Corporate Social Responsibility in IKEA
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IKEA is one of the world’s largest furnishing companies. It operates in 42 countries across the world with a total of 70,000 employees, 59,000 of them working in Europe. IKEA is a Swedish based company that operates on the idea to provide an array of well designed products at very low prices so that many people could afford them. The company was founded by an entrepreneur known as Ingvar Kamprad in the 1940s who still controls the company through INGKA foundation located in the Netherlands. The foundation solely owns the company through the INGKA holding B.V, Company (IKEA, 2011). This is the reason why the company is not listed at stock exchange markets.
The bulk of the company’s operations are retail stores: it has a total of 65 stores in 22 countries. The company does not only purchase its products from suppliers, but produces some of the products by its industrial group, Swedwood. The greatest responsibility of the foundation is to support the design, training and education in furniture production. The IKEA concept was started by Kamprad’s innovative idea. Although the soil fertility in Smaland is poor, the people are known to work hard and make the most out of their limited resources. The founder of the company, therefore, put into practice the lesson he learned while growing up in Smaland.
Kamprad transferred all of his equity in the company to the foundation in 1984. This move is said to have been meant to protect the company from being destroyed by the family members. The company is, therefore, privately owned by Stichting INGKA Foundation. The products of the company are supplied to the market by IKEA Group Companies (IKEA, 2011). The members of this group include IKEA of Sweden, Swedwood, distribution, purchasing and other functions such as communications, internet technology and human services. Swedwood manufactures IKEA products and was established in response to the political and economic upheaval that emerged in 1989 after the Berlin wall brought down. It has branches in North America and other regions. However, the Eastern European nations represent the major labor market for the company. 52% of the employees are from Poland while 18% are from Slovakia, making it the second largest employee base, and Russia comes third (IKEA, 2011).
IKEA has 41 trading service offices and over 1350 suppliers. The purchasing department is responsible for maintaining efficiency, reliable production and minimal waste of material during the manufacturing of products. On the other hand, the distribution department ensures that goods are transported to where they are required with maximum efficiency. It also analyzes and manages supply chain issues as well as maintains the quality control throughout the supply chain. The recovery section also falls under the distribution department.
The Inter IKEA Systems B.V is another shareholder and owns the IKEA trademark and concept. Its main objective is to increase the supply of IKEA products in the world. It does this by franchising the IKERA concept. It is owned by Inter IKEA holdings S.A and not IGKA Holdings B.V. However, its owners have never been disclosed, although, it is alleged to be owned by the Kamprad family. There is a number of stores that sell the company’s products throughout North America, Europe and Australia. Most of these stores are franchised by INGKA Holdings Group while others are independently franchised. Although most of the company’s products are designed in Sweden, they are mainly manufactured in the third world countries so as to cut down on the cost of production. Comparatively, very little production occurs in Sweden and most of the products are assembled by the consumer.
Corporate Social Responsibility Analysis
As much as the company has Swedish roots, it is operated and owned by a collection of both for-profit and non-for-profit organizations. Its corporate structure is divided into two parts: franchising and operations. The operations services are overseen by INGKLA Holding. These services include the design and manufacturing of products, supply, and purchasing functions. Although IKEA’s leitmotiv has been cost effectiveness, it has now included a new element of altruism to philosophy. Currently, its objective includes the creation of a better life for as many people as it can (Smith, Bhattachrya & Vodel, 2010). It also works at offering a wide variety of products with good functions and products at very low prices to ensure that as many people as possible can afford those. The stated ambition of the company is to integrate and consider social and environmental conservation in its daily operations. It, therefore, aims at manufacturing products that have minimal adverse impacts on the environment. It also ensures that the products are manufactured in a socially responsible manner. The corporate social responsibility policies that the company operates with are derived from institutional relationships and norms that are common in the Nordic countries. The basis of these policies is to think about ethical values, economics and politics as part of the virtuous circle. IKEA aims at reducing the conflicts that occur between profit functions and CSR.
The company faces a lot of pressure from various stakeholders. This pressure exists mostly because the company business is modeled around cost effectiveness. In addition, the company also engages in many activities in the third world countries. There have been a lot of criticisms towards the company’s policies since the 1980s. For instance, NGOs have criticized IKEA on accounts of child labor, especially in Asia. The company’s working environment in Asia and Eastern Europe, as well as the cutting down of forests in Russia and Indonesia, have been severely criticized (Smith, Bhattachrya & Vodel, 2010).
From the company’s CSR report, it is clear that the external stakeholders have a great influence on its activities. For instance, in 1998, the International Federation of Building and Wood Workers pushed it to make changes in its code of conduct. This was based on an agreement signed by IFBWW and IKEA through negotiations by representatives from Save the Children, Greenpeace, and World Wildlife Fund in 1996. For the company to understand the developments in the field of CSR and make commitments to it, it has established working relationships with various NGOs. For instance, since 70% of its raw materials is wood, environmental concerns related to conservationof forests are the major concerns of the company. This is evidenced by its planning operations, certified efforts and collaborations with organizations such as Greenpeace, Global Forest Watch, the WWF, and the SwedishUniversity. Another area of great concern for IKEA is child labor. To address this issue, the company has partnered with Save the Children and UNICEF to come up with a section that specifically deals with the subject as demonstrated in its 2011 annual report (IKEA, 2011).
The local purchasing department of IKEA monitors the implementation of the agreements of the company’s CSR and its codes of conduct. This is also known as the IWAY. For instance, it investigates whether the suppliers follow the requirements put in place by the company. It also checks whether the internal compliance and monitoring team adheres to the global developments. Independent auditing companies verify monitoring, as well as play the consultancy in the implementation of the company’s codes of conduct. An important part of the company’s internal auditing process is the third party verification. In its biannual meetings, the company hands the audit results to IFBWW as well as the wider public. Independent organizations can constantly assess the audit report and challenge the company’s social and environmental measures. For example, SOMO, Robin Wood and Greenpeace have repeatedly accused IKEA of not respecting the social, environmental and human rights responsibilities. Smith, Bhattachrya & Vodel (2010) allege that a number of studies have indentified problems in the manner in which IKEA implements its codes of conduct. The company has been accused of not respecting the freedom of association of its employees. Its salary levels, working conditions and respect of the rights of the workers have also been seriously criticized.
IKEA gives organizations that it collaborates with on social, economic and environmental matters access to some privileged information that the general public cannot access. These organizations, therefore, maintain a positive image of IKEA’s CSR commitments. However, the company has not fully realized its CSR policies. In the past, some organizations that do not partner with IKEA have publicly criticized its CSR commitments. These organizations have blamed IKEA for not being clear about its CSR guidelines. More specifically, they argue that the slow implementation of the companies CSR policies is an indication of lack of determination. Other organizations also consider IKEA not be transparent about its CSR policies.
City councils favor IKEA because of its social and economic impact whereby it brings revenue and employment for the local population (Smith, Bhattachrya & Vodel, 2010). There are massive stores that benefit the regions in which they are located. City councils view IKEA as a superior entity because of the manner in which it addresses the socioeconomic and environmental issues. On the same note, trade unions that work with IKEA asset that the CSR policies of the organization are more developed compared to other organizations. However, the company’s communication about its policies is in question. Nonetheless, it addresses deeper issues than other organizations.
Organizations that deal with CSR consulting, monitoring and promotion consider IKEA CSR policies to be commendable. They argue that the company is more proactive than reactive when it comes to issues concerning CSR. However, they indicate that the company focuses on specific issues, like the environment and child labor, and forget a whole lot of other important issues, like workers’ rights and human resource management. The company is lacking when it comes to communication with the consumers.
Since the company depends on expectations from financial investors about its performance and public opinion, it must demonstrate a clear understanding of any changes that take place in the external environment. External stakeholders have heavily influenced the company’s CSR policies by letting it know their perceptions about the policies. This has made the company change its business practices. On many occasions, the company has been able to solve problems raised by stakeholders successfully while on other occasions it has anticipated and solved problems before they occur. IKEA management strategy, therefore, involves careful and strategic management of its CSR commitments (Husted, Husted & Allen, 2010). It has increased its proactive policies and included reactive responses when necessary.
IKEA launched the IKEA Family card which is a loyalty card with which consumers can obtain discounts on various products. The card is orange in color and can be obtained at no cost. It can also be used at any of the IKEA stores. Specifically, the card holder can obtained 25% discount of selected items as long as he presents the card. It can also been used to purchase food in Swedish Food Market and the restaurant at a discounted price. Together with the card, the company also publishes the IKEA Family Live magazine on quarterly basis. The magazine is printed in 13 languages and supplements the card and the catalogue.
There is so much controversy concerning CSR by companies, but the bottom line remains that it is not enough for a company to only concentrate on profit making. Companies also have discretionary and ethical responsibilities to the society. According to Husted, Husted & Allen (2010), CSR are different obligations that underline the stakeholders’ involvement in the company operations. As a result of intense pressure, IKEA has systematically integrated its objectives into its business operations and management philosophy. For instance, it has adapted trade unions, NGOS, and the media in response to social demands. The company quickly reacts when its reputation is challenged. For instance, in the 1980s, there were some poisonous substances found in the particleboards sold by the company in Denmark. In the same year, the management of IKEA established a testing exercise on all of its products and even introduced new requirement for all the suppliers. In fact, this is because of its quick response to any kind of criticism that the company is referred to as the Teflon Company. A stakeholder oriented approach demonstrates that the organization exists in a larger society with stakeholders whose claims need to be considered. Reacting fast to complaints from the stakeholders demonstrates that the company considers their plea. The mere fact that the company has a reputation of being socially responsible could protect it in time of crisis.
Nonetheless, the company also seeks to anticipate the demands of its stakeholders. In the 1990s, IKEA established collaboration with an international non-profit organization by the name Natural Step in an attempt to change its environmental policy to a business plan with efficient practices. Natural Step is also an educational and research organization with reliable experience in the environmental filed. This, therefore, exposed the company to experts with proper information that guided the company not to only continue with its profit making polices, but also consider environmental protection. Husted, Husted & Allen (2010) assert that being socially responsible has become the criteria to do business. This means that the survival of any company depends on the responsible management links. With the introduction of concepts like sustainable development and global business citizenship, demands from various stakeholders explain the main reason for CSR. IKEA has, therefore, gained ground with the collaboration with global organizations which is aimed at promoting sustainable investment and ethical buying.
With the widespread use of the internet, customers from all over the world can access reports from various organizations and evaluate whether the companies are paying attention to sustainable development and environmental protection (Husted, Husted & Allen, 2010). Since consumers adhere to specific ethical values, they search all over the internet to evaluate the CSR of companies before they could purchase their products. IKEA is known for its quick response to criticism about its operations and, therefore, most consumers would understand that the company works hard to fix any issues it’s accused of. Organizations like UNICEF also indicate on their websites the companies they work with, which is likely to boost IKEA’s reputation.
Despite its quick response to criticism, the CSR of IKEA has failed in the communication of its commitment. For instance, the report does not indicate a single time when the company’s advertising mentions its CSR commitment. There are about nine messages the company aims at passing across to the public: the IKEA concept; home furnishing specialists; IKEA product range; functions; low prices; convenient shopping; right quality; Swedish; and a day out for the entire family. It emphasizes on environmental protection and its Swedish roots. Most people relate the company to the environmental conservation, because it has Scandinavian roots. It is, therefore, not inevitably necessary for the company to speak about it.
Before 2005, IKEA used traditional means to communicate to the public about its CSR. For instance, it printed catalogues for its stores and explained various environmental impacts of its products. In the stores, the customers could also access information about IKEA’s collaboration with Save the Child and UNICEF and review various messages that advised them on how to change their consumption practices. However, things have changed since then and there are no catalogs to guide customers on various CSR policies of the company. The only sources of such information are through the website, codes of conduct, annual reports and brochures. The company first published its social and environmental report in 2004. However, there were very few numeral objectives in the report. Similarly it does not have any performance indicators (Smith, Bhattachrya & Vodel, 2010). It made commendable to see the 2005 and 2006 reports include such information, although, the indicators and objectives remained general. This makes it difficult for the stakeholders to judge the extent to which the company integrates its CSR policies in its business model.
The company’s IWAY code of conduct has a variety of performance levels. For instance, it lists the minimum requirements for every supplier. However, these issues are not indicated in the published reports. The report seems to use approximation for most of the issues indicated. For instance, it indicates that most suppliers comply with majority of the issues, but it does not give the exact number of the suppliers and the specific aspects they comply with. Similarly, the report is vague about the solutions it has implemented. Although it indicates that it has set up most of the CSR objectives, it does not give a clear description of whatever it has done. Judging from its description, it could be stated that the report is a specific way of communicating to the public in general.
Another issue that is evident in the report is that it does not indicate why the company is reluctant to stick labels about its social and environmental concerns on its products and yet it asserts that these products meet the requirements. It also does not provide a structured form of communication with its external stakeholders. Although it indicates that it collaborates with a number of external stakeholders, it does not invite NGOs, trade unions and other partners to take part in monitoring its CSR strategies. The external partners access the report only after monitoring has been done. This might seem like a way of hiding some issues from the partners and manipulating figures to favor the company (Husted, Husted & Allen, 2010). If the company genuinely collaborates with the external partners, they should be involved in monitoring its CSR strategies. There is a lack of transparency in the company which is an indication of some lack of consistency. The company looks like it wants to be in a grey zone to avoid being pinned down on specific issues. The report does not also indicate the manner in which the suppliers are monitored, yet these are some of the crucial issues that its stakeholders should be reading about.
The developments that have been demonstrated in the external environment of IKEA indicate the need to regularly consider company’s CSR policies. The best way to achieve this is through the dialogue with various stakeholders who should be kept aware about all the developments and progress of the company’s CSR policies. There is a need to include a feedback loop for the perceptions of the stakeholders about the organization. There should also be a constant communication with the external stakeholders, as well as involving them in the monitoring of the policies. Nonetheless, it has been clearly demonstrated that the stakeholders have an immense influence in the CSR of any organization. Their perception about the organization determines the organization’s image in the public domain.