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This report explains different types of business and environment in which they operate. Business Environment includes micro and macro environment. Micro environment includes factors like competitors, suppliers, stakeholders, investors, customers etc and macro environment includes economic environment, technological environment, and cultural environment etc factors. This report also provides a comparison between a profit making organisation and non profit making organisation in the context of their functions, organisational structure, objectives and their scope.
Organisations have different structure on the basis of their objectives. Functions of organisation are interrelated with organisation’s objectives. “IKEA” is a profit making organisation working with a goal of continuous development in living standard of its customer. Organisation structure involves arrangement of line of authority, communications, rights and responsibilities at different level in the organisation. IKEA adopts a formal organisation structure where two information exchange channel is operating between internal environment and external environment. It adopts standard policies procedures and culture. Company should adopt organisation structure around its function. There are many types of organisational structures available which are designed as per objectives and functions of organisation. These structures include:
a) Functional Organisational Structure: under this structure departments are divided on the basis of functions like sales department, production department etc. Subordinate workers of these departments make report to their departmental head who then report to the top level. The powers are also distributed in the same hierarchy. Thus under this structure functions are directly connected with organisational structure and objective because every department work to achieve organisational goal (Andrejovská, A. & Bánociová, A. 2014).
Under functional organisation structure subordinates are managed by experienced personal that has speciality in the same field and company will also receive advantage of such expertise knowledge. It also allows individuals in increasing their knowledge through sharing. But this structure has some drawbacks like:one functional department having difficulty in working with other departments for the same objective, this structure can also create competitive environment in the organisation between different departments.
b) Divisional Organisational Structure: In this organisation structure function of business is divided as a particular division or branch on the basis of geographical, market, product or service group. Each division contains a complete set of function. Each division has its own head that carries all function to achieve organisational objectives. This structure allows divisions to focus on a particular product or service with a leader. But divisional organisational structure may invite office politics rather than strategic thinking which shares and provide view over achieving organisational objectives.
c) Matrix Structure: Some organisation adopts matrix structure which is more flexible than any other. Under this each employee works in a function based department such as marketing or human resources and they will have to work under a team on a particular projects. The team contains employees from different functional area. This is mixture of functional organisational structure and divisional organisational structure. Mostly organisations adopt this structure because of the changing organisational needs. Matrix organisational structure helps in developing strong communication system by efficient exchange of information. Departments work together and communicate with each other to solve issues. This information exchange before decisions increases employee’s motivation and morale. But this structure brings internal complexity means employees sometimes confused about his supervisor to whom he had to report. It is very expensive organisational structure (Andrejovská, A. & Bánociová, A. 2014).
So, these organisational structures have their own benefits and losses. Business organisation should adopt one of these organisational structures as per their objectives and working profile.
Macro environment includes those external factors which are uncontrollable and also affects decision making, performance and strategies of the organisation. These external factors include economic, legal, cultural and social factors, technological changes and natural forces. Change in consumers taste and preferences, change in interest rates, change in government policies are the example of macro environmental factors. “IKEA” also affected with these external environment forces. In the external environment new risk factors are arises regularly and they difficult to identify for the managers of the business. Macro environment factors include:
“IKEA” faces these macro environmental factors. Big and major changes in the macro environment factors are usually outside the control of business so it is necessary that management of the company should be able to analyse the effect of these factors so they could make good decisions. These effects are analysis by implementing PESTEL analysis method.
External environment factors and internal environment factors affects the business organisation. Before making any business decision internal and external analysis should be conducted because environment in which business operates is an important part of planning. With the help of internal and external analysis organisation can identify their strength and weaknesses and plan their activities accordingly.
Internal analysis helps in identifying and evaluates organisation’s specific characteristics like its core competences, its capabilities and availability of resources. Internal analysis shows that whether organisational activities are performed with in the criteria of organisation’s vision, mission, strategic objectives and strategies. Under internal analysis company ensures that it has proper amount of resources for carrying the working activities and processes. Resources include financial resources, physical resources like plant and machinery, human resources, intangible assets resources and cultural resources. With the analysis of resource availability organisational capability can easily identified. External analysis is a process of analysing the environment in which organisation operate. External analysis use to identify current market trends and events that affect the strategic decisions of the organisation (Schirone, D.A. 2012). External analysis can be done through SWOT method. This analysis includes:
On the basis of internal and external analysis Organisation may find its strength and weakness which may include following:
Strength and weaknesses of the business organisation are related with macro and micro environment factors. Management compares strength of the company with prevailing macro environment factors like economic, political, technology, social and cultural and then formulate strategic and operational policies (Jurigová, Z. 2016). A sudden change in environmental factors affects the decisions taken by management. Interrelationship between macro environment factors and organisation’s strength and weakness are as follows:
Strength and weakness and macro environment factors are related with each other and affect each other. If company fails to identify its strength and weaknesses than it cannot analyse macro environment factors then it fails to formulate strategic plans and tactical plans. Weaknesses will negatively affect the company if the company is not able to fulfil the consumers demand by supplying adequate amount of product than it affects profitability of the company. So, company should regularly make efforts in improving its weaknesses (Gupta, J.L. 2013).
PESTEL analysis and SWOT analysis are the business tool use to identify strength, weaknesses, opportunities and threats of the business organisation. PESTEL analysis tool is used by the companies to track and analyse the macro environment in which the company operate. In PESTEL analysis P stands for Political, E stands for Economical, S stands for Social, T stands for Technology, E stands for Environment and L stand for Legal factors.
SWOT analysis is a business tool which analyse internal and external environment of the organisation.
So, with the use of these analysis tool company can ascertain the effect of macro environment on the organisations decision making (D., Margea, C., Hurbean, L. & Artene, A.S. 2014).
A business organisation is working in the two types of environment first is micro environment and second is macro environment. There are many factors included in micro and macro environment. Micro environment is concerned with internal environment of the organisation it includes following factors:
Macro factors include external factors of the environment in which organisation operate. Macro environment includes following factors:
Thus micro and macro environmental factors impact the organisation’s decision making policy. It has significant impact on the success of the business. So these factors should be considered during the policy decision making process by the management of the company (BANICA, L. & HAGIU, A. 2015).
The report provides in depth knowledge of micro and macro environmental factors in which business organisation operates. It also describes different business analysis tools such as PESTEL and SWOT analysis which should be carried out by the strategy maker of the organisation.
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