Building Sustainable Businesses

The concept of low prices has long been the kingpin of IKEA’s outstanding performance in a traditionally low profitability sector as it was translated across all the operations of the company to ensure that every possible cost is taken out – from tasteful and knock-down design to lean manufacturing to flat packing to tightly controlled logistics to the concept of its stores and its self-service model – all mutually re-inforcing.

After having mastered the virtues of lean operations, IKEA is now taking it to the next level under the cover of achieving sustainable growth i.e. decoupling growth from environmental impact and increasing the company’s positive social impact.

This will obviously drive cost reductions further through initiatives such as becoming 100% energy self-sufficient by 2020 across its operations from stores to factories to distribution centers (with an investment of €1.5 billion to 2015 in renewable energy through for example installing solar panels on the roofs of its stores and building wind farms) which will additionally cut the risk of carbon pricing that will be implemented in most of the countries where it operates. Further costs reductions will also be achieved through ensuring that all operations are LED enabled or remaking classic products using fewer parts or working with furthest parts of the supply chain such as the cotton farmers to reduce their running costs (e.g. pesticides, fertilisers and water) while increasing yields.

IKEA definitively seems to “walk the talk”, making a direct link between sustainability issues such as energy efficiency, waste management and pollution and business value. However, the business case of reducing costs to sustain its business model profitably has always been at the core of IKEA and sustainability issues only add a 21st century twist to the purpose defined by its founder and the company’s strategy.