International Human Resources Practices at IKEA

GROUP REPORT

Image Source: http://1000logos.net/ikea-logo/

Subject: International Human Resources (MGMT30004)

Tutorial: Paul Wiseman (Wednesday 4:15pm)
Word Count: 2,989 (excluding excutive summary, titles, in-text citations & reference list)
Student Student Number
Ellie Florence McRae 917040
Joshua Sassella 831909
Jacob Sibbald 758252
Emma Megan Steele 738754
 EXECUTIVE SUMMARY

The IKEA Group is a multinational, global furniture retailer has overarching HR practices
reflecting global and local employee standards. IKEA seeks to meet the demand of local
pressures whilst remaining relevant in the global marketplace. Human resources practices
deemed effective have been carried across subsidiaries and implemented with success. The
global implementation of HR practices reducing complexity and overall risk provided further
expansion.
IKEA places great importance on meeting the cultural needs of employees, significant
when considering their increasing presence within the Asia-Pacific region. This relationship
between people and business is essential to IKEA’s organisational structure, with HR policy
reflecting the need to employ individuals invested in adopting IKEA’s key values and vision.
Flexibility and reward are witnessed often, bolstering motivation and positive attitudes within
employees.
The cost leadership mentality of the company, fostered initially by IKEA’s founder, is
evident in the encouragement of economical practices. An ethnocentric staffing strategy
allows for IKEA to pose a large degree of global integration, with control over each local
market. However, while local adaption is supported, the global vision and values prevail as
the reason for IKEA’s success. This unified presence allows IKEA to streamline its product
offering and maintain its low-cost pricing model. Overall, efficiency of the organisation is
ensured through the sharing of knowledge and skill across subsidiaries.
IKEA maintains a unique position in the global furniture retailing industry, with little to
no competition. IKEA’s tight leadership structure allows for a more cohesive employee base
and encourages diversity. This empowerment is bolstered by the IWAY Standard policy,
carried across to its subsidiaries. This strategy aligns with IKEA’s cost leadership approach,
structure and heritage. The IWAY Standard upholds working conditions and employee rights,
ensuring ethical treatment and thus benefitting corporate culture and reputation, as well as
motivation and retention in the long-term.

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 CONTENTS

INTRODUCTION 4

SECTION 1: GLOBAL HUMAN RESOURCE MANAGEMENT PRACTICES 5

People 5

Processes 7

SECTION 2: IKEA’S GLOBAL STRATEGY 10

SECTION 3: INDUSTRY PERSPECTIVE 13

CONCLUSION 16

REFERENCE LIST 17

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 INTRODUCTION

Founded in 1943, Swedish multinational firm IKEA is one of the world’s largest retailers,

specialising in ready-to-assemble furniture, home accessories and kitchen appliances (IKEA,

2018). As a reputable player in the furniture retail industry, IKEA adopts both global and local

strategies in order to succeed in the 49 countries in which it operates. The complex corporate

structure of IKEA and its various controlled entities (INGKA Holding B.V.; Inter IKEA

Systems B.V.) similarly implore the need for human resource strategies to be observant of

their employees and their varying cultural perspectives. This report explores IKEA’s state of

human resources from a global perspective whilst exploring the influence its structure, market

power and operating industry has on the way it manages its diverse co-workers. These factors

formulate overall comprehension of the way in which IKEA manages its human resource

practises in its position as a global leader.


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 SECTION 1: GLOBAL HUMAN RESOURCE MANAGEMENT PRACTICES

Operating in 49 countries at the end of FY17, IKEA has successfully aggregated its human

resource practices in both its home country as well as its franchises abroad (Inter IKEA

Systems B.V., 2017). This is through a significant transfer of HR practices between its HQ in

the Netherlands and the subsidiaries. IKEA seeks to balance the need to respond to local

environmental pressures and the need to remain internally consistent with the global brand

through the duplication of effective practices from one location to another. This reduces the

complexity and uncertainty of operating in new overseas markets, allowing for reduced risk

with further global expansion. HR policies must fit both the local employment regulations and

cultural values of all the countries IKEA are operating in, as well as institutional conditions

and local context (Thomas & Lazarova, 2014). As IKEA continues to expand its international

presence into Asia Pacific, there is an ongoing need for HRM to shift emphasis across the

differing sets of employee needs. This can be achieved through changes to recruitment and

selection, in particular to understanding the localised need for expatriate assignments

compared to local managers.

People

With over 149,000 ‘co-workers’ working under the IKEA brand, it is crucial to have

an overarching presence from the parent company as well as localisation under the different

worldwide IKEA franchises (Inter IKEA Systems B.V., 2017). The coordination of people is a

vital function of HRM and in a multinational organisation, it becomes increasingly crucial to

manage people across different subsidiaries. IKEA’s core competitive advantage stems from

its brand image. Corporate culture is at the centre of this, with IKEA encouraging creativity,

innovation and hard work across all levels of employment. As a result, IKEA has ‘create[d]

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cultural embeddedness to a strong human capital that is inspired, motivated and engaged in

implementing IKEA’s business strategy’ (Kats, 2014, para. 4).

The global success of IKEA hinges on the relationship each subsidiary has with the HQ

and the healthiness of that relationship. This can be described as a symbiotic relationship

between the ‘growth of people and the growth of the business’ (“Management interaction the

key,” 2014, para. 3). Consequently, it is increasingly important for IKEA to hire the right

people for the right job. HR policy should reflect this need, with the focus on both technical

competences as well as an appropriate fit to organisational culture and values.

Acknowledgement of achievements is shown through reward allocation, with rapid promotion

and internal recruitment (Kats, 2014). This effective talent management helps retain top

employees though increased employee satisfaction levels, improved motivation in the

workplace and streamlining individual work ethics with the overall business objectives. IKEA

promotes work-life balance and flexibility through its numerous employee benefits programs

including additional leave options, education assistance, financial rewards and social events

(Inter IKEA Systems B.V, 2011). Co-workers are encouraged to take ownership over actions,

increasing a sense of responsibility and accountability over one’s work. Economical practices

are encouraged, with founder, Kamprad, leading by example by not flying first class or

staying in expensive hotels and thus diffusing the idea of simplicity and cost reduction

throughout the organisational structural pyramid (Kamprad, 1976; Kats, 2014).

IKEA appears to be adopting an ethnocentric staffing strategy with a high degree of

global integration and control. In the past, there was reliance on expatriates as agents of

control in the subsidiaries, with top management highly encouraged to learn Swedish to better

understand the culture and history behind the organisation and incorporate this into the

international subsidiaries (Rask, Korsgaard, & Lauring, 2010). Effective managers adapt their

leadership style to suit each situation and local market. IKEA adapts to local conditions by
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incorporating local perspectives and approaches to task responsibility. This contributes

positively to the management of satisfied employees. While local adaption is encouraged, the

overarching global vision and values of IKEA is a key factor to its multinational success.

Strong leadership and a shared vision and culture creates synergy between the desired level of

employee engagement between HQ and subsidiary (Kats, 2014). Employees can benefit from

the IKEA Backpacker Journey in which cross-national transfers of employees occurs in two

different countries for six-month assignments, one of which is in an area they haven’t worked

before. This encourages co-workers to go beyond their technical competence, widen their

knowledge and skills and helps IKEA retain future generational leaders with international

exposure (Inter IKEA Systems B.V, 2018; Löppönen, 2012).

Processes

IKEA creates coherence between their HR strategy and corporate strategy, with business

objectives aligning with HR policies and practices (“Management interaction the key,” 2014).

The MNE combines the use of market motives to enhance best practice throughout the

different subsidiaries, as well as cultural motives to influence organisational replication of the

parent company (Thomas & Lazarova, 2014). This enhances the overall efficiency of the

organisation through helping to shape an integrated network of subsidiaries that share

capabilities, resources and knowledge.

HRM policies are heavily influenced by the interconnected world. It is becoming

increasingly important for IKEA to rely on its global HRM practices to maintain its

competitive advantage. A unified global HRM presence allows IKEA to streamline its product

offering and allows the company to continue its low-cost pricing model throughout all its

subsidiaries, without the risk of losing the rare and inimitable capabilities that derive from its

Swedish brand heritage. IKEA appears to have duplicated existing structures and procedures
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that were effective in its Swedish operations into its franchises abroad. The standardisation of

policies and procedures reduces complexity and uncertainty in controlling overseas markets.

The challenge for IKEA is to balance the need for addressing local demands with

global consistency. Although product ranges and store layout are unchanging in global

markets, IKEA is adapting its offer to suit the different regions. International expansion into

the US and Asia Pacific highlights the need for management needs to remain flexible to be in

a position to capitalise on the changing consumer trends while remaining true to the IKEA

brand heritage that consumers remain loyal to. Dominant values present in the country-of-

origin’s culture tend to filter through to the subsidiary levels and influence how decisions are

made, and business is conducted (Thomas & Lazarova, 2014). IKEA’s core brand identity is

Swedish, prevalent globally with the use of Nordic product names (Euromonitor International,

2018). This level of global brand control impacts the corporate culture at IKEA on a

subsidiary level, with the transference of culture being incorporated at both the local and

global level. Consequently, it affects how IKEA controls its resources, including its human

capital. Maintaining a strong global culture allows IKEA to maintain coherence, especially in

relation to recruitment of like-minded employees. Cross-cultural training can be utilised as a

management tool to improve relationships and communication between subsidiaries, increase

the transparency of management practices (Rask et al., 2010). This has a positive impact on

staff motivation and how HRM practices are perceived.

Global HR policies should reflect the broader social interests of the organisation (Thomas

& Lazarova, 2014). A focus towards creating a more diverse workforce is evident in IKEA,

suggesting it will not only strengthen their competitive position but improve business results

and position them as an ultimate place to work (Rask et al., 2010). Over half the workforce is

female, with 49.2% female managers (Inter IKEA Systems B.V., 2017). Corporate social

responsibility not only impacts how consumers and society perceive a brand, but can impact
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levels of employee loyalty, moral and attraction of top talent. As a result, it is important for

IKEA to uphold diversity management when managing HR globally as the integration of a

diverse workforce can further drive its competitive advantage through the creation and

transfer of knowledge and innovation.

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 SECTION 2: IKEA’S GLOBAL STRATEGY

Under the broad concept of International strategy, there exists four main strategies that are

differentiated by their degree of global integration and their degree of local adaption. These

four strategies are known as Global, Multinational, International and Transnational (Chen,

2018). In relation to IKEA, the organisation implements a global strategy for their operations

which prioritiSes efficiency and cost savings through integration of headquarter practices in

subsidiaries. The implementation of a global strategy results in “a tradeoff [being] made

between local responsiveness and lower costs associated with global efficiency” (Popescu,

2013).

IKEA’s use of a global strategy is evident through their commitment to achieve

economies of scale by offering the same products in all markets (Johansson & Thelander,

2009), this illustrates the little importance they place on adapting products to local markets.

Cost savings are a major strategic focus for IKEA and one measure they employ to ensure this

is the development of all products in Almhult, Sweden (Inter IKEA Systems B.V., 2016).

IKEA performs all business activity under their vision of ‘offering a wide range of well-

designed, functional home furnishing products at prices so low that as many people as

possible will be able to afford them’ (Inter IKEA Systems B.V., 2016).

IKEA aligned their HR strategy with their global strategy to develop a new people

strategy in FY17 which is currently being implemented across the organisation (Inter IKEA

Systems B.V., 2017). IKEA developed this strategy in Almhult, Sweden and presented it at

their annual democratic design day; the announcement outlined the organisation’s wish to

‘create positive social impact for everyone across the IKEA value chain’ (Inter IKEA Systems

B.V., 2018)

However, not all HR practices are centralised like the development of the ‘People

Strategy’. There is evidence to suggest that firms are now operating ‘in an era of increasing
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globalisation’ and thus need to make some global adaptations to human resource practices to

fit differentiating cultural and societal norms in subsidiaries (Hitt, Franklin, & Zhu, 2006).

IKEA’s human resource function has taken a proactive measure to globalisation and adapted

some key practices to ensure worldwide effectiveness. These adaptations have not limited the

company’s vision of cost savings and this is still a key objective of the HR department.

IKEA’s cost savings and adaptation to global markets has been achieved by integrating

“human resource works in all parts of the company and in every country where [they] have

markets” (Inter IKEA Systems B.V., 2016). It can be inferred that IKEA has identified that the

added value, efficiency and cost savings resulting from integrating the HR department

throughout the organisation are greater than keeping the HR department as a separate function

in the home country.

It appears IKEA’s human resource department is inconsistent with their key business

strategy, especially considering academics and professionals have stated the importance of

ensuring HR’s strategy is aligned with business strategy (Wang & Shyu, 2008). However,

with a changing world where cultural differences impact the HR division, it would be

ineffective for IKEA to manage their human resources function under a strictly global

strategy. If IKEA failed to adapt some aspects of their human resource function, they would

have struggled to build a strong shared culture that is referred to as a family (Inter IKEA

Systems B.V., 2017). IKEA’s decision to integrate HR into all aspects of the organisation has

assisted them in working towards their goal of ‘[creating] an inclusive culture where all

people are valued’ (Inter IKEA Systems B.V., 2017).

Balancing the pressures of integration and adaptation can be difficult (Popescu, 2013),

however IKEA has managed to create a strong balance of both in their HR department. The

firm has successfully been able to develop core strategies in their home nation such as People

strategy 2017, as well as meet the local needs of employees through adapting HR practices to
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fit the differing cultures they operate in. Whilst multinationals are encouraged to align HR

strategy with business strategy, IKEA have managed to identify that this function will operate

more efficiently with some degree of adaptation. IKEA view their people as valuable

resources and categorise this function differently from product design, they ultimately believe

the HR division would be ineffective if it was fully centralised.

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 SECTION 3: INDUSTRY PERSPECTIVE

IKEA maintains a unique position in the global furniture retailing industry. Due to the

profound degree of vertical integration in both its operations and human resources function as

aforementioned, IKEA has expanded to become a truly unique outlier in the industry. As such,

IKEA lacks competitors on the basis of business structure and core competency. This stems

squarely from their pillars of ‘democratic design;’ form, functionality and design (Edvardsson

& Enquist, 2011, p. 542), which infiltrate all aspects of the organisation, including human

resources. Resulting in the flat-pack revolution, IKEA’s only competitors can no longer

compete on the basis of price, trusted design or efficient business practice. Due to this, IKEA

maintains overwhelming market power in the furniture industry which it uses to its advantage

to consequently strengthen their own corporate social responsibility principles - explored

below through its IWAY Standard (IKEA Services AB, 2012).

In the 2016-2017 financial year, Ikea was visited more than 936 million times in 49

geographically disperse markets (“IKEA 2017 by numbers,” 2017). IKEA’s uncontested cost

leadership position in the global furniture industry has led to its market dominance. Through

its price-first design mechanism which guides the establishment of its value chains, IKEA’s

leadership structure maintains flatness to the degree that ‘designers work on the factory floor

with production staff, rather than in a prestigious office in a distant city’ (Edvardsson &

Enquist, 2011, p. 542). This is a notable departure from IKEA’s former Swede-centric culture,

which prioritised its former white, Swedish and male-dominated executives (Rask, Korsgaard

& Lauring, 2010). Since then, as it is ‘an advantage to mirror the diversity of your customer

base internally within the organisation’ (Rask, Korsgaard & Lauring, 2010, p. 412), IKEA has

ensured standardised diversity practices are deeply embedded within its corporate culture.

IKEA’s ethical and socially responsible HR strategy is reinforced in their 2017 Annual

Report, in which they insist they ‘will empower the many by providing the right
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conditions’ (2017, p. 59) to work effectively. This is achieved through the IWAY Standard

(IKEA Services AB, 2012) policy, which is heavily influenced by Sweden’s openly

democratic national culture. The policy is an example of an exportive international HR

strategy in which the HR strategy of the parent firm is transferred to its affiliates (Stehle &

Erwee, 2005). Whilst such a diversity strategy is often criticised by academics due to its lack

of consultation with foreign counterparts (Rask, Korsgaard & Laurig, 2010), it is hereto

argued that in this particular case, the strategy is well aligned with both IKEA’s broader cost

leadership approach, its national heritage and its global structure. IKEA’s home country

Sweden is ‘placed at top level on well-being for older people, children’s health, in the use of

the information technology industry, public sector and households and innovative capabilities’

(Lundgren, 2016, p. 27). Exporting such a democratic and socially profound national heritage

to less-developed nations within IKEA’s value chain is an appropriate strategic choice as it

ensures global alignment to IKEA’s culture.

This cultural influence is stems from IKEA’s ‘People and Planet’ (Inter IKEA Systems

B.V., 2018) framework which prioritises the rights of all employees across all activities of its

value chain, including the activities undertaken by external suppliers. This includes the IWAY

Standard which monitors, adapts and governs the standard working conditions to which IKEA

holds itself accountable in all relevant operating jurisdictions (IKEA Services AB, 2012).The

document, which is general in nature, stipulates a thorough awareness of the company’s moral

position to ensure compliance of itself and suppliers alongside the legal working minima in

each of its operating countries. The company also mandates a number of guidelines which

supersede legal minima in otherwise developing nations.

IKEA’s mandated control over its suppliers --caused by its market dominance--

symbiotically ensures the adherence to the policy. Within the IWAY standard, the human-

specific elements of the policy include worker health and safety (section 8); recruitment,
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working hours, wages and benefits (section 9); accommodation (section 10); child labour and

young workers (section 11); discrimination (section 12); workers involvement (section 13);

and harassment, abuse and disciplinary actions (section 14) (IKEA Services AB, 2012). This

ensures the ethical development of a dedicated workforce across the value chain, which has

presumed benefits on corporate reputation and corporate culture, as employees become

universally protected. Subsequent motivation and retention benefits are foreseen (Ellis &

Sonnenfeld, 1994) as the company remains ‘strongly committed to creating a better everyday

life for [its co-workers] and [its] customers’ (Inter IKEA Systems B.V., 2017, p. 58).

Despite such benefits of the IWAY standard, it is important to recognise the paradox that

often arises from diverse organisations. In attracting and retaining talent that are innately

different, one must also ensure their prescription to a uniform guiding culture, which could in-

turn inhibit individual diversity (Rask, Korsgaard & Lauring, 2010). The preceding sections

have outlined the method to which IKEA has appropriately avoided this paradox. Whilst its

diversity practices and IWAY standard are at once exportive in nature and fulfilling of

government workplace relations laws, IKEA has successfully adopted an integrative strategy

to cater to idiosyncratic shifts in culture across its 49 markets. This ensures that despite its

Nordic influence, IKEA co-workers from across the globe and within the broader supplier

value chain remain uniquely diverse and focused steadfastly on the broader IKEA cost-centric

strategy.

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 CONCLUSION

The IKEA Group, in their management of human resources, remains able to successfully

balance the need to respond to local environments whilst being faithful to the expectations of

its global brand. Through the transferral of effective human resource practices across stores,

IKEA overcomes the complexity of operating overseas whilst ensuring adherence to its

overarching culture. Globally, employee creativity and innovation is encouraged, ensuring an

impenetrable corporate culture. In regards to global operations, IKEA adopts an ethnocentric

staffing strategy, retaining a high degree of integration and control. Local adaption is

supported, yet the global values and vision of IKEA are considered critical to multinational

success. This is exemplified in their IWAY standard policy, which is exported from parent

company Sweden’s democratic working standards. Through its market power, IKEA is able to

construct ethical workplace relations in its global value chain, ensuring diversity whilst

adhering or exceeding global government regulations. This simultaneously reinforces their

‘People and Planet’ policy, which remains at the forefront of their global HR operations. This

coherence established between its HR and corporate strategies allows for business objectives

to be aligned with HR policy and practices, ensuring IKEA’s operating effectiveness.


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