Ikea's Executive Primer on Sustainability
The home furnishing industry today is characterized by the dependence on housing market, which shows significant improvements after recession. However, the major drivers of the industry are consumers preferences and here researchers observe five significant trends (Weinswig, 2016). First, the European debt crisis, as well as the financial crisis, has determined the need for home and office furniture. This tendency is also going to grow in the future. Second, the trend for multifunction furniture is observed, due to the increase of single person households, which drive demand for portable furniture. Third, the demand for luxury items is triggered by the growth of the economy. In addition, online retailing stores are gaining popularity and ikea.com is one of the examples of the trend. Finally, one of the major trends is production and distribution of ecologically-friendly furniture. The decision of the most vendors to go green is caused by people becoming environmentally conscious and the fear of deforestation, which is relevant for the furnishing business.
Sustainability has become a common language nowadays; sustainable development is discussed and debated notion. The concept of sustainable development was introduced long ago. However, the original definition of the notion is considered to be presented at the Worlds first Earth Summit in Rio, which says: sustainable development is development that meets the current demands without compromising the ability of next generations to meet their demands (International Institute for Sustainable Development, 2017). Therefore, a sustainable business is an organization that strives to exert minimal environmental impact on the community where it operates, which includes both people and the planet. Furthermore, green business often includes sustainability in their growth strategy (Landrum & Edwards, 2009).
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Ikea Group is a company that has its stores in 27 countries. Its main business line is devoted to the home furnishing; therefore, it operates in the furnishing industry. The Ikeas vision is to create a better everyday life for the many people (Ikea Group, 2016). From the mission and vision of the company, it is clear that the organization is striving to provide quality products at an affordable price. Ikea group is a values-driven company, which achieves its goals by the means of optimization of its entire value chain and building long-term relationships with its suppliers. It also invests in automated production and strives for economy of scales. Ikea Group has also became a leader in the industry in terms of sustainable development, which is practiced throughout the entire supply chain.
General Sustainability Trends Exerting Influence on the Industry and the Corporation
Sustainability has become one of the key aspects that any major industry player has to take into consideration when defining their corporate strategy. In 2017, the researchers observe several trends influencing many industries across the globe, including pressure on globalization, shifts in global climate leadership, growth of private sector investments due to the United Nations Sustainable Development Goals, complexity of health and nutrition issues, increasing consumption, robotization and shifts in labor market (McNall, Hershauer, & Basile, 2011).
The first sustainability issue peculiar to the most industries, including home furnishing, is the pressure on globalization that is characterized by the increase of protectionist legislation, as well as the rise of nationalism reflected in recent elections in many western societies. This evidence undermines the previous assumptions of the unavoidability of globalization. In fact, these calls for both economic and political liberalization trigger businesses to rethink their corporate sustainability strategies. In the home furnishing industry, international corporations are affected by such changes in a number of ways. First, WTO predicts that the global trade will slow down at a compound rate. In addition, a number of trade agreements are at risk, such as the Trans-Pacific Partnership (TTP). Finally, some of the corporations in the industry already decrease their international trade practices.
Shifts in global climate leadership also affect the home furnishing industry. For example, the current US Administration has voiced their disinterest in Paris agreement goals on climate and instead is planning to invest into fossil fuels, which leads China to taking the leadership position. On the other hand, it is observed that private business sector is becoming highly environmentally conscious, including the companies operating in the home furnishing industry, especially Ikea. These companies voice their concerns about the deforestation process and call for the use of sustainable raw materials.
Even though health and nutrition issues are not directly related to the home furnishing industry, they, nevertheless, play a significant role for a number of companies and their consumers. This is evident, when taking into consideration major furnishing corporations sustainability strategies. Most of the companies are involved in programs either by making contributions or even participating in fighting diabetes, food allergies, or programs on healthy diet education, and Ikea is a leader in this sphere. In addition, many countries, such as Denmark, impose regulations on corporations to invest into programs addressing hunger crisis.
Increasing consumption is another trend that has influenced the industry in a number of significant ways. First, the e-commerce has increased, which enabled the furnishing companies to use land wisely and efficiently and reduce the environmental impact. Moreover, such countries as China have issued new legislative acts to tackle issues related to product lifecycle and waste management. The fact remains that the economies develop quicker than the waste management sector. Therefore, many companies have to cut their production.
The last sustainability trend in the home furnishing industry, which needs to be addressed, is massive robatization or automation and shifts in labor market. It is obvious that the nature of labor is changing with the development of sophisticated technologies or even artificial intelligence. Finland along with other countries launched a universal basic income program to secure workers and allow industries to apply automatization programs. This is a significant change for the furnishing industry, since Finland and the Netherlands are among the countries where Ikea has numerous production sites and big job losses are inevitable there.
Importance of Sustainability for Ikea
Ikea Group recognizes the importance of being a sustainable business and has committed to exert a positive impact on both people and the planet. The statement is supported by their current sustainability strategy, which is called People and Planet Positive Strategy (Ikea Group Sustainability Report, 2016). The strategy is devoted to three major areas, where the company strives to achieve a positive impact. First, the strategy focuses on inspiring their customers to buy environmentally friendly and health products for their homes. Second, Ikea Group promotes independence in the use of energy and resources. Finally, the company strives to take action to provide a better life for communities, who are influenced by the Groups operations.
The current sustainability strategy is also important for the growth of the company itself. The strategy enables to position the company in the hearts of consumers in the long term. Consequently, the company will achieve growth, profitability, and competitive advantage. These goals are reached through gaining loyalty of different segments of consumers. Since Ikea Group Sustainability Strategy embraces a wide variety of social groups, including children, disabled people, refugees, co-workers, partners, and communities, where the company operates, the goal Growing Ikea together 2020+ seems viable. Therefore, the sustainability strategy is not only important for the company, but it remains a cornerstone on the way to the growth of the Group.
As for the major risks and opportunities for the company in terms of sustainability, being environmentally friendly at an affordable price requires an ongoing rethinking, restructuring, and modifications of both the supply chain management process and customer relationships. It is obvious that manufacturing, logistics, and purchasing has to be constantly monitored, and the key partners have to be evaluated against the criteria that the company has set to support Ikeas vision and remain a positive and green brand.
Material Issues and Key Sustainability Goals
Ikea has identified eight major challenges in terms of materiality process. These challenges constitute significant hindrances for the company; however, the team has also developed strategies to address these issues. Among the challenges, there are the isolated nature of the materiality assessment, the fact that the CEO and other executive managers do not take part in materiality assessment, the complex nature of Ikeas business, and non-involvement of the stakeholders in the process of assessment due to high cost or time-consuming procedures. In addition, there is a need for prioritization of topics due to the great variety of views of both internal and external stakeholders. Moreover, it is often the case that material topics are simply too broad or they overlay, which makes it difficult to assess if the right issues are addressed (KPMG International, 2016). Finally, it is obvious that there are many more material issues than a single company is capable of embracing, and it is not clear if materiality assessment should be conducted on a yearly basis.
Today Ikea is using the process of selecting material issues that addresses all the identified problem areas listed above. Therefore, the company takes an approach to tackle the issues, which are consistent, and focus on prioritization. At the same time, the Group takes into account views of as many stakeholders as possible. In this way the company decides on the material issues. The company management discusses environmental trends as part of their materiality process, since sustainability is woven into companys strategy throughout their entire value chain. Ikea has identified the following sustainability goals: growing Ikea, performance, gender equality, affordable and clean energy, decent work and economic growth, responsible consumption and production, climate action, and life on land (Ikea Group Sustainability Report, 2016). The list includes a wide variety of topics ranging from global to small communities issues. Thus, the company chooses the problems, which are relevant to the majority of the stakeholders. Even though the sustainability goals include a wide variety of social and environmental problems, the goals need to be revised, updated, and monitored on a regular basis to meet emerging global challenges.
The home furnishing industry is well developed. There is a number of players on the market that constitute the threat to Ikeas competitive advantage. In the USA, Ikeas market rivals are Ashly Furniture, American Furniture Warehouse, and Walmart, in the European market Wayfair, Conforama, BUTs stores, Alinea, Home24, Masku, Jysk and others. Regardless of the fact that Ikea has numerous competitive firms in the industry, many of them prefer to have Ikea stores nearby as Ikea attracts furniture buyers in the areas where it is located.
Besides, Ikea stands out in the industry as the company, who is highly environmentally conscious, that is why a great number of consumers opt for its products. Ikea has joined many programs and partnerships and gained many certifications that contribute to Ikea brand loyalty. Among the programs the company participates in, there are the Paris agreement on climate change and the Sustainable Development Goals, support for a shift to circular economy, and LGBT+ (Ikea Group Sustainability Report, 2016). Therefore, Ikea is a leader in the home furnishing industry in terms of the sustainability strategy and other corporations should consider joining the programs and create better future for people and the planet.
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Ikeas Sustainability Strategy includes a great number of goals that address numerous issues, yet there is still room for development. To take the companys leadership to the next level the company may consider implementing the following programs. First, massive planting of trees and gardens can tackle the deforestation issue at a deeper level. The corporations have become the reason for forests destruction; yet, they may also become the reason for deforestation-free future. Ikea should implement forest-friendly policies and inspire the customers to join the movement of massive planting of trees and gardens.
In addition, Ikea might raise discussions and debates in the local communities about the automatization process and the threat of layoffs and shifts in labor market. This approach will enable the company to develop a strategy, which will produce minimal effects on employees and community in general. Besides, the company will learn how to improve the quality of life in the local areas, which is definitely a priority for Ikea.
Finally, Ikea Group should implement educational programs for children and adults on sustainability issues relevant for the community. Various corporations provide educational programs and Ikea should not fall behind. Thus, Ikea educational program may cover such subjects as making informed food choices, reducing consumption, and deforestation-free future. These steps will enable the companys sustainability go forward.