Redefining

Management

DALY COLLEGE BUSINESS SCHOOL, INDIA

In collaboration with
De Montfort University, Leicester, UK
B.A. (Hons.) Business Studies

Module Code

: ACFI-2208

Module Name

: Performance Measurement in Organizations

Submitted To

: Mrs. Pratibha Chaurasia

Project Title
Submitted by
Student Number
Hand in Date

: IKEAs Ethical performance measurement

: Raghav Dhoot
: P13019335
: 5th March 2014
Executive Summary:

A long term ethical vision gives birth to sustainability. This assignment is focused
towards analyzing ethical status of IKEA. This assignment has been accomplished
through analysis of IKEAs sustainability report and shadow reports for IKEA. Every
organization needs to incorporate system of reporting their performance; IKEA has used
triple bottom line reporting system in its sustainability report. Triple bottom line reporting
is a reporting system which encompasses financial performance, social performance,
and environmental performance of a corporation. (Atril, P., et al, 2014) After analysis of
IKEAs sustainability report, 7 shadow reports on IKEA were analyzed to get a fairer
view. IKEAs social and environmental initiatives were commendable but the aggressive
tax evasion by IKEA appears to be a blot on its ethical image. IKEA holds Social
Ecologists social stance due to their efforts towards optimal resource utilization, and
their initiative to use more of recycled and renewable materials. Despite of its unethical
engagements, IKEA appears to be an ethical organization as their ethical work has
overshadowed their not-so-ethical engagements. It was recommended to IKEA that
company should project itself what it is.

CONTENTS

Topic
Introduction
IKEA sustainability report review
Shadow reports review
Critical Assessment
Conclusion and Recommendations
Reference List

Page no.
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3-6
6-10
10-11
11-12
13-15

Introduction: From the green fields of Sweden to being the worlds largest furniture
retailer, IKEA had a big journey. Being founded in 1953 by Ingvar Kamprad IKEA at
present operates in 43 countries. IKEA has been awarded as worlds most ethical
organization for 4 times. IKEA has a long term vision to deliver on the requirements of
its global customers, which made company to start its People and Planet positive, its
sustainability strategy. (Loeb, W., 2012)
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IKEA sustainability report review:

IKEAs has formed its 2020 sustainability strategy named people and planet positive.
Under which the company has taken following steps, and initiatives:

For trimming down environmental damage, IKEA has tried to provide its customers with
more sustainable products. Sales from more sustainable products accounts for 641
millions of IKEAs revenue. IKEA targets to achieve revenue of 2.6 billion from sales of
more sustainable products by 2020. (Inter Ikea Systems B. V., 2013)

IKEA ran various campaigns which encouraged their customers and employees to use
LED lights. IKEA by 2016 aims to shift their whole lighting range to LED; while in 2013,
51% of their all lighting products sold were either LED, or related to LED lights. (Inter
Ikea Systems B. V., 2013)

IKEA targets to source its raw materials from more sustainable sources Against their
target of sourcing 50% of their wood requirements from more sustainable sources by
2020, IKEA has continuously moved forward, increasing their sustainable sourcing from
15.8% in 2010, to 16.2% in 2011, which further increased to 22.6% in 2012, and then to
32.4% in 2013. IKEA targeted to source its whole cotton requirement from more
sustainable sources, till 2013 they were able to source 72% of their cotton from
sustainable sources, taking a leap of more than 200% from that of 2012 (34%). (Inter
Ikea Systems B. V., 2013)

IKEA has targeted that all main materials used in their home furnishing products will be
either recyclable, or recycled, or renewable by 2020. Till 2013 98% of the material used
was recycled, renewable, or recyclable, while in 2011 and 2012 percentage use of such
materials was 91%, and 88% respectively. (Inter Ikea Systems B. V., 2013)

IKEA seeks to source its all energy requirement from renewable sources by 2020, but till
2013 only 37% of IKEAs power requirement was sourced from renewable sources.
While in 2012 this figure was only 34%. For further increasing the usage of renewable
energy. (Inter Ikea Systems B. V., 2013)

IKEAs carbon footprint per product (kg/co2/m3) has constantly declined. From 34.3 in
2010 to 34.4 in 2011, this further declined to 27.0 in 2012, and then in 2013 it further
decreased to 27.6. IKEA has targeted to reduce its own carbon emissions (relative to
sales) by 50% as compared to 2010 by 2015, but till 2013, IKEA was able to decrease
only 19.3% of its carbon emissions as compared to 2010

IKEA has targeted to sort 90% of its waste for sorting by 2015. Moving ahead towards
their goal, in 2013, IKEA was able to sort 87% of total waste generated from their
operation for recycling. While in 2012, 86% of waste was sorted for recycling. In
comparison with 2012, IKEA reduced their water usage in 2013 by 12.8%

IKEA targets to have 50% of their managers as women by 2020, In 2013 47% of their
mangers were women, which is quite close to their target. (Inter Ikea Systems B. V.,
2013)

The company also has a very strict stand against child labor; they have also
incorporated the IKEA way on preventing child labor, which restrains their supplier to
employ children. IKEA is also working with UNICEF, save the child and many more
agencies to eliminate child labor.
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IKEA foundation makes donation to the agencies working to secure interest of poor
children. In 2013 IKEA donated 101 million, which was 21% more as compared to
2012 donations. In 20003, IKEA initiated soft toys for education campaign, under this
campaign every year during November and December they donate 1 for every toy sold
from their stores. Through this initiative IKEA has raised 57 million since 2003, through
which helped 10 million children. (Inter Ikea Systems B. V., 2013)

The company has developed its suppliers code of conducted named IWAY. Through
this system the company selects the suppliers that agree on pursuing companys value
in their business. Company has also sets of policies regarding their sub supplier called
as IKEA musts; through this Policy Company is able to transform their key values deep
down into their suppliers chain.

IKEA follows a strict guideline regarding product safety and they are also evading
chemicals, which could be detrimental to environment and peoples health and for
ensuring safety of their employees, IKEA has taken many initiatives like mandatory
safety training.

Company has also developed their anti corruption policies, which lays down companys
policies towards dealing with fraud. Company also provides anticorruption training to its
workers. (Inter Ikea Systems B. V., 2013)
b) Shadow reporting review:
Shadow reporting is defined as reporting of an organizations ethical performance by
external agencies. 5 out of 7 shadow reports have a more negative prospect on IKEAs
ethical performance.
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Ethical performances article is focused on positive points of IKEAs 2013 sustainability

report. The IKEAs 2013 sustainability report shows its approach towards companys
sustainability strategy targets. IKEA for the first time has presented its performance
against its people and planet positive 2020 sustainability strategy. IKEA has made a
commendable effort towards realization of its sustainability goals. (ethicalperformance,
2014)
Article from Ethical performance included a case of IKEAs social initiatve. Rupali Ingle,
a village girl from Indias cotton belt is a part of IKEAs initiative to enhance life of
100million children of South Asia. Rupali is a village motivator, who looks after
eliminating child labor, increasing childrens attendance in schools, and making children
aware of their rights. IKEA perceives children as most important people, and so through
their social initiatives and their partnerships with UNICEF save the child they try to
secure the best interest of children. Social initiatives are the focal point of IKEAs
strategy and are also company most costly single plan. IKEA is looking forward to
spread their initiatives outside from India and South Asia. IKEA has putted a lot of
money in social initiatives with the hope of getting a priceless return, i.e. smile on million
faces. (ethicalperformance, 2015)
Boingboings article helped to understand the financial manipulations done by IKEA.
IKEAs owner INGKA holding group in 2004 reported 1.4 billion of profit on 12.8 billion
sales. But profit of this group is not taxed as it is owned by INGKA foundation, which is a
nonprofit organization, however INGKA foundation doesnt seems to be much involved
in charitable purposes. In 2004 Inter IKEA systems reported 631 million as franchising
fee, but they showed a profit of only 225 million; the major expense showed by inter
IKEA systems was other operating expenses, they recorded 590 million under other
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operating expenses which they refused to elaborate. Despite of its refusal it was visible
that Inter IKEA systems have made huge payments to I.I. holding group. I.I. holding
group and INGKA foundation both are registered in Luxemburg. The profit of IKEA
group of companies and I.I. Holding group totaled up to 553m, on which they paid
merely 19m, or around 3.5% as tax. Berne Declaration, a non-profit Swiss organization
has openly criticized IKEA for its tax evasion strategy (Doctorow, C., 2009)
The Guardians article was based on erupted anger over tax evasion of IKEA. Pressure
to pay tax has been escalated on multinational corporations like IKEA, eBay, and
strbucks. IKEA appears to have decreased its tax bill in UK by 50%. To reduce its
taxable profits, IKEA transferred its profit in disguise of royalty payments to its sister
company. IKEAs representative has verified that a 3% franchise fee is charged on IKEA
stores worldwide. But Dutch tax authorities have continuously confirmed that the
technical owner of IKEA retail system and franchisee fee revenue is Inter IKEA
Systems. Such aggressive tax evasion strategies of corporate has erupted anger
among common people of UK. (MOULDS, J., 2012)
Business model of IKEA is based on principle of low-cost and high volume which
contradicts IKEAs self claimed tag of sustainable furniture producer. Companys efforts
towards energy efficiency and reducing carbon emissions by transport vehicles are
commendable. But companys performance towards its target of installing solar panels
is doubtful and even companys scorecard for more sustainable products is ambiguous.
IKEAs effort towards reduction of child labor and incorporation of IWAY is also
applauded. But from the prospective of an environmentalist IKEA is promoting mass
consumption of goods with decreased life cycle, which in turn will increase exhaustion

of worlds natural resources. IKEA is persuading people to buy its more sustainable
products with a short life span, which refrain customers from purchasing costly product
with enhanced life span. While IKEA is trying to promote usage of LED lights, on other
hand its stocking of conventional light is questionable. If IKEA will stop being energy
efficient or eco-friendly its cost would increase. IKEA must maintain balance between
sustainability and profitability. And the reality is that, purchasing IKEAs furniture wont
save the earth, but will simply lesser the burden on your pocket. (Salisbury, P., 2011)
Analyzing The Guardians article revealed that ample of timber resources and cheap
labor persuaded IKEA to capitalize on enhancing openness for business in east bloc
economies, so company sealed a deal with a govt. run timer company named
Tehnoforestexport. It is revealed that IKEA agreed to get overcharged, and the money
made from overbilling was transferred to Romanian Securitate, which used the money
to do the filthy jobs of Romanian chancellor. IKEA knowingly accepted being
overcharged for funding of such filthy works. (THE GUARDIAN, 2014)
From The Economists article it was found out that IKEA is a very complicatedly
structured organization. IKEAs whole setup tries to minimize taxation and disclosure,
while awarding Kamprad family with sound economic benefits. However IKEA is the
biggest home furnishing retailers, but being originated from Sweden refrains it from
having a good legal sense. Ingka holdings is IKEAs parent company and it also
operates most of IKEAs stores. While Ingka holdings belong to tax-exempted NPO
named Ingka foundation. While Inter IKEA systems, owner of IKEAs trademark and
concepts belongs to Inter IKEA holding, which in turn is owned by a Dutch based

company, whose owners are not disclosed by IKEA, but its ownership certainly belongs
to kamprad family. (ECONOMIST, 2006)
c) Critical Assessment:
To get a clearer picture, critical analysis is vital.
Appreciation for excellent efforts is necessary. IKEA has excelled in many areas like
IKEAs work towards environmental and social issues is commendable. Producing more
sustainable product and responsible sourcing by IKEA is focused towards reducing
environmental damage. IKEAs engagement in works for children rights should be
applauded. IKEA has very successfully achieved some of its target listed under their
people and planet positive strategy, and is also making big steps towards many of the
target and is expected to achieve them till lapse of the time allotted.
While IKEA has done commendable jobs in many fields but its aggressive tax evasion
strategy is awful, however being Swedish from inception has affected their legal sense,
but with time they should have altered their policies. IKEAs engagement in funding of
Romanian Securitate is a blot in their white shirt. While there have also been allegations
pertaining to green washing by IKEA. While on one hand IKEA shows that they uses
FSC certified and more sustainable wood for making their furniture, on the other hand
they uses illegally chopped timbers in china for production of their furniture, and IKEA is
also opposing a US law which targets to ban import of timer which are illegally chopped.
Under the veil of being more sustainable using of illegally logged timber is disgusting.
(Pearce, F., 2009) IKEA makes cheap furniture with a short life span; this will increase
frequency of buying furniture and thus will put more burdens on natural resources.

The social responsibility stance that IKEA holds is Social Ecologists. IKEA is
consistently trying to use less natural resources and company is also using renewable
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sources for their energy requirements. IKEA is Promoting use of electric vehicle,
reducing water wastage, using renewable source of energy, promoting use of recycled
materials, and using of recycled, recyclable, or renewable materials, all of the above
points shows IKEAs commitment towards efficient resource usage. IKEAs sustainability
plan 2020 and its commitment towards being resource and energy independence are
the reflection of the social responsibility stand held by IKEA.

Conclusion and recommendations:

Considering all the shadow reports and IKEAs sustainability report it can be concluded
that IKEA is an ethical organization. IKEAs various initiative to make its products more
sustainable, companys effort of becoming more energy efficient and optimal utilization
of resources, companys donation for child education and exceptional work in field of
decreasing child labor makes IKEA an ethical organization. However IKEA seems to be
involved in many ethical issues like tax evasion makes IKEA a lesser ethical
organization, but companys efforts towards social issues and environmental
conservation seems to have undermined their unethical engagements.

It is recommended that IKEA should consider increasing life span of its products. IKEA
should also incorporate more legal considerations into their system of accounting.
Aggressive tax evasion could be detrimental to the company in future, so company
should also incorporate more legal prospective. IKEA should also stop trying to project
itself what it is not.
IKEA should apply what they preach, or they should change their speech
(WORD COUNT: 2461)
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REFERENCE LIST

Atril, McLaney, & Harvey, (2014) Accounting: An Introduction, 6/E (online) Pearson
Higher Education AU, 2014, ISBN- 9781486009664 available from
https://books.google.co.in/books?
id=ZbOaBQAAQBAJ&dq=triple+bottom+line+reporting&source=gbs_navlinks_s
Doctorow, C., (2009) Ikea is owned by a "charitable foundation," pays only 3.5% tax ,
BoingBoing (online) available from http://boingboing.net/2009/08/26/ikea-is-owned-by-ac.html [Accessed on 28th February 2015]
ECONOMIST, (2006) Ikea - Flat-pack accounting available from
http://www.economist.com/node/6919139 [Accessed on 2nd March 2015]

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ethicalperformance, (2014) IKEA Group reports on People & Planet Positive strategy
progress (online) available from http://www.ethicalperformance.com/reports/view/901
[Accessed on 1st March 2013]

ethicalperformance, (2015) IKEA giving youth a chance (online) available from

http://www.ethicalperformance.com/bestpractice/article/98 [Accessed on 2nd March
2014]
Inter Ikea Systems B. V., (2013) 2013 Sustainibility Report - Ikea available from
http://www.ikea.com/ms/ja_JP/pdf/sustainability_report/sustainability_report_2013.pdf
[Accessed on 25th February 2015]

Loeb, W., (2012) IKEA Is A World-Wide Wonder, Forbes (online) available from
http://www.forbes.com/sites/walterloeb/2012/12/05/ikea-is-a-world-wide-wonder/
[Accessed on 1st March 2015].
MOULDS, J., (2012) Anger grows over large companies' tax bills as attention turns to
eBay and IKEA, The Guardian (online) available from http://the
guardian.com/business/2012/oct/21/multinational-firms-tax-ebay-ikea/ [Accessed on 3 rd
March 2015]

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Pearce, F., (2009) Ikea you cant build a green reputation with a flatback DIY manual,
The Guardian (online) available from
http://www.theguardian.com/global/2009/apr/02/greenwash-ikea-diy-earth-hour
[Accessed on 3rd March 2014]
Salisbury, P., (2011) Behind the Brand: IKEA, The Ecologist available from
http://www.theecologist.org/green_green_living/behind_the_label/1098324/behind_the_
brand_ikea.html [Accessed on 2nd March 2015]

THE GUARDIAN, (2014) Ikea funds went to Romanian secret police in the communist
era.(online) available from http://www.theguardian.com/world/2014/jul/04/ikea-fundsromania-secret-police-communist-era [Accessed on 3rd March 2015]

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