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Diploma in Business
Unit Number and Title
Unit 1 – Business Environment
Nearly all the business depends upon how the environment of the business affect the functioning of the organization. There are factors in the environment which can affect the functioning of the business or provide ample of opportunity to grow its business. There are many type of the organization which has their own purpose and objective of running their business. The two organization chosen to conduct the study on the business and the business environment are Ikea and Mack & Jack. The Ikea is the private company which is engaged in the business of buying and selling ready to assemble furniture. The sole objective of the company is to earn the maximum profit and increase the company market value. The company is operating at the huge level and is running its business in the various countries. On the other hand Mack and Jack is the not for profit organization which operates for the welfare of the society. The organization operates for social welfare, prevent the people from racial discrimination and helps in preventing people from other ill practice in the society. The both of the organization has separate goals and objective and has different purpose of the operation.
1.2 Explain the relationship between the different organisational functions and how they are link to the organisational objectives and structure
To operate the business effectively the organization structure are distributed among various functional area to exercise effective control over the business. This organization structure helps in effective reporting and building a good coordination between various units of the business. The choice of the organization structure should be made after considering the level of the business operation and the requirement of the business. The functional structure is generally the grouping of the organization functional area based on the specialization. This helps in effectively managing all the areas of the business and analysing the performance of each of the functional area. The IKEA is the private company whose sole motive is to maximize the profit and increase the company market value. The organization on the basis of role is divided into units such as accounting, marketing, researchproject and development or distribution. There are various advantage and disadvantage of the different organization function (Hipp & Roussell, 2013).
Advantage of organization function
Specialization-The functional organization structure offers high level of specialization on each function of the business. Each unit carries there specific goals and is managed in the effective way. The manager of IKEA can divide the business in various unit to effective manage the each unit and increase the efficiency of outcome of the business.
Effective control – the management of the IKEA can exercise the good control as the mental function is are separated from manual function in the functional organization. This also helps in proper delegation of authority and responsibility between various units.
Efficiency- The functional structure increases efficiency as every function perform the limited number of functions and are specialized in the particular area
Economy- The functional structure helps in preventing wastage of the resource and facilitate optimum utilization of resources.
Expansion-The functional distribution helps in easy expansion of the business and facilitate easy entrance to the new market.
Disadvantage of the functional organization
Confusion – The functional distribution sometimes creates confusion due to complication in managing the various unit of the business.
Lack of coordination- The functional structure may sometimes faces the lack of coordination between the various units due to lack of control over the unit.
Difficult in fixing responsibility- In the organization structure due to the multiple authority it sometimes become difficult to allocate the responsibility to the appropriate unit.
Conflict- There may be conflict between the certain units of the business which may cause the lack of coordination between the various units.
Costly- The small organization generally doesn’t prefer organization structure as the cost of implementing the functional structure is pretty much high (Wang, Lurina, Hyytiäinen & Mikkonen, 2014).
IKEA is the multinational company that is engaged in the business of furniture, appliances and home accessories and was founded in Sweden in 1943. The corporate structure of IKEA is distributed in two parts which are operation and franchising. The IKEA operation role includes management of its majority of stores, the design and manufacturing of its furniture. The major stores of the IKEA is maintained by INKAR holding and the remaining stores are franchised outside the INKAR holding. The IKEA also has established INGKA foundation to promote innovation in architecture and interior design. IKEA invest most part of its profit for the benefit and development various section of the society.
The macro environment is the external factor which affect the functioning of the business and the business doesn’t have any control over these factor. To run the business operation effectively the management needs to exercise the regular check over the macro factor of the business. The management can use various tools to effectively manage all the external factor of the business. The most common tool used by the organization is PESTLE analyze. The management has to make detail analyze of the each of the factor to manage macro environment (Srdjevic, Bajcetic & Srdjevic, 2012).
Political–The political factor of the country in which the business run its operation has a huge effect on the function of the business. The government policy may affect the business in both positive as well as negative way. For example if there is certain rise in the tax rate on the furniture product will cause the rise in furniture product and may decrease the demand of the IKEA limited. On the other hand if certain relaxation is provide to those who are engaged in the furniture business may reduce the cost of the product of the IIKA limited and increase the profitability of the business.
Economic-The performance of the IKEA will also depend on the performance of the economy where the company is running its business and also have a long term effect on the business. For example due to sudden rise in inflation in the economy the purchasing power of the customer will increase and will reduce the demand of the product in the market. On the other hand certain reduction in the import rate will help the IIKA to buy the resources at the low cost and thus will helps the company in delivering the product at the lower cost to the customer (Singh, 2016).
Social- The business is also affected by the change in the preference of the customer in the society. The social environment which generally affect the business are cultural trend, demographic, population analytics etc. The company needs to regularly analyze the preference of the customer and needs to develop the company product as per the preference of the customer. For example there may be rise of furniture demand if the company manufacture product as per the preference of the customer.
Technological- The few of the company may face market favorably and unfavorably due to the sudden change of the technology. To avoid this the organization needs to regularly make the effort to adopt the innovational technique to avoid market failure. Many of the business has faced the huge loss due to the innovation of the new method of the production and they were not having the capacity to adopt the changes. For example if IKEA makes use the innovative technique than it can reduce the cost of its manufacturing and will help the company to get competitive advantage. Whereas the company may faces the decrease in the demand if fails to adopt the innovation technique which the competitor is using (Sebestová & Nowáková, 2013).
Legal–All the organization needs to follow the legal regulation of the government at the time of running their business. There are certain laws which affect the function of the business in the certain country while there are certain policy which the company maintain for themselves. For example there may certain changes in the labour laws, consumer laws, safety standard which may affect the function of the business.
Environment- It is mandatory for the business to prevent the environment while running there operation. In the recent year there was sudden closure of many of the business due to the policies of the government in relation to the environment protection. For example IKEA has to close it certain unit as the process was causing the harm to the environment and cause a huge loss to the company.So to avoid such risk the company needs to regularly check that there manufacturing unit are not infecting the population.The company also needs to obtain the approval of the government before running its operations in the particular region (Poželait? & Jonuškien?, 2011).
The SWOT analyse is the useful technique which helps the business in understanding there strength and weakness, and for identifying both the opportunity available and the threat which the business may face. The SWOT analyse would also help in crafting the strategy that helps you in distinguishing yourself from the competitor, so you can compete successfully in the market. The strength and weakness are generally internal to the company on the other hand opportunity and threats are external to the business. For effective SWOT analyse the management needs to put effort on each of the factor.
Strength- The organization though identifying the factor which provides the advantage to the business in the market can use it to get competitive advantage. The manager of the IKEA needs to find that how the current process of the company is better from those of the competitor and how to use the process to increase market share. The IKEA limited also need to identify that what the people find good in the company product and the factor which is causing the sale in the market. The IKEA can also find its unique selling proposition and try to use the features to increase the market share. To make the effective use of the strength the management needs to compare it with the competitor and how it can use it to increase profit (OANA & MARIOARA, 2014).
Weakness- The management of the IKEA needs to examine the shortfall in the current process and find the measures to remove the problem. The weakness can be found after identifying the improvement which the company needs to make and what needs to be avoided by the organization. The management through the research needs to find the reason why the company is losing its sale. The company needs to check what the other see as the company weakness and what better the competitor are doing. The weakness which the business is facing are lack of marketing expertise, location of the business, poor quality of goods and service, high cost structure etc.
Opportunity- The management of the IKEA needs to create the list of the opportunity available in the market which the company can choose. Based on the list the organization need to select the opportunity which the business can use with the company current capacity and resources. The company can make the use of the various opportunity such as change in the technology and market on both broad and narrow scale. The company needs to make the effort to capture the new market opportunity to increase the company share in the market. Before approaching to the opportunity the company needs to check whether the company strength is appropriate to capture the opportunity (Shi, 2016).
Threats-the IKEA limited also need to identify the threats which may affect the business and take measures to avoid the threat. The major threat to the IKEA is from its competitor so the company needs to regularly check the activity of the competitor. The company needs to regularly check the satisfaction level of customer is not decreasing with the company product and services. There should be regular check over the area which may cause major threat to the business.
In the macro environment new risk factor are constantly appearing and are difficult to identify these risk. The major changes in the external environment are outside the business control. To avoid such risk the management needs to anticipate the impact of these changes on the business before they actually occurs, so to adjust the business product and process accordingly. The management needs to be aware of possible changes in the macro environment since failure of it may result in the business loss. The management of the IKEA through identifying its current strength may capture the new opportunity in the external market and avoid the threat in the market. The company can also avoid the risk of the macro environment by taking appropriate measure against the company current weakness (Yuan, 2013).
The management of the IIKA limited can use the various analyse model to understand the impact of the macro environment on the business. Through PESTLE analyse the management can find the external factor which affect the business and what is its impact on the business.
Political –This helps the management in finding the manner in which the government interfere in the business. The political factor which may affecting the business of IIKA are the political environment , tax and labour policy, economy policy, trade restrict, tariff etc.
Economic-The economic factor has a huge impact on how the business runs its operation and takes decision related to the business strategy. They affect the purchasing power of the customer and also the firm cost of capital. The economical factor which may affect IIKA are economic trend, economic growth, interest rate, exchange rate and inflation rate etc (Beneking, Ellenbeck & Battaglini, 2016).
Social factor – The social behaviour is how the society behaves and thinks and what are there preference. They varies at different location and depends upon the lifestyle of the people, demographic, fashion, trend, religion etc.
Technological factor- The IIKA can use the technology change to take competitive advantage in the market. The technological factors which are to be considered are research and development activity, energy use and cost, government spending, global communication etc.
The organization through identifying its strength can take the measure to have effective control over these factor. The SWOT analyse helps the management to use make the effective use of its strength to capture new opportunity in the market and avoid the threats which may affect the business. The management can also control the threats by avoiding the weakness of the company. These analyse helps the management to effective control the factor which affect the functioning of the business and is the cause of the profitability of the business (Fojtíková, 2014).
So it may be conclude that the business to attain success in the market needs to effectively manage all the factors which affect the business environment. The management can use various tools and method such as PESTLEand SWOTanalyse to understand the effect of these factor on the current business. This helps in avoiding the risk which may affect the functioning of the business and helps in avoiding business loss. The management can also use the functional structure to control the internal factor of the business. The functional structure will help in the effective management by distributing the work between various units.
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