Analysis of IKEA Group’s Sustainability
- The President/CEO of the IKEA group was confident that ‘the company’s growth strategy would not conflict in any way with the company’s sustainability targets’ (first page of the case). Do you agree with this statement? With the examples from the case analyze your answer to explain how the group managed to (or failed to) ‘balance’ all three Ps.
- Who are the major stakeholders in this case? How do you think they have responded the groups strategies related to expansion and sustainability? Using theories from the Procurement topic, please guide IKEA to make the procurement sustainable and follow the specific SDGs. (For the SDGs, please refer to the image on the second page.)
Format Requirements:
- Answers should be “short essay type”
- No formal introduction/conclusion required
- Each answer should be around 1000 words (10% +/-)
Instructions:
- Use the theory/frameworks/concepts from the course to answer the questions. All the lecture slides of this course are uploaded.
Important Notes:
- When do question 2, you should specifically refer to the slides of Week 8. See Week8 – Moodle.pptx. Use the theory/frameworks/concepts from this unit.
- When do question 1, please check through all the slides to find relevant theory/frameworks/concepts that can be used to answer the question.
file:///C:/Users/ADMIN/Downloads/46851_Case.pdf
Q1) The President/CEO of the IKEA group was confident that ‘the company’s growth strategy would not conflict in any way with the company’s sustainability targets’ (first page of the case). Do you agree with this statement? With the examples from the case, analyze your answer to explain how the group managed to (or failed to) ‘balance’ all three Ps.
The growth strategy of IKEA Group is aggressive, and in collaboration with stakeholders, the company has implemented viable approaches to ensure sustainability targets are achieved while promoting growth strategies. In this regard, I agree with the IKEA group CEO’s statement; “the company’s growth strategy would not conflict in any way with the company’s sustainability targets’. The analysis of the “Sustainability at IKEA Group” case study indicates that the company has achieved its goals of the company growth without conflicting with the sustainability targets. The company’s adherence to the triple bottom line (TBL) theory, which demands companies to focus on both environmental and social concerns as they do on profits, is of paramount importance.
Analysis of How IKEA Group Balanced the Three Ps
People
IKEA Group focuses on meeting the needs of people and society without compromising the sustainability of future generations. Firstly, the company’s goal to open new stores was to meet the needs of new customers in emerging markets. About Steve Howard’s statement, there is a need to evaluate the global economic activity to reduce the consumption rate of the planet’s resources. This indicates the company’s commitment to protecting the planet for both current and future generations. ‘People & Planet’ strategy focuses on caring for the lifestyle of consumers. Accordingly, the growth strategy of IKEA embraces special consideration for the welfare of consumers, stakeholders, and society. For instance, the growth strategy targeted to open 200 new stores in emerging markets. In a considerable view of this goal, the company would improve people’s livelihoods and living standards by creating employment opportunities for the locals. Notably, more employees would be needed to work in the new stores and hence improving their livelihoods. In consideration of residents’ preferences, the company diversified its products during its 2005 entry in Japan.
As part of the People & Planet Positive initiative, IKEA sought to attain sustainable life at home for consumers and a better experience for people and communities. Improving the labor conditions was also a critical goal of the company within the supply chains. This included converting the lighting products to LEDs, which were more efficient than incandescent lighting and compact fluorescents to improve the consumer experience. Further, the implementation of wood sourcing standards indicated the concern for human life. This is because the rules would minimize the cases of deforestation, which posed risks to people who depended on local forests for basic needs such as food and shelter.
Profits
Earning profits is the primary goal of every business. IKEA Group’s sustainability efforts ensured that profitability was kept at a significant level because it forms part of sustainability in business growth. During the implementation process of growth strategy, IKEA set a goal in 2012 to double sales by 2020. In this consideration, substantial growth of €3.3 billion net income in 2013 was achieved. Opening 200 new stores in the emerging markets form part of the increase in profitability. The goals for People & Planet Positive strategy was to achieve resource and energy independence for the company to reduce costs of purchasing raw materials. In the efforts to achieve this goal, the company considered owning more forests.
Further, the company recorded a cost savings of approximately €40 million between 2011 and 2013. According to the case study, the IKEA Group enacted measures to utilize more particleboard than solid wood to reduce costs on materials. Further, recycling was a critical aspect of the company, which also reduced production costs while maximizing profits. This was evidenced in 2013 when the company sourced 55% particleboard against 45% of solid wood. Further, this minimized transport costs due to the light nature of particleboard, which ensured that 30% more products could be filled up in the trucks, hence delivering more products on a given trip. The achievement of this goal was indicated by a 5% annual shift from solid wood to particleboard to accelerate the rate to 22% by 2022. Recycling is also a paramount approach to increasing profits. Recycled wood is cheaper, and while the quality of products is maintained, products are produced at lower costs while maintaining profitability.
Plants
IKEA Group’s major products entail wood, such as housewares, home furnishing, indoor furniture, and gardening supplies. The growth strategy to achieve a 10% annual growth by increasing the number of stores initiated a significant demand for more wood and wood products. Resultantly, this would indicate an increased demand for plants which initiates illegal deforestation and exhaustion of natural resources. However, the company has implemented various measures to address this challenge. To ensure sustainable growth, the company incorporated the role of a Chief Sustainability Officer (CSO), who was responsible for formulating and implementing the company strategy. Howard’s initial role as a leader for “The Climate Group” in advising on measures to address climate change was vital in his current position to aid in addressing sustainability issues. Through the ‘People & Planet Positive’ strategy, the company focused on minimizing the use of raw materials – especially plant materials to reduce environmental impacts.
Admittedly, a high rate of energy consumption indicates high emission of harmful substances to the environment, affecting plant life. In the efforts to address this problem, IKEA Group invested €21 million in energy efficiency measures during 2011-2013, which prompted a decrease in energy consumption. Further, in pursuit of the 2020 goals of producing as much renewable energy as the total energy consumed, the company invested in installing solar panels and wind farms using biomass to power the facilities. Such a move had essential impacts on natural resources conservations as less wood would be required to implement these measures.
According to the case study, IKEA Group was among the largest lumber consumers in its industry and hence a need to address this trend. As such, IKEA developed a code of conduct called the IKEA Way, which specified minimum acceptable standards for environmental protection. The IKEA Way acted as both an auditing framework and a business discipline. The suppliers of wood to IKEA had an obligation to adhere and comply with the IWAY, or else the contract would be terminated. The IWAY provided the standards by which IKEA Group would consider in purchasing wood. These standards discouraged the company to source wood from illegally harvested forests, forests with social conflicts, High Conservation Value Forests, and forests being converted to plantations. In this regard, IKEA Group focused on attaining 50% wood from More Sustainable Sources by 2017 and 100% by 2020. Such was necessarily achievable as the company’s sourcing reached 32.4% by 2013.
Q2) Who are the major stakeholders in this case? How do you think they have responded to the group’s strategies related to expansion and sustainability?
IKEA Group is supported by various stakeholders who aid in achieving sustainable growth of the business. The primary stakeholders of IKEA Group include suppliers, government, and investors. These stakeholders have responded differently to the group’s strategies related to expansion and sustainability.
Government
Firstly, the company operates numerous stores in different countries in the efforts to expand globally. In this consideration, the governments of such countries like China, India, Russia, and Europe, among other countries, have contributed to this expansion by allowing the company permission to launch its stores. For instance, the company’s 2013 entry in India involved an agreement with the government to source 30% of the products sold in their stores locally. While this was a mandatory requirement, the company benefited by expanding the operations to India as one of the emerging markets. Russia and Slovakia also contribute significantly to the company’s goals by leasing forest land for sourcing wood. Further, the ability to operate in other countries follows various regulations as specified by the governments. Also, suppliers of wood products form a critical part of IKEA Group’s stakeholders. Notably, the company worked with 384 wood suppliers in 50 countries in 2013. Wood was harvested in forests that were owned by third parties. As the significant raw material for the company’s products, the suppliers played a critical role in upholding the growth strategy.
The Forest Stewardship Council (FSC) is also a significant stakeholder with significant contributions to IKEA Group’s sustainability efforts. While IKEA was committed to minimizing the use of raw materials in terms of solid wood, FSC played a substantial role by embodying a consultative approach to solve deforestation. FSC’s adoption of the local conditions was vital to ensure that IKEA reflects the geographical conditions of forests. Further, its chain of custody standard provided identification of FSC-certified wood products. This posed the need for IKEA Group’s suppliers to embrace the rules set by FSC regarding wood products, and as a result, minimize deforestation.
Using theories from the Procurement topic, please guide IKEA to make the procurement sustainable and follow the specific SDGs.
Achieving a sustainable wood supply chain is an essential aspect of the IKEA Group. With several options available to achieve this goal, it is vital to compare the benefits and setbacks associated with all the available options. Based on week eight notes, sustainable procurement entails considering environmental, social, and economic issues, inputs of natural resources, labor conditions, costs of operations, and maintenance. The options available for IKEA Group to achieve a sustainable wood supply chain include; owning more forests, driving higher procurement targets and standards, using more particleboard, and using more recycled wood.
Guidelines to achieve the Sustainable Development Goals (SDGs)
- By 2020, achieve the environmentally sound management of chemicals and all wastes throughout their life cycle, in accordance with agreed international frameworks, and significantly reduce their release to air, water, and soil in order to minimize their adverse impacts on human health and environment.
Environmental conservation, including proper management of chemicals, is critical to ensure sustainable development of the economy. IKEA Group should commit to reducing illegal logging while expanding its operations. In this case, it is important to lease more forest land, which would enhance timberland’s direct management per the terms of ‘More Sustainable Source’. Such would also help to integrate the supply chain vertically, hence securing access to more FSC-certified wood. Accordingly, timberland management will enhance the traceability of the origin of materials to avoid cases of fake materials or non-compliance with international frameworks.
- Promote public procurement practices that are sustainable, in accordance with national policies and priorities
Sustainable procurement practices are a vital aspect in achieving the goals of IKEA Group. In these efforts, it is recommendable that the company adopts recycling practices. Recycled wood is cheaper and eliminates the need to cut more trees in search of timber. In this regard, the company should invest enormously in using recycled wood, reducing prices on its products, while maintaining quality. With cheap production and low charges on products, more consumers can afford the products, hence encouraging sustainable practices. Also, the IKEA Group needs to board manufacturing plants to accept recycled wood. Such would prompt the consumers to grasp the idea of making some income by reselling the products that they no longer use for recycling.
- By 2030, ensure that people everywhere have the relevant information and awareness for sustainable development and lifestyles in harmony with nature.
Communicating the sustainability goals to the consumers and society at large is a vital aspect in achieving the 2030 objectives. In this case, IKEA Group should aim at driving higher procurement targets and standards by setting the operating principles and specific rules. The company concentrates on design and production, and hence exercising forestry management control through FSC certification is essential. Setting the operating policies and particular regulations to initiate the demand for FSC-certified materials is a great way to spread information about sustainable development. As IKEA continues to defy FSC-non certified materials, this will drive more suppliers to comply with the standards of FSC that seek to minimize illegal deforestation by seeking the certification. Further, IKEA should increase the availability of the certified materials, which would help to spread the information to customers. Also, as the increase in certified materials persists, this will provoke consumers’ urge to change lifestyle by considering products made from certified materials. FSC certification implies eliminating the production of illegal products, and hence this drives the consumers to shift their purchasing pattern to only accredited products.
- Support developing countries to strengthen their scientific and technological capacity to move towards more sustainable consumption and production patterns.
The use of scientific-technological capacity is a fundamental approach in driving sustainable patterns of consumption and production. In the efforts to achieve this goal, IKEA Group should implement measures that encourage the use of more particleboard products than solid wood products. A log of wood can produces more particleboard than solid wood and hence saving on production costs and the amount of wood consumed globally. In this regard, IKEA Group should invest in redesigning the products sold in these developing countries to utilize more particleboard than solid wood. With the emphasis on reducing production costs associated with particleboard products, manufacturers in these countries will see sense in such a shift and thus embrace it. Another approach to achieve this objective is by encouraging the use of renewable sources of energy such as biogas instead of firewood, which promotes the destruction of forests. This would ensure environmental conservation and continual benefits from the natural ecosystem to the citizens.