Ikea Business Environment Analysis: PESTEL, SWOT, and Decision Making

This report provides a comprehensive analysis of Ikea's business environment, focusing on various factors that impact its operations and decision-making processes. It begins with an introduction to the business environment and its influence on a firm's performance, specifically highlighting Ikea as a case study. The report then delves into a PESTEL analysis, examining the political, economic, social, technological, environmental, and legal factors affecting Ikea. It explores the positive and negative impacts of each factor on the company's operations. Following this, the report conducts an internal and external analysis to identify Ikea's strengths and weaknesses, and how these influence decision-making. A SWOT analysis is presented, illustrating the interrelationships between strengths, weaknesses, opportunities, and threats, and how they interact with external macro factors. The report concludes by summarizing the key findings, emphasizing the importance of considering both internal and external factors to enhance profitability and overall business effectiveness. The analysis is based on the business and business environment module for HND level 4.

BUSINESS AND BUSINESS
ENVIRONMENT

CONTENTS
INTRODUCTION .....................................................................................................................................4
TASK – 2 (WRITTEN REPORT).................................................................................................................4
P4 PESTEL analysis and positive and negative impacts of its factors on the business operation of
Ikea ...................................................................................................................................................4
P5 Internal and external analysis of Ikea to determine its strengths and weakness and their
impacts on the decision-making process...........................................................................................6
P6 SWOT analysis of Ikea and interrelationships between strength and weakness with the external
macro factors ....................................................................................................................................7
CONCLUSION ........................................................................................................................................8
REFERENCES ..........................................................................................................................................9

INTRODUCTION
Articulating in relation with the current business environment, it is influenced by
numerous elements that significantly impacts the effectiveness of performance of the whole
firm. It signifies all the factors whether internal or external that affects the functioning of the
company including customers, management, employees, supply, business regulations and
demand (Banica and hagiu, 2015). Considering this, the present research report will described
facets in relation with the business environment that affects the effectiveness of a particular
firm. For this purpose, Ikea is being taken into account. It is a profit making multi-national
company which is based on Sweden dealing in manufacturing of furniture. In addition to this,
different macro-environmental factors will be analysed by conducting PESTEL analysis and
SWOT analysis along with its influence on the decision making of the firm will be evaluated.
TASK – 2 (WRITTEN REPORT)
P4 PESTEL analysis and positive and negative impacts of its factors on the business
operation of Ikea
PESTEL analysis of Ikea
Figure 1: PESTEL analysis
(Scanning the Environment: PESTEL Analysis, 2016).
 Political factors – These factor encompasses political consequence on the function of
the firm. The government policies influences the function of the firm by offering
numerous legislations as well as acts. The functions of Ikea will be impacted
positively by this factor, as they offer restrictions on the unfair trade practices and
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also controls the operations of the firm (Moon, 2004). However, there is negative
impact as well, these factors interfere in the activities of the firm which offers barriers
to practice the functions of business freely. Economic factors – Throwing light in relation with the economic factors, these are
being defined as those factors which encompasses demand as well as supply of the
economy that influences the functions of the organization and various economic
alteration in the economy. The continuous change in the demand and supply being
shown by the economic factors helps Ikea to determine the need and functions as per
the needs. But, due to inflation as well as deflation, the functions as well as operations
of the firm is also highly impacted (Hall, 2012). Social factors – These are being defined as those factors that significantly comprise of
facets such as religion of people, society, lifestyle, wealth, culture that considerably
influence the functions of the business as well as marketing strategy of the concern.
These factors may impact the business of Ikea in a positive sense as well. The society
and the religion in which Ikea carries out their business functions accept alterations
and innovation taking place within the company that in turn helps in improving more
functions easily (Craig and Campbell, 2012). However, these factors also impacts the
functions of the company negatively in the sense that it brings restrictions for Ikea to
work and operate as per the religion and culture of various society in order to obtain
benefit of sales and in fascinating customers. Technological factors – Technological factors are referred as such type of factors that
are concerned with the change in technology as well as techniques of performing
work within company (Jacob, 2013). With the intervention of new technology in the
firm, manner to offer training to employees is also affected substantially. These
factors brings positivity within Ikea by making it more competitive than its
competitors, as new technology will help them to run more effectively and efficiently.
On the other hand, technological factors might proves negative and impact the
functions if there is continuous change in the technology. This will hamper the
activities as well as other vital operations in Ikea and due to this, the overall
productivity will be disturbed. It brings another challenge to the company of offering
training as well as directing human resource on the new technology. Environmental factors – Talking in reference with the environmental factors it takes
in to account biological variation in the environment which influences the functioning
of the business. Environmental changes like rising pollution, disasters and seasonal
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changes affects the organization performance. The business as well as operations of
Ikea will be positively impacted by the environmental factors in the sense that it
supports in preparing risk preventive actions for the purpose of meeting out miss-
happening of the natural environment. It also helps the firm in working as per the
environmental factors. These factors can also influence the working of Ikea
negatively, as it involves quite huge process to cope up with the damages being done
by these factors (Fraser and Pong, 2009). Because of this long process, many vital
activities are delayed and hinders significantly in attaining effective goals as well as
objectives of the organization. Moreover, the operations are also not completed
timely.
 Legal factors – These are being defined as those factors that includes numerous laws,
taxes and many other regulations which are being provided on the functions of
business like purchasing of materials, manufacturing, sales, marketing etc. All these
different functions of Ikea is impacted by the legal factors (Elsevier, 2013). One of the
most important positive impact of these factors on the function of business is that it
offers the deterrence from the extreme corruption as well as unfair inflow and outflow
of cash in the business trading. However, there are many negative impacts as well.
One vital influence on the functioning of Ikea is that it enhances the cost of
manufacturing to the company. Further, there is variation in law on a regular basis
which compels the management to change their working patterns as well as activities
of business as well, which hampers the productive time and money (IKEA SWOT and
PESTEL analysis, 2018).
Thus, to conclude it can be said that all these macro-environmental factors can impact
the overall effectiveness of Ikea and can lead to effective results of the firm. However, these
factors can restrict the company, if they want to take opportunities from the external
environment and go beyond their set objectives and policies.
P5 Internal and external analysis of Ikea to determine its strengths and weakness and their
impacts on the decision-making process
In each and every firm, it is necessary to evaluate various factors at the time of
making any type of decisions, as they can influence the overall effectiveness of the firm. This
can mainly be performed by carrying out internal as well as external analysis. It helps in
defining the strengths as well as weaknesses of the organization significantly and supports in
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taking more operative decisions which can help in generating huge amount of profits in the
firm. Internal analysis – This analysis of firm helps in defining numerous strengths as well
as weaknesses of the firm. In case of Ikea, it is being engrossed in manufacturing of
effective as well as modern furniture which might affects the overall performance of
the firm (Baraldi, 2008). They are making use of innovative and modern techniques to
manufacture furniture which can help in developing competitive edge over the other
firms operating in the same market. Further, Ikea lacks in effective management of
legal as well as monitoring activities and this is the major weakness of the firm.
 External analysis – There are different aspects which are connected with the external
environment and can be regarded as strengths and weaknesses for the organization.
Ikea is a profit making firm and investing the same effectively in different alternatives
in the market. This is quite positive for the firm. Ikea is also managing their funds
from various sources effectively and taking crucial decisions by taking into
consideration regulations, legislations and regulations of the government (A
situational and strategic analysis of Ikea and the future, n.d.).
At the time of making decisions, Ikea is need to evaluate various factors and aspects
that can influence the effectiveness of the decisions being taken and its relative consequences.
All these factors can significantly be determined by analysis of internal as well as external
factors that can affect the process of decision making in the company.
P6 SWOT analysis of Ikea and interrelationships between strength and weakness with
the external macro factors
Strength
It is being defined as those factors that can offer positive aspects to the
firm and can provide varied approaches as well as methods to improve
its functions at the same time. Ikea make use of massive innovation in
their products. Further, they have a brand image through which is it
quite known among its customers. Ikea also has integrated supply chain
and wide range of products are being offered (SWOT analysis and
sustainable business planning, n.d.).
Weakness
These are those aspects of the firm which are lacking behind and can be
improved for achieving effectiveness. It has been observed that the
quality of the products of Ikea is decreasing, which in turn breaking the
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chain of customer to the firm. Moreover, the products of Ikea are prices
quite high.
Opportunities
Opportunities are those facets that encompasses the advantage with it
and can be gained by the firm through appropriate analysis. Ikea can
expand their business more in the emerging economies. They can also
introduce business in new market of developed nations (Fernando,
2011). They can also diversify their market into grocery and others.
Threats
These are those factors that are included in the internal as well as
external factors of the business. They also impacts the business and its
related activities. Ikea is facing huge level of competition in the market.
Further, the income of the people is decreasing which is posing great
threat to the firm (Andyboss, 2011).
Inter-relationship of strength and weakness with external macro-factors
External macro factors includes legal requirements, government policies, regulatory
framework and economic factors that can influence the overall effectiveness of the firm. The
major strength of Ikea is developing modern and innovative furniture and this strength can be
influenced with external development in technology and can help the firm is earning more
revenue and profitable position in the market (Fraser and Pong, 2009). Furthermore, there are
numerous opportunities as well as threats in the external environment that can be determined
and benefits can be realized through effective management of strength and weakness of Ikea.
The macro factors related to tax as well as revenue management laws of the government can
help in better management of tax and this threat easily gets converted into strength of the
firm. In addition to this, the internal operations of the firm are impacted with the external
macro-factors which reflects there effective connection with one another in the functioning as
well as activities of Ikea (Akinsowon, 2013).
CONCLUSION
Consequently, it can be said that business environment impacts the operation of the
firm significantly. It is important on the part of company to consider internal and external
factor of the environment in order to increase their profitability as well as capability. Ikea is
big brand dealing in production of modern furniture is increasing the satisfaction level of
their clients by offering quality services and products. Further, it was analysed that there are
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certain strength and weaknesses of Ikea that can impact the business and if it is focussed
appropriately than it can bring new opportunities and minimize threats.
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REFERENCES
Books and journal
Akinsowon, P. (2013, November 7). Strategic Managment Lecture. Strategic Managment.
London,
Akinsowon, P., 2013. Strategic Management Lecture. Strategic Management. UK: Peter
Akinsowon.
Baraldi, E., 2008. Strategy in industrial networks: Experiences from IKEA. California
Review Management, 50(4), pp.99-136.
Craig, T. and Campbell, D., 2012. Organisations and the Business Environment. 2nded.
Routledge.
Elsevier, B.V., 2013. Business environment, operations strategy, and performance: An
empirical study of Singapore manufacturers. Journal of Operations Management.
Fernando, C.A., 2011. Business Environment. Pearson Education India.
Fraser, I. and Pong, C., 2009. The future of the external audit function. Managerial Auditing
Journal.
Jacob, W., 2013. Economic and Business Environment. Vision: The Journal of Business
Perspective, 17(1), pp.87-89.
London, UK: Peter Akinsowon.
Moon, Y., 2004. IKEA invades America. Harvard Business School. Boston: Harvard
Business School Press.
Online references
A situational and strategic analysis of Ikea and the future. n.d. [Online]. Available Through:
<https://www.researchgate.net/publication/268160897>.
Andyboss. 2011. Key Challenges Facing Brand IKEA. [Online]. Available Through:
<http://www.studymode.com/essays/Key-Challenges-Facing-Brand-Ikea-646692.html>.
Hall, S., 2012. The Implications of Fiscal Policy and Monetary Policy to Business. [Online].
Available Through: <http://www.ehow.com/facts_6899691_implications-policy-
monetary-policy-business.html>.
IKEA SWOT and PESTEL analysis. 2018. [Online]. Available Through:
<https://www.swotandpestle.com/ikea/>.
Scanning the Environment: PESTEL Analysis. 2016. [Online]. Available Through: <
https://www.business-to-you.com/scanning-the-environment-pestel-analysis/ >.
SWOT analysis and sustainable business planning. n.d. [Online]. Available through: <
Thrhttp://www.circleinternational.co.uk/circle/strategy_files/ikea%20mrktswot.pdf>.
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