact on
operations of business organisation. Positive impact: Following legal structure will help a company in running business in
successful manner (Portugal-Perez and Wilson, 2012).
 Negative impact: Legislations can reduce profit margins or stop operations to an extent.
For an example: IKEA if adopts all the changes in legal section of company then it can be
said that company may do its operations in smooth manner.
Environmental effect: Atmosphere of a country can get affected by business organisations.
Therefore, it is required for them to adopt Eco- friendly systems. Positive impact: IKEA should establish solar panels in its store to use the generated
energy in their offices only. It will reduce usage of others sources of energy.
 Negative impact: To meet the customers requirement this company have to use advance
various gadget which harms the environment.
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For an example: Usage of solar panel in stores helps in utilising natural source of energy
which impact positive on environment.
TASK4
P5 Internal and external analysis of IKEA Group
Every organisation analyse Internal and external factors to identify the availability of
opportunities and understand the strengths weakness. Here SWOT analysis is done to understand
Strengths, weakness, opportunities and threats of IKEA group.
Strength Weakness
 This company offers affordable
products to its customer across the
worldwide which attracts attention of
money minded customers.
 IKEA is introducing innovative
products on constant basis that
satisfies the customers expectation
and give them vast range of products
to choose according to their
requirement.
 For introducing affordable product to
customers, IKEA is reducing its quality
and loosing customers trust on this brand
(Ratten, 2014).
 Increasing cost of raw materials is
directly affecting the price of the
products which creates difficulty for the
company in maintaining their tag of
affordable products.
Opportunities Threats
 IKEA can introduce grocery products
in its portfolio which will add on
number of customers (Savrul,
Incekara and Sener, 2014).
 This group should use technology, by
opting online sales that will provide
more options to the customers to
connect to company.
 Increasing competition in similar type of
coming is becoming major threat.
 Increasing income of customer will
directly increase disposable income of
customers and make them to move
toward other brands which provides
standard products.
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P6 Strengths and weaknesses interrelate with external macro factors of organisation
In today's business scenario, micro-environment affects the IKEA group which are
beneficial for the company as well as they might impact negatively. All these factors are
evaluated as below:
PEST
Political: It includes impact of rules and regulation changes by government of UK. IKEA
can be affected by various factors such as tax policies, trade tariffs etc. of the relative countries.
Strength- IKEA group comes under retailer industry in UK which is politically stable
country and its policies are not changing on regular basis. This place positive impact on the
companies growth structure.
Weakness- This company is dealing across the world and its difficult for the company to
work according to their political condition (Solomon and et. al., 2014).
Economical: Economical condition of the UK is influencing growth of IKEA as it
involves several factors such as interest rate, inflation rate, foreign exchange rate etc.
Strength- Increase in income of the country will enhance disposable income of the
customer and improve the profits of IKEA group.
Weakness- Fluctuation in cost of raw material may impact negatively on the company as
it can increase the cost of the product and make the product expensive.
Social- This factors is influenced by buying behaviour of the customers, their values ,
culture etc.
Strength- By making products and services according to the demand of customer will
improve the effectiveness of the product and attract customer to buy the product of their own
choice (Teece, 2012)
Weakness- Rapid change in customers taste and preferences creates difficulty for IKEA
group to manage this situation.
Technological: Advance technology influences the IKEA growth it might affect
company in positive and negative manner.
Strength- Usage of advance technology is beneficial for IKEA as it support the company
in connecting to its customer in effective manner.
Weakness- New technology is quite expensive for the company as it increase cost of the
products.
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CONCLUSION
From the above reports it has been concluded that, business environment includes both
internal and external factors which can have great impact on activities. This can be both in a
positive and negative manner. Therefore, for operating businesses in an effective manner these
factors must be considered as it will assist company in increasing their sales and profitability.
Business environment depends upon three categories i.e. private, public and voluntary and they
perform their work respectively.
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REFERENCES
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Online
Scanning the Environment: PESTEL Analysis, 2016. [Online]. Available through:
<https://www.business-to-you.com/scanning-the-environment-pestel-analysis/>.
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