IKEA Company: Is the Company Success Sustainable?
Report
Abstract
IKEA today is more than a company, it is a community of highly motivated people who share the company’s values, mission, and goals. Being one of the global leaders in the sphere of household goods production, IKEA adheres to the proactive position in environmental and social issues justifying the branded idea of creating a more sustainable home life. In this paper, the sustainability factors affecting the success of the company on the international arena are analyzed. IKEA presented an unrivaled consistency in the realization of various ecological and social projects, in cooperation with suppliers and partners and in a choice of raw materials and components. IKEA’s strong image as one of the most successful environment-friendly and sustainable companies demands active engagement and energy from all employees. The analysis of IKEA’s corresponding activities, financial performance, and ecology policies allow elaborating a number of recommendations helpful for improvement of IKEA’s sustainability in terms of life quality for people and communities.
Keywords: IKEA, sustainability, environment-friendly, people and communities
Everything is possible if you think in opportunities
IKEA’s worldwide slogan
Introduction
IKEA’s path on the global arena has always been closely connected with the two essential concepts: social and ecological sustainability and low price vs high-quality policy. The initial efforts to develop the business faced multiple challenges. The chief IKEA’s competitors constantly lowered the prices provoking IKEA for an adequate response, which could logically hit the quality of furniture. IKEA launched own branded furniture; whereas, the competitors tried to press on the new business by setting up a boycott to IKEA operations. It was the turning point enabling the IKEA’s founder Ingvar Kamprad to risk with the own furniture design promoting the future revenue growth and substantial decrease of prices .
In 1956, IKEA started delivering goods in flat packages - another fascinating idea, which significantly contributed to the sustainability policy. The geniality of the idea concluded in the fact that furniture could be easily disassembled saving transportation costs and space (IKEA Group, 2014). Soon enough all furniture was designed for flat packages resulting immediately in the subsequent decrease of retail prices for consumers. The strategic direction of business activity lied in the three basic spheres:
Active environmental position;
Improvement of product quality;
Keeping the price low.
More than 10 years ago, IKEA elaborated a system approach to the issues of environment protection. The best experts attracted to work on IKEA ecology programs helped to find the “best practice” solutions for the chief IKEA suppliers . A special attention is dedicated to areas of goods and materials quality, wood supply, transport and ecology of stores.
IKEA: Success Sustainability Factors
Analyzing all the success sustainability factors of IKEA business it is necessary to consider the multidimensional approach to external and internal policies of the company. This policy outlines all the milestones of the company’s image, such as ecology issues, labor force relations, price-quality control and inspiring ideas behind all activities.
So, how beneficial is an active ecology position to IKEA business? In order to answer this question, it is important to understand how companies usually treat these issues. For the majority of the companies, such an activity is preferably considered an expense item being implemented only minimally . In order to take a more pro-active and trust-inspiring position, the company should consider the ecological work something more important than a formality. This is not only an expense or threat to stakeholders’ profit; on the contrary, the ecology efforts may bring to substantial profitability, employee motivation, and stable long-run market position . It enables the consumers to think that the values of the company coincide with their own life-values meaning that the company is trying hard to make the society better . Today, IKEA possesses the strong and justified belief that active ecology position is quite attractive for business revenues despite the fact that the way to such an understanding is quite thorny.
According to Dahlvig (2011), IKEA has made the social and ecological work its main priority within the long-term program. The recent research of direct and indirect observation represented by Eccles & Perkins (2012), found out that the sustainability strategy has a significant positive impact on stock prices, return on equity, profits and success. The empirical findings in scientific literature suggest that investors, non-profitable organizations, and society are concerned about the company being sustainable (Nidumolu, et al., 2009; Myers & Spoolman, 2014; Ikerd, 2011). According to Eccles, et al. (2012), the companies like IKEA are significantly different from the traditional ones. The current study concentrates on two milestone questions:
How does IKEA create the conditions that embed strategical and operational sustainability?
What are the specific IKEA’s factors that make it different from the traditional enterprises?
Thus, the sustainability of IKEA’s business will be analyzed via identity and cultural model within the company. In fact, there are two specific points making the company success sustainable: leadership commitment and employees active engagement (Corporate Citizenship, 2011; Hopwood, et al., 2005; Hsee, et al., 2010). The first point provides external interest in business while the second one stipulates adequate execution mechanisms. The way to successful sustainability involves the lion share of leadership commitment mainly due to the strong incentive for employees’ motivation and engagement .
This approach allows the labor force to adjust its behavior in accordance with the set goals and mission (Graph 3, Appendix). Leadership promotes successful engagement of external financial sources such as investors, non-governmental organizations, public segment and suppliers . For, instance, IKEA sets the annual meetings for its suppliers to discuss the sustainability issues of renewable resources/energy usage and waste reduction. In close cooperation with partners and suppliers, IKEA outlines the common values and a range of activities aimed to achieve the better sustainability . This best practice allows suppliers to adopt sustainability programs in their companies.
Employees’ engagement seems to be the second important factor affecting IKEA’s sustainability success while the proper performance of labor force is the major factor of adequate execution mechanisms on the enterprise . In order to promote the loyal and productive atmosphere in the company, IKEA strives to create the internal support through active employee engagement claiming that every worker in the company is its most valuable asset . Employees create a bridge between the company’s successful sustainability and their personal contributions to the common good. At the same time, execution mechanisms can perfectly measure the progress on the sustainability path. According to Eccles, et al. (2012), successfully sustainable companies seem to have a more complex and sophisticated management systems compared to the traditional companies to make sustainability operations work. Thus, in the case with IKEA, sustainability practices are linked to the large environmental programs at the level of the supply chain, manufacturing and customer services.
Leadership commitment and employees’ involvement create a specific corporate culture and identity model . It means that company’s culture creates sustainability values and predetermines its mission and vision compared to the traditional companies reluctant to promote any strategical changes . Thus, it becomes obvious that IKEA is extremely successful in adapting to the new sustainability culture and identity enabling other external agents to follow its example.
IKEA: Sustainable Culture
What is meant by IKEA’s sustainability culture? Primarily, it is a serious ecology-oriented work. This work presupposes significant expenses and, therefore, the real threat to the forthcoming profits, competitiveness and survivorship ability in the long-run . The question of whether IKEA should be made responsible for the ecology issues of it should be the task of suppliers and governments remains open for the majority of ecologically reluctant companies but not for IKEA. Ingvar Kamprad underlined that the true devotion to the business manifests only when you believe in it whole-heartedly . Therefore, in order for the company to become successfully sustainable and get involved into a series of social and ecologic issues, the leader should define a clear and firm position about company’s future involvement in sustainability projects. Another important point is represented by the necessity to make sure that all promoted managers share the leader’s viewpoint concerning the company’s culture and identity . Quite often, this issue lies more in an emotional sphere rather than in practical one. It is extremely useful when there are clear support signals from colleagues, mass media and non-governmental organizations. Besides, the possibility to show that the threat of additional expenses on ecology and social projects is extremely exaggerated helps to ensure those who are in doubt to make them follow the sustainability idea . IKEA demonstrated it quite explicitly claiming that in the majority of cases it is better for the environment if the company uses fewer resources. In other words, it means that the fewer resources are used, the better it is for nature and the smaller is the share of expenses and additional costs for the company.
The priorities set by IKEA are quite different from that of the competitors and include the three major elements: supplier ecology conditions, cooperation with the forestry sector and the quality of raw materials . IKEA invested substantial capital into the improvement of supplier working conditions. In 2000, the founder of company introduced the IKEA codes of conduct – IWAY. This document contains the most important demands to suppliers, national legislation of the supplying countries, prohibitions concerning child and forced labor, discrimination, payment of adequate salary and compensation of overtime hours. This code includes strict requirements to save and healthy atmosphere in the working place, waste recycling policy, chemical products utilization and concern for the environmental issues (Table 3, 4, 5, Appendix). Each year a team of auditing experts checks all the requirements for all IKEA suppliers all over the world. In the case of discrepancies, these specialists help to resolve the issue with minimal damage to the company’s revenues. Below is the table of suppliers auditing with respect to their attitude to nature custody (Table 1).
IKEA’s products are expected to maximize the useful usage of the raw materials (minimizing all possible waste) with simultaneous optimization of production means. For instance, the company strives to optimize the production chain, meaning that sawmills should be built near the forests, ideally if some furniture pieces and even final goods are also produced there allowing to use all timber parts immediately. This way all the raw materials are utilized in maximum volumes decreasing the logistics and transportation costs.
IKEA: A Sustainable Life for Consumers
Significant investments are directed on the realization of projects concerning the renewable energy sources. These sources give around 1/3 of all the energy used by IKEA. For the previous financial year (2014-2015), the IKEA Group has managed to achieve significant results in an increase of certified timber share and implementation of ecologic cotton growing methods (IKEA FY14 Summary, 2014). Taking care about the future of the planet, IKEA continues the annual fundraising for children with special needs. The IKEA charity fund has transferred in 2014 around 82 million euros for the education of children in developing countries .
In order to support socially unprotected people, IKEA launched the new strategy of sustainable development “People and Planet: Positive Targets” (Table 3, 4 Appendix). The program is aimed to exercise the minimal negative influence on ecology and planet. Experts agree that IKEA’s ideas are as successful as never before. The consumers worldwide began paying more attention to the price-quality trade-off meaning that people want to buy beautiful and functional solutions for their households at the affordable prices. IKEA believes that consumers’ satisfaction drives the company’s motivation in working for the good of the planet. The IKEA’s management is sure that the stable development, moderate usage of resources and the long-run environment-friendly perspectives promote the world-known recognizable best practices of the company.
The sustainable life for consumer’s household deals with the optimization of energy resources usage, such as the LED lighting (IKEA, 2014). Using less energy means less greenhouse gas emissions (Table 5, Appendix). Thus, IKEA is focusing on manufacturing of energy-efficient goods. For instance, special light bulbs saving up to 85% of energy serving longer than any other bulbs (Graph 1).
Graph 1. IKEA’s new production of energy saving bulbs and their capacity of energy usage
IKEA: Sustainability Activities
The new IKEA’s stores and warehouses today are equipped with various options of renewable energy resources. Among successful examples are the heat pumps, using the warmth of the earth, air-to-air heat pumps, solid-fired boilers, solar and wind energy used as a central heating source . The IKEA store in Brooklyn (New York) tests the system of solar photovoltaics for electricity production. Another IKEA’s store in Karlstad (Sweden) is equipped with the large geothermal station while a similar store in Spreitenbach (Switzerland) is heated with only sunlight and wood pellets.
Further, IKEA came to the realization of an ambitious project concerning the usage а renewable resources. At the end of 2012, around 34% of all energy used by the IKEA Group of companies was received from the renewable energy sources. Thus, the following was realized (IKEA Sustainability Report, 2014):
250 000 solar panels, as well as 83 wind turbines, are successfully functioning in the IKEA's buildings. In the nearest years, IKEA is planning to invest around 1,5 billion euros in renewable energy sources;
All wood suppliers are certified in accordance with the IKEA’s Forestry Stewardship Council in order to guarantee the ecologic standards of all wooden household goods;
Around 34% of cotton comes to IKEA’s plants from the ecologic sources;
A number of household goods allowing substantial economy of water and energy was launched. IKEA has changed all old incandescent bulbs for the new LED lighting bulbs.
Women occupy around 50% of all executive positions in the company;
The IKEA charity fund granted more than 82 billion euros on needs of children from developing countries.
Another interesting policy concerning the IKEA’s sustainability mission is abandoning the business trip practice. Though business travels do not contribute much to the atmosphere pollution, this policy was more a symbolic prove of the company’s firm sustainability position. All the business trips were replaced by phone vs video conferences and webinars. Besides, IKEA is concerned about the meticulous choice of raw material resources, which may also serve as another CO2 emission-decreasing factor (Graph 3, Appendix). The company today strives to transfer manufacturing to the regional level rather than the global one.
Regional production minimizes transportation costs affecting positively the ecological situation. It should be noted that IKEA’s concern about the ecology issues is the result of the long-term hard work in this direction. Initiative and pressure aimed to achieve successful sustainability are no longer the order “from above” or the rule of thumb because the idea of sustainable development is something in the heart of all employees. Any company can occur in the situation when the management will have no need to remind the subordinates about the importance of ecological work because it becomes the part of the key business processes and plans . The mere proof of the company’s successful sustainability can be easily found in financial statement reports.
IKEA: Financial Indicators
Adopting the new approach to purchasing raw materials, enabling the environment protection and labor condition improvement on the suppliers’ plants, IKEA managed to significantly increase the revenues. It is of primary importance that all IKEA suppliers of raw materials operate on environment protective terms. Another issue being in the center of IKEA’s attention is the low price policy. Thus, the problems of price decrease, wise usage of natural resources and improvement of environmental conditions represent the part of IKEA’s best practice. The IKEA revenues from 2004-2015 given in the table below may eloquently describe the international activity of the company in terms of profits (Graph 2).
Graph 2. Aggregate total revenue 2004-2015 (Adopted from IKEA’s financial statement, 2014-2015)
It is obvious that the primary market geographical segment of IKEA’s activity is Europe while raw materials purchasing is shifted to Asian and Chinese regions. Despite the market volatility and post-crisis financial problems, IKEA remains a stable and growing company keeping an extremely strict sustainability policy and environmental codes of conduct. Sales of IKEA Group in 2014-2015 financial years (FY14-FY15) have increased around 10% equaling to 32 billion Euro (Table 2).
Simultaneously IKEA tries to lower the retail prices, even more, improving the goods’ quality and causing minimal damage to the environment. For the last decade, these factors formed the basic operation principles of the company promoting steady and firm growth. During 2012-2015, IKEA managed to open 11 new stores all over the world employing over 8000 new workers. More than 2000 new designs of household accessories were successfully launched. Presently, IKEA counts around 147 000 employees worldwide. The company’s profit is invested in the development of new and existing stores and warehouses, the design of new goods, improvement of service quality and broadening services spectrum as well as e-commerce activity.
Conclusion and Recommendations
It is obvious that IKEA is a success sustainable company with the firm social and marketing policies. The main IKEA mission is to change the life of people for the better and make goods available for every family. The company is striving to decrease the goods' prices with no damage to the quality considering that no damage to the ecology was caused as the result of company’s activity. Judging by the empirical evidence analyzed in this paper, IKEA is the company, which may be definitely called success sustainable and it has succeeded because all the environmental issues were treated with greatest concern and attention. However, there are still numerous issues, able to contribute to the company’s sustainability position and increase its involvement in the ecological and social sphere. IKEA is the company able to change the world for the better improving the life of people and communities, affecting their social values and preferences.
With 147 000 co-workers and thousands of people participating in the whole supply chain system, IKEA has all the chances to perform such a transformation by supporting active social and economic promotion of equality rights issues. What recommendations may be offered for the company to extend the reach of IWAY and focus on empowering ways to involve people (workers, migrants, suppliers) into mutually beneficial communication? Primarily, the representatives of such global institutes as Human Rights Watch, United Nations International Migration Division and the Center for Human Rights and Corporate Social Responsibility should be actively involved in close cooperation and discussions about social projects. The regular workshops with the representatives of non-profit organizations and labor unions may regard the issues of sustainable and loyal communities, fair wages for unqualified labor force and employment of migrant workers. Such a cooperation can become a fruitful ground for sharing of innovative ideas and services. Terms of employment is an extremely important point for increasing the people and community sustainability and an overall company’s performance. For this purpose, IKEA should concentrate on the current salary structure, which is represented by such components as working hours, social package, personal growth opportunities, incentives for progression, equity and labor cost.
Social benefits of cooperation with IKEA may consist of special labor programs supporting employees in countries where the minimum legal wage is lower than the actual monthly cost of living. Besides, the social support practice may include flexible payment for the same work for both part-time and full-time workers. Considering the pilot wage project launched in 2015, IKEA receives the newest information about the wage policies of its suppliers. This project will help IKEA to better understand the suppliers wage practices with all their drawbacks, which may be efficiently improved and all the benefits, which can be implemented on the rest of the supply chain.
Another recommendation for IKEA is to pay more attention to communication issues between the co-workers and managers. This can be achieved through the available Internet resources such as blogs, intranet, social networks and other easily available means enhancing communication. Such on-line communication process, as well as internal magazines, video conferences, quarterly meetings and other similar events, are able to significantly keep the co-workers engaged. It is obvious that active and engaged employees are the driving force of the company’s long-run prosperity.
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Appendix
Table 5. Perspectives of carbon efficiency improvement (IKEA Sustainability Report, 2014)
