Management and Organisation

MANAGING AT IKEA IN TURBULENT TIMES

Since the global pandemic of Covid-19 descended with little warning on many countries and organisations around the world, the impact on people and organisations, with attendant social, economic, and operational impacts has been unprecedented in this century, surpassing the swine flu pandemic of 2009. Impact on business globally and locally has been broad ranging, from massive reduction in sales and business income, staff layoffs, business closures, staff health concerns, need for staff to work from home, travel restrictions, disturbances in global supply chains and manufacturing, staff shortages due to quarantine restrictions or virus sickness, and government rulings relating to Covid-19 restrictions. Covid-19 has also resulted in decisions made on how to do business in moving from face-to-face and in-store purchasing to more on-line purchasing.

Although there has been the need for urgent planning and often fast decisions due to the forces impacting on IKEA from the external environment, there is also the need to plan strategic responses and longer-term operation in an environment in which there is no pre-existing guidebook to follow. IKEA has been faced with the need to make decisions to ensure that risks for all stakeholders are minimised, and that survival of the organisation is ensured into the future, even if operating in slightly different ways with new areas of focus to consider.

IKEA faces many challenges beyond just Covid-19 in ensuring they align with UN Sustainable Development Goals across planetary climate change aspects and people aspects in relation to equality and injustice, whilst ensuring economic profit is also maintained.

IKEA is the focus of this case study.

Read this case study. Think about it with reference to the topics of the external environment, planning, and decision making. Reflect on the issues and information included in this case study (with more detail included in websites below the case study for background information, but not to be cited in the case study). There are three questions at the conclusion of the case study, which address issues relating to IKEA due to Covid-19, and how to survive successfully in an environment that considers people, planet, and profit. You are expected to answer all questions (and sub-questions).

CASE STUDY

IKEA is part of the Ingka Group of businesses. Their core business is IKEA Retail which has a global reach of more than 445 stores over 32 countries. In-store visits are estimated at around 657 million per year, with a yearly figure in excess of 4.3 billion e-visits to IKEA.com.

IKEA is operating in a changing business landscape. A key unplanned-for business impact for IKEA has been Covid-19. Most of IKEAs global retail locations were forced to close without hardly any warning in different countries at different times in 2019, as Covid-19 became more a more widespread reality in IKEAs countries of operation. With approximately 200,000 staff globally, and an estimated 800 million customers, the implications for health and safety and for ongoing business operations have been massive. The logistics of getting and delivering orders has also been extremely challenging. Stores have mostly reopened face-to-face, but it has not been always business as it used to be.

The sudden and unanticipated shift to predominantly e-commerce operating since 2019, with an expansion of online sales by 45% in 2020 since the Covid-19 pandemic, has had a significant impact on the IKEA business model, along with associated planning and related decisions that need to be made.

There has been a massive demand for IKEA to provide different types of schooling and office-related furniture and home enhancements, as people spend more time at home working and living.

IKEA has faced, and continues to face, ongoing supply chain issues and costs in raw materials and transport since the advent of Covid-19. This included having to lease ships and reroute deliveries since Covid-19, and these issues have resulted in passing on price rises to customers. Staff needing to go into quarantine has also presented serious service delivery challenges. There is no predicted end date to these issues.

In 2021 there was a net profit of $7.89m compared to a loss of $8.66m in 2020. The CEO (Brodin) explained this shift as being driven by household consumers investing in IKEA office furniture and other home improvements as more time was spent at home, and in IKEA re-establishing more store openings and more consumer confidence to purchase. Clearly the strategies in reading external environmental forces and making quality decisions and plans driven by Brodin would have played an important role in this recovery.

IKEA has been proactive in reading the external environment by shifting to a digital focus through their e-catalogues and home delivery services. This transition was led by IKEAs appointment of a Chief Digital Officer: Barbara Coppola. However, IKEA is only one provider of online sales, and in the US, they have lost customers to Amazon, Walmart, and Target, who have also moved into the online platform for the types of products offered by IKEA. These companies aggressively focus on convincing IKEA customers to move across to their online retail space, since the traditional and attractive IKEA total in-store experience has diminished during the time of Covid-19.

IKEA has been proactive in transforming stores to serve also as storing and despatch fulfilment units, whilst also expanding their online site: IKEA.com, and accelerating their rollout of the IKEA app. So far, there has been an increase in the share of online sales from 18 percent to 30 percent. Extra services advertised on IKEA websites include regular updates on face-to-face shopping, Covid-19 safety requirements, Covid-19 injection sites at IKEA parking spaces, and assistance to the disadvantaged affected by Covid.

IKEA is committed to not just making a profit, but also to supporting workers financially, the wider community and society, and in supporting financially some of its suppliers impacted by the Covid epidemic.

This health crisis from Covid-19 has changed how IKEA customers shop and conduct their lives. It is not clear whether some of these changes to customer behavioursin shifting to online shopping and investing in home office and leisure time at home (even trends to healthier foods), will be permanent, post Covid-19. IKEA, like other major retailers, has introduced safer ways to shop including click and collect, home delivery services, and online planning services. The benefits of these new business strategies are also of benefit to customers who are busy working, unable to leave their homes, or prefer this type of interaction and retail experience.

There are temperature checks, and capacity limits. IKEA acknowledges that these decisions are often not perfect, that there are not always guarantees that goods will have been delivered for customers to click and collect as planned due to supply chain issues. Customers may not always comply with IKEA decisions and may not have properly checked in as required, so decisions are not totally predictable as planned. Plans may not always be carried out as desired by IKEA, due to rapid government changes in legal compliance re numbers and rules, and sudden shutdowns as happened during 2020-21. So decisions are often made with often limited information or changing government requirements regarding store capacity numbers. IKEA also has decided in Australia for the time being to only allow customers who are fully vaccinated against Covid-19 or have recovered from Covid-19 to enter their restaurants, with proof required.

The Covid-19 response by IKEA to government orders and laws is only one area of external environmental change that IKEA has had to respond to and anticipate in its planning and decision making. IKEA publicly states they are focussed on proactively addressing climate change, unsustainable consumption, and inequality. They aim to be a climate positive business by 2030.

The bigger world picture relating to the climate crisis impacts not just on IKEA being a responsible business, but also in rethinking how IKEA will operate into the future to ensure its survival. It is possible (as has started happening in India) and other countries, that large football field size stores may be replaced by smaller and more compact stores, supported by large warehouses for the increasingly expanding online shopping preference. IKEA has also shifted to more sustainable ways of operating in alignment with meeting UN Sustainability Development Goals (UNSDG). These goals are addressed through needing to make decisions about impacts from customer demands, types of furniture and products IKEA sells, energy usage, waste management and reduction, how people are treated both as workers and customers, and many other related aspects. IKEA is starting to also meet its human commitment to UNSDG by building into their strategic focus, assisting vulnerable people, providing social relief and environmental preservation.

IKEA, along with addressing wider world issues publicly, state their top priority is to consider health and safety of workers, customers and communities which underpin all their decisions and areas of direction. IKEA is aware in this dynamic operating environment that they are continually needing to re-evaluate their actions to ensure they continue to make a profit and to expand. However, plans may need to be changed as the external environment changes.

Questions:

1. Define and discuss how various factors in the general external environment have impacted on IKEA (including COVID 19) in a country of your choice. Explain, which two of these general external forces have had the most impact, citing specific examples from the case to support your selection?

2. With reference to the case study and the types of decisions made, and that might be made in the future at IKEA to deal with Covid-19 initially, and ongoing challenges since Covid-19, which decisions can be explained as rational, and which of these do you believe are informed by bounded rationality. Cite examples from the case study and justify reasons for your answers.

3. If you were the country manager of IKEA, how would you apply the six-step strategic management process to plan a way for IKEA to address the many external environmental challenges and changes created by COVID 19 and how that will help IKEA in maintaining and further strengthening its market share in the country of your choice while still meeting the obligations of a responsible corporate citizen / market leader.