572 Integrative Case 3.0 INTEGRATIVE CASE 3.0 IKEA: Scandinavian Style "Behind the mountain there are people too." Old Swedish unassembled. Practical solutions wedded to a low- Proverb cost promise created a new IKEA formula of "knock As one of the world's most successful businessmen, Ingvar down" furniture, flat-box storage and shipping, and CASE Kamprad never forgot the dreams, aspirations, and hard assembly by consumers armed with IKEA-developed 3.0 work of rural people or their ability to find solutions assembly tools and visual instructions. This formula to difficult problems. Growing up on the farmland of revolutionized the home-furnishings industry. southern Sweden, Kamprad embodied many of the traits A major strength of IKEA lies in its pioneering of the hearty men and women who surrounded him and, distribution created through unique corporate-supplier as an ambitious working boy, revealed the business traits relationships. In the earliest days of the company, that contributed to his later success and reputation. As Swedish fine furniture manufacturers attempted to a child, Kamprad learned the concept of serving the boycott IKEA and drive it out of business for selling needs of ordinary people by purchasing matches in bulk, furniture at such low cost. Kamprad outmaneuvered which he then sold to rural customers at a profit. While them by forging new partnerships with other still in his teens, he expanded his retail operation to sell Scandinavian manufacturers, providing assurances of everything from pencils to Christmas cards and upgraded long production runs. Moreover, top managers learned the efficiency of his distribution by using the regional that affordable furniture can be provided without the milk-delivery system. necessity of owning the factories. IKEA is something of a "hollow" or virtual corporation because nearly all of its Beginnings manufacturing is outsourced. IKEA uses normal short- In 1943, at age 17, Kamprad formed IKEA with initials term purchasing contracts with suppliers, which means it representing his first and last names, along with that can quickly adjust orders to changes in demand and not of the family farm (Elmtaryd) and the nearby village be saddled with huge unsold inventory. Suppliers also (Agunnaryd). Anticipating the rising consumerism amid are in competition with one another to keep costs low. the rebuilding boom that followed the war, IKEA moved IKEA has indirect control over suppliers because it often purchases 90 to 100 percent of a supplier's production. quickly to provide families with low-cost furniture designs through the convenience of catalog sales. With Aware of the importance of supplier relationships, IKEA the opening of the company's first showroom in 1953, maintains a constant vigilance in working with suppliers Kamprad created a model of vertical integration, to find ways to cut costs while keeping quality standards uniting a variety of suppliers under the IKEA umbrella, high, occasionally even agreeing to underwrite supplier coordinating long-run production schedules, and technical assistance. That can-do attitude with suppliers controlling distribution. That model expanded in 1964 has served IKEA well over time. with the introduction of the first warehouse store, eliminating an entire step in product distribution by Supplier Relationships allowing warehouse container pick-up by customers. Today, with 1,300 suppliers in 53 countries, IKEA's The business lessons Kamprad mastered as a boy integrated design, production, and distribution faces entrepreneur were evidenced at the corporate level new problems. The sheer numbers can weaken long in many ways. For example, the bulk purchasing production runs and disperse supply lines. Global reach of matches in his youth was a forerunner to the also means that domestic requirements vary from one bulk purchase of fabric that expanded upholstery region to another or that certain areas, such as Eastern choices for consumers and made the luxury of fabric Europe, have few suppliers capable of high-quality, options, formerly limited to the wealthy, available low-cost production. In addition, furniture competitors to all customers. Likewise, IKEA used imaginative have not been idly sitting by but have garnered lessons distribution and delivery options, such as when an IKEA from the furniture giant. In the face of these challenges, employee cleverly discovered the company's "flat-box" IKEA continues to believe in the power of its ingenuity.approach in 1955. While attempting to load a table into Design teams work with suppliers in imaginative ways. a customer's automobile, an employee simply removed For example, the need for expertise in bent-wood design the table legs, enabling a new vision of selling furniture for a popular armchair resulted in a partnership withski-makers. Likewise, the need throughout Scandinavia tape measures and pencils, a playroom that frees parents for for affordable housing resulted in IKEA's expansion into leisurely shopping, and a restaurant midway through the manufactured homes, built on supplier factory floors and building to provide a shopping break-is a key part of the delivered to construction sites, ready to be filled with IKEA IKEA experience. Also familiar is the gray pathway, guiding furnishings, conveniently assisted through $500 in IKEA gift the shopper along wide aisles through the 300,000-square- certificates to the homeowner. foot store. A veritable labyrinth, the route provides the From the outset, IKEA represented more than catch charm of surprise as shoppers venture past the showrooms phrases such as low price and convenience. Looking out or leads to total confusion for those who venture off the for the families of modest incomes leads to IKEA's constant intended path. Everything is carefully orchestrated; price adherence to frugality, which is reflected in a cultural tags are draped always to the left of the object, large bins abhorrence for corporate office perks such as special lure with the promise of practical and inexpensive "must- parking or dining facilities. IKEA executives are expected haves," and room arrangements include special touches to fly "coach." In his effort to bring "a little bit of Sweden that spark vision and stimulate add-on purchases. to the world," Kamprad created a lifestyle model that IKEA's attention to detail is honed through a variety would mold consumer habits and attitudes. True to the of strategies that link management and co-workers at all rural values of his homeland, Kamprad nurtured the ideal levels to their customers. Antibureaucracy week places of the IKEA family, referring to employees as co-workers executives on stock-room and selling floors, tending and bestowing the name Tillsammans (Swedish for registers, answering customer queries, or unloading "Together") on the corporate center. merchandise from trucks. IKEA's Loyalty Program and Home Visits Program allow company researchers entrance Mission and Culture to consumer homes in order to better determine individual The higher cultural purpose of IKEA was reaffirmed in and community needs for furniture designs. The results of 1976 with the publication of Kamprad's Testament of such efforts can be practical, such as specially designed a Furniture Dealer, which states explicitly that IKEA is storage units for urban apartment dwellers or deeper about "creating a better everyday life for the majority of drawers to meet the wardrobe needs of Americans. They people." He went on, "In our line of business, for instance, can also help in detecting or anticipating cultural shifts. too many new and beautifully designed products can be IKEA was the first retailer to acknowledge through its afforded by only a small group of better-off people. IKEA's advertising the broadening definition of family to include aim is to change this situation." The purpose of providing multiracial, multigenerational, and single-sex family fine-looking furniture to the masses was to be met via an arrangements and to promote its openness to "all families." internal culture that Kamprad described with words such as the following: "informal, cost conscious, humbleness, Challenges down to earth, simplicity, will-power, making do, honesty, Over the decades, efforts at strengthening IKEA and common sense, facing reality, and enthusiasm." Achieving consumer family ties and encouraging repeat business this purpose meant employees had to have direct personal as customers moved from one phase of life into another experience with the needs of the customer majority. produced a unique global brand famous for innovation. Visualizing the constantly changing needs of a The company's devotion to lifestyle solutions led to customer base comprised of farmers and college students, rapid movement on two fronts, the expansion of product young professionals, and on-the-go families, Kamprad lines (now over 9,500 products) and the expansion of defined IKEA's business mission as "to offer a wide variety global markets. By 2010, there were 332 IKEA stores in of home furnishing items of good design and function at 41 countries. Global economic woes of recent years- prices so low that the majority of people can afford to including slumps in world stock markets, rising buy them." This is "place-holder" furniture, filling the unemployment, and personal financial insecurity-increased constantly changing needs in the lives of individuals and sales and profits for IKEA. As consumers searched for ways families. But the company would go further than merely to trim overall expenses and cut home-furnishing costs, the providing the solution to a consumer's immediate needs. company continued experiencing steady growth with a sales From furniture design to catalog layout or the arrangement increase of 7.7 percent to 23.1 billion Euros. of warehouse showrooms, Kamprad and his co-workers However, the company's rapid global expansion and gently imprinted Swedish style and cultural values of the rise of imitators in providing low-cost, quality home home, frugality, and practicality. As CEO Anders Dahlvig furnishings led some critics to believe IKEA had aban- explained in a 2005 interview for Business Week, "IKEA doned its maverick methods and relinquished its innova- isn't just about furniture. It's a lifestyle." tive edge. They detected a loosening of the company's strict That lifestyle is reflected in the consumer shopping core values, established more than half a century ago and experience. The convenience of helpful touches-providing reinforced in the training of co-workers in the IKEA Way.Dther critics take the opposite view and claim that IKEA is provincial. The problems from this viewpoint are the result of those strict core values, monitored on a regular basis through Commercial Reviews, measuring how closely the various stores adhere to the lKEA 1iWay. [KEA repeatedly surveys customers, visitors, suppliers, and coworkers about their satisfaction with the IKEA relationship. Repeating the surveys provides clear feedback and. even measures important trends, especially if the results venture from the expected 5 s toward the dreaded 1s. The critics would argue that the constant pressure for Kamprad's \"little bit of Sweden" creates a culture that seorns strategic planning, is slow to react to cultural nuance in new locations, and offers limited opportunity for professional growth or advancement for non Swedes. The}.r could point out that the notion ofpeopfe behind the mountain should work both ways. Globalization Global expansion into non-European markets, including the United States, Japan, and lChina, magnified the problems and the need for flexibility. Examples abound. The focus on standardiaaram rather than adaptation poses problems for an industry giant such as lKEA, particularly as it enters Asian markets that are culturally different. [KEA's dependence on standardization for everything from store layout to the Swedish names of all products presented translation problems when informing Asian consumers about shopping and shipping procedures. Addressing cultural differences [WGan 211': iii\": prime decision nlalcers ancl FUTCI'IEIECI'S for the homel, store and product specifications [e.g., lowering store shelves and adiusting the length of beds}, or consumer purchasing power la worker may need up to a year and a half to purchase a productl was critical to company success in China. Furthermore, lKEA managers realized the need to shift focus from selling furniture to providing home decorating advice when they discovered that many skilled consumers could use the convenient tape measures and pencils to sketch pieces that they could then build for themselves at home. In the U.S. market, [KEA was slov.r to make allowances, such as a shift from measuring in meters to feet and inches. While consumers eniliraced low pricing and the convenience of break-down furniture, the company's delay in bed size designation to the familiar king, queen, and twin drove U. 5. customers bonkers because \"16!) centimeters" meant nothing to them. Co-worker issues also arose. Angry American workers in locations such as Danville, 1siirginia, moved to unioniZe amid complaints of discrepancies in pay $3130 per hour compared to the $19.00 per hour for workers in Swedenl, vacation [12. days annually for U3. workers compared to five weeks for their counterparts in Sweden], and the constant demands by strict managers in requiring, for example, mandatory overtime. Officials with [KEA admit they \"almost blew it" in America and that they are committed to being both global and local. They insist they are respon sivc to issues and people. The company points to a history of standing against corruption and to its own quick response when a subcontractor's brihery efforts brought the hint of scandal to lKEA's door. CEO Mikael 1Uhlsson proudly points to the company's recent record in looking out for the needs of ordinary people through charitable proiects such as lKEA Social initiatives, benefiting over IUD million children. Service to people \"behind the mountain" also requires acknowledgement of the mountain. IKEA places a priority on sustainability, working to improve company energy effi- ciency as reflective of its commitment to thrift, the wise use of natural resources, and a family'level regard for steward- ship of the earth. From the elimination of wood pallets and the ban on use of plastic bags to the installation of solar panels and the phasing out of sales on incandescent light bulbs, IKEA leads consumers and competitors by example and demonstration of its core values. Behind the ll!:urt:ain Despite the concerns of critics, those values established by Kamprad remain intact through the combination of co- worker training in the \"(EA Way and a carefully crafted organization Structure that leaves little room for cultural or corporate change. Although retired lsince I9Etil, Kamprad remains senior advisor on a board dominated by fellow Swedes. Organization structure resembles the IKEA flat box, with only four layers separating the CEO and the cashier on the sales floor And the culture is in good hands with current CED hiikael Ohlsson, who says hluntly, \"we hate waste,\" as he points with pride at a mfa that his engineers found a way to ship in one-half the container space, thus shaving 100 from the priceand sharply reducing carbon-dioxide emis- sions while transporting it. Historically, financial details about lKEA have been kept tight and neat and, until recently, secretive. The full public disclosure of information such as sales, profits, assets, and liabilities appeared for the first time in 2.010 on the heels of a Swedish documentary. The ability to ma in- tain such an opaque organization dates back 30 years. The year 1932 marked the transfer of [KEA ownership to lngka Holding, held by Stichting [NGKA Foundation {a Dutch nonprofit}. Kamp rad chairs the foundation's fivemember executive committee. The IKEA trademark is owned by \"(PA Systems, another private Dutch company whose parent, lKEA Holding, is registered in Luitemhourg and owned by lnterogo, a Liechtenstein foundation controlled by the Kamprad family. This complex organizational setup enables lKEA to minimize taxes, avoid disclosure, and through strict guidelines protect Kampra dis vision while minimizing the potential for takeover