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Diploma in Business
Unit Number and Title
Unit 1 – Business Environment
IKEA is a MNC organisation which designs and sells ready to assemble furniture. It started its operation way back in 1943 with its headquarters in Aimhult, Sweden. Current headquarters is in Delft, Netherlands. The main founder of the organisation was Ingvar Kamprad.
The main aim is to conduct PESTEL and SWOT analysis of IKEA. The main aim of the company is to provide the latest innovate design of furniture at affordable prices. Its strategy focuses on market dominance and market leadership in the area of home furnishing. IKEA caters wide range of product for different class of customers and according to their needs
The various organisational structures include the various tasks it performs or the basic activities on which the existence of the company comes into force. In our case we took case study on company IKEA a furniture retailer which manufactures and sells ready to assemble furniture. It defines interaction between various business activities and level of authority subordinate relationship runs through various levels of business organisation. The various business functions for IKEA are Designing, production, sales, marketing and billing. Business can be set up in various organisational functions but for smooth flow of business the proper organisational structures has to be maintained. Areas covered by IKEA are Europe, Asia, North America, South America, Africa and Oceania. It is around 389 locations around the globe working on various product and services like furniture, flat pack houses, solar PV systems, retail shopping centres and family mobile networks. MNC’s like IKEA operate in global business environment with headquarters in countries of origin and international division established in various countries (Helmefalk, 2016).
These organisational structures which work around the big organisation like IKEA are as
IKEA works clearly on superior subordinate relationship management. This clarifies the roles and jobs of various employees working in different departments for separate units. This helps in employees on concentrating their particular job and has a clear mind of his/ her authority and responsibility of work (Jonsson, et. al., 2013).
Merits:As the IKEA has different product lines in furniture particularly it operates in separate division for its different product lines, each product line has his separate divisions such as research and development, marketing, sales, finance, accounting and auditing. There are different basis on which departments are formed like function, product, place and project where job has to be performed
Demerits:Different employees working the same task for different product lines which increases the redundancy of work.
Merits:Using this structure there is great flexibility of working through business functional and in a large trivial organisational like IKEA where work operation is throughout the globe and managing them under the common floor is difficult. In such type of organisational structure each employee works under separate function based department such as marketing, designing etc. But they can be assigned to different projects to different bosses to achieve a common goal. It further helps in flexible use of resources due to decentralised decision making (Jonsson, et. al., 2013).
Demerits:Authority or chain of command is difficult or clumsy for the same function working under different departments and another most important aspect to look forward is that it increases high administrative cost with high aspect of conflict. Further there can be confusion on authority and subordinate relationship due to its cloudy formation
Merits:It helps in coordination of alignment of corporate & divisional goals with great flexibility in decision making with great efficiency & expertise that helps in achievement of overall goals & objectives of organisation (Helmefalk, 2016).
Demerits:There can be possibility of conflicts with further increase in administrative cost and there is very slow response to unexpected situation.
PESTEL stands for political economic, social, technological, legal & environmental factors. This tool helps in analysing social economic factors i.e. macro-economic factors in which the organisation operates. It is a useful factors which helps in overall growth and development of organisation while learning from past mistakes and working on future prospects.
Political factor- This is one of the major macroeconomic factors which further include issues to be handled on, like taxation policies, law of land, rules & regulation, trade restriction etc. This is the major factor to be dealt with as this might affect the going concern of the organisation. Political stability is important for working of any organisation. As far as IKEA is concerned its political issues are stable and favourable. In major parts of Europe and America it has deepened its roots both socially and politically further IKEA do not operate in various countries of African continents which are not stable or do not cope over the standards and political requirements of IKEA. Infect IKEA is an ideal example of the firms which are most politically stable in the territory of its operations (Kolios & Read, 2013).
Economic Factor- Economic factors are different to different countries. It all depends on lending rates, wages rate, inflation & growth rate of a particular economy or country. Sometimes there are trends which affect the global market which affect the MNC’s on larger part like global economic recession which affected the major part of world economies. This can be dealt with diversifying & hedging the portfolio. IKEA like other businesses in America & Europe are greatly affected by global slowdown but on contrary investing in emerging markets of China & India (fastest growing economy) hedges its investment portfolio to avail stabilise returns in the near future (Singh, 2016).
Social factor- The organisation earns a lot from the society, now it is a responsibility of a organisational structure to return favourably to the society, this is termed as corporate social responsibility. For example for using wood for manufacturing furniture the IKEA in turns runs a corporate social programme to support various charities towards world wildlife fund, UNISEF, save the children fund and growing and plantation of trees.
Apart from that it offers customers with good quality products by using blond coloured woods, untreated surfaces and natural textiles (Kolios & Read, 2013).
Technological factors- IKEA is most technological savvy and has best updated technology used on to the benchmarks of the industry. Technology is major trigger for change for any industry. Market has switched itself to online platform form the regular old market. E-commerce has been established and plays a vital role in the success of the organisational structure. IKEA has an up to date established online website with major services of selling and display of various products on its online catalogue. There is continuous backup IT team working day/night for regular updates. Apart from that it has a huge platform for supply chain relationship. With great technology there comes a great threat from hackers. To cope up with the situation and to avoid vulnerability of threat there is a separate security team for IKEA online platform
Environmental factors- This includes the factors which focus on the raw material and other inputs which the organisation acquires from nature or reclassified form of natural objects. IKEA focuses on environmental preservation. For IKEA it focus on better use of raw material like woods, paints fabrics and energy in most efficient and effective manner (Srdjevic, et. al., 2012).
Legal factors- Multinational organisation works globally so it has to collide with various laws of different countries. Similarly like other MNC’s IKEA too follows the various laws of land. IKEA don’t work under conditions where it is trivial to follows laws and regulation of the state like as in various African continental countries. As there is always vulnerability of legal issues where company is unable to control standards on control issues (Whitted, 2012).
An analysis of companies Strength, Weakness, Opportunity & Threat for accumulating the strategic position, future course of actions and plans for the organisation. Strength and weakness are the internal aspects of the organisation which has to focus to cope up with the external dominating factors like Opportunity & Threat. The external business environment is the place where the business operates its functionality (Karakosta, et. al., 2016). For example change in taxation laws relating to car manufacturing company is out of range of external environment of home furnishing company like IKEA
Strength:Focuses on company’s prospective customers, existing brand reputation and market place and constantly working on them to increase the its presence in the market, existing effecting research and development team , increased employee satisfaction and morale.
As far as IKEA is concerned IKEA has its own designing and research team which designs its own furniture which gives a competitive advantage and gives a variety of innovative products to its customers. Cafeteria and other free allowances & perks to the employees of the organisation will increase the morale and total employee satisfaction which in turns contribute toward the goals and objective of the organisation & ultimately contributing toward the company’s profitability. IKEA believes in quality and performance rather than quantity. IKEA has an effective supply chain relationship management and a quality delivery & logistic system which in turns reduce labour cost & transport and carriage damages are minimised (Srdjevic, et. al., 2012).
Weakness:Standard products for everyone i.e. same type of product designed and sold for every type of market, company focusing more on quantity then on quality, negative publicity and unfavourable marketing conditions
As far as IKEA is concerned organisation has been criticized many a times for stampede at store opening, lobbying government officials, advertisement controversy. Destroyed tombs while building stores of IKEA in southern China, coordination with logistic departments is sometime trivial task for IKEA as it outsources major of its tasks. This greatly affects brand reputation and customer base of IKEA (Karakosta, et. al., 2016).
Opportunity:Expansion into developing economies and emerging markets and working in ethical emerging technological market, the opportunities are the benefits or advantages in the existing environment of the organisation which helps in growth and development and can be a trigger for positive change to the core growth of organisational structure. It is the organisation who uses its strengths by mitigating the risks vulnerability to threat and grabs the positive opportunity towards a beneficial change (Fojtíková, 2014).
As far as IKEA is concerned it is crucial for organisation to flourish in the emerging market of e-commerce and develop its capabilities according to that. Further expansion in emerging markets of Central Asia and middle eastern region with countries like India, China with highest growth rate at a time where developed countries are suffering from global slowdown in economy. Apart from that IKEA has to diversify its product range according to needs and demand of global world (Yuan, 2013).
Threats:IKEA with such a big profile and working effectively and efficiently over the globe there always exits vulnerability to threat which on occurrence increases probability of huge financial and reputational losses. There are various risk which needs to be mitigated to acceptable level. Risk like technological risk, risk of theft of research and innovative ideas. One need to overcome the threat to risk at various levels. Competitors are always looking for an opportunity to explore the areas which are most vulnerable to the organisation. Many low cost segment suppliers are entering into market which gives tough fight to IKEA plus an online platform has introduced various competitors at global level with new designs and risks. IKEA has to look forward over these threats to stabilize in the long run without affecting its going concern (Ab Talib & Abdul Hamid, 2014).
Section 3: establishing link between the strengths and weaknesses and the external macro factors
The organisational functionality get influenced with their respective strengths and weaknesses. Strengths helps in getting the available opportunities that put positive impact whereas weakness increases the threats that influence the functionality of the organisation in adverse manner. Organisational strengths and weaknesses directly linked with their respective external Macro Factors. These factors are not in the control of the business. IKEA's strength is they effectively manage their adverse situation and took the positive elements from their respective environment that helps in improving their overall functionality. Secondly IKEA is having huge and strong base of loyal employees that helps in meeting the market demand in effective manner. They have their focus over the manufacturing quality products for their respective customers by taking care of their tastes and render them quality products at reasonable prices. With the effect of the weaknesses their overall performance get influenced adversely and external factors put negative impact over their functionality. IKEA need to study the market and remain aware about the changes in order to minimise the overall adverse impact of the external factors. So, it is very important for them to strengthen their existing strengths and minimise their weaknesses so that they perform effectively (Ab Talib & Abdul Hamid, 2014).
Those environmental factors that put adequate impact over the business capability of rendering adequate amount of products on the basis of the customers demand is termed as the micro environmental factors. These factors impact the organisational performance at the lower level and it is possible for them to put adequate control over it. On the other hand factors that impact the overall economy at large get termed as the macro environmental factors. Single business is not capable enough to control these kinds of factors. In the above discussion effective discussion is made over different aspects of the business environment and their impact over the overall performance of the organisation. These factors get segregated into two parts such as micro environmental factors and macro environmental factors and in order to analyse these factors different techniques get followed. In order to analyse the micro factors or strength and weakness IKEA make use of the SWOTanalysis. It is the effective technique that helps in knowing the overall strength and weakness that helps in evaluating the overall effectiveness of the IKEA. SWOT also helps in knowing the available opportunities and threats in their respective market and with the use of their existing strength IKEA tries to avail the respective opportunities whereas their existing weakness increases the level of threats. With the help of their strength they effectively enhance their overall performance and also strengthen their strong base of loyal customers. On the other hand in order to analyse the macro environmental factors PESTLE analysis is followed in which all major factors such as Political, economical, social, technological, legal and environmental factors of UK get evaluated. These factors have favourable as well as unfavourable impacts over the functionality of the IKEA.
There is adequate link among the external factors and strength and weakness of the IKEA as these external factors put the impact over their performance in the same manner they put impact over their nations economy. As per the discussion made above it is analysed that IKEA is efficient enough in order to deal the adverse factors available in their respective external market. With the use of all these aspects effective discussion is made that helps in analysing the macro business environment as well as influence of the different factors over the functionality and performance of the IKEA. IKEA deal the impact with the use of their strength and increase in their weakness highly influence their functionality in adverse manner.
The above analysis is performed while looking forward what external market demands from the organisations and grabbing the opportunities while looking forward our existing strengths and minimising threats to maximum tolerance level while working over the minimisation of our weaknesses
Organisation uses various study factors for external environment inputs like (political, economic, legal & social) and utilises them to the core benefit of the company and further improving its technological and internal environmental relative issues for the core benefit of the company. It helps in improving both external and internal forces which that puts a great impact on organisations stability. As in case of IKEA social economic & political factors in major African continental countries are not in favour of IKEA’s internal business strategy and growth model which restricts company to invest in such highly vulnerable market.
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