'Success is a mixture of having a flair for the thing that you are doing; knowing that you have to work hard and have a sense of purpose.' - Margaret Thatcher.
Thrift has always been at the core of IKEA’s corporate culture. Its purpose as described by its founder Ingvar Kamprad in 1943 is “to create a better everyday life for the many people through offering a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.” More than half a century later, the same purpose is transforming itself into a 21st century virtue of sustainable growth that aims to turn mass consumption "green".
The concept of low prices has long been the kingpin of IKEA’s outstanding performance in a traditionally low profitability sector as it is translated across all the operations of the company to ensure that every possible cost is taken out – from tasteful and knock-down design to lean manufacturing to flat packing to tightly controlled logistics to the concept of its stores and its self-service model – all mutually re-inforcing.
As a result, IKEA generated US$37b sales of low-priced sofas, lamps, bookshelves and other goods including food last year with 684m people visiting one of IKEA's ~300 stores across 44 countries in addition 1.3b web-visitors.
After having mastered the virtues of lean operations, IKEA is now taking its business strategy to the next level under the cover of achieving sustainable one i.e. decoupling growth from environmental impact and increasing the company’s positive social impact.
This will obviously drive cost reductions further through initiatives such as becoming 100% energy self-sufficient by 2020 across its operations from stores to factories to distribution centers (with an investment of €1.5 billion to 2015 in renewable energy through for example installing solar panels on the roofs of its stores and building wind farms) which will additionally cut the risk of carbon pricing that will be implemented in most of the countries where it operates. Further costs reductions will also be achieved through ensuring that all operations are LED enabled or remaking classic products using fewer parts or working with furthest parts of the supply chain such as the cotton farmers to reduce their running costs (e.g. pesticides, fertilisers and water) while increasing yields.
IKEA definitively seems to “walk the talk”, making a direct link between sustainability issues such as energy efficiency, waste management and pollution and business strategy. However, the business case of reducing costs to sustain its business model profitably has always been at the core of IKEA and sustainability issues only add a 21st century twist to the purpose defined by its founder and the company’s strategy.
IKEA’s Chief Sustainability Officer’s views on how the company’s original purpose transforms itself into a 21st century virtue of sustainable growth can be found here
by Christelle Espinasse - inSTRATEGIA
