Strategic Management and Sustainaibility #72
Sustainability Unveiled: A Deep Dive into IKEA's Social, Environmental, and Economic Impact
Good morning,
The purpose of today's newsletter is to define sustainability in the context of the modern business world, where companies must not only generate profits but also contribute positively to society and minimize their impact on the environment if they want to maintain a competitive edge.
They need to break free from the narrow perspective of previous management, which based all decisions on maximising profits.
Ignoring your company's obligation toward the environment and society will result in damage not just "outside the business," but within as well.
Throughout the newsletter, we examine IKEA as an example of a firm that has achieved market leadership while also making achievements in environmental and social sustainability.
Written by Francesco Spandonaro, Giulia Albert, Maxime Polski, Sarane Ehrhard, Serena Tortello
Today's newsletter is 2.347 words, a 11.2 minutes read.
What do we mean for sustainability?
It is widely acknowledged that modern multinational corporations strive to achieve a harmonious blend of immediate profitability and enduring sustainability. However, what exactly does sustainability mean?
A widely accepted definition of sustainability is provided by the United Nations World Commission on Environment and Development. According to their definition, sustainability refers to the development that ensures the needs of the present are met, while also safeguarding the ability of future generations to meet their own needs.
Put simply, sustainability encompasses efforts to enhance a company's social and environmental footprint while still prioritizing financial success.
This concept, known as the 'triple bottom line' (Brockhaus et al., 2013), highlights the three main pillars of sustainability: PLANET (environment), PEOPLE (society), and PROFIT (economic).
fig 1. TBL theory representation
PEOPLE: This dimension Emphasize the organization's dedication to making a positive impact on society by meeting the needs of all stakeholders, such as employees, communities, and customers;
PLANET: This dimension focuses on the company's impact on the external natural environment and aims to have a positive effect on it.
PROFIT: The dimension regard the generation of financial returns for shareholders. It involves using economic indicators to analyze and manage costs while mitigating risks.
After gaining a clear understanding of the TBL analysis and its functioning, we can proceed to its application in the context of IKEA. This will allow us make a positive example of how a company can foster its growth while prioritizing sustainability.
IKEA: A COMMITMENT TO SUSTAINABILITY
IKEA, a Swedish furniture company, was founded in 1943.
fig 2. IKEA logo
Since 2008, it has emerged as the leading furniture retailer worldwide, with a presence in 61 countries and 458 stores across the globe. The company's success is a result of its commitment to offering affordable products that are both functional and of high quality, with attention to design.
In addition to its affordable prices and wide range of products, IKEA has taken substantial steps towards becoming a climate-positive company by 2030. The company is focused on increasing the usage of sustainable materials, promoting plant-based foods, and relying on renewable energy sources. IKEA aims to inspire and empower individuals to embrace a more sustainable lifestyle. They strive to make their products more affordable, all while prioritizing the goal of improving the everyday lives of many.
For more than 15 years, IKEA has consistently released its annual sustainability report, highlighting its dedication to circularity and environmental consciousness. This commitment arises from the vision of IKEA's founder, Ingvar Kamprad, who consistently placed a high value on the welfare of individuals and the environment. IKEA aims to be a sustainable company that takes into account economic, social, and environmental factors in the long run.
As part of its sustainability efforts, IKEA has become a signatory to the Ten Principles of the United Nations Global Compact. These principles encompass various important areas including human rights, labor, environment, and anti-corruption. IKEA consistently monitors its sustainability progress for each principle, showcasing its dedication to responsible business practices. In addition, IKEA is committed to supporting the United Nations Sustainable Development Goals (SDGs), which consist of 17 goals focused on ending poverty, combating inequality and injustice, and addressing climate change. IKEA's commitment to sustainability and supply chain management is further highlighted by the monitoring of its progress in relation to these SDGs.
IKEA's approach to sustainable development can be examined from three perspectives: economic, social, and environmental sustainability.
fig 3. Triple bottle line theory in IKEA
ECONOMIC STABILITY
When it comes to analyzing the economic sustainability of IKEA, there are several factors that need to be taken into account. These topics cover sales performance, innovation, relationships with employees, suppliers, and customers, as well as investments in emerging markets and fields.
Sale performance= Over the past 10 years, IKEA's retail sales have consistently been on the rise. IKEA, in order to drive its economic growth, adopts a strategy of providing affordable prices and products of superior quality. The company achieves this through encouraging suppliers to acquire cost-effective raw materials and implementing efficient production processes. Through cost reduction strategies, IKEA is able to provide consumers with affordable prices, which not only encourages sales but also supports long-term growth.
Digital Transformation and Innovations: IKEA, traditionally known for its brick-and-mortar stores, has acknowledged the significance of online shopping and embracing digital advancements. In order to stay up to date with the evolving times, the company has created its own app and brought on board IT professionals to oversee its online operations.
Building Strong Relationships: IKEA places a strong emphasis on fostering positive relationships with employees, suppliers, and customers in order to promote economic sustainability. The company offers job opportunities around the globe, providing attractive benefits and ample room for growth. This fosters employee loyalty, productivity, and ultimately leads to enhanced profits. IKEA also fosters enduring partnerships with suppliers, proactively overseeing the supply chain to create mutual benefits for the company and its suppliers. The company's customer-centric strategy prioritizes meeting customer needs by offering localized services, including home delivery and assembly options in China. This method guarantees customer satisfaction and fosters loyalty.
Expanding into Emerging Markets and Fields: In order to secure future growth, IKEA is actively expanding its presence in emerging markets like Mexico, India, and China. The company is looking to establish stores, offices, and warehouses in these markets to further expand its presence.
ENVIRONMENTAL SUSTAINABILITY
IKEA demonstrates a strong dedication to environmental sustainability through their wide range of initiatives, collaborations, and goals. By placing emphasis on supplier regulations, environmentally-friendly technologies and products, wood use and forest protection, and agriculture
Supplier regulations: Suppliers must adhere to IKEA's stringent environmental standards, which encompass energy conservation, pollution control, and responsible handling of chemicals and hazardous waste.
Environmentally-friendly technologies and products: IKEA has formed partnerships with organizations such as WWF (World Wildlife Fund). They have collaborated to create solutions for kitchen, waste management, and lighting. Introducing Kungsbaka, a brand new collection of kitchen cabinets crafted from reclaimed wood planks and laminated with recycled PET bottles. This initiative seeks to tackle the problem of billions of PET bottles being consumed annually, with only a fraction being recycled. Through the innovative process of transforming plastic bottles into laminate sheets, IKEA is able to incorporate 99.9% recycled materials into their kitchen cabinets.
Wood use and forest protection: IKEA is committed to using wood from sustainable sources and follows strict sourcing requirements. We make sure to use wood that is either recycled or certified by the Forest Stewardship Council. IKEA partners with suppliers, small farmers, and organizations such as the World Wildlife Fund to ensure that acacia trees, sourced from Vietnam, are cultivated in a manner that promotes environmental sustainability and supports local communities.
Sustainable agriculture: IKEA has made remarkable progress by incorporating cotton from more sustainable sources and recycled cotton into their supply chain. Since 2015, they have completely stopped using conventional cotton. Cotton teams worldwide work diligently to ensure that every cotton used in IKEA products meets the company's high sustainability standards.
SOCIAL SUSTAINABILITY
IKEA, as a company, places a strong emphasis on socially sustainable development and promotes an equity-centered approach to development. This is evident in their commitment to social responsibility and their efforts in ensuring diversity and inclusion in the work place and fair work condition, Co-developing socially disadvantaged groups and promoting gender equality.
Diversity and inclusion: IKEA prioritize hiring individuals with strong character and exceptional workability, as it believes in promoting diversity and inclusion. It places a strong emphasis on fostering diversity within their workforce and is committed to combating any form of unfair discrimination, including race, nationality, gender, age, and other factors. IKEA has implemented the Backpacking program to select capable young people for national training, ensuring a transparent selection process. The program is organized in a way that allows for easy access to recruitment information and progress tracking on the website, ensuring a selection process that is fair and unbiased.
Fair work conditions: IKEA has launched the Better Cotton Initiative to ensure that workers in the production chain are treated fairly and have decent working conditions. This initiative recognizes the importance of considering the needs and rights of workers in producing better quality cotton. IKEA has implemented cutting-edge technology and state-of-the-art machinery, ensuring that workers receive comprehensive training to operate them with utmost efficiency. This not only boosts efficiency but also lightens the load of production and promotes the well-being of workers.
Co-developing socially disadvantaged groups: IKEA has shown a commendable response to the International Labour Organization's call for the eradication of child labor. Ensuring the protection of children's rights has become a crucial factor in IKEA's development. They collaborate with charitable organizations to increase awareness of children's human rights and ensure their protection throughout the entire industry chain. IKEA has joined forces with UNICEF to help bring education to disadvantaged children in India, tackling the problem of limited access to education in less developed regions.
Gender equality: IKEA has partnered with the United Nations Development Programme (UNDP) to empower women in India and support their fight for equal rights. They offer skills training to women in need, helping them gain confidence and become more aware of their rights.
Critical commentary and Conclusions
Analysis and Concluding Remarks
Using the UN World Commission on Environment and Development's definition of sustainability, we demonstrated that IKEA shares this philosophy.
Ikea clearly takes a sustainable approach, which involves prioritizing both financial and social/environmental performance in order to improve the company's overall social/environmental footprint.
Considering the company's social responsibility, we can see that IKEA prioritizes diversity and inclusion, builds stronger relationships with its suppliers, and adopts a customer-centric approach that focuses on the needs of its customers by providing them with every service they could want, such as augmented reality views of the products and in-store experiences.
IKEA is also working to become more environmentally friendly by promoting concret project as we have seen ro eliminating unnecessary waste, increasing the use of recycled materials, and it also form partnerships with groups like the World Wildlife Fund (WWF).
Ikea also had the ability Customers are maturing and becoming more self-reliant and well-informed thanks to IoT solutions and omnichannel processes, and this shifted the competion, basing the competitive advantage on different elements. As a result, they base their strategy on innovation on the digitalization of the company, ensuring economic viability in the long run by providing low-priced, high-quality products to a wider variety of markets, including Mexico, India, and China.
Now, how can IKEA further utilize its modus operandi? How can it thrive in the years to come?
By putting its attention on the TBL method, IKEA can strike a balance between the firm's short-term financial success and its long-term social and environmental sustainability. Long-term planning and a commitment to reinvesting profits are essential for the company's continued success.
Is sustainability something that exists in a vacuum, separate from people's regular activities and aspirations?
No way, but many workers think that anyhow. To address this issue, IKEA should create clear policies and implement KPIs that monitor the company's sustainability performance and inspire its workers to take an active role in implementing its sustainability goals. We anticipate huge expansion opportunities.
What does the acronym IWAY stand for when it appears in stories about IKEA? It's shorthand for "the IKEA way," which characterizes the company's practices in areas like environmental friendliness, social responsibility, and employee treatment, all of which are based on international standards like the Fundamental Principles of Rights at Work.
After reading today's newsletter, you should have a good sense of what's been found to function in a sustainable manner.
However, are there any gaps that need filling or areas that could use further development? The answer is yes, because even though IKEA is a leading example in the furniture sector, the company could stand to devote more resources to the social aspect of its business in the future; furthermore, this topic should be better analyzed to discover all the challenges and opportunities it can give to companies, especially in light of the rapidly growing level of competition.
Reccomandations
At the end of these considerations It is essential to consider what Ikea has to implement and innovate in order to be the leader of the sustainable market not only in the furnishing industry but as a model in the global sustainability market. Taking into account the TBL approach the company occurred to realize a customized customer experience in order to improve the relationship with the consumers and strengthen the customer loyalty. It is important to highlight that the value of the Ikea furniture is at a very high level to guarantee to clients the most comfortable and reliable experience they can have, but Ikea is not positioned as a provider of high quality materials. For this reason It is important to grow this awareness in the social community. The second step would be to develop a customer service that makes customers feel special and prominent for the company, using research studies based also on the culture of the customers. As we know, Ikea is a multinational company, for that reason it would be important to differentiate more the customer experience in the different countries. In this article from the New York Times ,there are Chinese people sleeping in an Ikea store in China. It seems inappropriate for the occidental mentality, right?
Maybe, but not for them. They feel completely normal and comfortable in this situation and this shows that every culture has to be treated in a different way and it’s important to build an experience that fits perfectly.
https://www.nytimes.com/2016/08/27/world/what-in-the-world/shh-its-naptime-at-ikea-in-china.html
Furthermore, Ikea has also created a podcast channel where hosts can talk about many topics related not only to the company but also to the main important issues that link everyone in the world. In this environment It could be a good idea to include customers in these speeches and make their experience part of the contribution to the podcast.
Finally, It is fundamental to spread the knowledge of the sustainability programs also with other channels like external podcasts and newsletters,
https://www.businessgreen.com/tag/ikea (newsletter)
https://shows.acast.com/5f040d6d251e940fa24dace0/episodes/discussion-how-ikea-is-securing-its-renewable-future-with-ka (podcast on renewable future energy).
References
-Application of Sustainable Development Theory in Furniture Industry Development= A Case Study of IKEA, Yuanfang Lin and Tiansheng Zhu and Xiangyi Li, School of Business, East China University of Science and Technology, Shanghai and School of Business, University of Birmingham, Birmingham
-IKEA: leading the way in sustainability, 13 march 2023, DGB group.https://www.green.earth/net-zero/case-studies/ikea-leading-the-way-in-sustainability
-Sustainable supply chain management: a case study at IKEA, November 2017,Francine Laurin, The University of Winnipeg https://www.researchgate.net/publication/321195678_Sustainable_supply_chain_management_a_case_study_at_IKEA?enrichId=rgreq-ffebc61791d1b4c6abe90f990b266dd3-XXX&enrichSource=Y292ZXJQYWdlOzMyMTE5NTY3ODtBUzo1Njc0MzUyMTY4MDE3OTJAMTUxMjI5ODUwNjIxOQ%3D%3D&el=1_x_3&_esc=publicationCoverPdf
-People and planet positive: case study of IKEA’s= Triple Bottom Line strategy, Zamira Nurmatova, https://studylib.net/doc/26999710/triple-bottom-line--case-study-ikea
-IKEA sustainable report, 2022, IKEA https://www.ikea.com/global/en/our-business/people-planet/sustainability-report-highlights/
-Shh. It’s Naptime at Ikea in China, 2016, Dan Levine, NY times https://www.nytimes.com/2016/08/27/world/what-in-the-world/shh-its-naptime-at-ikea-in-china.html