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IKEA: Business Responsibility and Sustainability Essay

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Updated: Jul 15th, 2021

Overview

The concept of corporate social responsibility (CSR) rapidly gains popularity, implying the voluntary participation of companies in the formation and development of the social sector. It is critical to determine whether companies meet the core characteristics of CSR or not. This paper aims at revealing specifics of IKEA’s CSR based on the review of the academic literature and projects that were implemented by this company in practice.

Beginning with a brief company introduction, the paper will focus on analysing IKEA against six characteristics of CSR developed by Crane, Matten, and Spence (2013). Relevant conclusions will be presented as a result of the research, and a summary will provide key highlights of the essay.

Company Introduction

IKEA Group is a large corporation represented in 29 countries of the world, specialising in the manufacture of interior items and furniture. Founded by Ingvar Kamprad in Sweden, it was an innovation in the field of furniture consumption by creating a sophisticated yet simple design (“Company information”, n.d.). The accessibility that was offered to people formed a culture of home improvement. Due to this company, customers who did not previously target style and comfort since it was too expensive acquired the possibility to have these advantages in their homes. IKEA also contributes to the development of a special furniture style.

Soft and pastoral Scandinavian modernism is opposed to European modernism, and it quickly becomes more and more widespread. IKEA furniture attracts by its functionality and rationalism inherent in every furniture item.

Currently, the creation of the necessary materials for IKEA employs about a thousand suppliers in more than 50 countries. The mission of the company, as reported on its official website, is to enhance the daily lives of as many people as possible (“Company information”, n.d.). IKEA’s business idea should also be noted in order to understand its goals and the ways to achieve them. By offering more than 9,500 convenient and functional products for the home at relatively low prices, IKEA strives to ensure the opportunity to buy them.

The company claims that it makes every effort to build long-term relationships with suppliers, optimise the whole supply chain, invest in social and environmental projects, as well as produce large volumes of goods (“People & Planet”, 2018). Most importantly, IKEA clarifies that not only customers but also all people affected by the business are at the centre of attention to promote improvements in their lives.

Evaluation of IKEA’s Corporate Social Responsibility

Corporate social responsibility (CSR) is understood by IKEA in accordance with the definition of the World Bank (Hamidu, Haron, & Amran, 2015). It refers to a set of policies and actions related to key stakeholders, values ​​that meet the requirements of legality, the interests of communities and the environment, as well as focus on sustainable development. In addition, the coverage of this notion is conceptually unlimited since there is no single definition of CSR (Okpara & Wynn, 2012). It should be noted that, depending on the current practice of state regulation, various models of CSR arise. In this paper, six characteristics of Crane et al. (2013) will be used to evaluate IKEA’s CSR.

Voluntary

The first characteristic of CSR is the voluntary nature of taking the corresponding actions. In particular, Crane et al. (2013) identify it as a set of activities initiated by organisations, which extends the minimum required by laws. By applying self-regulation regarding CSR, companies enhance their opportunities to assist those in need, be it child protection projects or struggle with environmental pollution.

There is the legislation regulating the duties of companies on local and national levels, while IKEA is already in a position in which it fulfils some norms, and it takes additional efforts voluntarily (“The IKEA Group approach to sustainability”, 2011). Another issue that should be noted while discussing voluntarism in terms of CSR is the attitudes of society. IKEA is well aware that the concept of leadership responsibility is not just a slogan. It gives additional opportunities, but it also imposes a certain responsibility that no one can force the company to follow. The identified company wants to be successful in a long-term period and invests in charity programs and social development, following the inner desire of its founder and management.

Humanistic ideas are reflected in many initiatives and affairs of such an international company like IKEA. It not only develops goods and services but also creates brand loyalty and enhances the conditions of purchase to build close relationships with customers. In this connection, not the intention to have more profits but the desire to help people with their needs is the goal. For example, IKEA allows every customer to return a purchase within 365 days in case all rules were followed (“Return policy”, n.d.).

It should be noted that this is significantly more than legislations of many countries suggest in the context of consumer protection. Other initiatives of the company concern voluntary contributions to funds to help children in difficult situations as well as the participation and initiation of environmental actions. Occasionally, IKEA’s initiatives are supported by regional or global authorities, and the effects of the joint implementation of projects tend to be higher since they involve various specialists and ideas.

Internalising or Managing Externalities

Given that IKEA is a large corporate structure, it can be safely stated that the company’s social responsibility practices are mainly focused on external projects. According to Crane et al. (2013), externalities are companies and stakeholders that cannot directly affect the decision-making process in a company. By 2020, IKEA plans to generate as much renewable energy as it needs for environmentally safe operations (Hsueh, 2014).

The commissioning of new wind power stations in Poland and the United States allowed producing 71 per cent of green energy from the total energy consumed by IKEA stores and other facilities in 2016. For businesses that look to the future, the unlimited potential for the development of a low-carbon economy is obvious. Following IKEA’s mission to change people’s lives for the better, a positive impact on the planet is the paramount target.

The company announced plans to invest one billion euros in forestry, waste management, biomaterials, as well as the development of renewable energy. Since 2009, IKEA has already allocated 1.5 billion euros for wind and solar energy projects, and 600 million euros will be spent for further development, thus achieving full energy independence by 2020 (“IKEA Group sustainability report”, 2015). The company also completely transferred its range to energy-saving LED light sources. The sales of LED lamps amounted to about 80 million units in recent years. It is estimated that IKEA customers using them may save as much electricity as 650 thousand families consume annually.

In the US, projects were launched for the sale of solar panels for home use. Today, the whole cotton and 61 per cent of the wood from which IKEA products are made are received from more environmentally friendly sources (“How IKEA embraces sustainability globally and in Singapore?”, 2016). In addition, the company replaced the expanded polystyrene, which is used for packaging goods, with an environmentally safe, biodegradable fibrous material. In view of the mentioned attitudes of IKEA on externalities, it is possible to conclude that its CSR actions are voluntary and transparent.

Multiple Stakeholder Orientation

In a highly competitive environment with saturated markets, IKEA integrates its interests with those of society and global initiatives. The main task of corporate social responsibility is to ensure that the entire chain of creation of goods or services is transparent (Hamidu et al., 2015). While creating, preparing, and selling goods, IKEA pays attention to multiple stakeholders. In particular, customers, suppliers, shareholders, and employees are covered by CSR principles and practices. The company places high demands not only on the quality of products but also on all suppliers in terms of compliance with a set of rules, which helps in creating conditions throughout the entire chain of services (Hamidu & Daneji, 2014).

For example, IKEA does not accept unfair wages, child labour, and improper working conditions with regard to its suppliers (Boström, Gilek, Jönsson, & Karlsson, 2013). In case some of the rules are not respected at any stage of the chain, this supplier will be avoided even though the company will incur losses. Thus, such a strategy guarantees that the whole supply chain is legal and transparent.

One more externality that is targeted by IKEA is the assistance to the largest United Nations International Children’s Emergency Fund (UNICEF). As a corporate donor, the company made a donation of US $ 48 million in support of UNICEF programs in India. The total amount of donations made and planned by IKEA in favour of UNICEF programs worldwide from 2000 to 2015 is $180 million (Dudovskiy, 2017).

Due to the cooperation of UNICEF and IKEA in the period of the past ten years, education, health, and social protection systems in Africa, Asia, and Europe were enhanced significantly. Millions of children and women became participants in joint UNICEF and IKEA projects. Currently, IKEA’s social initiative program focuses on projects aimed at improving the living conditions of women and children in the countries where IKEA is present. Despite the general downturn in the global economy, the amount of investment from IKEA is increasing, which sets the bar high for other UNICEF corporate partners.

Even though employees compose the internal asset of the company, they should be noted as another important area that is valued by the company. For example, since 1953, IKEA has a tradition to celebrate Christmas together at the key distribution centre. Listening to Kamprad’s speech and receiving presents from his hands, many employees understand that their work is appreciated, and the company considers them as a critical part of the overall performance. Now, when more than 40 thousand people work at IKEA, 1600 best employees are invited to celebrate Christmas (“Why CSR is becoming a crucial part of IKEA’s long-term recruitment strategy?”, 2018).

The so-called veterans of the company who have served more than 20 years are awarded gold badges. At the same time, the donation of funds for educational projects of leading universities and the subsequent recruitment of graduates provides a bi-sided positive effect from the cooperation with young professionals.

Practices and Values

The relentless cultivation of specific values ​​has led to the fact that all the company’s employees are loyal followers of IKEA. It is possible to state that they are enthusiasts committed to their work and considering it their important responsibility area. According to Hamidu et al. (2015), “to a greater extent, CSR practices are influenced or affected by the personal values of managers, because they formulate the CSR policies of the business organisation” (p. 87).

Since their individual attitudes also form their personality, it is also investable reflected in CSR policies. Therefore, IKEA strives to implement its corporate values in the everyday processes of all employees. Willpower and humbleness, enthusiasm and togetherness, leadership by example, as well as daring to be different are identified as the key values (“Our values”, 2018). At the same time, employees of the company are not embarrassed by the fact that top management does not receive any privileges and that it is always ready to take part in the work of any employee.

The company regularly provides anti-bureaucracy weeks during which managers work, for example, as sales assistants or cashiers. As stressed by the ex-CEO of IKEA, Anders Dahlvig, he practised to unload cars as well as sell beds and mattresses. One of the practices that characterise the corporate culture is adequate competition among workers (Confino, 2012). Everyone should try to become the best while improving the work of the entire company.

On the wall of one of the main offices of IKEA in Helsingborg, there is a big poster that reflects the pace and volume of sales along with the best market indicators by countries. In addition, the company promotes the principle of self-improvement and self-demand while recognising the right of employees to make mistakes (Confino, 2012). Despite the commitment to tradition, IKEA encourages new approaches. For instance, it was one of the first to use images of same-sex couples in its advertising (“IKEAs flatpack approach to diversity”, 2012). It is evident that the company tries to act not in the way it is accepted, and its practices prove the success of such an approach.

Researchers claim that companies driven by a great idea are more productive, even if their ultimate goal is profit (Crane et al., 2013; Duarte, 2010). IKEA wants people around the world to be able to buy beautiful furniture and furnishings, turning this into a mission. It seems that for most people, modern design in the house would be inaccessible without IKEA. Fitting the characteristic of practices and values, Kamprad clearly outlined the morale and business principles of the company. For example, one of the postulates states that wastefulness in resources is impossible as IKEA products are designed to improve not only the interior but also the people themselves. The identified argument disarms those who criticise the self-service system and the need for self-assembly of furniture after purchase.

The principle of the constant desire for renewal and transparency should also be discussed as it represents the company’s culture. IKEA readily advertise vivid statistics: the total area of ​​its stores is equal to almost 600 football fields, its catalogues are published in millions of exemplars, and every tenth European can be considered to live in the place IKEA production origin. An indicator of belonging to a middle class and a symbol of good taste and desire for the best, IKEA definitely meets the requirement of values and practices. Thus, CSR is one of the necessary factors for the sustainable development of this company focused on long-term functioning. Providing additional investment, improving the company’s image, and maintaining relations with stakeholders contribute to further development.

Alignment of Economic and Social Responsibilities

The investments of IKEA in CSR refer to all types of property and intellectual values ​​that are integrated into business facilities, which result in profit and a social impact. In addition to the implementation of specific projects in the economic sphere, social investment contributes to the legitimisation of their activities in the eyes of the public, which is a very important factor for the modern business community (Brammer & Millington, 2008).

As one of the main prerequisites for adopting CSR in companies, there is an ever-growing link between public opinion and sales. The way the public treats the very brand of IKEA depends not only on promotional activities or the quality of products but on the extent of responsibility with regard to the social arena. The benefits in the economic sphere from the introduction of CSR arise when there is an increase in the activity of the company both in the environmental and social spheres (Brammer & Millington, 2008). The effects of the social activities that were presented in the previous sections of this paper are manifested in sales, risk management, and the reputation of the company.

It is essential to evaluate the effectiveness of investments in the social environment in terms of a systems approach, considering a set of interrelated and interdependent elements. The latter should be capable of changing the structure while actively interacting with the environment, maintaining integrity, and choosing tactics to achieve a common goal (Crane et al., 2013).

When evaluating the results of its social investment, IKEA focuses on savings for the reproduction of human capital, including health, training of specialists, and cultural and moral capital. Also, inventory items as the physical component of the investment process are taken into account. The social effect is characterised by certain indicators that increase the quality of human capital (Mittal, Sinha, & Singh, 2008). IKEA’s social investments provide the maximisation of the beneficial effect for business, which impacts production through the mechanism of multiplicative influence on the social environment.

The practical importance of active participation in the global social arena presents a number of advantages such as strengthening reputation, increasing attractiveness as an investment, and contributing to social stability (Mittal et al., 2008).

Over the past decade, a lot of studies were conducted in an attempt to find an answer to the question of whether companies benefit from social activities or not. As a result of them, it was revealed that enterprises that use social programs in their activities excel those who avoid it in all essential indicators (Brammer & Millington, 2008; Mittal et al., 2008). According to the indicators of return on assets, $ 1 invested in social activities in 1993 brought $ 7 by 2010 (Mittal et al., 2008). Therefore, CSR is a factor that has a great influence on the implementation of strategies for the sustainable functioning and development of IKEA.

Beyond Philanthropy

Currently, CSR is identified as a discretionary activity in spite of the fact that many companies introduce it following their own regulations. Hamidu et al. (2015) emphasise its “viability to be instrumental or strategic in satisfying stakeholder expectations and its potential capability to the achievement of organisational objectives” (p. 87). Reviewing the social actions of IKEA, one may note that they are highly altruistic and focused on assistance to people who need help and the planet in general.

For example, in collaboration with the Regional Public Organisation, Perspektiva, IKEA announced the launch of a federal project aimed at developing inclusion in Russian schools. For school teachers, experts will conduct training seminars on how to engage children with disabilities in the wider educational context. In addition, work with schoolchildren will be performed in order to teach them empathy and tolerance toward people with disabilities. The fact that IKEA participates in the socialisation of children with disabilities is a serious step in the creation of a society that provides opportunities for the development of any person.

Summary

In sum, this paper examined IKEA’s corporate social responsibility, analysing it with regard to six key characteristics of the mentioned concept. It was revealed that the company has a clear mission, cultural values and practices that are directed to assist in a global social sector. Acting voluntarily, IKEA expands its initiatives beyond philanthropy and aligns social and economic responsibilities. Also, it focuses on multiple stakeholders and internalises externalities, balancing the entire supply chain. Thus, based on the critical analysis conducted in this paper, it is possible to conclude that IKEA meets all six characteristics of CSR.

References

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