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Unit 1 Business Environment Assignment Solution – Ikea
Business environment refers to the external and internal environment of the business which determines the activities and performance of the business. External environment refers to the political, economic, social or technological factors while the internal environment includes customers, employees, stakeholders, owners, society or environment. This assignment is focused on the business environment of different organisations like IKEA and its external and internal environment analysis will be done with the help of tools like PESTEL analyses and SWOT analyses. The project assignment is divided into two parts containing reports, presentation and a reflective report where different aspects of the topic have been covered.
P1, P2, M1:
A. PowerPoint Presentation
B. Short essay – IKEA
IKEA is a multinational furniture retailer which is a company based in Sweden. This company has large scale operations in many parts of the world. The company focuses on providing the best quality and value products to the customers so that the customers can be satisfied and the company can earn maximum amounts of profits (Wetherly & Otter, 2008).The company uses hierarchical structure of the organisation in which the operations of the organisation are divided into different levels which are operated by different managerial positions. Different levels have different roles and responsibilities to manage and the work is delegated among them for better and effective completion of the work. The higher level of employees are required to keep an eye on the assigned employees to them and to guide them whereas the lower level of employees are required to complete the designated tasks and to report the higher level of employees (Wetherly & Otter, 2008).
IKEA set its objectives so that they can be completed or achieved within the set time frame. The main objective of IKEA is to provide quality products to its customers who can fulfil their demands and requirements(Wetherly & Otter, 2008). They also aim at provide value for money products to the customers so that they can create loyal customers for the brand. IKEA manages its operations effectively by dividing it into many functions like availment of raw material, labour, distribution, and selling of the products of the company like furniture of home appliances. These operations are managed effectively by training the employees effectively for the functions and by developing different strategies for it which includes allocation of work, developing teamwork, providing motivation to the employees so that they can perform better (Wetherly & Otter, 2008).
IKEA does not perform in single country. Its operations are spread among different countries and to manage these operations in various countries, IKEA adopts different culture and management styles of the country in which it operates. The company believes in adopting the culture of the organisation in which it operates so that the customers can connect easily with the brand (Tachiciu, 2015). It also believes in establishing proper communication between various functional departments and between the organisation and the customers. It helps in promoting the brand within the customers which ultimately increases and promotes sales of the company. Some of the standards which are been prepared by the company are been followed no matter where the company performs which also includes maintenance of quality of the products (Tachiciu, 2015).
Communication helps in establishing the link between different functions and t helps in promoting the flow of information from one department to another which smoothens the process. It also leads to the maximum utilisation of resources. This can be explained with the help of an example. IKEA adopts marketing for its products and the products are promoted by different channels of advertising. If the marketing agency or department will not get proper and valid information about the products which are to b marketed, they will not be able to develop a suitable marketing strategy for the company (Tachiciu, 2015).
P4, P5, P6, M3, M4:
Section 1: PESTLE analysis:
Pestle analysis includes the analysis of the different aspects of the macro business environment which create impact over the performance and the planning and operations of the business. PESTLE analysis includes the analysis of the political, economic, social, technological, legal and environmental aspects of the business environment.
Political factors can be understood as the government, political parties and the rules and regulations framed by these parties which create impact over the performance of the business. These factors need to be considered as the impact of the political factors of the business environment can create huge impact over the performance of the organisation. IKEA need to establish healthy relationships with the political parties and the government so as to ensure their support (Srdjevic, et. al., 2012).
Healthy relationship with the political parties and the government helps in smoothly executing the operations of business. IKEA is operating in the retail industry and the level of competition in the industry is high. For the purpose of dealing with the changing political aspects there is a need to analyse the impact of these aspects over the business.
Economic factors are the sum total of the factors which affects the economic condition. These factors include rate of inflation, exchange rates, GDP and other aspects of economy. These factors affect the income level of the individual which create impact over the performance of the organisation.
The economic factors create huge impact over the performance of the organisation as the economy determines the performance of the organisation as well as of the effectiveness of the organisation in the attainment of the objectives of the organisation. IKEA is performing well and is analysing the economic factors for the purpose of analysing the impact of these factors over the performance of the organisation (Whitted, 2012).
Social factors are the sum total of the different aspects of the society or the culture such as the taste, preference, culture or the trend prevailing in the country or the economy. These factors can create huge impact over the performance of IKEA. The cultures of the places are different and the social aspects of the places also differ from each other.
The impact of the social factors over the performance of IKEA can be negative or positive. The analysis of thee aspects need to be done on regular basis so as to analyse the trend of the environment. IKEA is engaged in the designing and manufacturing process of the furniture and the social factors create huge impact over the business of IKEA as the taste, preference and the trend affects the performance of the organisation.
Technology changes create impact over the performance of the organisation as the change in the technology affects the effectiveness of the organisation and the performance of the employees. There are various techniques which are used for the purpose of manufacturing furniture and for this there is a need to use the technology which helps in enhancing the manufacturing process of IKEA (Whitted, 2012).
The change in the technology can have positive as well as negative impact over the performance of the organisation. Adoption of these technological changes enhances the performance of IKEA and enhances the better quality services and products to the customers. The lack of technological adoption create impact over the performance as lack of technological changes in the manufacturing process reduces the effectiveness of organisation in satisfying the expectations of the customers from the products offered by the organisation.
The legal factors can be explained as legal aspects or the rules and regulations which have been framed by the government of the country for the purpose of guiding the organisation towards the goals and objectives of the organisation. the legal factors bounds the organisation and act as guidelines within which organisation need to perform so as to eliminate the impact of these rules and regulations over the performance of the organisation (Kolios& Read, 2013).
Legal factors such as the rules and regulations have been framed so as to ensure that the organisations are operating within the legal framework and these legal frameworks ensures that the operations of the organisations of the different industries are as per the rules specified by the government of the country. IKEA is ensuring that it is fulfilling all the legal responsibilities so as to ensure that the activities or the operations of IKEA are within the legal framework and not violating the rules and regulations framed by the government of the different countries.
The environmental factors include the climatic condition and the weather condition which affects the business and its performance. For an example: earthquake creates huge impact over the business as this situation results in financial loss to the organisation (Sebestová&Nowáková, 2013).
The environment can be suitable for the execution of the operations of the business or not and this depends over the climatic condition of the location. IKEA need to analyse the locations where it is operating so as to analyse the impact of the environmental conditions over the business.
Section 2: SWOT analysis:
SWOT analysis is done for the purpose of analysis of the strengths, weaknesses, opportunities and threats over the business so as to ensure that the organisation is utilising its strengths for grabbing the opportunities available to the business and dealing with the threats and eliminating the weaknesses which affects the performance of the organisation. the strengths, weaknesses, opportunities and threats of IKEA are discussed below:
- The operations of IKEA are being operated at international level as well as the financial condition of IKEA is strong which has enhanced its performance.
- IKEA is having strong human resource which has helped in focusing over the opportunities available to it (OANA & MARIOARA, 2014).
- the operations of IKEA are dependent over Europe which has affected the effectiveness of the organisation.
- IKEA is not having proper means for the transportation of the products from one place to another.
- The increase in the demand of the furniture products has enhanced the scope of the organisation.
- The increasing trend of online shopping has enhanced the performance of IKEA.
- The increase in the level of competition can create huge impact over the performance of IKEA.
- Changing trend or the taste of the customers affects the performance of IKEA (AbTalib, et. al., 2014).
Section 3: Analysis for establishing the link between the strengths and weaknesses with the external macro factors
The strengths and weaknesses of the organisation and the external Macro factors are linked with each other as these strengths and the weakness of the organisation affects the effectiveness of the organisation in dealing with the external macro factors present in the business environment of the organisation. the strengths of IKEA has helped the organisation in enhancing the capabilities of the organisation and helped the organisation in the attainment of the objectives of the organisation. IKEA is having strong employee base as well as good or strong financial condition which results in improvement in the performance of the organisation. IKEA is mainly engaged in the European market due to which it has restricted the operations in the boundary of Europe which affects the expansion process of IKEA. IKEA needs to analyse these aspects and use the strengths for enhancing its performance (OANA & MARIOARA, 2014).
B. Reflective analysis
From the whole project, it is found that business environment includes the micro and macro factors which impact the operations of the business. Micro environment refers to all those factors which impact the functions of the business and which can be controlled by the organisation like the customers, employees, investors, society, shareholders or more (Vasconcelos & Ramirez, 2011).Whereas Macro environment refers to the external environment of the business which affects the business and its functions and these are not even in the control of the business. These factors are political, social, economic, technological, legal or environmental factors. All these factors of IKEA impact its performance. In the report, various internal (Micro) or external (Macro) factors of IKEA are been analysed with the help of tools like PESTEL analysis or SWOT analysis. It is seen that these factors have various kinds of impact on the business of IKEA. It can be in the favour of the business or in against (Vasconcelos & Ramirez, 2011).
For analysing the strengths and weakness of the organisation, the SWOT analysis of IKEA was conducted which helps in analysing the positive and negative effects of different factors. These factors are internal for the organisation and they help in dealing with all the internal circumstances of the company. Also, the external environment of the company has been discussed which shows that how business deals with different factors which affect its operations and are not even in the control of the business. IKEA is using its strengths in facing the threats of the company and uses opportunities so that the weaknesses can be eliminated. So, it is clear that these factors are interlinked and are connected with each other and these aspects are discussed in the report of business environment of IKEA. It also shows that the internal factors and external factors play a key role in making decisions for the company. These are the driving forces on the basis of which the company can make decisions about investments and future performance of the company (Vasconcelos & Ramirez, 2011).
From this assignment, it is clear that a business has to consider each and very factor whether it is internal or external so that it can take further decisions on its future. This is important to be considered because without considering these factors, the company might make wrong decisions which may prove very disastrous for it in the future. For e.g. without considering the changing demands of the consumers, IKEA produces furniture following the traditional designs and then it is not sold because of the change in the demands of the consumers. So, before making purchasing and production decisions, it has to consider consumer’s choices, society beliefs, the views of employees and their motivation level and the government regulations for the business of furniture and appliances (OJO & ABDUSALAM, 2011).
The main objectives of IKEA is to provide valuable and best quality products to the customers and by analysing these external and internal factors, the decisions are made which are ultimately responsible and are aimed at achieving the objectives of the company.
It can be concluded that the report considers the business and its environment which ultimately affects its functions. These factors affect the decisions of the business and create an impact on the business as a whole. The external and internal factors of the business has been analysed with the help of tools like PESTEL analysis and SWOT analysis. PESTEL analysis provided information about how external environment factors affect the performance of IKEA, which is a furniture production brand of Sweden. It also discussed that SWOT keeps the business updated about is threats and opportunities and strength and weaknesses which can be handled effectively for better productivity and performance of the company.
In this report a link is been established between the organisation and different stakeholders of IKEA which affects the operations of the business and which are actually responsible for the negative or positive performance of the organisation. The factors which are considered in the external and internal analysis of the company affect the decision making processes of the company and the future performance of the company by following these decisions.
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