Internal Benchmarking at IKEA

- Continuous improvements in the Store Development

Process

Jeanette Mårtensson
Karl Johan Servin
Copyright © Jeanette Mårtensson and Karl Johan Servin

Department of Construction Management, Lund Institute of Technology

Lund University
Box 118
SE-221 00 Lund
Sweden

Department of Business Administration, Lund School of Economics and Management

Lund University
Box 7080
SE-220 07 Lund
Sweden

Examensarbete nr 65/2002
ISSN 1651-0100
ISRN LUTVDG/TVTM--02/5065--/SE

KFS i Lund AB
Lund 2002
Printed in Sweden
In order to fully enjoy and appreciate this Master Thesis you - the reader - ought to find
yourself in an IKEA store. Allocate the armchair Poäng – when doing this it is best to firmly
carry the report in a yellow bag, hanging from your shoulder. Then make yourself really
comfortable, open the first page and just enjoy your reading…..

And by the way, on the way out, don’t forget to…

Acknowledgements
This Master Thesis has been written at IKEA Services AB in Helsingborg during the
summer of 2002.

We would like to start by thanking the whole IKEA staff working at the office in
Helsingborg for ensuring us a great time during the whole summer. Our everyday gourmet
lunches of milk and serials would not have tasted quite the same without your company. We
also hope that the new routine "buying fruit at the market" that we implemented will
continue when the summer returns!

We would especially direct a thank you to our supervisors at IKEA, Madeleine Melkersson
and Peter Nilsson, for all their support and their patience in answering all of our unending
questions. Further more we would like to express our gratitude to our contact persons in the
store project studied. Agnieszka Antzak, Harald Hahn, Peter Krumhardt, James Palfrey and
Michael Gular, Thank you! We would also like to thank everyone else at IKEA that in any
way has contributed to the fulfilment of this Master Thesis.

Last, but definitely not least, we would like to aim our gratitude towards Lund and more
specifically towards our supervisors; the two Anderssons, Niclas and Per Magnus. This
Master Thesis would not even have become half as good without your never ending support
and confidence in us!

Jeanette Mårtenson Karl Johan Servin

Lund 2002-12-13
Abstract
Title Internal Benchmarking at IKEA
- Continuous improvements in the Store Dimensioning Process

Authors Jeanette Mårtenson, Civil engineering, Technology Management

Karl Johan Servin, Civil engineering, Technology Management

Supervisors Niclas Andersson, Department of Construction Management,

Lund University

Per Magnus Andersson, Department of Business Administration,

Lund University

Problem IKEA uses a standard store concept when building IKEA stores.
Developing a standard store concept simplifies the procedure to build many
similar stores in a more efficient way. However, a difficulty in the process of
establishing and using a standardised concept is how to continuously update
the concept itself. Today there are big differences in retail construction costs
between different IKEA countries, which indicate that there are differences
in construction performance and efficiency in different store projects.
Therefore it should be possible to find good and bad solutions through a
benchmark analysis. Benchmarking can thus be a proper tool in the
continuous process of updating the standard store concept. However,
essential when conducting a benchmark analysis is to have comparable
economic data.

In the case of IKEA it would be interesting to examine how big the

problem is for IKEA today with incomparable economic data deriving from
the store projects in the different countries. And, if this is a big problem,
what can then be done in order to come to terms with it?

Purpose The purpose of this Master Thesis is to examine how IKEA can develop an
appropriate economic framework for an internal benchmarking procedure,
in order to update the standard concept, decrease construction costs and
improve construction performance when building new stores.

Method This research follows the systemic methodology approach where the main
system is the IKEA store project development process. Further more it can
be considered a case study. The cases studied are four IKEA store projects
in the four countries Poland, Germany, the United Kingdom and the United
States. These were primarily chosen because of the great differences in retail
construction costs. The data is mainly collected in three ways; quantitative
data sent from the contact persons in the different store projects, qualitative
 data through visits and interviews with contact persons and other key
persons within IKEA and through everyday conversations with people at
IKEA while conducting the research.

Conclusions Major problems concerning the store project cost follow ups are identified
in the store project analysis. One great problem is that the legal accounting
system in all the store projects studied in various ways influence the store
project cost follow up. Another big problem is that there is a lack of
understanding as to why the project cost follow up is important. Further
more, the conclusion of the store project analysis is also that the store
project cost follow up is too inflexible and deliberate deviations from the
specification has to be done in order to study costs for different items
specifically. These problems result in incomparable economic data in the
project cost follow ups.

To be able to accomplish an internal benchmark analysis in order to

improve the store development process and the standard store concept
within IKEA, the project cost follow ups from different store projects all
over the world have to be comparable. This can be accomplished by
implementing the three cornerstones: Better specification and cost follow up
structure, Automatic accounting through EDI and Increased understanding and
motivation. Better specification and cost follow up structure concerns
changing the build up and use of the specification stated in the IKEA
Financial Manual. This is essential in order to simplify the project cost
follow up process and to be able to analyse cost variations easier. By using
automatic bookings through EDI less manual work will be made. This will
result in less wrong bookings, deliberate as well as undeliberate, and hence a
great potential for saving both time and money arises. Finally an increased
understanding of the full use of the store project follow up process and
higher motivation for making correct bookings is essential in order to
establish an appropriate economic framework for internal benchmarking.

Key words Internal benchmarking, continuous improvement, IKEA, store

dimensioning, store development, internal accounting.
Table of contents

1 INTRODUCTION ............................................................................................................... 11
1.1 BACKGROUND ............................................................................................................... 11
1.2 PROBLEM DESCRIPTION.................................................................................................. 12
1.3 PURPOSE, OBJECTIVES AND EXPECTED RESULTS ............................................................ 13
1.4 DELIMITATION ............................................................................................................... 14
1.5 BACKGROUND OF THE AUTHORS .................................................................................... 14
1.6 TARGET GROUP .............................................................................................................. 15
1.7 THESIS OUTLINE AND READING INSTRUCTIONS .............................................................. 15
2 RESEARCH METHOD ...................................................................................................... 17
2.1 INTRODUCTION .............................................................................................................. 17
2.2 METHODOLOGICAL APPROACH ...................................................................................... 17
2.3 PRACTICAL METHOD ...................................................................................................... 21
3 BENCHMARKING ............................................................................................................. 25
3.1 INTRODUCTION .............................................................................................................. 25
3.2 DIFFERENT TYPES OF BENCHMARKING ........................................................................... 26
3.3 INTERNAL BENCHMARKING............................................................................................ 27
3.4 FUTURE DEVELOPMENT OF BENCHMARKING .................................................................. 30
4 ACCOUNTING.................................................................................................................... 33
4.1 INTRODUCTION .............................................................................................................. 33
4.2 LEGAL ACCOUNTING ...................................................................................................... 34
4.3 INTERNAL ACCOUNTING................................................................................................. 34
4.4 MONOISTIC OR DUALISTIC ACCOUNTING........................................................................ 35
4.5 MULTIDIMENSIONAL ACCOUNTING ................................................................................ 36
5 ELECTRONIC DATA INTERCHANGE ......................................................................... 37
5.1 INTRODUCTION .............................................................................................................. 37
5.2 THE CONCEPT OF EDI .................................................................................................... 38
5.3 ADVANTAGES AND LIMITATIONS WITH E-COMMERCE AND EDI .................................... 42
6 IKEA ..................................................................................................................................... 45
6.1 INTRODUCTION .............................................................................................................. 45
6.2 IKEA TODAY ................................................................................................................. 46
6.3 THE STORE DEVELOPMENT PROCESS .............................................................................. 47
6.4 THE PROJECT COST FOLLOW UP AND COST SECTIONS ..................................................... 53
7 STORE PROJECTS STUDIED ......................................................................................... 55
7.1 POLAND - WARSAW NORTH, TARGOWEK ...................................................................... 55
7.2 GERMANY - REGENSBURG ............................................................................................. 57
7.3 THE UNITED KINGDOM - GLASGOW .............................................................................. 59
7.4 THE UNITES STATES – WASHINGTON RELOCATION ....................................................... 61
8 STORE PROJECTS ANALYSIS ....................................................................................... 65
 8.1 INTRODUCTION .............................................................................................................. 65
8.2 ANALYSIS MODEL .......................................................................................................... 66
8.3 RECONCILIATION BETWEEN LEGAL ACCOUNTING AND OPERATIONAL REPORTING ......... 67
8.4 DEVIATIONS FROM THE SPECIFICATION .......................................................................... 69
8.5 COMPARISON ................................................................................................................. 72
8.6 SUMMARY...................................................................................................................... 77
8.7 LIMITATIONS WITH THIS MODEL .................................................................................... 77
9 ACTION PLAN.................................................................................................................... 79
9.1 INTRODUCTION .............................................................................................................. 79
9.2 SUMMARY OF THE CASES STUDIED ................................................................................. 79
9.3 FACTORS FOR IMPROVEMENT......................................................................................... 82
9.4 HOW DOES THIS AFFECTS INTERNAL BENCHMARKING.................................................... 89
10 CONCLUSIONS.............................................................................................................. 95
10.1 INTRODUCTION .............................................................................................................. 95
10.2 INFERENCE FROM STORE PROJECTS ................................................................................ 95
10.3 SPECIFICATION............................................................................................................... 96
10.4 AUTOMATIC BOOKINGS – EDI ....................................................................................... 97
10.5 UNDERSTANDING AND MOTIVATION .............................................................................. 97
10.6 THEORETICAL CONTRIBUTION ....................................................................................... 97
10.7 CONCLUSIVE DISCUSSION AND PROPOSAL FOR FURTHER STUDIES ................................. 98
REFERENCES ............................................................................................................................. 99
Foolish men learn only from their own mistakes.
Wise men learn from the mistakes of others.
(Chinese saying)
1 Introduction

In this chapter the guidelines for this Master Thesis will be presented. A brief background description will
introduce the subject of the research and will then be followed by the more specific problem description and
main purpose and objective of this Master Thesis. Finally, the main chapters are presented in a short reading
instruction.

1.1 Background
The furniture retail industry is an industry with many different stakeholders and with both
global and local actors. New actors on the market appear all the time and it is not always easy
to keep track of who your competitors are. On these premises it is important to constantly
monitor the changes in the market and either stay one step ahead or be able to quickly adapt
your business to them.

IKEA, the big well-known Swedish furniture company, was founded by Ingvar Kamprad as
a very small and local company in 1943, selling pens, wallets, picture-frames etc. IKEA
expanded quickly and in 1963 the first IKEA store was built outside Sweden. This was the
kick-off for IKEA’s expansion abroad. Today, IKEA is located in 22 countries and has
approximately 170 stores all over the world.

IKEA has for many years mainly had local competitors on many of its markets. This has
given IKEA the upper hand since they have been able to take advantage of their global
strength. However, in the end of the 20th century, actors who previously operated on a local
market, started to expand globally and compete against IKEA on an increasing number of
markets. This increased the pressure on IKEA as these new global competitors could
compete on the same premises as IKEA, as opposed to many of the previous local
competitors.

In the competitive climate described above, the companies in the furniture retail industry
have to decrease costs and improve quality in order to increase revenue. This is even more
important for IKEA, since increasing the prices is no option in the long run, which is
understood by reading the IKEA Business Idea.

“We shall offer 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”
The IKEA Business Idea
11
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

One step IKEA has taken in order to decrease costs and improve quality is to look for
improvements in the development and build-up process of new IKEA stores. In the coming
ten years, IKEA is planning to double its size and as a result of this many new stores will be
built. To accomplish this, the dimensioning and build-up process of new IKEA stores has to
be simple and efficient and the store dimensioning and build up process of IKEA stores is
therefore being reviewed and ideas for improvements are being developed.

With the help of different key measures and a computerised tool developed by IKEA, a
standard store is automatically developed. This tool also contributes to the ambition of
decreasing costs and improving quality when constructing and building new stores at the
same time as it ensures that the IKEA-concept is spread and that every store looks and feels
alike wherever you are in the world.

However, the standard store, mentioned above, needs to be updated as the surrounding
world changes and as new and better solutions are discovered in different new store projects.
In this process an internal benchmarking procedure can be of great use. Nevertheless, to be
able to conduct a proper benchmark analysis in order to update the standard store, proper
data and information have to be collected from all new store projects. Today the
construction costs for fixtures and fittings in different countries have great variation.
Possible explanations to these variations could be found in differences in construction
methods and price levels, but it could also be found in differences in accounting systems and
project cost follow up procedures in the different countries. With different project cost
follow up procedures in various countries it is difficult to get comparable data and hence, the
possibility to compare store projects in an efficient way and to reuse knowledge and
experience from old store projects will be limited. This in turn will limit the evaluation
process and the updating process of the standard store.

By conducting an internal benchmarking procedure within IKEA, between different

countries and different store projects, great potential savings and improvements could be
accomplished. However, in order to do this an approriate comparable economic framework
is of great importance!

1.2 Problem description

Developing a standard store concept simplifies the procedure to build many similar stores, in
a more efficient and cheaper way and within a limited time span. However, there is a
difficulty in the process of establishing and using a standardised concept. As development
moves forward, the standard must also be updated in order to be of use. Therefore the
process cannot be of a one time character, but preferably a continuous way of working.

The big differences in retail construction costs between IKEA countries indicate a possibility
that construction performance and efficiency in different store projects differ. In that case it
would be possible to find good and bad solutions through a benchmark analysis. Thus,
benchmarking could be a proper tool in the continuous process of updating the standard
12
 1 Introduction

concept, decreasing construction costs and improving construction performance and

efficiency in new store projects.

Essential when conducting a benchmark analysis is to have comparable data. Thus, in order
to conduct a benchmark analysis in the IKEA store development process, it is important to
have store project data that is comparable. One further problem of conducting a benchmark
analysis in a process like the IKEA store development process is that the objects on which
the benchmark results will be implemented do not exist when the benchmark analysis is
conducted, since these consist of future store projects. Hence, in the cases of the IKEA
store development process, it is even more important to have a structured process, with a
standardised framework for working with data, to build the benchmark analysis on.

A second possible explanation to the variations in store project costs between different
countries could be differences in accounting and project cost follow up procedures. Low
costs in one cost section do not necessarily indicate that something has been done in an
efficient and cheap way. It could also mean that not all costs have been booked in the
correct cost section. In the last case, there is no use comparing cost sections between store
projects since the comparison would then be between “apples and pears”. Thus in the IKEA
case it would be interesting to examine how big problems IKEA has today with
incomparable data produced in store projects in different countries. Furthermore, if this is a
big problem, what can then be done in order to come to terms with the problem.

These are problems not easy to grasp. However, in order to develop a well functioning
benchmark procedure and to be able to compare performances between store projects in
different countries, an appropriate economic framework is of great importance.

1.3 Purpose, objectives and expected results

This Master Thesis is written with the base in a project description given by IKEA. The
project description has worked as the foundation when constructing the purpose and the
objectives of the Master Thesis.

1.3.1 IKEA project description

The target of the project is to develop a base for comparison between different retail
investments in new stores. The project includes the following actions:

⋅ Verification of the reconciliation between the legal accounting and the project internal
reporting (Project Cost Follow Up/CFU).
⋅ Check if the definitions for the project operational reporting is followed and suggest
improvements.
⋅ Comparison between the selected projects with a specified report of all deviations.
Suggest improvements.
⋅ Conclusions and action plan.

13
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

Selected store projects are “Warsaw North” in Poland, “Regensburg” in Germany,

“Glasgow” in United Kingdom and “Washington” in the United States.

1.3.2 Purpose
The purpose of this Master Thesis is to examine how IKEA can develop an appropriate
economic framework for an internal benchmarking procedure, in order to update the
standard concept, decrease construction costs and improve construction performance when
building new stores.

1.3.3 Objectives and expected results

The objective is to generate an action plan for IKEA concerning how to develop an
economic framework for a continuous internal benchmarking procedure, with proper project
cost follow ups and comparisons between store projects in different countries. The objective
is also that these actions should be applicable for other companies.

1.4 Delimitation
This Master Thesis will mainly focus on economic data and thus, other factors affecting the
benchmarking procedure will not be taken into account. Furthermore, the Master Thesis will
only focus on how to develop an economic framework for a well functioning benchmarking
procedure. Hence, the actual benchmarking procedure and the implementation will be
targets for further studies.

The study is conducted with focus on four different countries: Poland, Germany, United
Kingdom (UK) and United States (US). In each of these countries the study is further
concentrated on one primary new store project. When making comparisons between these
different store projects the study only considers the fixtures and fittings of the building and
thus not the outside walls, roofs and framework. These fixtures and fittings correspond to
cost section 12 and 14 in IKEA’s project cost follow up specification, found in the Financial
Manual.

1.5 Background of the authors

Both authors of this Master Thesis are at the end of their studies in Master of Science in
Civil Engineering, specialising in Technology Management at Lund University. Besides
specialising in Technology Management both authors have studied specialised courses within
the Construction Management department at the civil engineering program.

In this research competencies within both business administration and civil engineering are
of great use, as the research deals with accounting issues and internal benchmarking as well
as construction issues. Hence, the backgrounds of the authors are well in line with this study.
The supervisors at Lund University are also chosen with consideration to the subject of the
research. Niclas Andersson works at the Construction Management department and Per
Magnus Andersson works at the Institution for Business Administration and is specialised in
14
 1 Introduction

accounting. In this way, any lack of knowledge among the authors is likely to be covered by
the supervisors.

1.6 Target group

The Master Thesis is written mainly for people within IKEA who can influence the store
development process and should provide IKEA with useful guidance on how to
continuously improve the store development and build up process. The target group also
includes anyone who has interest in how internal benchmarking continuously can improve
reoccurring projects, like the construction of new stores following the same concept and
how an approriate economic framework is achieved.

Furthermore, the thesis is written with the assumption that the reader has at least the same
level of knowledge as a student in his or her final year of a Master of Science or Master of
Business Administration education.

1.7 Thesis outline and reading instructions

The thesis follows the normal layout of an academic report with the main areas frame of
reference, empiricism and analysis. In figure 1.1 below the layout of all chapters are shown.

Introduction

Research method

Frame of reference
Empiricism
Benchmarking Analysis
IKEA
Store projects
Accounting analysis
Store projects
studied
Electronic data Action plan
interchange

Conclusions

References

Appendix

Figure 1.1 Layout of this Master Thesis

15
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

The frame of reference works as the theoretical foundation of the Master Thesis. The main
theory, which permeates the entire Master Thesis, is the benchmarking theory. Accounting
offers the reader a very basic theory regarding different accounting systems and the purpose
of accounting. Finally the theory regarding electronic data interchange is vital in order to
understand the action plan in the analysis.

As can be seen in figure 1.1 above, the empiricism is divided into two parts. The first part
explains how the IKEA company is organised. It also contains a thorough description of the
store development process with its different stakeholders and follow up routines. The
second part is focused on the four store projects studied and describes the store projects as
well as the accounting systems in each country. In this Master Thesis it is very hard to draw a
distinct line between the empiricism and the analysis. An example of this is that most of the
economic data is presented in the analysis without being introduced in the empiricism. This
is done deliberately as it does not add any value to the report to present the raw material
received from the store projects studied. Instead, the data is directly analysed in the analysis
section.

The analysis is also divided into two parts. The first part analyses the four store projects
studied and describes the main reasons thoroughly as to why the different store project
follow ups are not comparable. In this process, the main deviations from the IKEA project
cost follow up specification are shown. The result from this part of the analysis is then used
for the second part of the analysis, in which an action plan is developed, that, if introduced
within IKEA, should enable the company to compare store projects and find good and bad
solutions in the future. This action plan is built up of three important corner stones, which
are introduced in this chapter.

16
2 Research method

This chapter describes the research method concerning this Master Thesis. It is divided into two parts, the
methodological approach, which tries to place this research in the “research web” and the practical method,
which describes the frame of reference, empiricism and analysis in this Master Thesis.

2.1 Introduction
Every scientific researcher needs to clearly state how the study is to be carried out. The
purpose of this is twofold. First, the reader must easily be able to position the study into the
research web, i.e. among other researches that has been and will be carried out. Second, in
order to conduct a successful research, you have to have an awareness of general
methodology as well as clearly specify the methods used in your research. You cannot simply
gather data for the general purpose of analysing, as different observations and statements are
closely linked to the method used when gathering the information.

2.2 Methodological approach

In the following subchapters the general methodological approach is explained.
Furthermore, the question as to where this research is to be positioned in the research web
will be answered.

2.2.1 Analytical, systems or actors approach

According to Arbnor and Bjerke (1997), there are primarily three different methodological
approaches; analytical, systems and actor’s approach. The analytical approach assumes that
reality has a summative character i.e. the whole is the sum of its parts. Furthermore this
approach assumes that the knowledge created in a research is independent of the observer
and that it is always possible to argue that all other things remains the same when conducting
a research with a number of factors. The systems approach claims that the whole differs from
the sum of its parts, which points out that it is essential to examine the relations and the
synergy between the parts as well as examining each individual part in order to understand
the whole. To be able to do this the focus must be more on understanding than on
explaining. Finally the actors approach puts the individuals in centre and takes into account
the meaning that the actors associate with their acts and the surrounding context. Hence, the
reality is therefore seen as a social construction.1

1 Arbnor, I., Bjerke, B. (1997)

17
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

When conducting a research that is closely connected to the benchmarking theory, it is very
important to realise that there are so much more influencing a performance than you first
see. Benchmarking aims at finding the best in practise and when doing so many different
factors has to be taken into account, e.g. low price might indicate a very effective process as
well as poor quality. This research therefore follows the systems approach, which means that
it takes into account not only the system as a whole but also the synergies and the relations
between the parts building up the system. The main system studied in this research is the
IKEA store project development process. This system can then be further divided into three
different subsystems; the project design process, the accounting routines and the store
project follow up process. These are all further described in chapter 6.

However, the workload to take all factors and the synergies into account when making this
study is not possible. Some simplifications and delimitations have to be done in order to
come to any conclusions within the time span stated. These delimitations, which are
presented in chapter 1.5, have been carefully selected together with the supervisors at IKEA
in order not to miss any important details.

As mentioned above the systems approach points out the importance of understanding
rather than just explaining. This also suits a study with the focus on benchmarking since it is
more important to understand, than to explain, the data in order to find good and bad
solutions.

2.2.2 Goal-mean vs. trial-and-error study

Within the systems approach there are two main groups of studies. The first group states
that it is possible to define the goals of the system at the beginning of the study and tries to
eliminate any gaps between the goals and the reality. The second group states that it is
impossible to plan the study and lets the course of the study provide material for successive
continuation. Arbnor & Bjerke (1997) define these two groups as goal-means orientated and
trial-and-error orientated.2 As the purpose and objectives of this thesis are well defined and
as the method to attain these is structured, this Master Thesis will be goal-means oriented.

By following the goal-mean oriented study, the research as a whole will also be conducted
according to a general plan, which is illustrated in figure 2.1. The theory states that the
research starts with a problem in a real system.3 In this research the main problem is how to
create an appropriate economic framework for internal benchmarking in order to
continuously improve the store dimensioning and build up process.

2 Arbnor, I., Bjerke, B. (1997)

3 Ibid
18
 2 Research Method

Systemic Systemic
analysis construction
Theory

Practice
Implementing
Problem new proposal

Figure 2.1 Goal-means oriented study

2.2.3 Positivistic vs. hermeneutic research

The positivistic research has its ground in the perception that a research must and can
dissociate itself from all metaphysical speculations, i.e. everything that is not real and
perceivable. Everything stated in the research must be possible to confirm or disclaim
through empirical experiences. For this type of study, the goal is normally to find causal
relations. The main purpose for the hermeneutic research is to interpret and understand the
reality. It is not possible, and not always desirable, to conduct a totally objective research and
the main purpose for the research is normally to establish a change, and then observe what
happens.4

The current study can most preferably be classified as a hermeneutic research. As the study
has its focus on benchmarking theory, the understanding is more important than just the
explanation.

2.2.4 Type of study

In the subchapters above this research is described as a hermeneutic study with a base in the
systems approach, see figure 2.2 below. One type of research that is normally closely related
to this framework is the case study. Lundahl and Skärvad (1999) describes a case study as a
research that focus on one or a limited number of cases and tries to penetrate these more
thoroughly. The primary advantage with a case study is the possibility to study the full
complexity of a problem without trying to simplify it or make artificial assumptions.5

4 Lundahl, U., Skärvad, P-H. (1999)

5Ibid

19
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

Analytical approach Systemic approach Actor’s approach

Hermeneutic research

Positivistic research

This research

Figure 2.2 The methodological position of this Master Thesis.

It is important to choose the cases to study correctly in order to achieve the best result. Most
frequently the cases are chosen as a best and a worst case, but this is not always preferable. It
is often better to chose cases that together provide a wide spectrum of different types of
structural changes or differences.6

This research can be considered a case study. The cases studied are four store projects in the
four different countries Poland, Germany, the United Kingdom and the United States and
were chosen because of the great differences in retail construction costs. Furthermore, the
construction finish dates for the store projects chosen are approximately the same and all of
them are finished very recently. However, the choice of reference store projects was made
before the authors were assigned this research project, due to the limited time frame. It
would perhaps have been better to first get accustomed with the research project and the
information needed and to study different store projects in order to find the most
appropriate reference store projects for this research.

One aim of this study is to analyse the main differences between the reference store projects,
in order to suggest actions to create an approriate economic framework for internal
benchmarking in the store dimensioning and build up process. To do this it is of great
importance to see what is hidden behind the facts and figures of the store projects. The
number of cases chosen in a case study will influence the work method as well as the results
of the study. One possible alternative could have been to choose only two store projects and
thus be able to study these more thoroughly. However, this would not give the sufficient
width of the research. With four store projects a wider picture of the overall process can be
analysed, which agrees with the purpose of this Master Thesis. On the other hand, in order
to examine four store projects some delimitations are necessary. Furthermore, the study will
focus on a great deal of quantitative information. Thus, it can be questionable if the research
can be stated as a genuine case study but more preferably a form of case study.

6 Lundahl, U., Skärvad, P-H. (1999)

20
 2 Research Method

2.3 Practical method

There are many things in the practical work method that can influence the final result of a
study and it is therefore important to examine which research method that best fits with the
current type of study. In the following subchapters, which are structured around the main
parts of the report, i.e. frame of reference, empiricism and analysis, the practical research
method will be discussed.

2.3.1 Frame of reference

This Master Thesis is based on three main theories, which are benchmarking, accounting and
Electronic Data Interchange, EDI. Literature is collected with the help of a number of
search engines, primarily LIBRIS and LOVISA. The main references for the benchmarking
theory is literature by Robert C Camp, who published the standard work for benchmarking
in 1989, and “Benchmarking – vägvisare till mästerskap i produktivitet och kvalitet” by
Karlöv & Östblom. Regarding the accounting theory, the literature, which is written on a
rather comprehensive level, is selected in discussion with the supervisors. The reference
mainly used is “Den nya ekonomistyrningen” by Ax, Johansson and Kullvén. This literature
is considered to be enough since the study is not analysing the accounting theory in detail.
The main references used in the EDI theory are “E-commerce” by Turban, “Elektroniska
affärerer” by Fredholm, and “EDI purchasing” by Marks.

2.3.2 Empiricism
There are two main categories of techniques for collecting data; collecting new data, i.e.
primary sources, or using information previously collected, i.e. secondary sources. When
working according to the systems approach, the primary data is normally collected through
direct observations and personal interviews and secondary data is normally collected from
within the system. This is also the case in this study. 7 The primary data is collected through
personal interviews with contact persons in the store projects and other key persons within
IKEA. However, a main part of the information gathered comes from secondary sources
within the system studied (see chapter 2.2.1). One problem using secondary data could be
that the data is not compatible for the actual study and that the sources might not be
trustworthy8.

The data for this research will primarily be collected in three ways; quantitative data sent
from the contact persons in the different store projects, qualitative data through interviews
with these contact persons and other key persons and through every-day conversations with
people at IKEA while conducting the research. As described earlier, this research will be
conducted according to the systems approach, which emphasises the importance of the
interactions and relations between different parts in a system. Accounting routines in four
different countries, with different cultures and different legal accounting systems are
analysed. This makes the research even more complex. Hence, all the techniques for

7 Arbnor, I., Bjerke, B. (1997)

8 Ibid
21
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

collecting data, described above, are of great importance to be able to draw useful
conclusions.

Quantitative data collection

In the case of this study, there might be a problem with the compatibility of the quantitative
data collected. This data, collected from secondary sources, is mainly extracts from the
internal reporting of the store projects studied. It is thus not collected for the purpose of this
research alone. Even if the trustworthiness of the sources is not a problem there might be a
problem with the compatibility of this data. The degree of detail between the data collected
from each country might differ. There might be problems with translating the language the
data collected from the different countries are written in and last but not least there might be
difficulties with currency variations. In the chapter concerning systematisation of data the
detail variation problem will be discussed further. By using fixed annual exchange rates
determined by IKEA, the currency problem will be solved. Yet it is important to have the
currency issue in mind, when analysing the problem. Other secondary data will come from
articles and other written information. For this information both the compatibility and the
trustworthiness must be questioned.

Qualitative data collection - Interviews

In order to fulfil the objective of this Master Thesis, i.e. to generate an action plan for
developing a framework for internal benchmarking at IKEA, it is important to understand
the differences in the store projects and the countries studied. Therefore, a visit in the
countries and at the store projects studied, where interviews and discussions with key
persons are made, is vital. The visits will take place a couple of months into the research
project in order to have time before the visits to analyse the data sent from the contact
persons. The focus during the visits will be to discuss the accounting procedure in the
country and to, together with the contact persons, go through the economic data of the store
project. Furthermore the visits will focus on the store project organisation and development
process in each country.

In order to get a wide and complete picture of the store dimensioning and build up process,
interviews will also be made with people within different departments at IKEA in Sweden.
Both the interviews on the store project visits and the interviews at the IKEA departments
in Sweden will be of the type unstructured interview. In these the interviewer is aware of the
subject that the interview will cover, but asks the questions in no particular order and with
no predestined formulation9. In this way the interview can take different turns, depending on
the person interviewed. This fits the current study, since the way of working and the
accounting procedure varies in the different counties and thus the interviews can not be
exactly the same for each reference store project.

9 Winter, J. (1992)
22
 2 Research Method

During the visits, the persons interviewed are primarily the contact persons in each store
project. The reason being that it is difficult to get in touch with other suitable persons before
arriving. A weakness in this method is that valuable information can be missed if not getting
in touch with the right person. However, by preparing the contact persons with questions
before the visits part of this problem is eliminated.

2.3.3 Analysis
As mentioned in chapter 1.7 the line between empiricism and analysis is hard to distinguish.
In this Master Thesis, all the economic data is presented and analysed in chapter 7, where the
analysis of the store projects studied is conducted. The method for the systematisation of
data, which primarily concerns the economic data, is therefore discussed below in this
chapter.

Systematisation of data - Validity and Reliability

When all necessary data is collected, it is important to systematise the data in a way to create
clearness and to establish relevance, reliability and validity of the data. This is a prerequisite
for deciding how reliable conclusions can be drawn. The reliability of data is defined as “the
dispersion of the data”, while the validity of data defines to what degree the current data
shows what is supposed to in the study. This can be illustrated by studying arrow targets.
Reliability is shown by the concentration of the arrows, while validity is shown by how far
away from the bulls eye, which represents the desired object of the study, they are. Figure 2.3
below illustrates the expressions validity and reliability.10

Reliability, No validity Validity, No reliability

No Validity, No reliability Validity and reliability

Figure 2.3 Reliability and validity of data.

10 Arbnor, I., Bjerke, B. (1997)

23
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

The systematisation of data means that the data collected will be compressed and that certain
details will be left out. However, this is in order as long as the information needed to solve
the problem remains.11

Compressing data can be done with the help of different tools and methods. When using
mathematical or statistical methods, the risk is that the understanding of the result will be
lost, especially when advanced calculations are used. The risk is that the validity will be pore,
thus the systemised data and the result will show something that is not questioned for. With
the help of computers, calculations will be very easily done and thereby another risk occurs,
which is to make too many calculations and tests when working with the data. Thus, it is of
great importance to really think the systematisation procedure through before getting in to
work, in order to reach an understandable result.12

In this study it is important to find the right degree of detail of the data in order to solve the
problem. When data from accounting systems is received from the different store projects,
the degree of detail probably differs. In this case it is important to systemise the data in a way
that it is possible to work with it and to compare it between the different store projects. In a
first phase the study of the material is examined on a rather aggregated level. The study then
focuses on where big differences are found and analyse these on a more detailed basis.
However, all the material is also examined on the more detailed level in order to eliminate
the risk of missing some differences due to synergy effects, i.e. differences that counter
balance each other so that they does not show on a more aggregated level.

Analysis of data
From a hermeneutic point of view the analysis is a result of human interpretation within the
frames of a certain social context. The superior purpose of the analysis is understanding,
which presupposes insight in social phenomenon within relevant contexts.13 As the
collection and systematisation of data goes on, the understanding of the relevant context of
the study will increase and thus the analysis will be built up continuously along with the data
systematisation. However, the actual analysis will have its primary focus in a later stage of the
research. Only after all interviews are conducted a total understanding will be possible and
thus it is after the visits and all the interviews are carried out that the analysis will be fully
conducted.

11 Winter, J. (1992)
12 Ibid
13 Darmer, P., Freytag, P.V., Johansson, G. (1995)

24
3 Benchmarking

In this chapter the theory of benchmarking is presented. The basic steps, advantages and shortcomings will be
described together with a short introduction to the more uncommon term benchlearning.

Dantotsu = “The aspiration to be the best of the best”

Japanese saying

3.1 Introduction
In 1979, the company Xerox Corporation developed the concept of benchmarking. They
used this technique frequently in order to gain competitive advantage. The benchmarking
technique was initiated at the production unit level as an attempt to study the production
costs more thoroughly than what had been done before. Fuji-Xerox, a subsidiary to Xerox,
conducted a more extensive benchmarking exercise where the production costs for copying
machines were studied. This study was very successful and as a result, the company
management decided to implement the benchmarking technique throughout the whole
company. One definition of benchmarking can be: 14

Benchmarking is the continuous process of measuring products, services and work

methods in relation to the hardest competition or the companies that are considered
industry leaders.
David T Kearns, CEO at Xerox Corporation (1982-1990)

In modern English, the word benchmark means a "fix point". It is a term that has its origin
in the surveying industry, where a "fix point" is used when setting out buildings. When
discussing benchmarking, the expression "fix point" is a metaphor to point out in which
direction a company should work in order to reach set goals.

The purpose of benchmarking is to find the companies, irrespective of what business they
are in, that shows superior performances in the different functions studied, in order to map
their processes, methods and systems. The outcome of a benchmark analysis should be
detailed information about what best in practice is.15

14 Camp, R. (1993)
15 Ibid
25
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

3.1.1 Reasons for conducting a benchmark analysis

Five main advantages that come with conducting a benchmark analysis can be pointed out.
These are as follows: 16

1. The demands of the customer will be better satisfied.

2. Goals are being established with a common understanding about the surrounding world.
3. Real measures on productivity are received.
4. Competitive strength is established.
5. Awareness about the search for the best is achieved.

Further more, a benchmark analysis provides a structured approach to meeting the goals and
objectives set out and links to the overall mission of the organisation. Benchmarking can also
help motivating the staff and broaden their knowledge as well as widening their horizons by
searching for improvements outside the division, company or industry.17

3.2 Different types of benchmarking18

Benchmarking can be divided into four different types depending on who the comparison is
done against. These are internal, external with focus on product competitors, external with
focus on industry leaders and finally external with focus on general processes - also called
functional benchmarking. As can be seen, these four types have either an internal or an
external focus.

When conducting an internal benchmarking the comparison will be between different divisions
or subsidiaries within the company. When conducting an external benchmark a company, who
is doing the same activity that you want to improve, is sought out. This company can either
be a product competitor, an industry leader or a company in a totally different business, but
who conducts a specific function exceptionally well.

The main idea is that the company, which the benchmark analysis is conducted against,
should be the company performing the studied process best. Functional benchmarking is a
type of external benchmarking where the benchmarking partner is chosen with respect to a
specific function and with no respect to what type of business the company is in. For this
type of benchmarking, the potential of finding new and genius ideas is the highest, since it
takes into account all existing companies.

When selecting which one of the different benchmarking types to apply, it is important to
consider the simplicity by which data and information can be gathered. However, it is also
important to take into account the comparability of the information gathered and the

16 Camp, R. (1993)
17 Tutcher, G. (1994)
18 Camp, R. (1993)

26
 3 Benchmarking

company information. In figure 3.1 below, important aspects that should be considered
before making a final decision about which benchmarking type to use are shown.

Benchmarking type Relevance Easy data New genius

gathering methods
Internal X X
External, product X
competitors
External, industry X X
leaders
Functional X X

Figure 3.1 Important aspects to consider when chosing benchmark type

As this Master Thesis studies how to accomplish an economic framework for internal
benchmarking within IKEA, the rest of this chapter will focus on internal benchmarking.

3.3 Internal benchmarking

A big global company is normally divided into different geographically located subsidiaries,
divisions and service-groups. There are normally different activities conducted in more than
one subsidiary or division, and when the comparison is made between these internal units, it
is called internal benchmarking.19

Even though internal benchmarking does not necessarily take into account the absolute
"best in practice", it has many advantages. For example, information will be easier to gather
and the gathered information is also more likely to be comparable with the data within your
own business unit. This increases the potential of making the benchmark analysis more
precise and accurate. However, a disadvantage with internal benchmarking is that there is
often much rivalry and inertia within a company which can influence the benchmarking
process.20

Nevertheless internal benchmarking can be a very helpful tool for achieving goals and
making improvements within a company. But in order to be successful, preparation and
commitment is important and this will be described in the following subchapters.

3.3.1 The key steps to undertake in a benchmarking procedure

In the benchmarking literature many work plans and different steps to undertake when
conducting a benchmark analysis can be found. Overall, they are all quite similar and many
of them can be summarised in a five step model. These five steps, seen in figure 3.2, have
been developed through the accomplishment of several benchmarking exercises and have

19 Tutcher, G. (1994)
20 Ibid
27
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

been proved to work in reality. It is applicable for external as well as internal

benchmarking.21

Define which Identify Collect

process, product benchmarking information
or system to be partners
studied?

Analyse Implementation
information

Figure 3.2 The different steps in a benchmark analysis

The first step is to define which process, product or system that has the greatest need of
improvement, i.e. identify the needs of the organisation. It is important that the organisation
and structure of the company as well as the customers’ demands are studied closer in order
to decide exactly what is going to be benchmarked. The structure and organisation of the
company can preferably be studied with the help of Michael Porters (1985) value chain
analysis. In this step, the level of detail that will be used in the benchmark analysis is
normally defined. However, this differs depending on what function, industry or product the
analysis will focus on. It is also important, in this step, to collect and document important
data and information about the current process, product or system within the business unit
in order to know what to request from the benchmarking partner. Further more, it is
essential to first understand your own business in order to understand how your partner's
business is working.22

The second step is to identify who the desired benchmarking partner is. The first decision to
make is what type of benchmarking is going to be conducted (see chapter 3.3). Is the study
going to be within the company or is it going to include external companies. As already
mentioned this thesis focuses on internal benchmarking and thus, the benchmarking partner
will be chosen from within the company. Having decided internal benchmarking, the next
action is to choose which division, subsidiary or business unit to make the comparison
against. This can be done, for example, with the help of statistics, internal networks or
databases.23

After deciding what to benchmark and whom you are going to benchmark against, the third
step is to collect the information. This is the main step in the procedure and is considered to

21 Karlöf, B. & Östblom, S. (1993)

22 Camp, R. (1993)
23 Ibid

28
 3 Benchmarking

be the heart of the benchmarking process. If considering benchmarking in general, the data
collecting step can be divided into three parts. First, the search will be focused within the
own company or division for information about the benchmarking partner. This can be
done by analysing the benchmarking partner's products (for example by purchasing the
product and disassembly it), by asking people within the company (preferably the market
division) and by using available studies and researches. Second, secondary information
outside the company will be gathered. This information is gathered through, for example,
database searches, consultants or external experts and studies. A third way of collecting
information is to conduct own researches. These can include questionnaires, phone
interviews and direct site visits. As already mentioned these search methods are valid for
benchmarking in general and might have to be modified when conducting an internal
benchmarking.24

The fourth step in the benchmark analysis is to analyse the information collected and to
compare this data with the data from the internal activity. This comparison will reveal
positive or negative performance gaps. These gaps are then analysed further in order to find
and set suitable goals and to discover how to improve the process or product that is
benchmarked.25

In the fifth and last step the results from the benchmark analysis are communicated to the
organisation and acceptance is established. This can sometimes be difficult, since new ways
of working are often seen with scepticism and aversion. However, in order to succeed with
the benchmark analysis it is important that acceptance is achieved throughout the
organisation. It is also in this step that goals are set, based on the benchmarking results. The
goals must then be interpreted into descriptions of how the organisation must change in
order to reach the goals set and work plans are prepared. Important is also to follow up on
the improvements made.26

Benchmarking is not a onetime occurring event. The surrounding environment is constantly

changing and the company must do so as well. Therefore, as the definition of benchmarking
also states, it is of great importance that the benchmark analysis becomes a continuous way
of working in an organisation.27

3.3.2 Factors for successful benchmark analysis

As seen in section 3.2 the advantages of benchmarking are numerous. However, in order to
conduct a successful benchmark analysis - internal as well as external - it is important to
consider the following:28

24 Camp, R. (1993)
25 Ibid
26 Ibid
27 Ibid
28 Tutcher, G. (1994)

29
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

Management involvement: The managers have the ability to remove barriers and to
facilitate access to information and resources. This is especially important for internal
benchmarking, since almost all information will come from within the company. The
management involvement will also show all employees that the benchmarking process is
valued. Furthermore, it is also important that the managers ensure that the benchmark
analysis is conducted in line with the overall direction of the organisation.

Openness: It is very important to have a cross-functional communication within the

organisation if a benchmark analysis is going to be successful. With suspicion and rivalry
between business units it can be very difficult to share information with each other, which is
an important step in the benchmarking procedure.

Commitment and understanding: In order to conduct a successful benchmarking

procedure all people involved have to be committed to the exercise and conduct every step
properly. It is also important that the organisation understands its own operations and
products to be able to improve them through a benchmark analysis.

Integration: If the benchmarking procedure is integrated throughout the whole organisation

and made a commonly accepted activity at all levels, it will become really effective.

Base for comparison: Finally, in order to make a proper benchmark analysis it is important
to have comparable key measures. Otherwise the comparison might be between fruit baskets
instead of between apples and apples.29

3.3.3 Shortcomings with benchmark analysis

Despite all the advantages of benchmark analysis, some shortcomings can also be found.
Foremost these shortcomings concern the lack of continuous learning in an organisation and
the focus on the company management when conducting and implementing a benchmark
analysis. When the employees are not fully involved there is a risk that, for example, key
measures are compared without first making them comparable and without really knowing
why. These comparisons will never lead to any changes or improvements. 30

3.4 Future development of benchmarking

As mentioned above some shortcomings have been noticed with benchmarking. Traditional
benchmarking is a great tool when trying to achieve improvements within the organisation
from a management point of view. However, it does not take into account the possibilities to
create a collective learning within the organisation that could lead to a self-improving system.
In order to focus more on these aspects the concept of benchlearning has been developed. 31

29 Karlöf, B., Lundgren, K., Edenfeldt Froment, M. (2000)

30 Ibid
31 Ibid

30
 3 Benchmarking

Benchlearning is based on the traditional benchmarking theory, but it place more focus on
the importance of the involvement and learning of people throughout an organisation. With
the whole organisation involved the expectations and learning will be greatly improved and
the ambition to improve will get higher. Thus, the potential of creating a self-improving
system will increase.32

"Every time I have prepared for a battle I have found that plans are useless but planning
indispensable."
Dwight Eisenhower

By this Eisenhower meant that it is not only the result that is important, but also the
procedure of getting there. This also applies to benchmark analysis.

32 Karlöf, B., Lundgren, K., Edenfeldt Froment, M. (2000)

31
4 Accounting

The main purpose of a company's accounting is to make it possible to see relevant information about the
economic result of the company. Different stakeholders, external as well as internal, have different need of
information and the accounting is therefore done in more than one way. In this chapter the basic theory of
accounting will be presented.

4.1 Introduction
The most common forms of accounting are the legal accounting and the internal accounting.
The legal accounting is conducted according to regulations and laws and is mainly a tool for
external stakeholders, for example stockholders, suppliers and customers to see how the
company is doing. The internal accounting is used for stakeholders within the company and
does not have to follow any laws or regulations. It is up to every company to form the
internal accounting system to best suit the company’s own business and needs and several
different internal accounting routines can exist in the same company. The internal
accounting is normally a part of the company’s or the organisation’s economic control
system. Figure 4.1 shows the main differences between legal and internal accounting. 33

Legal accounting Internal accounting

• External and internal stakeholders • Internal stakeholders
• Shows the company as a whole • Parts of the company
• External transactions • Internal transactions
• Compulsory • Voluntary
• Controlled by laws and regulations • Build up from internal demands
• Shows economic results and • Provides a base for decision making,
position of the company follow ups and planning.

Figure 4.1 Main differences between the legal and internal accounting

33 Ax, C., Johansson, C., Kullvén, H. (2001)

33
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

As the purpose of this Master Thesis is to examine how IKEA can develop an appropriate
economic framework for an internal benchmarking procedure, there will only be a very short
overview of the legal accounting. The main focus will be on the internal accounting.

4.2 Legal accounting

The legal accounting has the purpose of presenting economic results for a particular time
period. It is a way to look at the company's business processes and how the company value
has changed over time. How this information should be presented is strictly regulated by
laws in every country.34

4.3 Internal accounting

As explained above, the legal accounting shows comprehensively how the company is doing
economically. For the different internal stakeholders, i.e. company management, division
managers, department managers and project managers etc, this information is often not
detailed enough. Therefore, larger companies also have different forms of internal
accounting.35

4.3.1 The purpose of internal accounting36

It is possible to divide the purpose of internal accounting into three parts, better control of
the business, define responsibility areas and control internal businesses.

Better control of the business: Normally a company wants to control many different
things in a project, e.g. result for different products, the position of different projects or
special ventures. In order to fulfil this need, budgets and follow ups are constructed with the
help of internal accounting.

Define responsibility areas: A company can define different responsibility areas by for
instance allocating cost or profit responsibilities. This demands an internal accounting
system, which also takes internal withdrawals into account.

Control internal businesses: A common way to follow up, for example, withdrawals by
different departments, shipments from production to stock or between different distribution
centres, is to retrieve data from the internal accounting system.

4.3.2 The construction of internal accounting

The only thing controlling how the internal accounting is built up is the internal demands of
different information. However, to save time and to decrease administrative work, there is

34 Ax, C., Johansson, C., Kullvén, H. (2001)

35 Prenkert, T. (1998)
36 Ax, C., Johansson, C., Kullvén, H. (2001)

34
 4 Accounting

normally a well-defined link between the legal accounting and the different internal
accountings.37

According to Ax, Johansson and Kulvén (2001) the process of internal accounting is divided
into four steps. These steps, which can be seen in figure 4.2, are collecting data, registering
data, analysing data, and reports and presentations. Collecting data is normally done in the
day to day business and information can often quite easily be extracted from the legal
accounting. Registering this data is the process of booking different costs into the right place
in an accounting system. Analysing the data is done in order to present different reports and
presentations, i.e. status reports, sales report budget follow ups etc. These reports are then
used for showing the result of a period, measuring performances by different units, deciding
correct price setting (externally as well as internally), doing budget follow ups, valuing level
of stock, etc.38

Collecting Registering Analysing Reports and

data data data presentation

• Result for a period • Budget follow up

• Bases for price setting • Valuing stock
• Measuring performances • Etc.

Figure 4.2 The four steps in internal accounting

4.4 Monoistic or dualistic accounting

There are two approaches to internal accounting depending on how integrated this system is
with the legal system. The two approaches are called monoistic and dualistic and are shown
in figure 4.3. The most common approach is the monoistic. In this approach some level of
integration exists between the two accounting systems, as they are built up on the same bases
in economic figures. In the dualistic approach, on the other hand, a company has two
completely separate systems for internal and legal accounting. This approach exists in some
companies and can work well. However, the workload increases with a dualistic accounting
system. 39

37 Ax, C., Johansson, C., Kullvén, H. (2001)

38 Ibid
39 Ibid

35
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

Legal Internal Legal Internal

accounting accounting accounting accounting
system system system system

Monoistic approach Dualistic approach

Figure 4.3 Monoistic and dualistic approach

4.5 Multidimensional accounting

Each section where costs are booked in the internal accounting has its own section code.
The section code shows where each booking belongs and is normally closely connected to
either a department in the company, or a product. In order to be able to register more
information into one booking, multidimensional accounting can be used and is used by most
companies.40

In multidimensional accounting each booking receives a section code, which represents a

costs position in more than one dimension. The coding can for example show the position
in the legal accounting, which sales department that sold the product, which product it was
that was sold and which resource that gave rise to the cost. The need for multidimensional
booking varies in different companies and in different businesses.41

40 Prenkert, T. (1998)
41 Ibid

36
5 Electronic Data Interchange

Electronic Data Interchange, more commonly called EDI, is a tool that has been used in the car industry for
many years. With the help of EDI the business systems of two companies, often a purchasing and a supplying
company, can communicate without manual intervention. In this chapter the basic theory of EDI will be
presented, together with the wider expressions E-business and E-commerce.

5.1 Introduction
For as long as one can remember, man has traded goods and services with each other. Since
the beginning of the human history, when barter was the only form of trading, the art has
evolved greatly. Barter acquired the physical meeting between the two parties in trading,
whereas today we trade without even having to meet with each other in person. Instead,
commerce is done with the help of computers and one of the most advanced forms today is
done, not only through computers but by computers. A simple example of this is when a
computer in a producing company notices low in-house stock automatically and sends this
information to the computer system of the supplier, which automatically issues an order to
send new parts to the producing company. Everything is done without any human
interference.42

In the middle of the 1990’s, IBM introduced the term Electronic business (E-business) to
the market in one of their advertising campaigns as something that would permeate all IBM’s
products and services. E-commerce was already a common expression in the computer
industry, but it was considered to have a too narrow meaning.43 E-commerce focuses mainly
on the technique and method of trading electronically whereas E-business is a wider
expression that includes the whole business systems and routines of a company.44

The first form of E-commerce was ordinary computer files transported from one computer
system to another. Some form of an agreement as to how these files were to look like existed
and they were sent from one system to another on magnetic tapes. These tapes were
physically moved from one computer system to another.45 As E-commerce grew bigger and

42 Fredholm, P. (2000)
43 Ibid
44 Turban, E. (2002)
45 Fredholm, P. (2000)

37
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

bigger, the need for a standardised format to control the syntactical and semantical structure
of the information was increasing, and Electronic Data Interchange, EDI, was developed.46

5.2 The concept of EDI

As explained in the introduction, EDI can be considered as part of the wider expressions
E-business and E-commerce. However, the difference between E-business and E-commerce
is not always easy to clarify. Furthermore, EDI can be used both between companies, i.e.
business to business, and within companies, i.e. intrabusiness. Different networks can also be
used today as a base for information exchange in electronic businesses.

5.2.1 E-commerce and E-business

E-commerce is an expression used to describe the process of buying and selling or
exchanging products, services and information via computer network systems, including the
Internet. As explained above, this term was found to narrow and therefore the term E-
business was introduced. E-business refers to a broader expression that includes the entire
aspect of doing business, not only the buying and selling of goods and services. It includes
also for example servicing customers, collaborating with business partners and conducting
electronic transactions within an organisation.47 It often affects the business process and
involves the business system of a company.48

In many written reports, the two concepts are often used without a clear distinction between
them. It is therefore difficult to say what belongs to E-business and what belongs to E-
commerce. In this Master Thesis the term E-commerce will be used, when referring to the
wider picture of EDI, but it will have a very broad meaning and will probably include parts
that some would describe as E-business.

5.2.2 Internet, extranet and intranet

E-commerce, and thus also EDI, uses different forms of networks to exchange information.
The most common forms of these networks are Internet, extranet and intranet (see figure
5.1).

Internet, as most people know today, is a global network for everyone to use with the help of
a computer. It is a virtual marketplace where the exchange of information, marketing, selling
and buying of products and services are done. Intranet is a computer network used within a
company or an organisation. In its most basic form it is only used for exchanging
information internally but it can also be used for more advanced purposes, for example as a
virtual internal market place. Extranets are delimited networks, where for example important
customers and retailers are allowed entrance with the use of a password. An extranet

46 Turban, E. (2002)
47 Ibid
48 Fredholm, P. (2000)

38
 5 Electronic Data Interchange

normally connects intranets, giving an external actor access to a small part of the company’s
intranet, for example an internal web-shop.49

Both intranets and extranets are normally connected to the Internet which enables the
company to conduct E-commerce activities, such as cooperating with suppliers and
customers or checking a customer's inventory level before making a shipment.50

Intranet Extranet
Intranet
Intranet
Intranet

Figure 5.1 Schematic picture over the links between Internet, Extranet and Intranet

5.2.3 Business-to-Business E-commerce

There are many different forms of E-commerce and EDI. Below the most common forms
are listed51.

⋅ Business-to-business (B2B)
⋅ Business-to-Consumer (B2C)
⋅ Consumer-to-Business (C2B)
⋅ Consumer-to-Consumer (C2C)

As this is a study of IKEA and how IKEA internally can develop a framework for
continuous improvements, the only form described further will be B2B.

Characteristic for B2B is that all participants involved are either businesses or organisations.
In 2002, most of E-commerce is considered to be B2B52. According to Fredholm (2000) it is
possible to distinct three different levels of this form53.

49 Fredholm, P. (2000)
50 Turban, E. (2002)
51 Fredholm, P. (2000)
52 Turban, E. (2002)
53 Fredholm, P. (2000)

39
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

1. Open web-trading where the different parties do not have a business agreement. This
form of trading is very much alike the trading between businesses and consumers.
2. Web-solutions where one participant has parts of its business system linked to the
Internet, and the other part is using a web-browser to receive and give information
in a standardised format.
3. Electronic Data Interchange, which means a standardised flow of information between
two company business systems. Both parts has a strong business agreement and do
business with each on a regularily basis.

5.2.4 EDI build up and function

Of the three levels of E-commerce listed above EDI has the greatest potential for time
saving, increasing quality and decreasing costs. EDI concerns electronic exchange of
business data (such as purchase and selling orders, invoices, payments, shipping manifests
and delivery schedules) within a company, between a company and an intermediary network,
or directly between two companies. The data is structured in a way that the computer
systems understand each other and most importantly can communicate with each other with
no or very little human interference.54

EDI build up
The base for EDI is electronic messages built up according to an, by all involved parties,
agreed standard. Because the information is sent according to this standard, it is possible for
the different computer systems to understand the message. An EDI-software, called
converter, is used for changing the information from the format used in the business system
to the agreed standard format. This enables the different business systems to interpret the
message automatically. The basic build up can be seen in figure 5.2.55
Business Business
system system

Converter Converter

Figure 5.2 The basic build up of EDI

As shown in the figure 5.3 below, EDIFACT and XML are just two different formats of
standards used in the EDI-system. In the same way, EDI is just one level of E-commerce
and E-commerce just one of many methods and techniques used to enhance the total
business system of the company. 56

54 Marks, S. (1996)
55 Fredholm, P. (2000)
56 Ibid

40
 5 Electronic Data Interchange

The business system of the company

E-commerce
EDIFACT
EDI
XML

Figure 5.3 EDI, E-Commerce and business system

No official definition of EDI exists, but there are some criteria that should be fulfilled in
order to call a communication an EDI-communication. These criteria are listed below: 57

1. The communication must be directly between different information systems, internally

or externally, without any manual intervention.
2. The communication must be in a standardised format, e.g. EDIFACT or XML.
3. The information must be structured, i.e. information previously written in standardised
forms.
4. The information must be possible to process by the receiver without administrative
work.
5. The communication has to be independent of what hardware, operative systems and
information systems used.
6. The communication has to be reliable. Breakdowns in the system could cause great
problems.
7. The communication must be based on agreements.

Typical for EDI-communication is that it is frequently reoccurring.

An EDI transaction
Figure 5.4 below is a very simple and schematic picture of how EDI can work in reality.58

57 Fredholm, P. (2000)
58 Marks, S. (1996)
41
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

1.
2. Buyer
Supplier

3.
4.

5.
Invoicing
Accounting
Warehousing

Figure 5.4 How EDI work in reality

An operator enters purchase order information into her system which creates an electronic
purchase order (1). This electronic purchase order is then structured and sent via EDI to the
supplier's computer system (2).The supplier's computer system receives the order and
automatically sends back an acknowledgement that the electronic order has been received
(3). The supplier's computer system takes the structured data and translates, or reformats, the
purchase order information so that it is readable and thus usable (4). This newly received
information electronically enters the supplier’s system and is processed. Instructions are sent
via internal EDI to production, warehousing, invoicing, etc to fulfil the purchase order (5). 59

5.3 Advantages and limitations with E-commerce and EDI

Advantages with E-Commerce and EDI can be divided into two different categories. The
first category is advantages deriving just from using the technique of E-commerce, a
production-oriented view, and the second is advantages deriving from the effect on the
whole business system in the form of new routines and ways of doing things when
implementing E-commerce and EDI, a strategic-oriented view.

5.3.1 Production-oriented advantages60

Listed below are some of the main advantages deriving from the production-oriented view.

Decreased costs: The paperwork can in many cases be very time consuming, especially
when doing business over country borders. By using E-commerce, information can be
registered into computer systems automatically and without human interference. One invoice

59 Marks, S. (1996)
60 Fredholm, P. (2000)
42
 5 Electronic Data Interchange

might take about 10-12 minutes to process, and when multiplying this with the number of
invoices received by a company the savings can be immense. Interesting is that both parts,
the buyer as well as the seller, are given opportunities for decreasing costs.

Increased quality: By reducing much of the human interference a decrease in man-caused

errors is accomplished. Many users state that this increased quality is the biggest and most
tangible advantage accomplished by E-commerce.

Shorter lead times: Fast transportation of information is a condition for efficient

distribution and shorter lead times. To gain the full advantage of E-commerce it is important
to not only receive electronic messages, but also to assure that this message is automatically
forwarded to the receiving computer system, for example ordering or production system.
These messages do not have to wait to be registered into the system by an administrator, as a
for example message sent by facsimile must, which shortens the lead-time.

Easier planning: Since it is an automatic system, it is possible to update information

continuously instead of waiting until all information is gathered. For example, an order can
be sent as soon as there is an item needed instead of waiting until all items are gathered. This
makes it possible for the distributor to plan in advance.

5.3.2 Strategic-oriented advantages61

Some main advantages deriving from the strategic-oriented point of view are listed below.

Long-term partnerships: E-commerce means fewer mistakes, i.e. better quality and less
work between the two parts of trading. As a result of this the collaboration between two
companies or businesses runs smoother and long-term partnerships are therefore built up.

Stronger bindings: Most companies do not engage themselves in trading electronically with
just any distributor, which creates stronger bindings with the distributors they actually
choose to conduct E-commerce with.

Better follow ups: With a system that continuously monitors and reports changes it is easier
to receive better follow ups. One example of this is keeping track of how the level of stock is
changing over time, which is a good way of analysing how business activities vary.

Internal efficiency: By having business systems that really can make use of the potential
that E-commerce is offering, more efficient business routines can be developed. An example
of this is the authorisation of invoices, which can be eliminated with the use of bar codes on
the merchandise and a system which confirms the received merchandise with the electronic
order sent.

61 Fredholm, P. (2000)
43
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

5.3.3 Limitations and risks

Just as there are many advantages with conducting E-commerce, there are of course also
limitations and risks. The main limitations are listed below.62

⋅ System security and reliability as well as software development tools are still evolving.
⋅ It is sometimes difficult to integrate the Internet and E-commerce software with some
existing applications and databases.
⋅ Vendors may need special Web-servers, network servers and other infrastructure
developments.
⋅ Some E-commerce software might not fit with some hardware, or it may be
incompatible with certain operating systems or components.
⋅ The cost of developing E-commerce in-house can be very high and mistakes made due
to lack of experience may result in delays. To justify the system one must deal with some
intangible benefits, which are difficult to quantify.

Good planning and foresight can minimise the impact of these limitations on the
implementation of E-commerce.

62 Turban, E. (2002)
44
6 IKEA

In this chapter the company IKEA is presented. This is followed by the store development process within
IKEA and its key internal stakeholders. Furthermore, the project cost follow up specification is described.

6.1 Introduction
IKEA was founded in 1943 by Ingvar Kamprad who at that time was only 17 years old. The
name IKEA has its origin in the initials of Ingvar Kamprad and the names of the farm and
the village where he grew up, Elmtaryd and Agunnaryd. In the beginning the IKEA product
range consisted of pens, wallets and other small items that fulfilled a need at the same time
as they were easy to distribute and could be sold at a reduced prices.63

In the years that followed, the product range changed continuously until it finally consisted
mainly of home furnishing products. In 1958 the first IKEA store was opened in Älmhult
and it was at that time, with its 6 700 sqm, the largest furnishing display store in Scandinavia.
The business developed rapidly, and in 1973 the first store outside Scandinavia was opened
in Switzerland. This opened the door to the German market, which today is the largest
IKEA market with about 20 per cent of the total sales of IKEA. In 1985 IKEA expanded
even more as they entered the US market. The expansion proceeded and from 1983 till 2002
the number of co-workers increased from 6 000 to 70 000. 64 Today IKEA is a big global
company with 175 stores (including external franchisees) in 22 countries and approximately
70 000 employees. The turnover for financial year 2002 was 11 billion EUR.65

The vision and the business idea are considered to be the cornerstones of IKEA operations,
and these are as follows: 66

”To create a better everyday life for the many people”

The IKEA vision

63 IKEA Intranet; 2002-07-11

64 Ibid
65 IKEA, Facts and Figures 2002
66 IKEA Intranet; 2002-07-11

45
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

”We shall offer 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”
The IKEA business idea

6.2 IKEA today

IKEA is owned by a Dutch foundation called INGKA Holding B.V. Ingvar Kamprad is still
a member of this board, and serves as senior advisor. IKEA is then divided into three main
corporate groups, internally referred to as the blue, the green and the red group.67

The IKEA that most people know belongs to the blue group, which is often also called the
IKEA group. Within this group product development, production, procurement (trading),
distribution and selling takes place. One of the main companies within this group is IKEA of
Sweden, which is the company where all the development and design of new products takes
place and it has about 760 employees.68

The red group is coordinated by Inter IKEA Systems B.V., which is the concept owner of
IKEA. External as well as internal franchisees within the blue group rent the IKEA concept
from Inter IKEA Systems B.V. and pay a fee depending on the sales figures of the store.69

The third group is the IKANO group, which is also internally called the green group. IKANO
B.V. is responsible for the coordination of this group. The main businesses within the green
group are financial services (Bank services), leasing, real estates and insurance.70

This Master Thesis mainly considers mainly the IKEA group and this will therefore be the
main focus of the rest of this chapter.

6.2.1 The IKEA group

The heart of IKEA is still located in Älmhult as this is where IKEA ones was founded and
this is also where IKEA of Sweden is located. The operations of the IKEA group are based
on four key functions: The Product Range, Purchasing, Distribution and Stores. How these
operations are connected with each other is shown in figure 6.1.71

67 IKEA Intranet; 2002-07-11

68 Interview with IKEA Services AB & Inter IKEA Sytems Service AB
69 Ibid
70 Ibid
71 IKEA, Facts and Figures 2002

46
 6 IKEA

Group Support Functions

Finance & Treasury, PR & Communications, Social & Environmental Affairs, Property,
Risk Management, Legal Affairs, Human Resources, Retail Development, Logistics

PURCHASING RANGE STORES

D I S T R I B U T I O N

Experts and economies of scale

IKEA IT, IKEA Food Service, IKEA Retail Equipment, IKEA Raw Material, IKEA
Catalogue Services, Modul Services, IKEA Rail, Travel

Figure 6.1 Schematic picture of the IKEA Group

6.3 The store development process

Before the main parts of the actual store development process is described, the main areas in
an IKEA store is presented followed by the main stakeholders in the process.

An IKEA store can be devided into commercial area and other areas. The commercial area
consists of four other main areas and these are: Sales Area, Warehouse area, Food services
area and Sales support areas. The other areas mainly consist of Office area.

The Sales Area is further divided into three different subareas: Showroom, Market Hall and Self
Serve furniture areas. The Showroom is where all items are shown in order to inspire the
customers by letting them see the furniture in its true environment. The specific areas
showing for example sofas, beds and kitchens also belong to the showroom area. The Market
Hall is where homefurnishing accessories, as for example lamps, cutlery and fabrics, are
displayed. These items are also fetched in the same place. The Self-serve furniture areas are
situated in the self serve area of the warehouse (see next paragraph) and this is where
seasonal campaign items are displayed and stored.72

The Warehouse includes the Self-serve warehouse area, where bigger furniture can be fetched by
the customers, the “actual” Warehouse area, where goods are stored, and the Goods Receiving.
The Food Service area includes all areas for restaurant and bistros and finally the Sales support
areas consist of entrance and exit areas.

72 Interview Property Department, IKEA Services AB

47
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

Office area includes all office areas and staff areas. 73

The sales area in an IKEA store is always built up to make “a long natural way” for the
customer to walk. This should wind through the whole store and letting the customer miss
nothing. In addition to this long natural way, there are also possible shortcuts, which the
customers can choose in order to return to a certain point. These shortcuts also exist in
order to facilitate the transportation of goods through the store and for the personnel to
easily move from one area to another.74

6.3.1 Internal stakeholders in the store development process

There are many different stakeholders in the store development process. The main actors,
interesting for this study, are INGKA Holding, Inter IKEA Systems B.V., the Property
department, the Retail department and IRE. Below, the responsibilities of these different
stakeholders are described.

INGKA Holding B.V. is based in the Netherlands and is responsible for operations and the
top level management within the IKEA group. Once a year they approve a total
establishment plan for new IKEA Stores, with three to five years perspective. INGKA
Holding B.V. must approve all larger investments.75

Inter IKEA Systems B.V. is, as mentioned earlier, the owner and franchisor of the IKEA
concept. They have appointed their service company Inter IKEA Systems Service AB
(IISSAB) to provide architectural services concerning the IKEA concept for all new IKEA
stores. In new store projects they are responsible for the concept being followed and they
assist the different project managers in the planning process.76

The Property department (management) supports the retail organisation in store projects. They are
working with finding proper land sites to process and they are responsible for the
construction of the store building, which the retailer then fits and decorates. In new store
projects they handle everything concerning the shell and core of the building.77

The Retail department (management) is overall responsible for the whole process of new store
projects. They make sure that everything inside and outside the store building is making it
possible to present and sell the IKEA range of products and to be able to run the store.78

73 Interview Property Department, IKEA Services AB

74 IKEA Intranet, ("Layouts at IKEA, in practise"; 2002-02)
75 IKEA, Facts and Figures 2002 & Interview IKEA Services AB
76 Interview Inter IKEA Systems Service AB & IKEA Services AB
77 Interview Property department, IKEA Services AB
78 Ibid

48
 6 IKEA

IRE – IKEA Retail Equipment is responsible for the central and internal purchases of fixtures
and fittings as well as equipments in the IKEA store. Their main task is to supply the stores
with everything needed to be able to sell the IKEA range of products. The fixtures and
fittings are supposed to have a standardised look world wide so that customers feel at home
in an IKEA store wherever they are in the world. Since IRE purchases huge volumes they
have the potential to keep the prices low. This department is situated in Älmhult with
subsidiaries in Germany and North America.79

6.3.2 Store design process80

The IKEA store design process is the part of the overall store development process where
the actual IKEA store is dimensioned and designed. It follows the steps shown in figure 6.2.
The process can be divided into three main steps: The Store and Site Study process, The
Store Order process and the Conceptual Drawing process. Each of these three steps consists
of a number of sub-steps.

1. Store & 2. Basic 3. Site 4. Store & 5. Store & Site

Site Study Dimensioning Inspection Site Study Evaluation &
Request Decision

The Store & Site Study Process

6. Store Order 7. Store 8. Retailer Input 9. Store Order

Request Dimensioning to the Store
Order

The Store Order Process

10. Conceptual 11. Hand Over

Drawings

The Conceptual Drawing Process

Inter IKEA Systems
is responsible for the
outcome
Retailer is responsible
for the outcome.
Figure 6.2 The Store Design process

79 IKEA Intranet, IRE; 2002-07-30 & Interview Retail department, IKEA Services AB
80 Interview Inter IKEA Systems Service AB & Property department, IKEA Services AB

49
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

The Store and Site Study process

1. Store and Site Study Request: The IKEA retailer fills out and sends a Store and Site Study
Request to IISSAB, mainly consisting of basic dimensioning input and site
documentation.
2. Basic Dimensioning: IISSAB reviews input figures from the Store and Site Study Request
and set basic dimensions for the main areas of the IKEA store and site.
3. Site Inspection: An IISSAB architect and the retail project leader visit the site and study the
physical limitations and possibilities of the site. After this the Store and Site Study inputs
and outputs are confirmed.
4. Store and Site Study: The architect at IISSAB creates Store and Site study plans and
finalises the store program together with the retail project leader. The Store and Site
study includes store position, traffic, flows and main dimensions and functions.
5. Store and Site Evaluation and Decision: The retail project leader evaluates the potential of the
site after which the IKEA Retailer board decides whether to go on with the project or
not.

The Store Order Process

6. Store Order Request: The retail project leader requests a store order by using a Store Order
Request template. Estimations regarding the market potential etc. are also described.
7. Store Dimensioning: IISSAB reviews all input figures and sets the dimensions of all main
areas in the store using a computerised tool called SDT (see chapter 6.3.3) based on the
Store Order Request. The result is sent back to the retail project leader together with the
standard store.
8. Retailer Input to Store Order: The retail project leader studies the result given by ISSAB and
makes deviations due to local conditions. The various reasons for the deviations must be
clearly stated.
9. Store Order: In a store order meeting between the retail project leader and IISSAB, the
different dimensions and solutions for the store are agreed upon. This agreement serves
as the main framework, together with the Store and Site Study drawings, for the creation
of the Conceptual Drawings.

The Conceptual Drawing Process

10. Conceptual Drawings: IISSAB designs the IKEA store according to the Store Order and
the confirmed Store and Site Study and secures the implementation of the IKEA
concept and proven standard solutions in the store project.
11. Hand Over: After an internal quality check at IISSAB, securing conceptual demands and
standards defined by IISBV the material is handed over to the retail project leader.

6.3.3 Store Dimensional Tool

The Store Dimensional Tool (SDT) has been used within IKEA in the store design process
for a couple of years. It is used by IISSAB in order to help the store planner by setting the
dimensions for areas and bigger fittings (e.g. number of cash lanes) in a new or rebuilt store.
The inputs to the SDT are key measures deriving from the market-and sales study. The
50
 6 IKEA

output is a drawing of a standard store that corresponds to the input data given, which then
has to be revised according to local conditions of the site.81

6.3.4 Retail Equipment Dimensioning

The Retail Equipment Dimensioning (RED) is a tool that is under development within
IKEA. The main purpose of this tool is to simplify for project leaders in the planning and
budgeting process of new store projects. With RED the SDT is taken one step further. Not
only the dimensions for the main areas and bigger fittings will be produced, but every single
retail article in an IKEA store. The result is a checklist with all retail items that are supposed
to be included in the store, including price estimations. This checklist will be of great
assistance to project leaders to plan the new store project. The checklist will also make it
easier to produce a more accurate budget for the store project.82

An important aspect to the checklist is that the project leader and the store manager make
the final decisions when setting the dimensions in the store. They know the market and the
local circumstances best for the new store. When the checklist has been adapted to local
conditions and the project leader has come to an agreement with IISSAB, an ordering form
is sent to IRE for those items that shall be purchased internally.83

Every item in the checklist is also connected to a cost section according to a specification in
the Financial Manual of IKEA. By using the checklist developed by RED, the project leader
will have a list of all items to be purchased for the store project along with accurate cost
sections to each item. The idea is then, that all items purchased in the store project will be
booked continuously all along the store project according to the checklist.84 When the
project leader receives an invoice he divides the cost into the correct cost section according
to RED. The costs will then be correctly booked by the controller in the accounting
department. With a continuously built up project costs follow up like the one shown in
figure 6.3 the project leader will also accomplish a day-to-day accurate control over how
much money is left in the budget.85

Estimated/ Not yet Left to

Budgeted ordered Ordered Received go
Items Cost Nbr Tot Cost Nbr Tot Cost Nbr Tot Cost Nbr Tot

Figure 6.3 Suggested new project follow up using the RED tool

81 Interview Inter IKEA Systems Services AB

82 Interview Property department, IKEA Services AB
83 Interview Property department, IKEA Services AB & IKEA FörsäljningsAB
84 Interview Property department, IKEA Services AB
85 Interview IKEA Försäljnings AB

51
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

In the first three columns the estimated (budgeted) costs are put. In the next column, the
project leader can put costs, which are not yet ordered. In this way the project leader can
analyse the effect different solutions has on the total project sum. In the three columns
under “ordered”, the costs for products that are ordered but not yet paid for are entered and
in the last three columns the costs for products received and paid for are entered. A great
advantage by implementing this procedure is that the project cost follow up will be finished
no later than one month after the opening of the store. Another advantage by using this
form is that the project leader has day-to-day control over how much that has been spent in
the project and how much is left to go.86

6.3.5 Purchases
The purchases when building a new store are mainly done with the help from IRE. It is also
strongly recommended by the IKEA board that the store project leaders buy as many
products as possible from IRE. The idea is that the products sold by IRE should be cheaper
thanks to economies of scale and they should also have better quality. This is also a way to
ensure that the true IKEA concept automatically is build into every store. 87

For the items that IRE does not distribute, IRE often has commission agreements with local
distributors in the different countries. In this case a price has been negotiated between IRE
and the local distributor and purchases in this case is conducted directly between the
distributor and project leader without the interference of IRE. At the end of the year IRE
receives a commission from the store project for everything purchased from these
distributors. The system for freight costs payments has been changed recently. Today each
store project is paying the true amount for each shipment. However, all store projects
studied in this Master Thesis has paid their freight costs according to a percentage system
that was used earlier.88

6.3.6 The follow up process

The follow up part of the store development process can be divided into two steps. These
are presented in the following subchapters together with how they contribute to the updating
of the SDT and the RED tools. The project cost follow up and different cost sections will be
even further described in chapter 6.4.

6.3.7 Conditions Follow up

Three months after the opening of a new store and on a yearly base for already established
stores, a conditions follow up is carried out. The conditions follow up takes into account
both quantitative and qualitative data. Factors like functionality, flows through the store,
capacity and customer satisfaction are examined. The purpose of the follow up is to make
sure that the new store is suitable for the existing conditions as for example the number of

86 Interview IKEA FörsäljningsAB

87 Interview IKEA Retail Equipment AB
88 Ibid

52
 6 IKEA

customer and sales rates. This follow up also tries to find the reasons for any deviations from
what was planned. This follow up is then used by Inter IKEA Systems in order to update the
SDT.89

6.3.8 Project Cost Follow up

Six months after the opening of an IKEA store a project cost follow up must be produced.
This project cost follow up primarily includes information of the final total costs of the store
project and the deviations from the budget. The costs should be organised and booked
according to a specification in IKEA’s Financial Manual. All project cost follow ups are sent
to IKEA Services AB for further compilation.90

The project cost follow up is also used by IISSAB in order to update the SDT and thereby
improve the standard store. From experiences, IISSAB does not take into account costs for
items like IT and security because these costs vary too much between different countries.
These variations exist mainly due to different regulations and local purchases in different
countries. Another limitation with the project cost follow up is that the follow up process is
conducted differently in different countries, which affects the comparability of the results.
However, IISSAB believes that these variations do not exceed ten percent.91

6.4 The project cost follow up and cost sections92

As described in the introduction chapter this Master Thesis studies investments in section 12
and 14 in the store project cost follow up. Below, the different cost sections in the project
cost follow up will be described.

In the Financial Manual of IKEA, Investment Instructions can be found. These describe the
working procedure for the planning and follow up of different kinds of investments. It also
includes the various definitions for all cost sections under which all investments and costs
related to a new store investment are supposed to be booked. The costs of a store project are
divided into cost section numbers 1 to 16, where cost sections 1 to 11 are Property
investments, cost sections 12 to 14 are Retail investments and 15 to 16 are Retail costs. This
system is specific for IKEA’s internal project cost follow up and should not be adapted to
legal costs accounts in different countries. In figure 6.4 the different sections are listed with
the belonging type of costs. As already mentioned, this study focuses on cost section 12 and
14, i.e. retail investments concerning building construction and machinery and equipment.93

In cost section 12 retail building investments should be included. Retail building investments
include investments for making the store suitable for showing the IKEA product range.
Other building and construction investments belong to the property cost sections. Thus, it is

89 Interview Inter IKEA Systems Services AB

90 IKEA Financial Manual (2002)
91Interview Inter IKEA Systems Services AB
92 IKEA Financial Manual (2002) & Interview Retail department, IKEA Services AB
93 IKEA Financial Manual (2002)

53
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

only building investments in the sales area that are included in cost section 12. Furthermore,
cost section 12 is divided into subsections like lighting, roof, ceiling, floor, walls and wall
coverings.94

Cost section 14 includes investments for all equipment and machinery that completes the
store building to a fully equipped IKEA store. This includes, among other things, racking
and shelves, signs, trolleys, counters, cash registers etc. Cost section 15 includes various
operational costs and cost section 16 includes opening costs for a store project.95

Cost sections Cost sections Cost section

1 + 10.2 + 11 2-9 10.1
Site Construction External work
investments investments investments

Property
investments

Cost section Cost section Cost section Cost sections

12 13 14 15 - 16
Building Food service Machinery & Other Retail
investments investments Equipment costs
Investments

Retail Retail
investments costs

Figure 6.4 The different cost sections for a store project follow

94 IKEA Financial Manual (2002)

95 Ibid

54
7 Store projects studied

In this chapter the store projects that have been studied are presented. The store projects are presented with
main focus on the accounting routines affecting the store project follow ups in each country.

7.1 Poland - Warsaw North, Targowek96

There are seven IKEA stores in Poland. Two of these are situated in the Warsaw region,
Janki and Warsaw North. The Service office in Warsaw serves, apart from the stores in
Poland, also store projects in other parts of Eastern Europe. They are for example involved
in a new store project in Budapest, where they are contributing with their experience and use
many local Polish suppliers.

Warsaw is the most important market in Poland for IKEA. In the city there are 700 000
households with more than 2 100 000 people. Earlier there were two existing stores in the
centre of Warsaw, Janki and Plattan. The Janki store, which is located in the southeastern
part of Warsaw, was remodelled in 2001 and Plattan, the city store, was closed down in
October 2001. In order to secure development on the Warsaw market a new store, Warsaw
North, was built northeast of the centre. The site location of the new store is attractive with
easy road connections from the centre and from many suburbs.

7.1.1 Project description

The Warsaw North store has an area of 23 112 sqm and surrounding the store is 1 377
parking lots to serve the customers. Construction start was in August 2000 and the store was
opened in June 2001.

The store project is considered to be a quite successful one. It was finished with total costs
below budget and opened within the predicted time span. However, some problems with
building permissions in the beginning of the store project resulted in an extended total
building time compared to other store projects. The retail part of the construction work was
very short, between three to five months. This is considered to be one of the explanations to
the low construction costs, since this lowered the number of labour hours and thus the
labour costs.

96 Interview IKEA Service Office Poland

55
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

In all store projects in Poland one main contractor has the main responsibility for all smaller
subcontractors. The retail and property departments have one project leader each, working
side by side, which was also the case in the Warsaw North project. The budget is generally
made by using economic data from old stores, which are then adjusted to the current store
conditions.

Suppliers
For the Warsaw North store project approximately 30 per cent of the retail costs, i.e.
sections 12 to 14, come from IRE. Moreover, the main part of all invoices is IRE invoices
and consequently a lot of work was done booking IRE invoices.

There is one supplier in Poland with close relation to IRE who sells store racking. The
racking for the Warsaw North store project was bought directly from the IRE supplier. This
reduced the racking costs for the store with approximately 20 per cent. In order to make the
purchases directly from the IRE supplier the polish retail department had to pay a fee to
IRE. However, the final cost was still lower than buying through IRE. The fee is included in
the booked racking costs.

Other local suppliers have no connection to IRE, but many of them have a good
relationship with IKEA in Poland and have been used for a number of years in different
store projects.

Accounting - The procedure

In Poland legal accounting and internal project reporting are done simultaneously, i.e. a
monoistic accounting system, in a program called CODA97. This has not always been the
case. Earlier the internal project reporting was conducted in a program called SUN parallel
with the legal accounting, which was conducted in CODA. However, this could result in
differences between the bookings in the two programs, which in turn resulted in many hours
of extra work, finding out the source to these differences.

The accounting procedure was thus changed and today both legal accounting and internal
project reporting are conducted together in CODA. The section numbers, which follow the
specification in the Financial Manual, are the same for both legal accounting and the project
cost follow up. Since they are conducted together both legal accounting and the internal
project reporting are conducted accordingly to polish law.

According to Polish law, items more expensive than 3 500 PLZ shall be booked as fixed
assets. All other items are being booked as operational costs. Consequently all items over 3
500 PLZ are booked in cost section 12 through 14, while other items are booked as
operational cots in cost section 15. Furthermore, it is more practical to book things in cost
section 15, since items booked there do not have to be followed up and treated as fixed

97 CODA: Accounting program used for primary legal accounting by IKEA.

56
 7 Store projects studied

assets. The result is that as many items as possible are booked in cost section 15. Thus, the
specification in the Financial Manual is not completely followed for the project cost follow
up. When compiling the final project cost follow up the cost section totals of each section
are taken directly from CODA. In order to show total figures below budget, some
adjustments are sometimes made between subsections. These adjustments do not always
correspond to the specification in the Financial Manual. Further more, the legal accounting is
done in Polish and hence also the internal reporting.

7.2 Germany - Regensburg98

There are 29 IKEA stores and about 8000 employees in IKEA Germany in the year of 2002.
This makes Germany the country where IKEA has the most stores. With a build up speed of
between two to three new stores a year, the number of stores is also increasing rapidly.
Further more, IKEA Germany has, with about 20 per cent of the total sales within IKEA,
the highest amount of sales.

Regensburg is located in the region Eastern Bavaria, in which it is the region capital. The city
has a population of approximately 135 000 people and 75 000 households and it is situated
120 km north-east of Munich. The IKEA store is situated along the freeway approximately 6
km from the city centre and is very easy to reach. The closest IKEA stores are located in
Munich and Fürth. The primary trading area, i.e. where the primary customers come from,
for the Regensburg store contains a population of about 584 000 people, and the secondary
trading area has a population of 647 000.

7.2.1 Project description

The investment request for a new IKEA store in Regensburg was approved by the board of
INGKA Holding on June 6th, 2000. The construction started rapidly after the approval and
the store was opened on August 16th, 2001. The IKEA store now has a total store size area
of approximately 23 400 sqm and a sales area of approximately 13 700 sqm.

Special about this store project was an electricity wire exactly above the location where the
IKEA store was to be built. This wire had to be redrawn around the building site during the
construction time and when the store was finished, it was repositioned just above the store.
This has made it necessary to have extra computer equipment, e.g. covers, in order to
prevent the radiation from the wires to affect them. This has increased the costs for
computers in the store.

Generally in Germany the manager of the expansion department is in charge of all new store
projects. In every new store project there is also one project leader from the property
department and one from the retail department who have the responsibility for their area of
competence. It is also the project leaders how are responsible for the budgeting, which they
do mainly on experience, in different levels of detail. Furthermore it is the property

98 Interview IKEA Service Office Germany

57
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

department, not the retail department, who is responsible for the budget of cost section 12.
There is no main contractor for the property part of the store project. It is the property
project leader who is responsible for all subcontractors. For the responsibility of the
coordination between the different subcontractors he pays an external architect.

Suppliers
For the Regensburg project, the estimated percentage of costs coming from IRE for cost
sections 12 to 14 is 40 per cent. The number of so called frequent external suppliers, i.e.
suppliers used in more than one project, was 30 and approximately 25 per cent of the total
purchases in the Regensburg store project was conducted with these suppliers. The rest was
bought from smaller local distributors.

Some items had to be bought from IRE in order to establish the IKEA concept in the store.
Generally IRE is considered to be expensive but easy to do business with. There are also
some major external suppliers that IKEA Germany has to make their purchases from
because of different country agreements. These suppliers are often much more expensive
than smaller local suppliers. Examples of suppliers who fall under this category are Hewlett
Packard, from whom IKEA must buy their printers, and DeTeWe, who is the supplier of the
telephone system.

Accounting – The procedure

The legal accounting is entered directly into CODA as the store project is proceeding. The
account numbers for the legal accounting are not the same as those for the project cost
follow up specified in the Financial Manual. Instead, a built-in function in CODA makes it
possible to build groups of legal account numbers which are then connected to the different
subsections in the project cost follow up. In this way the project cost follow up derives from
the legal accounting in CODA and it is also, during the store project, possible to retrieve a
preliminary project cost follow up. Hence, IKEA Germany also uses a monoistic accounting
system.

The limit for fixed assets in Germany is 410 EUR. According to German law, all items below
410 EUR are considered operational costs and should therefore not be booked as fixed
assets. In the legal accounting system, CODA, costs for these items are booked under
accounts for operational costs together with salary costs, rental costs, etc. This means that
operational costs in the CODA-system consists of a mixture of bookings that, in the project
cost follow up, belong to cost sections 12, 13, 14 and 15. In the end of the project, a
controller must manually go through all the operational costs in CODA and assign the
bookings to the right subsection in the project cost follow up. For items considered as fixed
assets the procedure is easier as these costs, after being grouped as explained earlier, are
withdrawn automatically from CODA into the project cost follow up with the help of a
computer program.

58
 7 Store projects studied

The project cost follow up for retail costs in Germany is done by controllers in the retail
department and for property costs by people in the property department. When the project
cost follow up is made, the project leader is always present as he is the one who has the best
knowledge of the store project and is the one who has signed all the invoices. Traditionally in
Germany, cost section 12 is the responsibility of the property department, even though the
investments belong to retail. The reason is that bookings in cost section 12 contain mainly
building investements inside the store and the property department is considered to have a
better knowledge of this.

In 2001 there was a change of routines, when some investments which traditionally had been
booked as property investments were to be put in cost section 14. This change was carried
out after the Regensburg store project and hence some investments that were supposed to
be booked in cost section 14 were put in cost sections 2-11, i.e. as property investments.
Among other things this included investments for loudspeaker system, telephone system,
burglar alarm and IKEA logos, which are quite large investments. The change also
influenced cost section 12 in the project cost follow up and what was supposed to be
booked there. For the Regensburg store project the specification was not followed at all
concerning cost section 12. All investments that are supposed to be booked there were
booked as property investments. The reason for this was that investments belonging to cost
section 12 were included in property construction investments and it was impossible to
extract these from the lump sum invoices from the contractors. The only things that have
been located in cost section 12 is some lighting, section dividers, costs for external
consulting and a washing table. Investmentes for items that are supposed to be located in
cost section 12, like floors and walls, are located in cost section 4 together with other
construction works.

7.3 The United Kingdom - Glasgow99

IKEA in the UK has 5 600 coworkers and 11 stores located all over the country, one of
which has the biggest turnover of IKEA stores in the world. During the coming years the
aspiration is to expand with approximately three new stores each year. However, the
government is very restrictive on giving planning permission for new stores, which makes it
hard to realize the expansion aspirations. The concept of IKEA is to have big stores outside
town centres with easy connections to the main roads. The restrictive approach by the
government derives mainly from a desire to keep the city centres alive by trying to avoid big
shopping centres outside the city centres. The restrictive approach from the government also
originates from environmental issues. By placing the stores in the city centre less traffic and
thereby decreases in emissions are accomplished.

7.3.1 Project description

The Glasgow store, which opened in August 23rd, 2001, has a gross area of 29 000 sqm. It is
located in an area with many other retailers. Adjoining the IKEA store is a new shopping

99 Interview IKEA Service Office UK

59
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

centre with a total area of 60 000 sqm. The area attracts up to 320 000 visitors each week and
there is a parking lot with over 7000 spaces and a large bus terminal supporting the area.

As explained earlier, it is not easy to get planning permission from the government, and this
was also the case for the Glasgow store project. The store project had to be divided into two
phases, as IKEA did not receive a planning permission for the whole warehouse area in the
store. However, after construction had started, the government also permitted the rest of the
planned warehouse area.

The Glasgow store project can be considered as the takeoff for a new way of working with
new store projects in the UK. In the previous new store project in Edinburgh, there were
dissatisfactions with technical solutions and finishes as well as insufficient planning.
Consequently it became obvious that something had to be done in order to ensure a higher
quality and a better follow up in store projects. To accomplish this, a template that shows all
fittings and fixtures to be purchased for a new IKEA store was developed. The template is
to be used during the planning phase as well as during the construction phase of a new store
and will help project leaders in their work of planning and conducting a new store project in
terms of both budgeting and project cost follow up.

Suppliers
In the Glasgow project retail fittings purchased from IRE correspond to about 25 per cent
of the total costs in cost sections 12 to 14. Mainly all fittings were purchased from IRE, apart
from the warehouse racking which was purchased form a local supplier through IRE. The
general opinion of IRE is good in the UK and they try to purchase as much as possible from
them. However, when new things are being introduced in the IRE range it is often a bit
expensive and not so well developed.

External suppliers have also been used in the Glasgow store project. These are often
suppliers that are used for many store projects. The reason is that these suppliers often know
the IKEA store structure and installation procedures, resulting in lower installation costs and
the ability to set a fixed price on the work. Examples of long term suppliers are those selling
cash registers and tube systems100. Different suppliers are always consulted in the planning
phase of a store project in order to get the best price but since longterm suppliers often are
able to set a lower fixed price than new suppliers, they are also often chosen.

Accounting – The procedure

In the UK, the system for legal accounting as well as internal reporting is the CODA system.
When making a booking in CODA, the store number, project number, legal account
number, cost centre and the project follow up cost section number are entered. The cost
sections correspond to the ones specified in the Financial Manual. In this way both legal

100 Tube system: The link, transporting money from the cash registers to the valve.
60
 7 Store projects studied

accounting and internal reporting is conducted at the same time without any direct
connection, i.e. a monoistic accounting system.

In the UK it is, in great extent, up to a company how they want to book their investments
and costs. There is no law regulating which items should be booked as fixed assets or which
can be booked as operational costs. However, according to guidelines from the authorities,
items booked as fixed assets should be durable for at least five years and have a value of
more than 1000 GBP. Today IKEA in the UK books as much as possible as fixed assets by
tradition, but they are getting pressure from IKEA Sweden to book more costs as
operational.

As mentioned previously a new way of working with new store projects was introduced in
the Glasgow store project. Much of the planning and the continuous work of the store
project were conducted with the help of a template. The template shows among other things
all items needed to fit out a store, the quantity of items, unit price for the budget, order date
and who is responsible for the ordering, cost centre and cost sections, check list if the item
has been ordered and the preliminary costs as well as if the invoice has arrived and been paid
for. By using this template the budget will be easier accomplished as well as more accurate.
The use of the template will also make it possible to have a day-to-day update of the project,
with the total amount of money that have been spent on each subsection, the total sum of
invoices paid and the amount for items ordered. The project cost follow up is therefore
much easier controlled and when the project is finished the project cost follow up is
completed.

7.4 The Unites States – Washington relocation101

There are 24 IKEA stores in North America in 2002. 15 stores are located in the United
States and 9 in Canada. These stores are run by internal as well as three external franchisers.
An expansion of approximately 9 new stores is planned this year and in ten years 50 new
stores are planned to open. Local regulations can put the building plans on hold on some
sites, but this it not considered as a problem since IKEA has so many other sites to build on.
Sooner or later building permission for the other sites while be approved.

In 1998 the Washington region had a population of approximately 2 270 000 and the
population is forecasted to increase to 2 404 000 by the year of 2003. The strongest increase
will come from families with children, which continues to be IKEA’s priority. The closest
IKEA stores are located in Baltimore and Philadelphia.

7.4.1 Project description

The Washington store was relocated in 2001. The reason for the relocation was a potential
growth, 50 per cent sales growth over the last three years, in spite of the disadvantage of a
poor location of the old store. The old store was opened in 1986 and was a one-store

101 Interview IKEA Service Office US, Washington

61
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

building with approximately 14 800 sqm. It was only possible to distribute a selected range of
products.

The investment request for a new IKEA store in Washington was approved by the board of
INGKA Holding on June 6th, 2000. Construction start was in September the same year and
the store was opened on November 28th, 2001. The store has a gross area of 27 973 sqm.

Some items were taken from the old store to be reused in the new store. Since the two stores
were located in the same state this was rather easy. If the stores had been situated in different
states, the procedure would have been much more complicated, since IKEA stores in
different states are considered to belong to different companies. As mentioned before, the
old store was built in 1986 and thus the fittings and equipment in this store were rather used
and old. Therefore, it was not many items that were reused in the new store. Consequently,
the costs for the store project were not reduced in a notable way.

The Washington store project was a bit delayed. One reason for this was an abnormal
amount of rain days during the construction period. Furthermore there was a government
recall of the entire sprinkler system, the warehouse concrete flooring had to be repoured and
the racking had to be installed a second time.

Suppliers
Everything that could be purchased from IRE for the store project was purchased from
there. IRE recently opened an office in North America and they are considered to have
reasonable prices and good service. Approximately 30 per cent of the costs in cost sections
12 and 14 come from IRE.

Other big suppliers used in the store project were Dell and MUSAC. Dell was delivering all
computers to the new store and MUSAC is a company in the US, delivering music.

Accounting – The procedure

In the US only the CODA system is used for the accounting. The legal accounting is first
conducted and thereafter information from CODA is extracted to an Excel sheet in order to
be further transferred into a project cost follow up. Items, with exception for computers,
with costs below 1 000 USD are to be considered as operational costs. Computers can be
considered as fixed assets even with costs below 1 000 USD. The reason for this is that the
total investment in IT is large and it would be misleading if these costs were booked as
operational costs.

According to US law items booked as fixed assets in legal accounting must be booked as
investments in the internal reporting, i.e. the project cost follow up. Thus, all items booked
as operational costs in the legal accounting has been put as operational costs in cost section
15 in the project cost follow up. In many cases this contradicts the specification in the

62
 7 Store projects studied

Financial Manual. Some items are by tradition booked in cost section 14 that should belong
in cost section 15, including rental equipment, waste disposal, and maintenance.

As the Washington relocation project was the second new store project in ten years in North
America people involved in the store development process were not very familiar with the
different IKEA procedures. This resulted in difficulties getting accounting and project cost
follow ups correct. Wrongbookings resulted in many hours of unnecessary extra work.
Therefore the procedures are now reviewed in order to make improvements for the future.

63
8 Store projects analysis

The main focus of this chapter is to in detail discuss the differences between the various store projects in the
four countries studied. The analysis will foremost correspond to the task given by IKEA in the beginning of
the research.

8.1 Introduction
As mentioned above the analysis in this chapter will focus on the differences between the
store projects studied, which corresponds to the task given by IKEA, where the following
actions were included:

⋅ Verification of the reconciliation between the legal and the internal reporting (Project
Follow Up/FPU).
⋅ Check if the definitions for operational reporting are followed and suggest
improvements.
⋅ Comparison between the selected store projects with a specific report of all deviations.
Suggest improvements.
⋅ Conclusions and action plan.

This chapter will answer the first, the second and partly the third note in the list above. The
analysis regarding the action plan in chapter 9 will describe improvements and action plan. In
the process of trying to make the store projects studied in this Master Thesis comparable, the
analysis will focus on the main deviations from the specification and why these deviations
exist. This will then make a better understanding as to why the different store projects show
very different amounts for the retail investments, see table 8.1 below.

Costs section 12 Costs section 14 Total (12 & 14) Total per Gr.A
Poland 591 ' EUR 1 664 ' EUR 2 255 ' EUR 96.0 EUR
Germany 531 ' EUR 2 757 ' EUR 3 288 ' EUR 148.1 EUR
UK 1 042 ' EUR 3 892 ' EUR 4 934 ' EUR 170.0 EUR
US 1 310 ' EUR 3 532 ' EUR 4 842 ' EUR 173.1 EUR

Tabel 8.1 Overview of original Retail costs (Section 12 and 14)

65
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

8.2 Analysis model

This part of the analysis follows a model illustrated in picture 8.1 below, which is built up of
certain key steps. The model also serves as a guide for the layout of this chapter and is
therefore presented here and not in the Research method chapter.

Process
Comparison within projects
Reconciliation (Ch 8.3)
Legal accounting /
Operational reporting
Effects on total amounts

Deviation (Ch 8.4)

Deviation between projects
and specification Rebookings between Retail and
Property sections

Comparison (Ch 8.5)

Within the projects (Before Rebookings within retail (Sec. 12
and after rebookings) and 14)

Limitations (Ch 8.6) Comparison between projects

Limitations with this model

Why are there still differences

after rearrangements?

Figure 8.1 The analyse model of this chapter.

The first step is to establish and define the relationship between the legal accounting,
controlled by specific laws in each country, and the project cost follow up, which is a part of
the IKEA internal accounting. As explained in the empiricism, IKEA in all countries studied
has some form of monoistic accounting system which means that the legal accounting often
has some effect on the project cost follow up. Once this is established it becomes interesting
to analyse how well the different store projects internal reporting agrees with the
specification in IKEA's Financial Manual. The different bookings are then rearranged to
better comprehend with the specification. However, some deviations, due to different levels
of detail and large invoices where the costs are impossible to divide between subsections,
have been necessary in order to make a better comparison. The total sums before and after
66
 8 Store projects analysis

the rebookings are then compared in order to see how big impact the rebookings has had on
the different project cost follow ups.

8.3 Reconciliation between legal accounting and operational

reporting
The first important step is to assure that the internal reporting only contains
bookings that, according to IKEA routines, are supposed to be there. Taxes
and depreciation are not supposed to be taken into account in the project cost
follow up. This is followed in all the store projects studied.

The next step is to examine to what extent the legal accounting influences the internal
reporting in the different countries. As described in the empiricism, the accounting
procedure is very different in the different countries, and this has a great effect on the
comparison between the store projects. All the IKEA countries studied have various forms
of monoistic accounting systems. These systems makes the accounting procedure easier, but
the disadvantage is that in the process of simplifying the system, important differences
between the legal and internal accounting can easily be neglected. Another disadvantage with
a monoistic accounting system is that different languages in different countries will be used
in the internal reporting. Even if the company language is English, in a monoistic accounting
system the internal reporting often follows the legal accounting and is thereby in the country
language.

One of the most obvious differences between the countries, when looking at the
reconciliation between the legal accounting and the internal reporting, is how operational
costs versus fixed assets are viewed upon. Costs below a certain value must be booked as
operational costs in the legal accounting and in many cases this also reflects on the internal
reporting. Table 8.2 below shows a summary of the amounts of what is to be considered
operational cost instead of fixed asset according to regulations by the authorities in each
country.

Domestic currency EUR

Poland 3 500 PLZ 785 EUR
Germany 410 EUR 410 EUR
UK 1 000 GBP (Durable > 5 years) 1 585 EUR
Guidelines by authorities
US 1 000 USD 1 022 EUR

Table 8.2 Summary of highest amounts for costs to be booked as operational costs

The table above shows great inconsistencies between how the different store projects are
suppose to book costs in the legal accounting system according to various laws and
regulations in the countries. While Germany has regulated by the law that everything above
410 EUR must be considered fixed asset, UK has guidelines that everything above 1 585
EUR should be booked as fixed asset. The UK amount is more than three times the German
67
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

amount, but at the same time the German amount is regulated by law and the UK amount is
only a guideline by the authorities.

More important though, is to look at how the different countries work with these regulations
in their internal reporting, i.e. how big influence the legal accounting has on the internal
reporting. Table 8.3 shows a summary of each country.

Poland IKEA Poland consequently books all costs below 3 500 PLZ (785 EUR) as
operational costs i.e. under section 15 in the internal reporting.
Germany IKEA Germany books costs below 410 EUR as operational costs directly into
the CODA-system and at the end of the store project a controller assigns costs
to the correct section in the internal reporting.
UK IKEA UK books by tradition many costs as fixed assets in both legal and
internal reporting, even if they could be considered as operational costs
according to the guidelines by the authorities. Thus, many costs are put in section
12 and 14 instead of 15 in the internal reporting. Examples are IKEA-pencils &
measuring tapes and price tags.
US IKEA US books their costs in the operational reporting according to regulations
by the authorities. However, IT costs below 1000 USD are booked in section 14
(i.e. not as operational costs in section15 in the internal reporting), because IT
costs are immense and the result would otherwise be misleading.

Table 8.3 Summary of the countries approach to operational costs and fixed assets

Summary
According to table 8.1 IKEA Poland has very low costs in cost sections 12 and 14. One
reason for this can be that IKEA Poland books many costs as operational costs in cost
section 15, as they follow the government regulations in their internal reporting. As a result
of the monoistic accounting system, the internal reporting is kept in Polish, which makes it
very hard for a foreigner to understand.

As IKEA Germany manually assigns operational costs, from the legal accounting, to the cost
sections in the internal reporting after the store project is finished, it is possible that the
controller misses some bookings. There are as much as 10 000 different bookings that are
booked as operational cost, so it is a huge task. The German accounting system for IKEA is
also monoistic, whereas the same language problem as with Poland arises.

IKEA UK, who has quite high retail investment costs, books by tradition very few costs as
operational. The result is that many costs are booked in cost sections 12 and 14 instead of in
cost section 15, making the section total amounts higher in these accounts.

IKEA US, as in the case of IKEA Poland, also follows the government regulations for fixed
assets in their internal reporting, but excludes IT costs as these costs are very high and would
be misleading.

68
 8 Store projects analysis

IKEA must follow the specific laws in each country, but the internal reporting should not be
influenced by these laws and regulations. To be able to compare figures between IKEA store
projects, the monoistic accounting system in each country must be build up in a way that it
can take into consideration both IKEA regulations and country laws. Costs must be booked
correctly in both the legal accounting system and the internal reporting system without
having to book each cost twice, i.e. without applying a dualistic accounting system.

8.4 Deviations from the specification

How well IKEA in the different countries follow the specification varies very
much. The experience of working with the specification is also very different in
the various countries. IKEA US has only had two new store projects in the last
10 years and the organisation does not have the same routines when it comes
to store project cost follow ups. Germany and the UK, on the other hand, have had a lot of
practice of the project cost follow up. However, they sometimes make deviations from the
specification deliberately in order to focus on different things they want to study closer. One
example of this is the Glasgow store project, where IKEA UK wanted to see how much all
the lighting in the store cost. They have therefore put almost all lighting in wrong cost
sections. This has great effect on the possibility to compare different store projects with each
other, since the total cost section amounts in different countries do not show the same thing.
It must be possible to focus on different things without making deviations from the
specification.

The deviations from the specification (amounts above 5000 EUR) are presented below,
country by country, and can be seen in table 8.4, 8.5, 8.6 and 8.7.

IKEA Poland
Poland follows the specification quite well. The main deviations are those mentioned in
chapter 8.3 above, i.e. items booked in cost section 15 that should be booked in cost sections
12 or 14. However, a problem is that IKEA Poland sometimes adjusts the total cost section
sums by rebooking some costs wrongly at the end of the store project in order to better
agree with the budget. Another problem is that the internal reporting is in Polish, so to be
able to use a Polish project cost follow up, someone has to translate the bookings into
English. This is a very time consuming task and the result will be that only the main
headlines are translated. To avoid this, the internal reporting must be in English.

69
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

Item Item Cost Poland booking According to

(EUR) specification
Ceiling restaurant 7 715 12.1 13
Billboard lighting 10 750 12.6 12.1
Cart and trolley bays 13 023 12.6 14.32
Customer guidance 15 857 14.2 14.31
Shelving activity area 5 917 14.4 14.13
Night safe 6 390 14.51 14.58
Recycling bins 8 939 14.59 14.4
Server 13 470 14.59 14.54
Store design 34 666 12.62 15

Table 8.4 Items (amount > 5000 EUR) not booked according to the specification

IKEA Germany
In IKEA Germany cost section 12 is property responsibility, as can be read in the
empiricism. This has had the effect that cost section 12 is not handled according to the
specification. For the Regensburg store project, there are only 9 different bookings (lump
sums) in cost section 12. It says nothing about what is really behind the figures and it does
not contain, for example, any floors. In this Master Thesis, cost section 12 for Regensburg
will not be further analysed, as it is impossible to analyse in a greater extent.

Cost section 14 follows the specification much better than cost section 12. However, as can
be seen in table 8.5, there are some significant costs that are wrongly booked.

Item Item Cost German According to

(EUR) booking specification
Spotlights 5 360 14.31 12.1
Walls 52 237 14.11 12.3
Stands and bins 43 916 14.31 14.12
Strollers 33 273 14.31 14.32
Computers, printers etc 68 814 14.54 14.55
Safe 12 374 14.51 14.58

Table 8.5 Items (amount > 5000 EUR) not booked according to the specification

IKEA UK
The UK has a very high knowledge of the specification and how to book costs correctly.
However, in the Glasgow store project, large amounts have still been booked wrongly with
aspect to the specification. IKEA UK wanted to study the lighting costs for the Glasgow
store specifically and large amounts for tube lights and other lighting are therefore booked in
cost section 12 instead of in the property cost sections as well as in cost section 14 instead of
cost section 12, i.e. not according to the specification. Another deviation from the
specification is that IKEA UK books computer costs wrongly. What is supposed to be
booked in cost section 14.54 is booked in cost section 14.55 and vice versa.
70
 8 Store projects analysis

Item Item Cost UK booking According to

(EUR) specification
Ceiling grid bistro 9 726 12.1 13
Tube lights 99 306 12.1 Prop
Spotlights 46 434 14.11 12.1
Spotlights 41 116 14.12 12.1
Toolboxes 5 821 14.12 14.2
Room dividers 6 113 14.31 12.3
Cycle rack 17 565 14.31 Prop
Strollers 5 385 14.32 14.31
Wheelchairs 7 044 14.32 14.31
Nixdorf equipment 45 651 14.51 13
Light projector 5 095 14.55 14.52
Customer counting system 10 144 14.58 14.31
Satellite system (radio) 6 023 14.59 14.31
Computer costs 147 514 14.55 14.54
Computer costs 163 753 14.54 14.55

Table 8.6 Items (amount > 5000 EUR) not booked according to the specification

IKEA US
IKEA US has many deviations from the specification. They are aware of that they do not
have an organisation that has the routines and the full understanding of the specification as
they have not built many new stores during the last years. As can be seen in table 8.7 below,
many items have been wrongly booked.

Item Item Cost US booking According to

(EUR) specification
Lift rental 9 822 14.59 15
Lighting 99 401 14.11 12.1
Tube lights 40 547 14.12 Prop
Grid ceiling (MP, SR) 64 935 14.31 12.1
Lighting in rack (SS) 8 545 14.4 12.1
Windows 8 701 14.13 12.3
Partician walls 7 799 14.32 12.3
Moulding (SR) 7 435 12.1 14.11
Shelves etc. (Childrens SR) 10 291 14.31 14.11
Podium (SR) 6 104 14.4 14.11
Shelving (MH) 157 155 12.1, 14.13, 14.31 14.12
and 14.32
Rug display items 9 859 14.32 14.12
Strollers 9 985 12.1 14.31
Signs 49 261 12.6 14.31
Comment box 7 760 12.6 14.31
Plywood panel 13 393 12.6 14.31
Info tower 5 356 14.11 14.31
Sign holder & Beam cover 12 034 14.32 14.31
Price tag info, sign holder 64 354 14.4 14.31

71
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

Customer counter 13 667 14.51 14.31

Music system 88 046 14.53 14.31
Shopping and furniture cart 87 239 12.1 14.32
Pallet mesh 10 128 14.12 and 14.32 14.4
Hand trucks 5 209 14.12 14.4
Shelving (SS) 13 320 14.32 14.4
Lockers for staff 16 681 14.12 14.52
Printers 10 859 14.51 and 14.59 14.55
Pager system 10 670 14.31 14.56
Cable for wireless phone system 23 204 14.54 14.56
Store phone system 235 294 14.57 14.56
Security camera system 169 757 14.53 14.58
Tube lights 128 370 12.1 Prop
Bathroom ceramic tile 19 088 12.1 Prop
Rail parking level entrance 8 990 12.1 Prop

Table 8.7 Items (amount > 5000 EUR) not booked according to the specification

Summary
The understanding of the project cost follow up, as a tool to find good and bad solutions,
must be communicated to the people responsible for the internal reporting in all IKEA
countries. Huge wrongbookings will keep occurring as long as there is a lack in this
understanding. It is also important that the internal reporting is in English in all IKEA
countries. Otherwise it is impossible to conduct detailed analysis from the information sent
from store projects in various countries. Furthermore, in order to achieve comparable
project cost follow ups from every country the internal reporting must be constructed in a
way that it is possible to focus on different costs without having to make deliberate
deviations from the specification (as in the case with UK). The specification must also be
easy to follow and to understand. This is especially important for IKEA in countries that do
not expand very fast and therefore do not work continuously with the specification.

8.5 Comparison
To be able to compare the store projects studied, the figures and amounts have
to be rearranged according to the specification. In the comparison below, the
main focus will be to analyse how big the deviations are between the
specification issued by IKEA and the actual internal reporting in the different
store projects. An important limitation for this analysis is that only cost sections 12 and 14
have been studied, which has the consequence that bookings wrongly put in other cost
sections that are supposed to be in 12 and 14 are not taken into consideration. Some
information regarding bookings in other cost sections that are supposed to be in cost section
12 and 14 exists, but the information is not complete and this information has not been
possible to get from all store projects.

72
 8 Store projects analysis

8.5.1 Settings for the comparison

For the comparison between the store projects, a currency must be chosen and a suitable key
measure must be used. The obvious currency is euro, as this is the currency used within
IKEA. However, a problem lies in defining the exchange rates to be used. Exchange rates
differ from day to day, and the workload to find the correct exchange rate for each booking
is immense. There are different approaches to this problem and, as already mentioned in the
research method chapter in this Master Thesis, exchange rates defined by IKEA has been
used. IKEA has fixed annual exchange rates for transactions between different IKEA
countries, and as all of the store projects studied had their main construction time in 2001,
the exchange rate for that year has been chosen. However, there are some disadvantages to
this approach. The main disadvantage is that every cost is not translated to euro with its
correct exchange rate and hence it is not the exact correct amounts that are studied. But as
the analysis focus is on trends rather than exact amounts, this simplification is motivated.

To be able to compare the store projects with each other even though they have different
sizes, a key measure must be used. In this comparison the key measure will be:

Euro/Store gross area

Cost section 12 and 14 are retail cost sections for machinery investments and equipment and
fittings investments in the store and therefore a key measure for the whole store is used.
Another possibility could be to only use the store sales area (showroom sales area, market
hall sales area, self-serve area including activity areas). The difference between these two key
measures in the case of this study is negligible, which is shown in table 8.8 below where the
sales area for the different stores are shown in percentage of the store gross area.

Store gross area Sales area Sales area /

Gross area
Poland 23 480 12 818 55 %
Germany 22 195 12 855 58 %
UK 29 030 16 030 55 %
US 27 973 15 736 56 %

Table 8.8 The different store project areas in sqm.

8.5.2 Effect of proposed rebookings on cost section total amounts

In the table 8.9 below the total amount of proposed rebookings is shown in two columns.
The first column only includes rebookings done from the original store project internal
reportings concerning cost sections 12 and 14. This includes all rebookings between cost
section 12 and cost section 14, bookings from cost section 12 to cost section 1-11 or 15 and
rebookings from cost section 14 to cost section 1-11 or 15. However, rebookings from cost
section 1-11, 13 and 15-16 are not being included.
73
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

However, the third column also includes some rebookings from cost section 15 to 14 for
Poland and from Property cost sections (1-11) to cost section 12 and 14 for Germany. In
Poland, Agnieszka Antzak manually retrieved these costs and in Germany Harald Hahn
presented a report, showing that IKEA Germany has booked some costs wrongly for all
store projects (including the Regensburg project). However, as the same information has not
been possible to get from all store projects these costs are shown in a separate column.

Proposed reebookings In % of the Proposed total In % of the

(exl. bookings from 1-11, total costs (12 rebookings (To our total costs
13 and 15-16) & 14) knowledge) (12 & 14)
Poland 140 000 EUR 6.2 290 000 EUR 12.9
Germany 280 000 EUR 8.5 900 000 EUR 27.4
UK 730 000 EUR 14.5 730 000 EUR 14.5
US 1 640 000 EUR 33.4 1 640 000 EUR 33.4

Table 8.9 Total amounts of proposed rebookings

The rebookings in table 8.9 look immense, but when looking at cost section 12 and 14
before and after the rearrangement of the figures, in table 8.10 below, the effect is not very
big. The reason for this is that the main part of the total amount of proposed rebookings are
rebookings within cost section 12 and 14. The rest of the costs that are rebooked counter-
balance each other, i.e. approximately the same amount is transferred to and from each cost
section.

Section Poland Germany UK US

12 Original bookings
25,17 23,94 35,9 46,84
After proposed
rebookings 24,04 (23,94) 33,66 41,17

After proposed
reebookings (to our - 25,37 - -
knowledge)
14 Original bookings
70,87 124,21 137,87 128,91
After proposed
rebookings 71,65 120,61 131,70 128,27

After proposed
reebookings (to our 77,79 147,62 - -
knowledge)

Table 8.10 Amounts before and after proposed rebookings (Euro/Gross Area)
74
 8 Store projects analysis

This shows a great danger! "On the surface" the total amount of each cost section seems to
be correct but when looking closer at what each cost section really contains, the differences
are immense. As long as this is the case, comparisons between different store projects will
not be possible.

8.5.3 Rebookings between different cost sections

After having analysed the data on an aggregated level, it is interesting to study the result of
the proposed rebookings on a more detailed level. In this chapter the proposed rebookings
between the different cost sections will be closer studied. The analysis is done country by
country and for each country a table is presented. The tables show how big amounts,
originally booked in the different cost sections (Y-axis) that have been rebooked to other
cost sections (X-axis). For example, when looking at table 8.11, 1 200 EUR was originally
booked in cost section 14 and is rebooked in cost section 12.

Poland
As can be seen in table 8.11 the greatest rebookings are done from cost section 15 to 14
(which is explained in chapter 8.5.2). Except for this the main part of the total rebookings is
within cost section 14. The adjustments made after the store project to make the project cost
follow up better in line with the budget in Poland is probably one of the reasons for the
rebookings seen in table 8.11.

Rebooked in section (proposed booking)

Booked in Property 12 13 14 15
section
Property
12 10 800 7 800 20 700 35 200
13
14 1 200 70 000
15 144 200

Table 8.11 Rebookings between sections for the Warsaw North project (EUR)

Germany
As explained earlier, cost section 12 for the Regensburg store project has not been analysed.
The amounts rebooked to cost sections 12 and 14 from property cost sections are the costs
incorrectly booked in all store projects in Germany (including the Regensburg store project).
Proposed rebookings for the Regensburg store project can be seen in table 8.12.

75
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

Rebooked in section (proposed booking)

Booked in Property 12 13 14 15
section
Property 31 700 591 500
12
13
14 79 900 197 500
15

Table 8.12 Rebookings between sections for the Regensburg project (EUR)

UK
The costs rebooked from cost section 12 to property and from cost section 14 to 12 shown
in table 8.13 below is mainly lighting costs. As can be read in the empiricism, IKEA UK
wanted to study lighting costs specifically and thereby deliberately booked lighting costs
wrongly and the result of this can be seen in the table above. The costs rebooked within cost
section 14 are the cause of misinterpreting the specification. IKEA UK booked costs that
belonged to subsection 14.54 in 14.55 and vice versa. As both these subsections contain
computer costs, the amount is very high.

Rebooked in section (proposed booking)

Booked in Property 12 13 14 15
section
Property
12 157 400 9 700
13
14 23 700 102 100 53 300 311 300
15
Table 8.13 Rebookings between sections for the Glasgow project (EUR)

US
As can be seen in table 8.14, IKEA US has booked many costs wrongly between all cost
sections. Just as the other countries, IKEA US has a high level of costs rebooked within cost
section 14. The main part of these costs is represented by a few wrongbookings containing
high amounts, e.g. store phone system, security camera system, tubelights and shelving.

Rebooked in section (proposed booking)

Booked in Property 12 13 14 15
section
Property
12 156 400 51 400 700 241 600
13
14 40 500 200 800 1 300 934 400 10 700
15

Table 8.14 Rebookings between sections for the Washington project (EUR)
76
 8 Store projects analysis

8.5.4 Reasons for still existing differences between the projects

Even though many rebookings has been done, differences still exists and the project follow
ups are not entirely comparable. The main reason for this is that the only cost sections
studied has been cost sections 12 and 14. Hence costs wrongly booked in other cost sections
are missed. To be able to compare the store projects with each other, all cost sections must
be thoroughly studied.

8.6 Summary
The task to make the figures in the four store projects studied in this Master Thesis
comparable has been a great workload. However, this analysis has made clear the following
main reasons as to why the different project cost follow ups differ so much in the various
countries:

⋅ The legal accounting system influences the internal reporting system, e.g. regarding fixed
assets and operational costs and the language in which the accounting is done.
⋅ Adjustments are sometimes made after the store project is finished in order to better
correspond to the budget.
⋅ The project cost follow up is too inflexible. In order to closer study the costs of a
specific item, deliberate deviations from the specification has been made.
⋅ The specification can sometimes be difficult to interpret. The logic, which it is built on,
is clear but not communicated through the organisation.

In the next chapter, actions necessary to take in order to get comparable project cost follow
ups in all IKEA store projects are discussed.

8.7 Limitations with this model

The main limitation that has been discussed several times in this chapter is that
only cost section 12 and 14 have been studied. Therefore, important bookings
in other cost sections that are supposed to be booked in cost sections 12 and
14 are not taken into account and this is one of the main reason as to why the
figures still are not comparable (see chapter 8.5.4).

77
9 Action plan

This chapter will start by summarising the facts collected in the store projects studied. From shortcomings
found in these, three main actions for improvement are developed. Finally, the analysis considers how the
actions developed affect internal benchmarking in the case of IKEA.

9.1 Introduction
In the previous chapter the four specific store projects were analysed in detail. The analysis
will now continue by focusing on actions for improvements in order to avoid the problems
seen in the previous chapter in the future. The aim is to facilitate the analysis of deviations
between different store projects. Hence, the analysis in this chapter will discuss how to
improve the project cost follow up and how this can create an appropriate framework for
continuous improvements in the store development process by using internal benchmarking.
As mentioned above the analysis will start by summarising the facts collected in the store
projects studied. From shortcomings found in the store projects, main factors for
improvement are highlighted and further analysed. These factors are then taken into account
in the action plan built up of three main cornerstones. How these corner stones of
improvement actions affect internal benchmarking in the case of IKEA will finally be
analysed.

9.2 Summary of the cases studied

In table 9.1 below facts from the four store projects are summarised. The aim is to highlight
shortcomings in different areas in order to develop actions that can improve the project cost
follow up and its process. The idea is that this in turn can facilitate in making an adequate
framework for continuous improvements in the store development process through internal
benchmarking.

79
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

Poland Germany UK US

Do not see the full IKEA Germany tends In projects prior to Due to few new store
use of the project cost to focus on IKEA the Glasgow project, projects IKEA US
the cost follow up
Purchasing from Understanding of

follow up. It is more Germany and not the understanding has a lack of
important to show IKEA world wide. was poor. This also experience. The work
section total amounts Due to differences in resulted in poor procedure and
which are below the budgeting, it can performance. How- understanding of the
budget. be difficult to have ever, big full use of the cost
comparable project improvements were follow up is not ok.
cost follow ups. achieved in the
Glasgow project.
IRE is considered IRE is considered IRE is well IRE is used as much
expensive. About expensive but easy to considered and have as possible and
30% of the costs in buy from. About 40% reasonable prices. Use considered as cheap
section 12 to 14 of the costs in section IRE as much as and reliable. About 30
derive form IRE. 12 to 14 derive from possible. About 25 % % of costs in section
However, a big part IRE. of costs in section 12 12 and 14 come from
of invoices come to 14 come form IRE.
IRE

from IRE. IRE.

The project cost The project cost Continuously, both Legal accounting is
follow up is done by follow up is extracted the project cost done in CODA. The
taking totals in legal form the legal follow up and the project cost follow up
Accounting

accounting, i.e. legal accounting. This is legal accounting are is extracted from the
procedure

accounting and done partly done parallel. It is legal accounting.

project cost follow up automatically and possible to check the Mainly manual work.
are done together and partly manually. money spent during
influence each other. the store project.
The specification is The specification is The specification is The specification is
known rather well known and the known well and the known and the
and the aspiration is aspiration is to follow aspiration is to follow aspiration is to follow
to follow it. However, it. However this is not it. The Glasgow store it. However, due to
a number of items are done completely. project was a test poor experience it is
Following the specification

booked as operational Section 12 is project for a new way not entirely followed.
costs in section 15 completely abused. of working with
that should belong However, planning and project
under section 12 or improvements have cost follow up. The
14. Some items are been done after the specification has been
also booked wrongly Regensburg store followed as far as
as property costs. project. possible. However,
Most wrongbookings costs have
are deliberate, due to deliberately been
legal or practical booked wrongly, in
reasons. order to analyse their
costs.
The budget is built on Project leaders do as In the Glasgow N/A
previous store they think is best. project the planning
projects in Poland. There is no standard and budgeting
planning/budget

They use the total procedure. Different procedure were done

sums and transform levels of detail thoroughly with the
them to fit the new depending on the goal to develop a
store. There is no project leader. useful tool during the
Project

standard procedure to store project and a

do this. correct project cost
follow up.

Table 9.1 Summary of important project facts

80
 9 Action plan

Understanding: When looking at the cases studied, it is obvious that the understanding
today of the full use of the project cost follow up is not sufficient. The main purpose of the
project cost follow up is considered to be to verify the final costs in comparison with the
budget. Even though this is an important purpose of the project cost follow up it is not the
only one. For example, the cost follow up is also used by IISSAB102 in the updating process
of the SDT tool, i.e. the standard IKEA store. In the future the project cost follow up will
also by used in updating the RED tool. Thus, it is important that the bookings done in each
cost section are correct, so that all project cost follow ups will have the same contents and be
comparable.

With the understandings of the project cost follow up, experienced in the store projects
studied, it is easy to understand that the countries mainly look at the current store project in
isolation and not how it can contribute to improvements within IKEA and in future store
projects. Consequently, the importance of making correct bookings is in some cases
forgotten and the main aim is to show section total amounts that are below budget. By
increasing the understanding of the full use of the project cost follow up and hence also the
motivation of making correct bookings, the potential of developing proper and comparable
project cost follow ups should increase.

Purchasing from IRE: The opinion of IRE prices varies between the different store
projects studied. In spite of this, the purchases made from IRE represent a large part of the
total purchases in cost section 12 and 14, on average about 30 % of the total costs, for all
four store projects. Furthermore, the main part of the total invoices in the store projects
derives from IRE. This should also be the case, as all store projects are required to buy as
much as possible from IRE. Hence, the choice of supplier will not be discussed further in
this Master Thesis. However, it should be possible to make use of the large percentage of
internal purchases, in order to make the accounting procedure more automatic. This should
result in double gains for IKEA, since both the retailers and IRE can make use of it.

Accounting procedure: The store projects studied have different accounting procedures.
Primarily, a monoistic accounting method is used and often a connection between legal
accounting and internal reporting systems results in that the project cost follow up is
influenced by laws and regulations in the specific country. The project cost follow up is also
partly done manually in all four store projects. This increases the risk of wrongbookings,
deliberate as well as by mistake, in relation to the specification in the Financial Manual. This
in turn creates a framework that is not comparable between different store projects. By
making as many bookings as possible automatic, there should be a great potential for saving
both money and time. Furthermore the number of wrongbookings, due to manual mistakes,
would decrease if using a more automatic accounting system. It is also important that legal
accounting is separated from internal reporting so that the specific country laws will not
influence the project cost follow up.

102 IISSAB: Inter IKEA Systems AB, see chapter 6.3

81
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

Following the specification: In all four store projects, the existence and main structure of
the specification is well known and the aspiration is to follow it. Despite this, the
specification is not always followed, mainly due to different practical reasons. Possible
explanations are the close connection to the legal accounting system, as mentioned above,
and misinterpretations due to grey zones in the specification. Wrongbookings can also be
deliberate. By making the specification easier to follow, less misinterpretation would be the
case and by making as much of the accounting as possible automatic fewer wrongbookings
would be made. As already mentioned, it is also important to clearly separate the legal
accounting from the internal reporting without increasing the workload for the controller.

Project planning and budgeting: The planning of new store projects has not been studied
specifically in this Master Thesis. Nevertheless it has been discussed in three out of four
store projects. Often the budget is conducted by looking at earlier store projects and by
using the experience of the project leaders. In this way the total sum of a store project might
be correct, but it will be very difficult to estimate the correct costs for each cost section. The
risk is then that the project cost follow up will not be in line with the budget, which in turn
will encourage wrongbookings in order to produce cost section total amounts that are below
budget. The purpose of the RED project is to improve and simplify the planning and
budgeting process. With the RED tool the budget will be built up in the same way as the
project cost follow up. Thus, the budgets and the project cost follow up will be comparable
automatically, with less risk for deliberate wrongbookings.

9.3 Factors for improvement

From the five areas discussed above, three main factors for improvement can be found.

Common for the discussion under "Understanding", "Accounting procedure" and

"Following the specification" is that something needs to be done with the specification in the
Financial Manual in order to simplify the accounting routines, i.e. create a better specification.

When reading the discussion under "Purchasing from IRE", "Accounting procedure" and
"Following the specification" closer, another area of improvement is found. This has to do
with transforming the accounting system to contain as little manual work as possible, i.e.
automatic accounting.

Finally, a third area of improvement is identified when looking at the discussion in

"Understanding", "Accounting procedure", "Following the specification" and "project
planning and budgeting". These discussions all show a lack of understanding and motivation as a
main problem that is causing many of the wrongbookings in the internal reporting.

These areas of improvements are summarised in figure 9.1 and is further discussed in the
following subchapters.

82
 9 Action plan

Better specification

Automatic Increased
accounting understanding and
motivation

Figure 9.1 Actions for improvement can be divided into three corner stones.

9.3.1 New specification – manual and work structure

The specification, in its current shape offers much room for own speculations and
interpretations. It is not sufficiently specific and costs can be booked in different cost
sections depending on how the specification is read. Furthermore, the specification
contradicts itself on certain points. It is in many cases difficult to know if, for example, to
book a cost in cost section 12, as a retail construction cost, or as a property costs in cost
section 1-11. Neither is the boundary between cost section 12 and cost section 14 sufficiently
determined. Lighting, for example, is one of many items that often are booked under the
wrong section number, i.e. under cost section 14 instead of cost section 12. After discussions
with Anders Samuelsson, who is one of the creators behind the specification, the logic and
the build up of the specification become very clear. However, the problem is how to
communicate this logic to the rest of the organisation. If this fails, the risk for
misinterpretations and wrongbookings increases.

In the specification today there are cost sections for areas as well as for items. For example,
lighting is booked in a specific cost section for lighting, whereas shelves are booked
according to which area they belong to. This makes the specification inconsequent and it is
hard for a project leader to know were to book specific items. One solution to this is to
make all cost section numbers item specific and not take into account the area in which it is
situated. However, this would mean that a great deal of information about the costs for
different areas in the store is lost. To avoid this, a tool like RED can be of use. In RED all
items are, already in the planning stage of the store project, listed in the area where they
belong and with a section number connected to it.

By using cost section numbers connected to items (instead of both items and areas) and
combining these with the area build up in the RED tool, a matrix will be created. In this
matrix it will be possible to analyse both area costs and costs for specific items. It will also be
possible to analyse combinations of areas and items. The result will be a greater flexibility in
83
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

the project cost follow up and better possibilities to find the reasons for exceptionally high
or low store building costs. Furthermore, the "lighting analysis" in the Glasgow store project
would be easily done in this proposed matrix structure of the project cost follow up, without
being forced to do deliberate wrongbookings. A schematic build up of the summary of a
project cost follow up matrix can be seen in figure 9.2.

Showroom Amount Section Section Item Section

number Total
Counters 2 000 12 12 Counters 3 000
Shelves 1 500 13 13 Shelves 3 500
Möbelfakta 1 000 14 14 Möbelfakta 1 000
Tables 3 000 15 15 Tables 3 000
… 16 Display items 0
Area 17 Rug eq. 1 500
Total …
…
Market Hall Amount Section …
number
Counters 1 000 12
Shelves 2 000 13
Rug eq. 1 5000 17
…
Area
Total

Figure 9.2 The final project cost follow up with base in the RED matrix and with item specific
cost sections.

By using and updating the matrix resulting from the RED tool checklist during the whole
time span of the store project, the project cost follow up matrix will continuously be filled
out, similar to the procedure used in the Glasgow store project. (This will be further
described in the next subchapter.) By updating the RED matrix continuously, throughout
the store project, the project cost follow up matrix will also be finished maximum one
month after the store opening (due to invoice payment time). Furthermore, it will
correspond better to the budget, which results in fewer deliberate wrongbookings.

In chapter 8, the problem of legal accounting influencing the internal reporting and thus the
project cost follow up was thoroughly discussed. To avoid this it is important to separate the
legal accounting from the internal reporting. However, it is also important that both legal
accounting and internal reporting can be done in an easy and convenient way and that as
little extra work as possible is necessary. This can be accomplished by using
multidimensional accounting as described in chapter 4.4. In the Glasgow project this has
already been applied and cost section as well as legal account number is being entered at the

84
 9 Action plan

same time when making the booking. In this way legal accounting and internal reporting can
be conducted at the same time but without influencing each other.

In the project cost follow up, all items (or group of items) will, as already described, have
their own cost section. Furthermore, all areas will also have a corresponding number so that
the combination of numbers, i.e. multidimensional accounting, will show where in the
project cost follow up matrix a booking belongs. However, in order not to just impose a new
set of number combinations without visual meaning, it is important to visualise what is
behind the different section numbers and area numbers. This will be achieved in a great
extent through the use of the matrix from the RED tool checklist. When creating this
checklist, the project leader will attain a clear picture of which items belong to each area.
When receiving an invoice he enters the correct cost section on the items so that the
accounting department knows how to book.

9.3.2 Automatic accounting

By making the changes described above, the accounting procedure is made easier and better
for the project leaders to follow. However, there will always be some errors done as long as
manual work is involved. By making as many bookings as possible automatic the room for
manual wrongbookings is reduced. In chapter 5 EDI is described and this can be a suitable
tool in order to achieve automatic bookings. However, not all bookings can be done
automatically, since it will be neither practically nor economically possible to use EDI in all
supplier relations.

A great potential for savings in both time and money would be possible if introducing EDI
for all purchases done internally with IRE. The total costs coming form IRE correspond to
an average of 30 per cent of the total costs in cost sections 12 and 14. Moreover, the main
part of the invoices received concerning costs for cost section 12 and 14 are coming from
IRE. Also, the savings achieved by introducing EDI would be double, since both parties
involved in the purchase are IKEA companies.

From the checklist matrix made by the RED tool, the project leader or store manager makes
the final store matrix with all items and areas. This matrix, which will be used and updated
continuously throughout the project, as described in the previous subchapter, contains cost
sections for all items and areas. Based on this matrix, orders are then sent to IRE during the
store project. The order- and booking procedure can have the principle structure as
described in figure 9.3 below.

85
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

Project
cost follow up

4.
Preliminary
booking

Store project 1. Order

3. Confirmation
2.
IRE Warehouse
Invoicing
Accounting

Figure 9.3 Principle structure of an order procedure between a store project and IRE with
the use of EDI.

An order based on the RED matrix is sent to IRE (1). This order is received by IRE, where
the information is converted and handled in the IRE business system (2). Simultaneously an
automatic confirmation is immediately sent back to the IKEA store project (3), where a
preliminary booking is made (4). This booking is based on the preliminary price stated in the
order confirmation and is represented in the column "order cost" in figure 9.4 below.
Item Estimated cost Order cost Final cost Left to go
Counters 2 000 2 000
Shelves 3 000 3 500
Rug rack 1 000 700
Dust bins 500
120 000

Figure 9.4 The project cost follow up is updated with preliminary costs and the “left to go”
column shows how much money is left.

The “left to go” column in the matrix is automatically updated as the booking is
automatically made, which enables the project leader to continuously have control over the
economic status of the project – even though the invoice has not yet been received and paid.

86
 9 Action plan

Project cost
follow up

2.
Attest and
booking

Store project 3. Payment

1. Invoice
IRE

Figure 9.5 Principle structure of an invoicing procedure with the use of EDI.

When the order has been handled by IRE, an invoice is sent back to the IKEA store project
(1), which can be seen in figure 9.5. This invoice contains the ordered items with final prices
and belonging cost sections. An authorised person at the IKEA store project checks the
invoice and the cost section and when attested, an automatic booking with final prices is
made in the right cost sections (2). After the attestation of the invoice, the payment is cleared
and made automatically to IRE (3). As can be seen in figure 9.6 below, the project cost
follow up matrix is also updated with "final cost" and the “left to go” amount is adjusted.
Item Estimated cost Order cost Final cost Left to go
Counters 2 000 2 000 2 700
Shelves 3 000 3 500 3 500
Rug rack 1 000 700 1 000
Dust bins 500
119 000

Figure 9.6 The project cost follow up is updated with final costs.

One of the advantages stated above, achieved by using EDI, is time saving. A large part of
all invoices in a store project is coming from IRE and by making all these bookings
automatic, much manual work will disappear. Instead people involved in the store project
can focus their time on more value adding tasks, as for example inventing better and cheaper
solutions in the store development process. By using EDI and automatic bookings the
potential for saving money will also be considerable. In chapter 5.3.1, the average time for
handling an invoice was stated as 10 to 12 minutes. If multiplying this with the number of
87
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

IRE invoices in an IKEA store project and an average employee salary the result would be a
quite considerable amount for each store project. Furthermore, automatic bookings results in
less manually made wrongbookings, which in turn results in a better project cost follow up.
The bookings made are based on the cost sections stated in the RED matrix. Thus, no
wrongbookings, due to for example misinterpretations or misunderstandings will be made.
The potential advantages of using EDI can be summarised in the following points:

⋅ Time saving
⋅ Money saving
⋅ Less wrongbookings, i.e. better project cost follow up

In the discussion so far, the use of EDI looks like a very favourable solution. However, the
use of EDI also has some disadvantages. Foremost, implementing EDI will result in
considerable implementing costs, which has to be put in relation to the possible savings
made. Another issue that has to be considered before implementing an EDI solution is how
to keep up the “human involvement” in the accounting process when much of the work is
done automatically. The project leader must still be able to make changes and adjustments in
the project cost follow up matrix and in the bookings when new and better solutions are
found. “Human involvement” is also important in order to motivate the project leader and
other persons involved in the store project to look for new and better solutions, which in
turn can improve future store projects within IKEA and not only the current store project.
However, if handled correctly, EDI is still considered to be a useful tool in the store
development process.

9.3.3 Motivation and understanding

By using a tool like the matrix achieved from the RED checklist throughout the whole
project, the likelihood of achieving a proper project cost follow up in the end of the project
will increase significantly. With this tool all items in the new store will be addressed the
correct cost section from the beginning and thus, the likelihood of making wrongbookings
will decrease. Also, by making as many bookings as possible automatic, the likelihood of
wrongbookings will decrease even more. However, as already discussed, EDI and automatic
booking will not be possible to use for all purchases. There will always be invoices that have
to be booked manually and even if the cost sections have been stated in the planning stage
by the RED matrix there will always be some room for own interpretations and
wrongbookings. Moreover, no matter how well the order procedure is structured, there will
be a risk of last minute orders. These often result in "lump up" invoices, which are difficult
to divide and book in a correct way.

In order to make as many of the manual bookings as possible correct, including those for
"lump up" invoices, it is crucial that the people involved in the project cost follow up
process are aware of why correct bookings are important. Hence, understanding and
motivation are factors of great importance in the process of establishing a proper project

88
 9 Action plan

cost follow up and a framework for making continuous improvements in the store
dimensioning and build up process. Without the understanding of the full use of the project
cost follow up and motivation of doing a proper project cost follow up there will always be
wrongbookings, deliberate as well as undeliberate.

By introducing to the people involved in the process the full use of the project cost follow
up and how comparable project cost follow ups can contribute to continuous improvements
in the store development process, the understanding and the motivation for making proper
project cost follow ups would increase. By increasing the understanding and the motivation
by communicating the use and purpose of the project cost follow up it would also be
possible to engage people involved in the search for improvements and to forward good as
well as bad solutions to future store projects. This then results in a form of internal
benchlearning. Project leaders and other persons involved in store projects will start to look
beyond their own store project and think on how they can contribute to the continuous
improvement of the store dimensioning and build up process. However, in order to achieve
a benchlearning mentality much more than just an introduction of the full use of the project
cost follow up is needed. This is something that has to be implemented step by step in the
way of working and that has to be constantly acknowledged. Contributions to improvements
of the store process have to be put to attention so that people can see the results of their
contributions and thus become motivated to make further contributions and take part of
contributions of others.

9.4 How does this affects internal benchmarking

The actions discussed in previous subchapters, all contribute to the process of making
proper project cost follow ups. It is now interesting to analyse how well these actions can
contribute to the development of an economic framework for internal benchmarking. If
considering the factors for successful benchmarking, stated in chapter 3.3.2, these actions go
well in line with what is needed to conduct a successful internal benchmark analysis.
Increased understanding and motivation correspond to the factors about openness,
commitment, understanding and integration. Together with the actions about creating a
better specification and automatic bookings, the result will be better project cost follow ups,
which can be used in a benchmark analysis. The new proposed project cost follow up will
also result in an appropriate economic framework for comparison between store projects
and thus a comparison between "apples and apples" is possible. Finally, the first factor for
successful benchmarking - management involvement - will not be affected by the actions
suggested. Instead, in order for the actions to be realised, management involvement is
essential. Thus, figure 9.1 should be complemented with management involvement (see
figure 9.7 below), which is an important factor in order for the other actions to be realised.

89
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

Better specification

Management
involvement
Automatic Increased
accounting understanding and
motivation

Figure 9.7 Management involvement is important for the other corner stones to be realised.

How the suggested actions can contribute to developing an appropriate framework for a
continuous improvement in the store development process through internal benchmarking
will now be analysed. The analysis will be based on the five main benchmarking steps
described in chapter 3.3.1. However, in the case of IKEA, the benchmarking procedure will
be slightly different as is described in the following subchapters.

9.4.1 Step 1 - What is going to be studied

In a wide sense, the IKEA store is what is going to be studied and benchmarked. The overall
aim of the benchmarking study is to build better IKEA stores more effectively and within a
limited time span. To do this a benchmarking study will include the dimensioning and build
up process as well as the actual store, i.e. the product. Hence, the benchmarking study can be
divided into one process part and one product part, which affect each other greatly. The
product part of the benchmarking will result in an updating of the SDT and RED tools and
hence the standard store. The process part will result in a new way of working. As already
mentioned the process and product parts will also affect each other as can be seen in
example 9.1.

90
 9 Action plan

Example 9.1
According to the RED and SDT tool a certain store should have 40 cash lanes that
fully equipped should cost 8 000 EUR per pc in a certain country.

Case 1: The finished store will have 40 cash lanes, but due to purchase from a
different supplier and to a new and more effective way of installing them the cost
will only be 6 000 EUR. After analysing the new way of working it is clear that is
possible to use this in other store projects. This will result in the following:
Update of the prices in the RED/SDT tool
Update and communicate the new choice of supplier and the new way of
working to future store projects.

Case 2: A new type of pay and queue system is tested which results in that only 30
cash lanes are needed. These cash lanes cost 8 500 EUR. The new pay and queue
system is, after a thorough analysis, found to work well. This will result in the
following:
Update of the number of cash lanes in the RED/SDT tool.
Update of the prices in the RED/SDT tool.
Update and communicate the new choice of supplier and the new way of
working to future store projects.

However, it is difficult to study the whole store, and different parts of a store can be
interesting to study in different store projects. In the search to find what to focus the study
on in a benchmark analysis, the project cost follow up matrix, described in chapter 9.3.1, is
of great help. With the project cost follow up it will be possible to find areas, items or
combinations of these that have low costs, high costs or just unusual cost combinations. In
addition to costs, it is also possible to study number of items in different areas of the store.
If having an appropriate framework with comparable project cost follow ups for all store
projects, this can be an indicator for a good or bad performance. Unusual high costs are also
of interest, both in order to find bad and expensive solutions, but also to find new solutions
that may have high investment costs, but that will result in lower total costs.

It should be noticed that just economic data is insufficient in a benchmark analysis. As

mentioned in chapter 6.4 all stores are going through a “condition follow up” in order to see
if all conditions are being fulfilled or if changes are needed in a store. This follow up can be
used in order to find different areas of interest for further benchmark analysis. Furthermore
the condition follow up is made continuously, i.e. also on established stores. Hence, by using
this follow up as a tool to find interesting parts for further investigation, already established
stores will be taken into account.

With the help of the project cost follow up matrix and the “condition follow up” it will be
possible to, in an efficient and rather simple way, sift through all store projects with respect
to both hard and soft facts. By increasing the understanding and the motivation of people
91
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

involved in store projects and getting them to continuously look for good and bad solutions
in their projects, a third way of finding out what to analyse further will be possible. For
example project leaders and store managers can communicate aspects that they believe could
be of interest directly.

Benchmarking objects can thus be chosen, either by sifting the store projects with the help
of the project cost follow up matrix and the “condition follow up”, or by receiving tips
about improvements directly from a project leader, store manager or other persons involved.

9.4.2 Step 2 - Identifying benchmarking partners

In the case of IKEA the second step in the benchmark analysis coincide with the first step.
It is the store projects with interesting issues, found in the first step that will function as
benchmarking partners. Hence, in the process of finding which specific part of the store
project to benchmark the benchmarking partner is also identified. Thus, the benchmarking
process attains another structure in comparison with the ordinary benchmarking procedure,
stated in chapter 3.3.1. The decision of what to benchmark depends on what the
benchmarking partners have done well. As already mentioned it is very important that the
project cost follow ups are correctly conducted, so that the comparison between different
store projects will be between "apples and apples". Otherwise it will be difficult to make the
right decisions about whom and what to benchmark against. Differences in price levels
between countries are also important to consider. Furthermore, some things are not possible
to compare between countries, for example IT- and safety equipment, as these vary too
much.

9.4.3 Step 3 – Collecting information

According to the traditional benchmarking procedure presented in chapter 3.3.1, information
about the benchmarking partner is collected in step three. In the case of IKEA and the store
build up and dimensioning process this step will involve further studies of the store projects
that have been selected in the first and second step. This can be done through further
analysis of the project cost follow up matrix, through interviews with people involved in the
store project and by site visits at the current store and service offices. Valuable information
can also be collected from the “condition follow up”. With an increasing understanding and
motivation among the people involved in the store projects it will also be easier to attain
information directly from them. It is important that the collected information reflects all
sides and aspects of the project. Thus, economic information, i.e. quantitative information,
as well as information about customer satisfaction and store project process, i.e. qualitative
information, has to be collected. For the economic information, the project cost follow up
matrix can be of great help, presupposed that it has been made in a correct way. It can be
used as a tool to see where to look for further information.

92
 9 Action plan

9.4.4 Step 4 - Analysis

In the fourth step, the collected information is further analysed. No matter how well the
analysis is being conducted, the result will never be better than the collected information that
the analysis is based on. Furthermore, as discussed in previous subchapters, the information
depends in great extend on the source. Thus the three corner stones presented in chapter 9.3
do all play an important role in making a valuable analysis. It is important to take into
account all aspects, both quantitative and qualitative, into the analysis. However, the project
cost follow up matrix is of great help in this step as well. With the project cost follow up
matrix it is possible to see how different things in a store affect and change other things.
This is understood in example 9.2.

Example 9.2
The number of shelves in the Market Hall area has been decreased. Has the
number of shelves increased elsewhere instead, for example in Showroom? This
can be seen in the project cost follow up matrix, which shows the interior build up
in the current store. From this, further analysis is possible with the help of
qualitative information.

However, everything cannot be found with the help of the project cost follow up matrix.
The decrease of shelves in the Market Hall, in the example above, can also have explanations
that can not be found within the project cost follow up matrix. The decrease can, for
example, be a result of another way of distributing and showing goods in the store. There are
many things to take into account when making the analysis. However, since it is not the
purpose of this Master Thesis to study the whole benchmarking procedure specifically, this
will not be further discussed.

9.4.5 Step 5 - Implementation

In the fifth and final step changes and goals are implemented within the organisation. In the
IKEA case this step can be divided into two. First, the benchmark analysis can result in an
updating of the RED and SDT tools. Second, the analysis can result in new and better ways
of working in the store development process. These procedures cannot be communicated
through the RED tool and thus have to be communicated in other ways.

As already mentioned, the first part of the implementation step concerns the updating of the
SDT and RED tools. Having found what to update and how, this is rather simply done. The
information is then communicated through the use of the tools in the dimensioning process.

The second part of the implementation step concerns the communication of new working
procedures. By increasing the understanding and the motivation in the project cost follow up
and benchmarking process it will become easier to both spread new and better ways of
working within the organisation and for people to take part of and work according to them.
The overall aim to increase the understanding and motivation will thus be to achieve some
93
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

sort of benchlearning, where people involved are anxious to both share their own ideas of
improvements and to learn from others. This will be even more important in the case of
IKEA, since the implementation will concern future store projects. Some people involved in
the process will have experience from previous projects, but many will be new and
inexperienced. For the latter, the RED tool and the help and information from previous
projects will be of great help. In addition, some kind of formal and structured procedure is
necessary if the communication of new working procedures is going to work well.

From the discussion in the five benchmarking steps above the summarised picture in figure
9.8 can be drawn. The benchmarking procedure in the case of IKEA will be quite different
from the basic theory. Step one and two will coincide, since benchmarking objects and
benchmarking partners will be selected simultaneously. The selected benchmarking objects
will then be further studied and analysed in order to update both the standard store and the
way of working.
Store Store Store Store Store
Project Project Project Project Project

Cond. & Matrix & Project Cond. & Matrix & Project Cond. & Matrix & Project Cond. & Matrix & Project Cond. & Matrix & Project
follow up leader follow up leader follow up leader follow up leader follow up leader

Benchmarking Benchmarking Benchmarking

object object object

Standard store Way of working

Figure 9.8 The basic procedure of the benchmarking procedure in the case of IKEA.

94
10 Conclusions

10.1 Introduction
The purpose of this Master Thesis has been to examine how IKEA can develop an
appropriate economic framework for an internal benchmarking procedure, in order to
decrease construction costs and improve construction performance when building new
stores. The objective was to generate an action plan for IKEA about how to develop an
economic framework for a well functioning internal benchmarking procedure, with proper
project cost follow ups.

Four IKEA store projects have been studied and in the analysis of the project cost follow
ups and the accounting procedures of the four store projects, a number of shortcomings
have been found. Explanations to cost variations and suggestions to actions for
improvement have also been discussed. The result of this has been three main cornerstones,
each containing actions for improvement.

10.2 Inference from store projects

Main problems concerning the project cost follow up were identified in the store project
analysis. One great problem is that the legal accountings in all the store projects studied in
various ways influence the store project cost follow ups. As the laws and regulations differ
between the countries, so does the internal reporting. Another problem is that there is a lack
of understanding as to why the project cost follow up is important. The main focus is
normally to be able to show cost section total amounts below budget and in order to
accomplish this, bookings are sometimes transferred from one cost section to another. One
conclusion of the store project analysis is that the store project cost follow up is too
inflexible. In order to study costs for different items specifically, conscious deviations from
the specification has been made.

To be able to accomplish internal benchmark analysis in order to improve the store

development process and the standard store concept within IKEA, it is vital that the project
cost follow ups from different store projects all over the world are comparable. This can be
accomplished by implementing the three cornerstones: Better specification and cost follow up
structure, Automatic accounting through EDI and Increased understanding and motivation, see figure
10.1.

95
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

Better specification

Management
involvement

Automatic Increased
accounting understanding and
motivation

Figure 10.1 The action plan is based on the three corner stones: better specification and cost follow
up structure, automatic booking through EDI and improved understanding and motivation

10.3 Specification
The specification in the Financial Manual is, as explained earlier, built on a clear logic.
However this logic is not sufficiently communicated to the persons involved in store project
development processes around the world. The reason is that the specification itself is not
explicit enough, which results in grey zones and room for own interpretations. Since the
logic is not communicated thoroughly it is very hard for project leaders to know how to
book items that are not specifically mentioned in the specification. In the specification some
items are to be booked according to which item it is and other items are to be booked
according to which area they belong to, which can create some confusion.

The proposal of this Master Thesis is to change the specification. A matrix, similar to the
one developed in the RED tool should be used all through the store project. Furthermore all
cost sections should be item specific. This would give less room for misunderstanding and
own interpretations of the specification. By using the RED matrix as a framework, which is
developed in the planning stage of the store project and which contains all areas with
belonging items, it will be possible to extract the costs for a specific area as well as the costs
for specific items from the project cost follow up. What is also achieved by using the RED
matrix as a framework for the project cost follow up is that it will correspond better to the
budget. This will in turn results in a decreased risk for deliberate wrongbookings in order to
make the cost section total amounts below the budgeted amounts. By updating the project
cost follow up matrix continuously during the whole store project it is also possible for the
store project leader to have a day-to-day update of the project costs and the project cost
follow up is completed much faster after the store opening.

96
 10 Conclusions

10.4 Automatic bookings – EDI

A large part of the total costs spent in the store dimensioning and build up process for the
store projects studied derives from IRE. Furthermore, the main part of the invoices derives
from IRE. This results in a great potential for saving both time and money if implementing
automatic handling of these invoices. This will also decrease the number of wrongbookings,
both deliberate and mistakes. Hence, the second cornerstone of improvement is to
implement Electronic Data Interchange, EDI, between the store projects and IRE. EDI
makes it possible for two different business systems to communicate with each other
through a converter without manual interference. A lot of information is sent between the
store project and IRE including orders, invoices and different confirmation messages and by
implementing EDI, the administrative work in the store dimensioning and build up process
will decrease.

10.5 Understanding and motivation

Changing the specification in order to make it more structured and logical and implementing
EDI in order to improve the project cost follow up process will not solve the problem alone.
There will always be, and there should always be, manual involvement in the accounting
process. But as manual involvement also means a risk for wrongbookings this risk must be
decreased by implementing the third cornerstone for actions of improvement. This
cornerstone concerns actions towards an increase in the understanding of the project cost
follow up and thereby also an increase in the motivation.

A first step in increasing the understanding and the motivation is to make persons involved
in the store development process see the full use of the project cost follow up. It must not
only be seen as a tool to show figures below the budget. Instead it should be used as a tool
to communicate good and bad solutions to other parts of the organisation and to contribute
to continuous improvement in the store development process. In this way a form of
benchlearning mentality permeates the organisation. Moreover, the motivation and
understanding is even more important if the automatisation of the accounting system is
increased, as there is a risk that the motivation declines with less degree of manual
involvement in the process.

Last but not least, in order to achieve a successful implementation of the three cornerstones
above, the involvement of the company management is of great importance.

10.6 Theoretical contribution

The main theoretical contribution of this Master Thesis concerns the benchmarking theory.
Much is already written in literatur and studies about how to conduct a successful
benchmark analysis in companies with ordinary production lines. Furthermore, most of this
theory concerns external benchmarking. However, very little is written about internal
benchmarking, within big global companies, conducted to find good and bad solutions in
order to improve a standard concept instead of a running process.

97
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

Special about the store development process within IKEA is that the main question is not
how to improve the stores already built. The question is rather how to ensure that all the
stores in the future is built by using the experience gained in previous store projects and
thereby implementing good solutions and avoiding bad ones. As mentioned in the problem
description, an appropriate framework is very important in order to accomplish this.

The theoretical contribution of this Master Thesis is therefore how to develop an economic
framework for internal benchmarking in order to find good and bad solutions to improve a
standard concept. This is interesting for all businesses with reoccurring projects, based on
some sort of standard. (E.g. different store chains, restaurants or companies constructing
plants etc.)

10.7 Conclusive discussion and proposal for further studies

This Master Thesis has studied how to develop an economic framework in order to improve
the store project development process with internal benchmarking. A large focus throughout
the Master Thesis has been to make the store project cost follow ups comparable. However,
this was found impossible due to the main delimitations stated by IKEA at the beginning of
the research. In order to make the amounts in cost sections 12 and 14 comparable, the whole
project cost follow up of the store projects would have to be studied in detail. Considering
the time limit of the research project it has not been possible to do this. Instead, this Master
Thesis can be considered as a base for further studies of this subject.

The main focus of this Master Thesis has been benchmark analysis. However, the purpose
has been to develop an economic framework needed in order to conduct a well functioning
benchmark analysis in the store development process of IKEA. Thus, the actual procedure
of benchmarking has not been studied in detail, although this would be an interesting subject
for further studies. Overall, IKEA has a well functioning store project follow up process and
when studying how the benchmarking procedure should be constructed and implemented,
great considerations to the way of working within IKEA today has to be made.

Furthermore, the advantages of implementing the three cornerstones building up the action
plan for IKEA have been thoroughly discussed. However, details on how to implement
these corner stones were not the purpose of the research and have thus not been described.
In order to increase the understanding and motivation many things have to be considered
and before actually implementing an EDI-system, thorough calculations have to be done.
These are also interesting and important subjects for further studies.

Many suggestions for improvements in the store development process are presented in this
Master Thesis and many more can probably be found if someone else where to do the same
research again. However, as Eisenhower pointed out, it is not only the results that matter,
but also the process of acchieveing them is of great importance. Thus, in order to increase
the benefits for IKEA, the process of writing this Master Thesis has been conducted in close
collaboration with key persons within IKEA.
98
References

Interviews

IKEA Services AB, Retail department

Christian Barreus Store development
Bo Christoffersson Store development
Peter Nilsson Controller

IKEA Services AB, Property department

Anders Samuelsson Construction manager IKEA Group
Madeleine Melkersson Property Controller

Inter IKEA Systems Services AB

Jenny Åkerblad Development Coordinator
Per Krokstäde Store Specialist Manager
Zbigniew Glowacki Follow up Coordinator

IKEA Försäljnings AB
Peter Malmros Project Leader

IKEA Retal Equipment AB

Peter Bondesson Project sales
Peter Axelsson Project sales

IKEA Germany, Service Office

Harald Hahn Expansion Controller

IKEA Poland, Service Office

Agniezska Antzak Opertion Manager / Store Controller

99
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

IKEA UK, Service Office

James Pallfrey Cost Controller
Peter Krumhardt Arkitekt Manager, UK

IKEA US, Service Office

Michael Gular Senior Property Accountant

Published sources

Books
Arbnor I., Bjerke B. (1996)”Methodology for creating business knowledge” SAGE Publications,
London

Ax, C., Johansson, C., Kulvén, H. (2001) ”Den nya ekonomistyrningen” Liber AB, Malmö

Camp, R. (1993) "Lär av de bästa!: benchmarking i tio steg" Studentlitteratur, Lund

Darmer, P., Freytag, P.V., Johansson, G. (1995) "Företagsekonomisk undersökningsmetodik"

Studentlitteratur, Lund

Fredholm, P. (2000) "Elektroniska affärer" Studentlitteratur, Lund

Karlöf, B., Lundgren, K., Edenfeldt Froment, M. (2000) ”Benchlearning – förebilder som hävstång
för utveckling” Ekerlids Förlag, Falun

Karlöf, B., Östblom, S. (1993), "Benchmarking : vägvisare till mästerskap i produktivitet och kvalitet"
Svenska dagbladet, Stockholm

Lundahl, U., Skälvad, P-H. (1999) ”Utredningsmetodik för samhällsvetare och ekonomer”
Studentlitteratur, Lund

Marks, S. (1996) "EDI Purchasing : the electronic gateway to the future" PT Publications, West Palm
Beach

Porter, M. (1985) "Competitive advantage: creating and sustaining superior performance" Free press,
New York

Prenkert, T. (1998) "Redovisning för intern styrning" Studentlitteratur, Lund

100
 References

Turban, E. (2002) "Electronic commerce 2002 : a managerial perspective" Pearson Education, New
York

Winter, J. (1992) "Problemformulering, undersökning och rapport" Almqvist & Wiksell, Stockholm

Articles
Tutcher, G. "How successful companies improve through internal benchmarking" Managing Service
Quality 1994

Other materials

IKEA, Facts and Figures 2002

IKEA Intranet, 2002-06-03 to 2002-09-20

IKEA Financial Manual, (2002)

101
 Internal Benchmarking at IKEA
- Continuous improvements in the Store Development Process -

… turn off the tube lights – which by the way belong to the property department
(cost section 12.1).

102