Comprehensive Analysis of IKEA's Business Environment Report

This report provides a comprehensive analysis of IKEA's business environment, organizational structure, and functions. It begins with an introduction to the business and its environment, followed by an explanation of various types of organizations, including private companies, public limited companies, and voluntary sector organizations, using IKEA, British Petroleum, and the British Red Cross as examples. The report then delves into the interrelationship between different business functions like production, research and development, marketing, human resources, and finance, highlighting their advantages and disadvantages. A PESTLE analysis identifies macro-environmental factors impacting IKEA, while a SWOT analysis assesses its strengths, weaknesses, opportunities, and threats. The report concludes with a critical reflection on the influence of these factors on IKEA's decision-making processes and provides a comprehensive understanding of IKEA's business operations and strategic positioning within the global market.

UNIT 01: BUSINESS &
BUSINESS ENVIRONMENT

Table of Contents
Introduction......................................................................................................................................1
TASK 1............................................................................................................................................1
Explanation of various types of organisation and growth of an International Business
Environment...........................................................................................................................1
Explanation of each of the business organisation with details...............................................2
An Explanation of different functions and their interrelationship..........................................4
TASK 2............................................................................................................................................6
PESTLE analysis to identify macro environmental factors with positive and negative impacts6
SWOT analysis to identify key strength and weaknesses and comparison with similar
organisation............................................................................................................................8
Critical reflection and evaluation of its influence on the decision-making process ..............9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

Introduction
Business organisation gets affected and impacted by various factors present in the
internal and external environment. Plans and business strategies are made in accordance with the
business environment factors so that organisation sustain in competitive markets. IKEA is a
multinational corporation that deals in designing and selling furniture. IKEA also deals with
home appliances and kitchen accessories and various other multipurpose products. In this
following report, different types of business organisation with details of their size, structure,
products and services offered, legal structure, scope and key stakeholders is explained. Report
also explains interrelationship between various functions and its advantages and disadvantages.
PESTLE and SWOT analysis is done to identify and analyse various impact on internal and
external factors of the business environment. Reflection of key findings and evaluation of its
effects on decision-making is also given further.
TASK 1
Explanation of various types of organisation and growth of an International Business
Environment
Business organisation aims at improving the performance of its employees so that they
can bring creation and innovation in business operations so that it leads to increase productivity
and profitability. Organisation also aims at analysing both internal and external environmental
factors that bring influence in performance of business activities. Micro and macro
environmental factors impacts decision-making of the organisation (Andersson, Forsgren and
Holm, 2015).
Growth of International Business Environment
Today's competitive business environment consists of various that brings influences in
business operations and activities. The International business environment includes factors such
as, political risks, social and cultural factors, regulations, tax, technological factors and legal
rules. With growing competition in every industrial sector, it leads to increase its external
business environmental factors. These various factors bring influences in the working and
performance of Business.
There are various types of organisation like private sector companies, public company
and voluntary sector organisation having different purpose and scope.
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Private Company
Business organisations operating under legal rules and regulations and which is privately
owned is known as private company. The Private company may or may not offer or trade their
shares to public. Private companies have shareholders who are the owners of business and liable
for profits and loss (Chang, 2016). Minimum 2 people and maximum 200 members can form a
private company by registering under the Companies Act. Examples of private companies are
IKEA, McDonald's, Sainsbury's, Virgin Group Ltd, etc.
Public Limited Company
Companies which are registered under the Companies Act, 1980 and also having
minimum capital requirement and offers shares to public is considered as the public limited
company. Minimum 7 or more people can form a limited company and it grants limited liability
for its shareholders. The Public limited company needs to trade its shares on the stock exchange.
These companies are under strict regulations of government. Examples of the public limited
company are British Petroleum, Burberry Group PLC, Rolls-Royce Holdings PLC, etc.
Voluntary Business Organisation
Voluntary sector aims at delivering services to public rather than making profits.
Voluntary sector organisation does not have much intervention of government and its main
motive is to enrich society. Charities, faith-based organisations, community groups, social
welfare organisation are all included in voluntary sectors (Deasy and et.al., 2016). Examples of
voluntary sector organisations are Wellcome Trust, Oxfam, The British Red Cross Society, etc.
Explanation of each of the business organisation with details
Private Company
(IKEA)
Public Limited
Company
(British Petroleum PLC)
Voluntary Sector
Organisation
(British Red Cross)
Background
details
IKEA is a furniture retailer
that was founded in the year
1943 by Ingvar Kampard in
Sweden.
This is a multinational gas
and oil company that was
started in 1909 and was
founded by William Knox
D'Arcy.
Red Cross was founded
in the year 1870 that
provides supports to
society by focusing on
human-centered aid.
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Products and
Services
IKEA is a furniture retailer
business that sells ready to
assemble and assembled
furniture as well (Gutierrez,
Boukrami and Lumsden,
2015).
British Petroleum PLC
deals mainly in gas and
oil. It also serves products
like motor fuels,
petrochemicals, aviation
fuels.
Red Cross organisation
prepares people
regarding unexpected
events and accidents.
Size and Scope IKEA serves in 424
locations around worldwide
providing employment to
208,000 people. Scope of
IKEA is to grow its
business in international
markets by associating with
eco-friendly products.
British Petroleum stands
as the sixth largest gas
and oil organisation
having its operations in 70
countries with 183,00
service stations around
the world. The scope of
British Petroleum PLC is
to extend and increases its
business worldwide.
Red Cross have 325,00
members with 3500
staff employees who
aims at providing help
to people during the
crisis. The scope of Red
Cross is to provide
welfare to society
around the world.
Vision and
Mission
Vision and Mission
statement of IKEA states
that it aims at offering well-
designed and functional
products of home furnishing
in order to make better life
for people.
British Petroleum states
that its vision is to have
the best operating and
financial performance and
it also aims at providing
contribution in progress
of humans and
environment.
Mission and Vision of
Red Cross states that it
aims at preparing
people and community
to deal with disaster,
crisis and get recovered
fast (Gutierrez,
Boukrami and
Lumsden, 2015).
Business
Objectives'
IKEA aims at offering
quality and durable
products' with good design
and low prices so that it can
grow and sustain its
Business objective of the
BR is to generate low
carbon power and to
produce energy which is
secure, affordable without
Red Cross aims at
helping people without
discriminating them
regarding nationality,
political beliefs and
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business in global markets. affecting the environment. origin.
Organisational
and Legal
Structure
IKEA follows ownership
structure ensuring long-term
approach. Proper
hierarchical structure is
followed by IKEA
organisation that allows
smooth flow of different
key functional areas (Hair
Jr, and et.al., 2015).
British Petroleum PLC
follows a legal structure
with interventions of
government bodies.
Organisation follows a
hierarchical structure that
allows smooth of various
operational activities.
Red Cross follows
charity structure
including board of
trustee who provide
strategic directions.
Volunteers and team
members administers
and looks after
management activities.
Key
Stakeholders
Key Stakeholders of IKEA
are its customers,
employees, suppliers, wood-
workers, global
environment preservation
organisation, trade unions,
etc.
Key Stakeholders of
British Petroleum PLC
are its employees,
research and development
agencies, customers,
suppliers, government
bodies.
Key Stakeholders of
Red Cross are the local
public, its members,
volunteers, charities
funder, donation
providers, etc.
An Explanation of different functions and their interrelationship
Different functions and departments are present in organisation which supports turning
raw-materials into finished goods and supplying it to the final customers (What is the
Relationship between Organizational Functions & Organizational Structure, 2019). The various
functions of IKEA interrelates and ensures to increase productivity and profits of the business
and also to meet demands and wants of consumers. Following are given different functional
departments of IKEA and its interrelationship:
Production: IKEA aims at producing quality home furnishing products at affordable prices so
that it can sustain in the competitive business environment. The Production department interlinks
with various other departments of the organisation so that it can increase effectiveness of the
business operations and also achieve organisational objectives (Kolk, 2016). Research and
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development department interlinks with the production department in order to communicate
about the needs and wants of target customers.
Research and Development: This function plays an important role in the IKEA organisation as
it focuses on generating new and innovative ideas, developing new products and services in
order to meet organisational goals and objectives. Research and development function helps
organisation to survive in the competitive and global market. Finance and accounting function
supports research and development so that it can bring positive outcomes by developing ideas of
new and innovative products.
Marketing and sales: This function of IKEA tends to have direct connection with final
customers. The Marketing function of IKEA aims that it attracts large number of customers by
using various marketing tools and techniques. Identifying potential customers, market
opportunities, testing the reaction of customers, using marketing mix strategies are the
responsibility of marketing function (Laudon and Traver, 2016). This function communicates
and interlinks with all the other functional departments of the organisation in order to
successfully meeting overall objectives of organisation.
Human Resource Management: The most important function of every business organisation is
HRM as it manages the most important aspect of organisation that is human resources. IKEA
being a furniture manufacture organisation requires new and innovative ideas and techniques that
can successfully achieve overall objectives of organisation. HRM aims at recruiting the best
candidates and providing them adequate training to bring innovation and creation. HRM
interrelates with production, marketing, sales and all departments.
Accounting and Finance: This function of organisation focuses on managing the flow of
monitory resources in order to maintain smooth functioning of other functions. Finance functions
interlinks with the production department regarding budget and with HRM regarding recruitment
and selection of candidates, with marketing regarding selection of marketing tools. Financial
analysis and recording of data is managed by the accounting department and aims at meeting
objectives of organisation.
Advantages and Disadvantages of interrelationship between different organisational functions is
explained below:
Advantages:
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Interrelationship between different functions of IKEA brings innovation and creation into
the business operations that leads to increase productivity and profits. Every functional
department has the clear understanding of their roles and responsibility. The complexities within
the business process are removed due to effective interrelationship. Smooth flow of important
and relevant information happens and leads to create synergy.
Disadvantages:
Interrelationship between different functional departments leads to increase conflicts
between them. Employees from different functions or departments share their views and ideas
which creates conflicts.
An organisation chart shows the structure followed by company and relationship between
different levels of management. IKEA follows a matrix organisational structure where functional
structure is maintained with reporting the relationship being setup as matrix or grid (vom Brocke,
Zelt and Schmiedel, 2016). Matrix structure allows organisation to have flexibility as employees
work in function-based departments.
Advantages:
 Matrix structure allows effective and efficient utilisation of human resources.
 Organisation structure helps in developing team work and team spirit.
 This structure helps in developing skills and knowledge of employees.
Disadvantages:
 Conflicts and problem occur due to two-bosses and requires high co-operation between
functional and project teams.
 It leads to increase complexity within the organisation (Park and Ghauri, 2015).
TASK 2
PESTLE analysis to identify macro environmental factors with positive and negative impacts
IKEA uses PESTLE analysis for identifying various macro environmental factors that
impacts business operations and activities.
Political Factors: Every business organisation gets affected and influenced by political factors
present in the country. It includes, tax policies, trade restriction, legal laws and regulations, etc.
Positive impact: NAFTA trade agreement brings positive impacts for member nations to
manage global business. Favourable regulations in a country supports expansion of IKEA.
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Negative impact: Different political changes happening in Asian countries brings negative
impacts on the working of IKEA. Countries with high political stability brings challenges and
difficulty for foreign brands to enter in the markets.
Economical Factors: These factors differs from country to country and includes wage rate,
education level, inflation rate, birth and death rate, etc (Gutierrez, Boukrami and Lumsden,
2015).
Positive impact: IKEA can increase its productivity and profits, if wage rate of a particular
country is low. Increasing
Negative impact: The recession period or situation of a country can negatively impact
performance of IKEA.
Social Factors: These factors of macro business environment are culture, social trends, lifestyle
of people, etc. Social factors of an area or country directly impacts business performance.
Positive impact: IKEA aims at following particular trends that are happening around the society
and focus on achieving targeted goals.
Negative impact: IKEA may got negative impacts on its business operations for removing
lesbian couples from the magazine in the country Russia as it hurt their cultural values.
Technological Factors: Advancements and up-gradation in technology and machinery used
brings changes in performance of IKEA operations and activities (Gutierrez, Boukrami and
Lumsden, 2015).
Positive impact: Technological advancement in business operations of IKEA leads to bring
innovation in business activities. IKEA uses digital channels and provides real life experience of
shopping to customers making customers more satisfied.
Negative impact: Installation of technological advancements and up-gradation increases the cost
of products which may lead to decreases its demand.
Environmental Factors: These factors include sustainability, corporate social responsibility
which needs to be considered by business organisation. IKEA supports sustainability in business
operations to increase the brand image of company.
Positive impact: IKEA supports corporate social responsibility by using blond coloured woods
that attracts customers and brings positive impact for overall organisation. IKEA aims at using
sustainable resources and renewable energy so that it supports the natural environment.
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Negative impact: IKEA has to shift its focus from bringing innovation in products and
operations to environment preservation. IKEA has invested 1 Billion Dollar in renewable energy
which leads to increase the cost for organisation.
Legal Factors: Business organisation operating around worldwide gets affected due to legal
factors of the country. It includes all rules and regulations, legal and regulatory framework that
need to be followed by organisation (Kolk, 2016).
Positive impact: Properly following to labour laws and other legal regulations may bring
effective changes to operations as it will increase trust and loyalty of its customer and employees
as well.
Negative impact: Changes in legal regulations and laws impact the operational functions and
also increases the operational cost of IKEA. It has faced cases tipping over and death because of
the furnitures.
SWOT analysis to identify key strength and weaknesses and comparison with similar
organisation
Macro external factors like legal factors, technological advancements, policies of
government brings impacts on the strength and weakness of IKEA. Manufacturing home
furnishing products and modern furniture is strength of IKEA that may get influenced by the
external technological advancements and brings effective results. Controversy regarding
advertisement has acted as a weakness for IKEA which influenced legal external environmental
factors (Park and Ghauri, 2015). IKEA identifies its key strengths and weaknesses by using
SWOT analysis and also its comparison with the similar kind of organisation Overstock is
explained as follows using SWOT analysis :
IKEA Overstock
Strength IKEA designs quality furniture
products which leads to satisfy
wants of customers. Providing
variety of products to customers
leads to increase their loyalty and
also increases profitability of
company. Maintaining effective
The Strong flow of free cash allows
Overstock for expanding new projects
and products. Reliable suppliers and
strong community of dealer acts as
powerful strength for Overstock. The
strong distribution network of Overstock
brings effective outcomes.
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supply chain brings benefits of
quality and timely delivery.
Involvement in modern and
effective manufacturing process
brings positive impact such as
improved performance and
products.
Weakness Standard and same products sold in
every type of market acts as
weakness for IKEA. Unfavourable
conditions of market and negative
publicity, advertisement issues
impacts the brand image of
company. IKEA fails to effectively
manage and monitor legal activities
that brings negative impacts for an
overall organisation.
Organisation structure of Overstock
limits the chances of expanding in new
markets (Park and Ghauri, 2015). The
High attrition rate acts as weakness for
Overstock.
Opportunities Expanding business in developing
nations and emerging markets can
acts as a great opportunity for
IKEA. Developing capabilities
according to developing
technologies, e-markets will bring
effective results for IKEA.
Diversifying the product range will
bring effective results of meeting
needs and wants of customers,
increasing productivity and profits.
Markets with stability and low inflation
rate increases the chance of expansion.
E-commerce and getting new customers
through online may increase profits of
company. Focus on decreasing the cost
of transportation and lowering down
shipping prices will attract more
customers.
Threats IKEA needs to be safe from risk of
theft of innovative ideas, strategies,
Currency fluctuation acts a great threat
for Overstock as it operates in numerous
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etc. Competitors coming up with the
wide range of products and features
at low prices can capture the
position of IKEA.
countries (Park and Ghauri, 2015).
Intense competition puts pressure on
Overstock and may lead to decrease
sales and profits.
Critical reflection and evaluation of its influence on the decision-making process
An environmental factor put adequate impact on my capability within business
organisation and its operations. The lower level of management creates impact on organisation
and affects its performance which brings influences on the decision making process. In critical
evaluation, factors which largely impacts and influences the organisation are termed as macro
environmental factors. For example, I have analysed internal and external analysis in order to
assess impacts on the decision-making process within the business organisation.
Interrelationship between strengths and weaknesses or IKEA with external macro factors:
Various external environmental factors includes political, social, legal and regulatory
frameworks, technological and economical factors which brings influences on the overall
effectiveness and operations of the organisation IKEA (Chang, 2016). Developing and
manufacturing modern furniture is the strength of IKEA that gets affected by the external
technological developments or changes and results in better outcomes. Various opportunities and
threats of an external business environment that can be analysed and identified to get effective
benefits by properly managing the strength and weaknesses of organisation IKEA. Tax and
revenue management regulation leads to bring effectiveness in the internal working of
organisation and acts as strength for company. Organisation uses various study factors to identify
and analyse about the internal and external factors of the environment. Operations and the
decision-making process of organisation IKEA can also get effective benefits or gets negative
influences due to various external factors of the business environment.
CONCLUSION
Business environment plays the vital role in effectively handling the business activities
and operations. The public limited company, private company, voluntary sector organisation, etc.
are various types of business organisation. Different types of business organisation has different
affecting and influencing factors that bring influences in the working of business and related
10

activities. Political, legal, social, economical, environmental and technological factors are
considered as macro factors of the external environment. SWOT analysis is done to identify
strength of the business that can be used while expanding business or product line whereas
analysis of weakness is helpful for removing or reducing negative factors. Business organisation
uses study factors to identify and analyse about the internal and external factors of an
environment.
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