IKEA’s Innovative Human Resource Management Practices Assessment Answer
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Abstract
IKEA was one of the largest furniture manufacturers and retailers in the world, with operations in 32 countries (in early 2005). The company was well known for its stylish and innovative designs. It was the pioneer of furniture that could be dismantled and packed flat, to allow ease of transportation.
IKEA’s main strength was its committed workforce, which was often the source of the company’s innovative concepts. IKEA adopted a positive approach toward human resource management. In the late 1990s and early 2000s, the company implemented several initiatives that promoted ‘life balance’and diversity. The case discusses the innovative human resource management practices adopted by IKEA and describes its work culture. Initiatives related to flexible work design, comprehensive benefits, quality of work life, and employee training and development are outlined. The case also discusses the prominent elements of IKEA’s culture, such as diversity, openness, equality, cost consciousness, and competitiveness.
Initiatives related to flexible work design, comprehensive benefits, quality of work life, and employee training and development are outlined. The case also discusses the prominent elements of IKEA’s culture, such as diversity, openness, equality, cost consciousness, and competitiveness.
“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.
“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
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
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. 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.
IKEA 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.
Human Resource Management Practices
IKEA’s vision was “To create a better everyday life for the many people.” ‘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…
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. 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.”…
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 payoff 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 the average industry rate, which hovered around 60 percent. This substantially lowered the company’s costs in recruiting and training replacements…
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