For Maggie K Only

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ICMR Case Collection ICFAI Center for Management Research

This case was written by Shirisha Regani, under the direction of Sanjib Dutta, ICFAI Center for Management Research (ICMR). It was compiled from published sources, and is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation.

IKEA’s Innovative Human Resource Management Practices and Work Culture H R O B 0 6 6

 2005, ICFAI Center for Management Research. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means- - electronic or mechanical, without permission. To order copies, call 0091-40-2343-0462/63/64 or write to ICFAI Center for Management Research, Plot # 49, Nagarjuna Hills, Hyderabad 500 082, India or email [email protected]. Website: www.icmrindia.org

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IKEA’S INNOVATIVE HUMAN RESOURCE MANAGEMENT PRACTICES AND WORK CULTURE

“Maintaining a strong IKEA culture is one of the most crucial factors behind the continued success of the IKEA concept”.

-Ingvar Kamprad, founder of IKEA.1

“IKEA values the individual. We make people comfortable here and enable people to grow.”

- Jaime Martinez, Head of Human Resources at IKEA North America, in 2003.2

BEST EMPLOYER In January 2005, Fortune, a prominent international business magazine, published its annual list of the ‘100 Best Companies to Work For’. IKEA North America (IKEA), a major furniture retailer and the American subsidiary of the Sweden-based IKEA Group, was 62nd on the list. IKEA won points for its innovative human resource management practices that emphasized flexibility and welfare while focusing on employee development. The company’s unique work culture that supported coworkers (as employees were called at IKEA) and encouraged creativity and diversity was also applauded. Pernille Spiers-Lopez (Spiers-Lopez), IKEA’s President, said the company was thrilled at being recognized as one of the best companies to work for. “We’re delighted to be among Fortune’s ‘100 Best Companies to Work For.’ At IKEA, we live by the philosophy that when coworkers have the support and flexibility to make their personal lives a success, they thrive in the workplace, too,” she said.3 A few months earlier, in September 2004, IKEA was listed as one of the ‘100 Best Companies for Working Mothers’, in a study conducted by Working Mother magazine. It was the second time that IKEA was so listed. Working Mother appreciated IKEA’s efforts at creating a workplace that accommodated the needs of mothers. Three issues were particularly stressed in this study – flexible work scheduling, time off for new parents, and childcare facilities. IKEA’s popularity as an employer was noteworthy primarily because of the fact that the retail sector, especially in the United States, was not known for being employee-friendly. Many large retailers paid low salaries and offered negligible benefits while expecting employees to work long hours. This accounted for the fact that the sector had one of the highest turnover rates of all industries. Consequently, it also suffered from high human resource (HR) costs, as companies had to recruit and train replacements at frequent intervals. In this context, IKEA stood out for its employee-friendly policies and generous benefits, which made it the preferred employer in the retail sector. 1 www.ikea.com. 2 www.rehwoldt.com. 3 www.ikea.com

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IKEA was one of the largest furniture manufacturers and retailers in the world and was well known for its stylish and innovative furniture designs. Almost all IKEA’s products could be dismantled and packed in flat packages, making it easy to transport them. In the early 2000s, IKEA was one of the largest privately held companies in the world. It was rumored that Ingvar Kamprad (Kamprad), IKEA’s founder, was the richest man in the world, beating even Bill Gates, the founder of Microsoft. (This however, could not be confirmed, as IKEA was a private company and so was not required to disclose its financials). Calculating the true value of IKEA was made more difficult by its complicated ownership structure consisting of several holding companies and subsidiaries (Refer Exhibit I for IKEA’s ownership structure). IKEA expanded using the franchisee model. BACKGROUND Kamprad was a born businessman. As a young boy, he started a business selling matches to neighbors on his bicycle. He bought the matches cheaply in bulk and sold them at low prices, making a tidy profit. He reinvested his profit in the business and soon diversified into selling a variety of articles including Christmas decorations, stationery items, fish, and seeds. In 1943, when Kamprad was 17, he formed IKEA (an acronym made up of his initials and the first letters of Elmtaryd and Agunnaryd, the farm and village where he grew up), using the money he received as a gift from his father for doing well in school. IKEA4 sold an assortment of goods from pens and pencils to watches, jewelry, picture frames, wallets, and stockings. By 1945, business had increased so much that it was no longer possible to make individual sales calls. Kamprad, therefore, set up a mail order catalogue and shipped orders using the local milk van. In 1947, furniture was introduced for the first time in IKEA’s product line in the form of armchairs. Craftsmen from around Kamprad’s village made the furniture using wood from a nearby forest. IKEA’s furniture became very popular and the line was extended to include more products. By 1951, furniture sales had increased so much that Kamprad decided to discontinue all other products and specialize exclusively in low priced furniture. In the same year, the first IKEA furniture catalogue was published. IKEA opened its first furniture showroom in 1953. The showroom allowed customers to see, touch, and feel the items they were buying, so that they could assure themselves of the quality of the items. The showroom was the result of an intense price war that IKEA was engaged in with its main competitor at that time. In 1955, the company introduced its best and most successful innovation – furniture that could be dismantled. This concept had its origin in an observation by an IKEA employee that a table could easily fit into a car if its legs were removed. This would not only make transporting furniture easy, but also prevent damage due to bad transportation. Inspired by the idea, IKEA started designing its own furniture, featuring items that could be easily dismantled and packed into flat packages. This made it convenient for buyers to carry the furniture home. Besides, it also reduced the overall cost of the furniture, as buyers had to assemble the items themselves at home using instructions provided by the company. In 1959, Gillis Lundgren (Lundgren), one of IKEA’s earliest employees, designed home storage systems, which were named ‘Tore’ (IKEA traditionally gave a name to each of its products, Refer Exhibit II for an indicative list of IKEA’s product names). Lundgren had got his inspiration from

4 In the background note, ‘IKEA’ refers to the original Swedish company. However, in the rest of the case

study, it refers to IKEA North America.

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kitchen storage systems and applied the same concept to the rest of the house. Tore became one of IKEA’s biggest successes ever. Over the years, several other innovative ideas from IKEA’s employees were converted into products. Notable among these were the MTP bookcase, the Olga chair and the Privat sofa. Kamprad believed that companies existed not only to improve people’s lives, but also to improve people themselves. Therefore, he encouraged employees to be creative and independent. IKEA began overseas expansion in 1963, opening its first store in Norway. In 1975, the company opened its first store in Australia. In 1982, Kamprad put in place the ownership structure of IKEA by establishing several trusts, foundations, and holding companies. It was reported that he did this to protect the company from breaking up due to family infighting after his death. In 1984, IKEA introduced a range of furnishings called Stockholm. This range featured high quality furnishings at low prices. Stockholm won the ‘Excellent Swedish Design’ award in the year it was introduced. By the mid-1980s, IKEA had over 6000 employees around the world. The first IKEA store in the United States was set up in 1985. In 1986, Kamprad officially retired as Group President, but continued to play an active role as Senior Advisor. Anders Dahlvig took over from Kamprad as President. In the late 1990s, the company introduced ‘Children’s IKEA’, a range of children-focused furniture. The company worked extensively with child psychology specialists as well as children themselves to make the range completely suitable for the target market. Extensive testing was done before this range of furniture was commercialized. In 1999, IKEA announced the ‘Big Thank You Event’ as a millennium bonus to IKEA’s employees. The total worldwide sales amount on October 9, 1999 (which was traditionally the busiest day for IKEA), amounting to $80 million, was shared equally among all IKEA employees. For many, this bonus exceeded their total monthly pay. In 2004, IKEA’s annual sales worldwide totaled $15.5 billion. In 2005, the company employed over 84,000 people in 205 stores across 32 countries. HUMAN RESOURCE MANAGEMENT PRACTICES IKEA’s vision was “To create a better everyday life for the many people.”5 ‘People’ included employees, customers, as well as the community. The company’s human resource philosophy subscribed to the belief that employees were more productive and committed when the company took care of them and their needs. IKEA adopted a paternalistic stance toward employees and their needs (as did many other Swedish companies) and promoted employee empowerment. However, although the company had a positive HR philosophy and offered generous benefits, their application was more or less standardized and policies applied uniformly to all employees. This did not always work well, as different employees had different needs. In the late 1990s, when Spiers-Lopez became the HR head at IKEA North America, she realized that employees were not able to derive the maximum benefit from IKEA’s generous HR policies, as the policies did not always match individual needs and requirements. She felt that employees would benefit more if there were a greater amount of flexibility in benefits administration.

5 www.ikea-group.ikea.com.

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With a view to developing a system that was more in keeping with employees’ requirements, Spiers-Lopez conducted comprehensive employee surveys, asking them detailed questions about their needs, expectations, and preferences. In the course of this activity, she concluded that while all of IKEA’s employees believed in and were committed to the IKEA culture, each had different needs and expected different things from the company. In order to accommodate these different needs, Spiers-Lopez created a set of initiatives that supported ‘life balance and diversity’. Flexibility was the cornerstone of IKEA’s human resource management philosophy. The company made a conscious effort to accept and accommodate the different needs of its people. One instance of this was the flexible holiday schedule. IKEA traditionally observed six holidays every year. Initially, the company had a structured holiday schedule, with six standard holidays for all employees. However, in the late 1990s, IKEA implemented a flexible six-holiday schedule, which allowed employees to decide which six days they chose to observe as holidays every year. Flexibility extended to work design as well. IKEA gave due importance to the fact that employees had a life beyond work. Therefore, it made an effort to incorporate policies that would help employees achieve life balance. IKEA introduced flextime, which allowed employees to choose when they would start and end their workdays, subject to the requirements of the store or office in which they worked. IKEA also introduced condensed work-weeks, job sharing, and telecommuting to allow employees to do justice to both their personal lives as well as careers. Lori Schilling (Schilling), an IKEA employee from California, said IKEA’s flexibility policy was a major help to her when she adopted a child in 2003. After the adoption, Schilling wanted to spend more time at home. She worked out an arrangement with her bosses and direct reports, which allowed her to work every alternate fortnight. She reported that this arrangement worked very well for her and that she did not encounter any problem with the company or her bosses. “They rarely call me at home. At what other company could you do that?” said Schilling.6 The company even adopted videoconferencing in a big way to help employees avoid excessive business travel at the cost of family time. IKEA allowed its employees to coordinate their schedules with their spouses’ work hours, especially if they had small children and one of the parents was required to be home at all times. The company was also open to transferring employees between locations, provided there was a matching opening for the employee at the place he or she wanted to move to. This especially worked in the case of young employees who wanted to spend a year or two working at a different location, sometimes even abroad. IKEA’s flexibility policy ensured that employees did not have to sacrifice their careers due to personal commitments. “If an IKEA co-worker needs to take time off to find a nursing home for an aging parent, be home to kiss their child before bed, or telecommute to better juggle caring for a newborn, they can actually do that without feeling guilty or worrying about risking their career aspirations.” said Spiers-Lopez.7 Besides, this had a positive impact on the company as well. As the company was open to accommodating their requirements, employees were motivated to contribute their best. It was estimated that, by 2004, sixty five percent of IKEA’s full-time employees and 10 percent of part-timers had taken advantage of the company’s flexible work policy.

6 “Success Scandinavian Style,” Workforce Management, August 2004. 7 www.rehwoldt.com.

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Under the guidance of Spiers-Lopez, IKEA introduced several initiatives that improved the quality of work life of the employees. The company invested substantially in making its stores more comfortable for employees during nonworking times and breaks. Several IKEA stores had ‘quiet rooms’, where employees could go to pray or meditate. Lactation rooms were also built for the benefit of nursing mothers. Many stores had onsite childcare facilities managed by IKEA or outside contractors and entertaining rooms where employees could receive visiting friends and family members. Employees also received substantial discounts at IKEA’s onsite restaurants for themselves and their families. To keep employees updated, several IKEA stores set up resource rooms, where employees could access computers to browse IKEA approved websites containing health information, and self- improvement tips. They could also access employee websites, which listed benefits information, details of forthcoming training and development programs, and jobs openings within the IKEA system. IKEA was well known and applauded for its benefits policy, which was among the most generous in the retail industry. The company gave full medical and dental insurance to all employees working 20 hours or more per week. The company also gave its employees substantial discounts for weight reduction and smoking cessation services, as well as free subscriptions to health and wellness magazines. IKEA offered significant parental benefits as well. Women were eligible for seven weeks’ maternity leave with full pay, while men and adoptive parents received one week with full pay. In addition to this, they could take paid time off for family commitments such as marriages and deaths. All employees were eligible for between two and five weeks of annual paid vacation, depending on the length of their service at the company. Unlike many other companies, leave accruals began on the first working day itself and employees could carry forward vacation time to the next year (although they were encouraged to take a vacation every year). All employees were eligible for a 15 percent discount on IKEA merchandise and could purchase anything at IKEA’s restaurants at highly subsidized rates. IKEA even had an annual ‘Coworker Appreciation Day’, when employees could get a discount of up to 40 percent on store purchases depending on the annual performance of their store. This discount was extended to family members as well. Employees also received a credit card with no interest for 90 days and could choose to join the company’s 401(k) policy8. Additional benefits included tuition reimbursement for graduate and undergraduate courses for all employees regardless of how many hours they worked. Employees were encouraged to pursue courses that had potential application in the retail sector, such as general management, accounting, and interior design. Study of languages was also encouraged. IKEA paid 75 percent of the course fee upfront and the remaining 25 percent after the course was completed. The company reimbursed up to $2,500 per year for undergraduate courses and up to $5,000 a year for graduate courses. As an added benefit, IKEA gave a special bonus of $1000 to employees who stayed with the company for one year after completing the course. Analysts said IKEA’s tuition reimbursement policy was the most generous in the industry and reflected the company’s commitment to contributing to the continuous development of its employees. This policy offered significant benefits to the company as well, as IKEA believed in promoting from within, and therefore required skilled candidates for future promotions. In 2003, about 1500 employees utilized IKEA’s tuition reimbursement program. 8 A tax saving fund to which employees contribute a certain percentage of their pre-tax salary, with a

matching or proportionate contribution by the employer as well.

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What was distinctive about IKEA was that not only full-time workers, but also part-timers were eligible for the company’s benefits program. Another noteworthy aspect was that the company did not lay any minimum service conditions for employees to become eligible for benefits. In other words, most employees were eligible for benefits from the day they joined the company. Analysts estimated that in 2004, only about 15 percent of retail workers received any manner of benefits from their employers. Besides, following the economic downturn of the late 1990s and early 2000s, there was a general trend of cutting down benefits. Most retailers also excluded part- timers from their benefits policies. IKEA’s commitment to the ongoing development of its employees was reflected even in the company’s policies on training and development. The company put in place an extensive training and professional development program to promote the advancement of employees. Employees could use several resources including books, classroom sessions, and online instruction to meet their requirements in sharpening their skills or acquiring advanced knowledge. The company also had specialized training programs in areas like diversity, health and safety, and environmental consciousness. Mentoring formed an important part of IKEA’s employee development program, as Spiers-Lopez was a strong believer in the benefits of mentoring. In 2001, IKEA launched a program called ‘Partners for Growth’, which was a formal one-year mentoring initiative that teamed junior managers with senior managers from different locations of IKEA. Mentoring was expected to train and prepare junior managers for positions of greater responsibility in the future, and to help IKEA meet its leadership needs in later years. Spiers-Lopez said mentoring made employees feel supported, and helped them grow within the company. Another program, ‘Paddle Your Own Canoe’, was a self-assessment tool that trained employees to take responsibility for their own careers and gain the knowledge they required to move into higher positions within the IKEA system in the future. Employees sat down with their managers to discuss their career path within the company, and to identify the additional skills and knowledge they required to progress on the chosen career path. Employees first conducted a self- assessment of their capabilities and then identified their training requirements in coordination with their managers. Employees could also access the employee website, which listed all the development tools offered by IKEA, and choose those most suitable to their needs. “There are no limitations on what you can achieve by working with us,” said IKEA store manager, Max Hedberg. “Your career path is laid out.”9 ‘I Want Your Job’, an employee development program, was launched in early 2003. This program allowed employees to train actively with the person whose job they would like to hold in the future. All of IKEA’s employee development programs were designed to provide a ready pool of qualified candidates for IKEA’s future growth and expansion programs. Typically, between 10 and 15 percent of IKEA’s store employees went on to manage stores of their own. IKEA subscribed to the belief that all employees must be given the chance to advance within the company. Therefore, all training and development programs were two-way activities, where managers and subordinates worked together. The idea behind this was to ensure that managers did not exercise arbitrariness in deciding which of their subordinates would get training or be promoted. Toward this end, IKEA launched an initiative called ‘Open IKEA’, which was designed to update employees on new job openings within IKEA. Job openings were posted on the employee website as well as the company intranet. One innovative method of advertising jobs was by putting up

9 “IKEA’s Ideas”, St Paul Pioneer Press, July 11, 2004.

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catchy stickers and slogans where employees would see them. IKEA put stickers on mirrors that read: “Find a job that really reflects your interests.” Those on soft drink machines would read, “Refreshing Opportunities,” and so on. IKEA launched ‘Enterprise’, a global application tracking system in late 2003. Enterprise was an e-recruiting system designed to reduce the delays in the hiring process by facilitating faster communication with candidates around the world, thus taking the IKEA recruitment system to a global level. Using Enterprise, employees could track openings in the places of their choice and apply immediately online. Enterprise was also designed to put the responsibility for hiring in the hands of store managers rather than IKEA’s HR recruiters. IKEA took care to ensure that it recruited the right kind of people. The company focused on practical skills, and an ability to understand and get along with people in its recruitment activities. Another important attribute in future employees was the ability to ask questions and give input. Communications played an important role at IKEA. The company encouraged employees to question the decisions of the management and to openly express their ideas and beliefs. In the early 2000s, IKEA initiated a program called ‘Why Sayers’, which encouraged employees to express their ideas to improve their stores. These ideas were generally channeled through supervisors and tested in some stores. If they worked, they were made standard practices. The company gave so much importance to this practice that it placed an advertisement inviting ‘Why Sayers’ to join the company (Refer Exhibit III for the advertisement). Spiers-Lopez initiated another program called ‘Express Yourself’, through which IKEA employees could share complaints or concerns with her directly, either through e-mail or through postcards earmarked for her. IKEA insiders said this program greatly improved morale within IKEA, as employees felt important when the president herself personally sought and responded to their concerns. IKEA had a comprehensive communications system in place for employee communications. IKEA Radio was a short news program that was aired over public address systems in the stores. This usually broadcast communications of a general nature. The company intranet was another effective tool for communication. IKEA also reached out to employees through printed material like newsletters and brochures. WORK CULTURE IKEA’s positive HR policies were supported by a strong and nurturing culture that promoted diversity and creativity. Spiers-Lopez said IKEA’s culture was characterized by a family-like quality that made relationships between employees strong and open. “At IKEA, we think of ourselves as a family. Just as one would look after their parents, siblings or children, our coworker family is encouraged to and excels at supporting and taking care of each other,” she said.10 Kamprad had once written in a manifesto that “the true IKEA spirit is still founded on our enthusiasm, on our constant will to renew, on our cost consciousness, on our willingness to assume responsibility and to help, on our humbleness before the task and on the simplicity in our behavior. We must take care of each other, inspire each other.”11 These values became the core of IKEA’s culture and were regularly reiterated in training programs and staff meetings (Refer Exhibit IV for IKEA’s values). 10 “Ikea Named To Working Mother Magazine’s ‘100 Best Companies for Working Mothers’ for Second

Consecutive Year”, www.ikea-group.ikea.com, September 21, 2004. 11 www.benefitsnews.com.

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Openness and equality were important values at IKEA. To emphasize equality, IKEA called all its employees, regardless of rank, ‘coworkers’. “We’re all co-workers because we all make a difference. It doesn’t matter what we do, whether in an office or on the sales floor. We all affect the customer in very different ways, and all of our efforts are appreciated the same way,” said Hope Bear, a deputy HR manager at IKEA.12 Equality was important as it helped create an informal atmosphere at the company and promoted communication between employees. With a view to promoting open communication, IKEA adopted a flat structure with no hierarchical distinctions. At most of the stores, there was an open plan office structure where managers and employees sat together and shared the same facilities. They also dressed alike in yellow shirts and blue trousers (IKEA’s uniform) and usually addressed each other by their first names. IKEA’s employees were encouraged to express their opinions and ideas directly to the top management. “There's an open and friendly climate with many nice colleagues,” said one IKEA employee of the culture at the company. “You can speak your mind, and there are no obvious hierarchies. One telltale sign is that department managers sit at desks among everyone else in an open office landscape,” she continued.13 She added that the openness and flat structure allowed employees to speak out, and when their suggestions were considered seriously, to feel rewarded. Another feature that made employees feel rewarded was the high level of empowerment at IKEA. The company never gave its employees detailed instructions about their job activities and behaviors. It gave them general instructions on what they were expected to achieve, and allowed them to choose their own methods in achieving that, within reasonable limits of cost and ethical behavior. “The main part is freedom of responsibility,” said Spiers-Lopez. “In every job, there’s always some freedom you can take. You don’t have people watching you every minute.”14 Cost consciousness was a value that was deeply embedded in IKEA’s culture. This supposedly stemmed from Kamprad, who was notorious for his tight-fisted attitude toward spending money. According to Kampard, IKEA’s business goal was to “offer a wide range of well-designed functional home furnishing products priced low so the largest number of people possible will be able to afford it.”15 Therefore, economy was ingrained in every action of the company. All executives flew economy class or on low cost airlines for business trips. They also stayed in budget hotels and commuted by public transport on their trips. Kamprad himself had a frugal lifestyle for a person rumored to be the richest man in the world. Cost was the basis of all decisions. Product development was done on the basis of the expected price of the product. Before any new plan was implemented, the costs were weighed carefully. IKEA sold furniture at prices that were 30 to 50 percent lower than those of its competitors. Therefore, it was imperative for the company to have a cost structure that supported its pricing strategies. 12 “Best Practices in HR”, www.blr.com, December 20, 2003. 13 www.itnetcentral.com. 14 Karen Lee, “Care Without Coddling,” Employee Benefits News, June 1, 2000. 15 Oscar Halpert, “Why IKEA is the business customers - and cities - clamor for,” Renton Reporter,

October 29, 2004.

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IKEA’s culture promoted diversity. The company believed in respecting employees’ personal beliefs and choices and benefiting from cultural diversity. In the early 2000s, IKEA instituted several diversity-focused programs, which helped employees’ accept and promote diversity at the work place. In one of the programs, IKEA’s hiring managers were trained to be aware of the possible cultural biases that they may have and to help them avoid bringing these biases into the hiring process. “Our goal is to hire the right people for the job, not those who click with the hiring manager,” said an IKEA spokesperson. 16 The company instituted a diversity drive, in which it trained HR personnel and individual store managers intensively in diversity related issues. Trainees were given extensive information about which organizations to contact to find qualified minority candidates and how to adjust interviewing techniques to make the interviewing process more comfortable for minority applicants, among others. Managers were evaluated annually on the amount of ethnic diversity they managed to incorporate in their workforce. In 2004, nearly 50 percent of IKEA’s employees were women while minorities constituted 52 percent of the total workforce. IKEA was a highly competitive company and strove to be the best in every region that it had operations. The company was in favor of competition, as it believed that this stimulated improvement and kept everyone on their toes. It was constantly in touch with its competitors’ products and strategies and expected all the employees to be conscious of these too. However, despite being an aggressive competitor, IKEA was ‘humble’ toward its competitors and ‘respected their proficiency’. Openness to change and adaptability were stressed at IKEA. The company understood that change was the key to continuous success and therefore encouraged employees to keep coming up with newer ideas and methods to do things. Analysts said IKEA’s commitment to change was probably rooted in the fact that many of its successful innovations were a result of experimentation. The natural consequence of being open to change was the enhancement of employee creativity. The value IKEA placed on employee creativity was reflected in the fact that the company usually credited individual employees for furniture designs. IKEA created a sense of belonging among its employees by creating a set of distinct values and norms they could identify as IKEA standards. The company maintained an obvious Swedish atmosphere, so that people did not lose touch with the roots of its culture. It even celebrated a Culture Day when it familiarized employees with Swedish customs and traditions. Another innovative practice at IKEA was to give all the products Scandinavian names. This created a strong sense of identity and association among employees. All managers were required to attend a week-long orientation program in Sweden on the ‘IKEA WAY’, which was generally attended by Kamprad himself. All employees were also given “The Testament of a Furniture Dealer”, a book written by Kamprad describing IKEA’s business philosophy. The book outlined the basic tenets on which IKEA’s culture was built. Some of them were; “Waste of resources is a mortal sin at IKEA”, “Only while sleeping one makes no mistakes,” “Mistakes are the privilege of the active person who can start over and put things straight,” and “Happiness is not to reach one’s goal but to be on the way.” THE PAYOFF No doubt IKEA’s generous policies involved substantial costs for the company (sometimes they seemed to be the antithesis of the company’s cost conscious culture), but the pay off far outweighed the costs. For one thing, IKEA’s employee turnover fell drastically, from 76 percent in 2001, to 56 percent in 2002 and 35 percent in 2003. The company’s turnover was also almost half

16 www.rehwoldt.com.

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the average industry rate, which hovered around 60 percent. This substantially lowered the company’s costs in recruiting and training replacements. (Analysts calculated that the replacement cost of one person was between one and 1.5 times his salary). It was reported that most of IKEA’s employees in the early 2000s had high morale and were looking at long-term careers in the company. IKEA’s profit margin was also relatively high, at around six percent for 2004, which was almost double the margin of its competitors. Analysts said the general opinion among retailing companies was that lower level employees were easily replaceable, and so they did not have to make a special effort to retain these employees. For this reason, they were often indifferent toward employees, paying minimum wages and negligible benefits. In contrast, IKEA understood the importance of a committed workforce and made an effort to retain people, and this turned out to be its major competitive advantage. QUESTIONS FOR DISCUSSION: 1. IKEA was well known for its positive human resource management practices. Critically

examine the important elements of IKEA’s human resource management policy and their effect on employee morale.

2. Employee development is one of the most important aspects of human resource management.

Examine IKEA’s employee development programs and comment on the advantages of these programs to the employees as well as the employer.

3. Culture plays an important role in fostering innovation. What, according to you, are the

important cultural elements that promote innovation? What are the reasons for IKEA’s innovativeness?

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EXHIBIT I

IKEA’S OWNERSHIP STRUCTURE

The IKEA group was owned by the Stichting Ingka Foundation, which was registered in the Netherlands and owned by the Kamprad family. Stichting Ingka Foundation owned Ingka Holdings BV, the holding company for the IKEA Group. The IKEA Group consisted of several companies from the Swedwood Industry Group to various sales companies. A total of nine staff units based in the Netherlands provided support functions to the IKEA Group companies. Inter IKEA Systems B.V., was the owner of the IKEA concept and trademark, and had franchising agreements with all the IKEA stores in the world. The IKEA Group was the biggest franchisee of Inter IKEA Systems B.V. Source: www.ikea.com

INGKA HOLDINGS

B.V

Purchasing

Range IKEA of Sweden

Distribution and

Wholesale

The IKEA Group Support

Functions

Inter IKEA Systems BV

STICHTING INGKA

FOUNDATIO

Retail

Industry Swedwood Group

Franchising Agreements

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EXHIBIT II

AN INDICATIVE LIST OF IKEA’S PRODUCT NAMES

Beds Meldal, Robin, Dalselv, Tovik, Loen, Malm, Noresund. Bookcases And Storage Systems Billy, Kilby, Enetri, Hensvik, Heri, Lack, Agerum,

Gaxa, Hejan Jutis, Benno. Chairs Olga, Jules, Sixten, Roger, Patrik, Runar, Trassent. Cookware Slom, Reda, Burken, Koloni, Grunka, Idealisk, Trojka,

Mixa. Lighting Lock, Alikvot, Edsta, Pult, Nittio, Iresud, Fado. Children’s Ikea Vikare, Blimp, Ateles, Trofast, Glis, Apa, Nosa,

Diktad, Tassa Svans. Sofas Klippan, Tylosand, Ektorp, Karlanda, Lillberg. Armchairs Poang, Lyby, Lillberg, Tullsta, Rolig, Pello, Emmabo.

Source: www.ikea.com

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EXHIBIT III

IKEA’S ADVERTISEMENT

Source: www.dijest.com

We're Hiring

Why Sayers

People who want to make things better. Make things more fun. More clever. People who aren't restricted by convention, but challenged by it. People who fit perfectly at Ikea. Because it's the why that makes us successful. Just give us a call and submit a voice application. We'll be in touch with you as soon as possible.

Call (866) 831-8611 or visit us on the web at

www. IKEA.com.

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EXHIBIT IV

IKEA’S VALUES

Togetherness and enthusiasm

This means we respect our colleagues and help each other in difficult times. We look for people who are supportive, work well in teams and are open with each other in the way they talk, interact, and connect. IKEA supports this attitude with open plan offices and by laying out clear goals that co-workers can stand behind.

Constant desire for renewal

We expect people to look for new, better ways of doing things in every aspect of their work. We like change and encourage people to look for constant improvement. People in the IKEA Group are often more stimulated by finding ways to achieving their goals, than by the goal itself. They take inspiration from discovery and are constantly “on the way” to the next challenge.

Humbleness

More than anything, this means respect. We are humble toward our competitors, respecting their proficiency and realizing that we constantly have to be better than they are to keep our market share. It also means we respect our co- workers and their views, and have respect for the task we have set ourselves.

Willpower

Willpower means first agreeing on mutual objectives and then not letting anything stand in the way of actually achieving them. In other words, it means we know exactly what we want, and our desire to get it should be irrepressible.

Cost consciousness

This value goes hand in hand with our business idea. It is impossible to have low prices, good quality, and good profitability if you don’t have low costs. So cost- consciousness is part of everything we do, from constantly finding better ways to produce home furnishings, to purchasing wisely and traveling cost-effectively.

Simplicity Behind this value are ideas like efficiency, common sense, and avoiding complicated solutions. Simple habits, simple actions, and a healthy aversion to status symbols are a part of IKEA.

Leadership by example

No method is more effective than the good example. It means leaders at IKEA are expected and encouraged to behave the way they expect their co-workers to behave. It means pitching in when there’s more than the usual work to be done, respecting those around you, and encouraging the initiative and achievements of everyone in the group. A leader at the IKEA Group can accomplish more by creating a feeling of well-being and a good working environment than any other means.

Diversity is part of this

We encourage an environment where people of different views, age, nationality, gender, and ethnic background feel welcome. We believe that a diverse workforce will improve business results, strengthen our competitiveness and make IKEA a better place to work.

Source: www.ikea.com

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ADDITIONAL READINGS & REFERENCES:

1. IKEA of Sweden, www.geocities.com, January 12, 1996. 2. Sami Kuusela, Offline. On Target? Business 2.0, December 1, 1998. 3. Karen Lee, Care without Coddling, Employee Benefits News, June 1, 2000. 4. Bob Chaundy, Ikea's self-assembled billionaire, news.bbc.co.uk, July 28, 2000. 5. Lisa Margonelli, How Ikea Designs Its Sexy Price Tags, Business 2.0, October 1, 2002. 6. Jonathan Haycock, Swedish Customs - internationally noted for innovation, Sweden

Today, November 11, 2003. 7. Best Practices in HR, www.blr.com, December 20, 2003. 8. Milton Moskowitz and Robert Levering, 10 Best Companies to Work For In Europe:

IKEA, Fortune, January 26, 2004. 9. Furnishing Good Benefits Along with Sofas, bizneworleans.com, March 28, 2004.

10. Tee Hun Ching, Having a Baby? Here's a Bonus from the Bosses, Digital Scanning Corporation Pte Ltd – News, March 29, 2004.

11. Bill v Ingvar, The Economist, April 7, 2004. 12. Cora Daniels, Create Ikea, Make Billions, Take Bus, Fortune, May 3, 2004. 13. Rob Gowland, Talking of greed, The Guardian, June 16, 2004. 14. The miracle of Älmhult, The Guardian, June 17, 2004. 15. IKEA’s Ideas, St Paul Pioneer Press, July 11, 2004. 16. Success Scandinavian Style, Workforce Management, August 2004. 17. Ikea Named to Working Mother Magazine’s ‘100 Best Companies For Working

Mothers’ For Second Consecutive Year, www.ikea-group.ikea.com, September 21, 2004. 18. Oscar Halpert, Why IKEA is the business customers - and cities - clamor for, Renton

Reporter, October 29, 2004. 19. Athena D. Merritt, 3 Pennsylvania companies make Fortune's 'best' list, Philadelphia

Business Journal, January 10, 2005. 20. Company Philosophy Unleashes the Potential of Employees, Hispanic PR Wire,

February 22, 2005. 21. IKEA: The World's largest furniture retailer, http://www.scandinavica.com, March 1,

2005. 22. Lynda Gutierrez, What’s the Big IKEA? Plain Talk Archives. 23. Scott Allen, Profile: Ingvar Kamprad - IKEA Founder and One of the World's Richest

Men, entrepreneurs.about.com. 24. Ikea Culture, www.celemi.com. 25. www.dijest.com. 26. www.itnetcentral.com. 27. www.wikipedia.com. 28. www.ikea.com. 29. www.rehwoldt.com. 30. www.ikea-group.ikea.com.