IKEA managing cultural diversities

Dossier / Travail , 2019 , 9 Pages , Note: 1,7

Gestion d'entreprise - Direction d'entreprise, Management, Organisation

This essay answers the following questions: What type of organizational culture is most representative of IKEA? What are three things that IKEA had to learn in order to do business effectively in the United States?

Since the foundation of IKEA in 1943 by Ingvar Kamprad, the company has developed and changed considerably; from a small Swedish furniture distributor to an internationally successful company and the only global player in the furniture distribution industry.

Inhaltsverzeichnis

1. Introduction

2. Main Part
2.1 What type of organizational culture is most representative of IKEA?
2.2 What are three things that IKEA had to learn in order to do business effectively in the United States?

3. Conclusion

References:

1. Introduction

“A better everyday life at home”- the globally recognised slogan of the multinational corporation IKEA. Since the foundation of IKEA in 1943¹ by Ingvar Kamprad, the company has developed and changed considerably; from a small Swedish furniture distributor to an internationally successful company and the only global player in the furniture distribution industry.

Nowadays, the 76-year old company has a reputation for its affordable prices, decent quality, reliable delivery service, strong company values and culture² and for a merry feeling. On the one hand, IKEA represents a do-it-yourself spirit, because of its’ flat-packed furniture and the involvement of customers in the value-adding process. On the other hand, they attract customers with family friendly shopping and offer an environment where people can visit the store to look around and have some fun. The Swedish furniture company has a balanced focus on product range, sourcing, vertical integration, mass marketing, cost leadership and a distinctive image.

Western Europe represents 80 percent of its annual sales volume. They deliver furniture to all parts of Europe, North America, Middle East and even parts of Asia. However, IKEA faced plenty of challenges when entering the United States (US) market. IKEA’s business strategy did not result from strategic planning, which is still described today in the company as “too sophisticated”³. Instead, it developed from creative responses to difficult problems, turning problems into solutions, not going by the book and learning by doing. By analysing IKEA’s international expansion retrospectively, it is obvious that the situation could have been handled in a more effective way. Therefore, the purpose of this case study is to outline what IKEA had to learn in order to expand successfully in the US.

2. Main Part

2.1 What type of organizational culture is most representative of IKEA?

The culture of IKEA is focused on equality in the workplace and is orientated to the person. The Swedish company has an “Incubator Culture”, because of its “informal, open and caring”⁴ management style. IKEA recruits people who are looking for a “pleasant working environment, job security and the caring attitude it shows towards the individual”⁵. Its fulfilment-oriented culture encourages all workers to take initiatives, to “express their ideas”3 and to take responsibility.

2.2 What are three things that IKEA had to learn in order to do business effectively in the United States?

In 1985, IKEA entered the American market, starting at the east coast, after having entered most countries in Europe. However, the path for IKEA has not always been as easy as many might think. When entering the US, IKEA had to face numerous challenges. In the following, I will focus on three aspects that IKEA had to learn in order to do business effectively in the US.

1) Changing their corporate culture

First of all, I want to mention that IKEA underestimated the differences in corporate culture. Hofstede’s cultural dimensions distinguish countries from each other with regard to their degree in power distance, individualism, long-term orientation, indulgence, masculinity and uncertainty avoidance.⁶ Comparing Swedish culture to American culture⁷, it comes as no surprise that these two countries differ heavily. Hereafter, I will focus on the differences in power distance, individualism and masculinity.

Firstly, the power distance is greater in the US than in Sweden; therefore, American employees were not used to a non-hierarchical management model, where every employee can raise an idea. Americans expect their managers to tell them what to do. In Sweden, their corporate culture is important to bind the team together and they concentrate on consensus-based decision making. The employees should be able to transmit their knowledge to others and managers should act as “missionaries” to make sure that the “IKEA Way” is understood. The “IKEA Way” includes “cooperative informal relations”⁸. However in the US, this is often seen as undermining the respect and prestige of the boss since power distance is more important for them. For example, no title appears on the business card of a Swedish to make clear how irrelevant hierarchy is.

Thus, the US is one of the most individualistic cultures in the world, whereas Sweden has both collectivistic and individualistic traits. Individuals in the US prefer acting as individuals rather than as members of groups.⁹ As a consequence, for Americans it was very unusual that the needs of a group were more important than individual needs at IKEA. For instance, instead of structured training programs, IKEA focused on open discussion and explanation.

In addition, American culture is masculine, which is defined by Hofstede as “a situation in which the dominant values in society are success, money and things”¹⁰. Swedish culture is rather feminine, which explains IKEA’s focus on caring for others in the work environment. Therefore, the American workers were unsatisfied with the flat hierarchy of IKEA. It was very difficult for non-Scandinavians to work their way up the corporate ladder, as IKEA believed one should learn from their experiences, which takes time and patience. Additionally, most of the key positions remained in the hands of Swedes and therefore, there was nearly no opportunity for career advancements for Americans. This was an issue due to the fact that Americans are more competitive and want to be rewarded with individual accountability for results. For instance, regardless of one’s position at IKEA, every company car was the same economy model. Overall, the Americans required pay and recognition for performance and problem solving at IKEA since challenges and wealth are crucial values for them.

All the differences I have pointed out show that America can be assigned to the “Guided Missile corporate culture” which is characterized by performance, empathy and project-orientation. Individual expertise is of great importance¹¹. Loyalty to one´s profession and work are often greater than loyalties to the organization itself. The pursuit of chosen lines of personal development is constant. On the contrary, Sweden is allocated to a corporate culture called “Incubator” focused on equality, as mentioned above.

As you can tell, the management style differs. IKEA focuses on learning by doing instead of going by the book. Managers are expected to share knowledge and skills and employees express ideas and take responsibility within their positions. American employees were used to working according to the motto “you get what you work for”. Therefore, the Swedish management had to learn that the employees in the US had difficulties with the flat hierarchy and the informal structure of IKEA. Consequently, Americans need to have the opportunity to climb the ladder of success.

2) Considering national preferences

IKEA had to learn that there is a difference between the Swedish customers and the American customers. Culturally specific requirements for home furnishing in the US are considerably different than the European market. Due to the national responsiveness, IKEA had to learn to consider the consumer taste and to adjust floor plans and furniture for American consumers.

IKEA customized their product range, as they realised that they could not sell identical products in different countries. At the beginning, IKEA didn’t consider these differences and the range of furniture they offered was unsuitable for the American market. Some examples will clarify what I mean: Customers in the US purchased flower vases thinking they were American-sized drinking glasses. IKEAs beds and dining tables were not big enough, they did not offer furniture suitable for the “home entertainment centres” common to many American homes, and the sitting room furniture was not durable enough. These examples illustrate how IKEA had to learn to adjust their product range according to national preferences.

“Americans are always looking for convenience, which means more space, more information, and anything that reduces effort and saves time.”¹² Therefore, IKEA redesigned its store layouts, providing more directions and short cuts for customers. For IKEA, it was crucial in the US to remodel the store layout to attract customers with family-friendly shopping and people who just want to come to the store to look around and have some fun, too. Before the change, Americans felt lost and panicky in the Swedish store without windows and signs. Thus, some customers wanted home delivery. Therefore, IKEA started renting roof racks and invented a simple assembly tool, which has become another of its trademarks.

To take specific national preferences into account was a consensual process that required many negotiation skills. One huge progress to implement the change was to raise the autonomy of the American managers. IKEA learned to adjust their store layout and product range due to the differences of American customers. This change has been vital to increase IKEA sales in the US.

3) Do not over adapt

Considering the adaptation, IKEA asked themselves: “Should we become an American company?”¹³ IKEA had to learn how much they should adapt. They realised that they should take into consideration national preferences, however they also learned how important the “IKEA Way” is. The “IKEA Way” was strongly rooted in the personality of founder Ingvar Kamprad and the Swedish (regional) culture that he grew up in. It affects organization, communication, marketing, product range and store layouts. For IKEA, it is vital to stay close to their roots because their furniture is unique due to the “IKEA way”. The furniture is a cultural statement and the Swedish style has come to exemplify.

Only limited numbers of changes were allowed (around 10%), because changes were more expensive for country managers and they required many negotiation skills. The product manager has the final say, but he typically listens to the country manager. “There is a healthy tension between the two and this enables us to adapt but not over-adapt.”¹⁴ Considering all the cultural differences, IKEA always wanted to focus on its “IKEA Way”. IKEA learned, that they do not want to completely adapt because it is necessary to focus on their competitive advantage, which is the style of IKEAs furniture and stores, especially in a country like the US where competition is high.

For instance, IKEA always locates their stores on cheap land. As a consequence, they were not in prime areas, where the high-income customers are; instead they were in shopping centres. But why does IKEA need this segment? Outside of Scandinavia IKEA is a niche player, appealing to the educated population with mid- to upper- level incomes. Even though IKEA was not located in the prime centre, due to both their catalogue (people planed their purchase) and the profile of a “different kind of store”¹⁵, IKEA has overcome this impediment. This shows that even though they did not locate their stores like competitor furniture outlet “Home Depot”, they still appealed to customers because of their “IKEA Way”.

Furthermore, the Americans were confused that their Swedish co-workers never showed emotions in the workplace. From the American perspective Swedish managers are always calm even in conflictual situations. This shows Parochialism because the Americans saw the Swedes through their own eyes. To overcome this, the Swedish management does not need to adapt because it is the Americans who need time to change perspective and get used to the way Swedes interact. Even though IKEA had to implement changes regarding their corporate culture, “long-term employees generally feel more comfortable with Scandinavian managers than with Americans.”¹⁶ This shows that even if Americans have a different culture, most of them might get used to the Swedish manager style, too.

IKEA learned to stay close to its roots being highly distinctive in foreign marketplaces. “The IKEA strategy in North America will still be blue and yellow, but we will put more stars and stripes and more leaves in it”¹⁷, as Carstedt pointed out.

3. Conclusion

Taking the above into consideration, one can say that IKEA had to learn various things when expanding to the US. IKEA is one example for showing that the Globalization Imperative is not true. It is a belief that one worldwide approach to do business is the key to efficiency and effectiveness¹⁸. On the one hand, IKEA had to customize products and store layout and adapt the corporate culture. On the other hand, IKEA learned that it is essential to be closely connected to their roots and spread the “IKEA Way” as good as possible.

In my opinion, IKEA was not aware of the huge difference between the cultures. This impacted the Americans working in the company, as well as potential American customers. To run a business effectively, firstly, one needs a positive work climate which includes both motivated local employees who can identify with the company and communicate effectively. Secondly, a product range, store layout and marketing communications that appeal to the potential customers in that country are necessary. Therefore, it was crucial that IKEA started to understand the American culture.

This case study made it clear to me how paramount managing intercultural differences is. Firstly, a lack of cultural awareness is one main trigger for facing challenges in a new market. Secondly, it is human tendency to underestimate these dissimilarities. In the economy, they do not think of intercultural differences as reasons for failure. Awareness, open-mindedness, empathy and tolerance are keys for adapting to a new culture and indispensable for starting or even growing your business in foreign countries. In view of the above, it becomes clear why IKEA had several difficulties with expanding their business in the US. Nevertheless, I believe IKEA tried to spread the Swedish culture and business operations as their distinguishing feature, which had been shown to be successful in other countries, rather than adapt to the American culture.

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¹ https://www.ikea.com/ms/fr_MA/about_ikea/the_ikea_way/history/1940_1950.html

² https://seeacareerwithus.com/about-us/our-values/

³ International Management: Culture, Strategy, and Behavior (Hodgetts, Richard M.): Page 223

⁴ International Management: Culture, Strategy, and Behavior (Hodgetts, Richard M.): Page 224

⁵ International Management: Culture, Strategy, and Behavior (Hodgetts, Richard M.): Page 227

⁶ Geert Hofstede is a Dutch social psychologist who is renowned for his cultural dimensions theory. He identified six dimensions of culture “that help explain how and why people from various cultures behave as they do.” (International Management: Culture, Strategy and Behavior by Fred Luthans and Jonathan P. Doh)

⁷ https://www.hofstede-insights.com/product/compare-countries/

⁸ International Management: Culture, Strategy, and Behavior (Hodgetts, Richard M.): Page 224

⁹ Learned in lecture

¹⁰ International Management: Culture, Strategy and Behavior (Fred Luthans and Jonathan P. Doh)

¹¹ International Management: Culture, Strategy and Behavior (Fred Luthans and Jonathan P. Doh)

¹² International Management: Culture, Strategy, and Behavior (Hodgetts, Richard M.): Page 230

¹³ International Management: Culture, Strategy, and Behavior (Hodgetts, Richard M.): Page 226

¹⁴ International Management: Culture, Strategy, and Behavior (Hodgetts, Richard M.): Page 226

¹⁵ International Management: Culture, Strategy, and Behavior (Hodgetts, Richard M.): Page 229

¹⁶ International Management: Culture, Strategy, and Behavior (Hodgetts, Richard M.): Page 227

¹⁷ International Management: Culture, Strategy, and Behavior (Hodgetts, Richard M.): Page 229

¹⁸ Learned in lecture

• Université: University of Augsburg
• Note: 1,7
• Auteur: Lisanne Heim (Auteur)
• Année de publication: 2019
• Pages: 9
• N° de catalogue: V542838
• ISBN (ebook): 9783346257468
• Langue: anglais
• mots-clé: Ikea, Cultural diversity, organizational culture, United States