IKEA: Catalyst for Change
In 1943, Ingvar Kamprad founded IKEA with an emphasis on cost leadership. IKEA designs and sells furniture in “flat packs” that allow one truck to deliver the same amount as six trucks hauling fully assembled furniture. However, a couple of wake-up calls changed IKEA’s focus from low costs to “Low prices but not at any price.”
In the early 1980s, formaldehyde emissions were found to cause health issues such as watery eyes, headaches, and a burning sensation in the throat. This led regulatory bodies in Denmark and Germany began to regulate these emissions. Higher than acceptable concentrations of formaldehyde were found in many IKEAs products, which used it as binding glue in plywood and particleboard. When this information was publicized, IKEA sales dropped 20 percent in Denmark. The company reacted by setting strict guidelines, but this was not enough. In the early 1990s, a best-selling IKEA book case was again found to have higher than acceptable levels of formaldehyde. Once again, sales dropped.
Because of the large financial impact and IKEA’s desire to be socially responsible, IKEA CEO Anders Dalhvig knew changes had to be made. He began by asking a series of questions: “Is environmental and social work good for business? What right do we have to put demands on our suppliers? How fast should a company like IKEA move on sustainability?” Struggling with these questions led to IKEA becoming a company that is well known for its commitment to the environment.
To become more green, IKEA rallied company support around five primary issues: forestry, adapting the product range, working with suppliers, transport and distribution, and ensuring environmentally conscious stores. In regard to forestry, IKEA gets its timber from responsibly managed forests. IKEA is also working with the World Wildlife Fund to help the countries where they get their timber to improve ecological sustainability.
IKEA also employs inspectors who ensure that make sure that suppliers adhere to its code of conduct (called IWAY).118 Their aim is to make products that have a minimal impact on the environment in a socially responsible way. Further, the famed “flat packs” allow IKEA to ship more in one truck and reduce its emissions. Like IKEA’s other social responsibility initiatives, focus on the environment is an ongoing process and IKEA hopes to continue to reduce its environmental footprint.
Case Study Questions: Answer the following questions
1. Of incremental, strategic, or transformational, which scope of change best describes IKEA’s response to concerns over product safety and sustainability?
2. You have been assigned by IKEA’s board of directors to appoint a new manager who will oversee IKEA’s change to a green organization. Would you prefer to hire someone from within the organization or from outside of the organization?
3. What are the primary internal and external forces that are fueling IKEA’s need to change?