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Inside IKEA’s Digital Transformation

  • Thomas Stackpole

ikea business model 2021

A Q&A with Barbara Martin Coppola, IKEA Retail’s chief digital officer.

How does going digital change a legacy retail brand? According to Barbara Martin Coppola, CDO at IKEA Retail, it’s a challenge of remaining fundamentally the same company while doing almost everything differently. In this Q&A, Martin Coppola talks about how working in tech for 20 years prepared her for this challenge, why giving customers control over their data is good business, and how to stay focused on the core mission when you’re changing everything else.

What does it mean for one of the world’s most recognizable retail brands to go digital? For almost 80 years, IKEA has been in the very analogue business of selling its distinct brand of home goods to people. Three years ago, IKEA Retail (Ingka Group) hired Barbara Martin Coppola — a veteran of Google, Samsung, and Texas Instruments — to guide the company through a digital transformation and help it enter the next era of its history. HBR spoke with Martin Coppola about the particular challenge of transformation at a legacy company, how to sustain your culture when you’re changing almost everything, and how her 20 years in the tech industry prepared her for this task.

How is the digital transformation at IKEA changing how the company actually operates in the day-to-day?

In practical terms, we’ve approximately tripled ecommerce levels in three years. We have transformed our stores to also act as fulfilment centers. To make that work, the flow of goods needed to change, the supply mechanisms needed to change, and also the floorplans of the store needed to change. Ecommerce is open 24 hours a day, while traditional stores are not, which means we’ve needed to learn how to operate at two speeds, while operating from one space. Goods can be delivered from the stores, or from different distribution centers — and algorithms are helping figure out where the goods are being sourced from. We’re rapidly expanding data and analytics and changing how they’re embedded in decision making.

With the pandemic and with the closure of approximately 75% of our stores, we ramped-up and accelerated even more as people turned online and towards digital solutions. Things that would normally take years or months were carried out within days and weeks.

The digital transformation is not a goal in and of itself, and it is so much more than technology. We are transforming our business: We are exploring potential new offers to customers, new ways to bring our offers to customers, and new ways to operate our business. And in order to be successful, digital needs to be embedded in every aspect of IKEA. Digital is a way of working, making decisions, and managing the company.

How would you describe what it is you’re trying to do through this process?

To realize our mission, we need to stay relevant, and we need to evolve with the ever-changing needs of our customers.

Now, this process is a bit like an iceberg. At the top of the iceberg, we have the customer needs and adaptation — revamping everything around customer interaction and new purchasing journeys — and under the surface we are making huge changes to our business and operating model. And what is under the surface is a much bigger change than what we see above.

I’ll give you an example. We are revamping customer interactions both digitally and, in the store, and we’re connecting them. For instance, you might start planning your new kitchen by yourself at home on, and then you come to the store or connect with a remote customer meeting point, and we should be able to meet you where you are. Another example is the “Shop & Go” feature in the IKEA app — available in a few countries — which allows you to use your own mobile device to scan, pay for items and skip the checkout line in the store. That requires a complete modernization and reengineering of all the tech landscape within IKEA . It also requires a different way of operating to fulfill the goods to be bought. It requires reengineering of the full value chain, which needs to be governed by data and become more flexible than before. The result is meant to be a seamless, consistent customer experience.

These transformations are happening at many layers within the company, and they require a multi-year strategy and a clear North Star to follow.

How has your strategy changed as you moved through this process? What did you think it was going to be like at the beginning, and what has surprised you and what has changed along the way?

The scope of the strategy has increased significantly over time as the company realized that digital needs to be embedded into everything we do. Our first focus was on revamping all meetings with the customer, especially online with new and improved navigation and search function . We secured high growth for ecommerce which went from 7% of revenue to 31% in 3 years.

Inventory management, logistics, fulfillment, and supply chain overall had to be modernized through data, which in turn brought in new ways of working and operating. For example, stores became fulfillment centers. We’re also embedding new skills and people who bring new agility.

Substantively, what does digital transformation mean for a company like IKEA? How does it change the company’s DNA ?

The DNA of IKEA doesn’t change, and it’s important that it doesn’t. Operating model wise, it means we’re adding data, increasing speed, using analytics in all our decision-making. Also, the skills we’re using are changing. I recall when I started at IKEA, my boss, Jesper Brodin said, “We’re changing everything — almost.” To me, this means we’re changing how we do things, but the soul of the company stays the same.

Can you elaborate a bit on how to make sure the vision for the company remains consistent, even as you’re enacting fundamental changes?

We are reinventing IKEA for the future, no less than that. At the beginning, this meant we needed to ensure that the transformation kept the IKEA DNA intact — that is, the culture, the values and the vision of creating a better everyday life for the many people . The question then became; how do we express these in the digital environment? And this led to the notion of human-centric technology. How to embed ethical behavior, respect diversity, how to treat people fairly — without bias — through technology. This means that we are focusing more on what we should do with data, rather than what we could do with data.

IKEA has been gaining consumer trust for 78 years by having the unique opportunity and privilege to be invited to people’s home. This means we have built a lot of trust. And we want that same level of trust, if not higher, in the digital world. We know that data in the digital world is not being treated with the level of respect people require, and we are working on a new way that puts people and their privacy at the core.

So, we’re taking a new approach. Our starting point was asking ourselves the most fundamental question: How do people react when they have more control over their own data, specifically on how and when they interact with a company? Our first step to tackle this was the Customer Data Promise , our commitment to putting people first in all data-driven processes. We want to provide customers with understanding, control, and the ability to make decisions about their data, so we added a functionality that lets consumers edit their data in the app at any given time. They see a centralized data control panel in the app, where they can change and personalize their inspirational feed and get contextual access to their data settings.

And what we have seen thus far is that first, the data we are capturing is more relevant. When people decide what data they share with you, what you get is more relevant to their needs. Second, that there is more trust, therefore more engagement, and people are coming back and interacting with us more.

How does your experience at a place like Google shape how you think about a task like this digital transformation at IKEA?

I’ve worked in the technology industry for over 20 years for many innovative companies. And during that time, every single experience has given me learnings that I’m applying to IKEA’s transformation today.

If I think about Google specifically, I’d say that speed, agility, and a strong customer focus, are important learnings I took with me. So, when you think about how to create products in the unknown, it’s really about fast iterations, learning through those iterations, and giving consumers the chance to gift it back, so, little by little, we build the product together with customers.

Another learning from Google is that people are the most important asset a company has. You need to take care of people, and make sure that the right skills are present. This is what attracted me to IKEA, people here always come first, and they are the number one priority for the business. Recently we’ve been hiring for skills we didn’t have, as well as reskilling a lot of people so that together, we can become a high-performing team, caring for people’s wellbeing whilst continuously learning and growing.

And the last thing I learned, I would say, is purpose. At Google, I was going to work with the deep belief that I was making people’s lives better — at that time we were revolutionizing how technology could help people. And I have that same feeling at IKEA. This has helped us a lot when going through our transformation. We know there will be challenging times, but we also know there is something bigger than our own reality, it helps us put energy and heart into creating an IKEA for generations to come.

Culture plays a huge role in how successful digital transformations are, right? How much of being a successful CDO is addressing cultural and human issues?

Transformations are about moving large numbers of people, not just a few people who have the necessary digital skills. That’s why culture is so important.

Coming in at a top executive level, I had to first become accepted as part of the community. IKEA originates from the south of Sweden. The company values are about hard work, humbleness, being down to earth, and a strong entrepreneurial spirit — people want to go the extra mile for the company. I had to show through my behavior that I share the same values. Then, it was about meeting people and communicating an inspiring vision. Finally, it was about putting forward simple steps that people can see themselves following.

Another part of leadership in transformation is having an open mind and believing that many things are possible, as well as knowing the importance of people and bringing them along in that journey with you. I always say to people “We’re going to do this and succeed at it,” which is not unrealistic, but rather a push to the teams to know that they can achieve the goals they set out to accomplish. And it’s important to bring your whole self to work, including the vulnerable side, especially during the pandemic. Saying “I’m human, I’m having a hard time right now,” allows other people to be vulnerable too. Giving people the permission to be human doesn’t make you less effective, in fact I see it as an important step to building trust.

How do AR and VR feature in your plans for IKEA’s future?

They are important new technologies that we need to test and try. We’ve been testing VR in the store, to visualize how a piece of furniture fits in a room. We recently acquired a California company by the name of Geomagical Labs. With their new AI technology, we will bring home visualization to a different level. By letting you scan your home, one room at a time, and turn it into a 3D model in which you can try out the IKEA home product range from any location. It’s a tool for democratizing home design, and that means it must be accessible to everyone. You will be able to access it via any smartphone — iPhone or Android; it needs to be simple enough for people to use it.

As a leader, how do you think about using new technologies to support rather than replace workers?

To automate or digitize IKEA, it may sound at times like we’re moving away from the humanity of it all, but in fact it’s the other way around. We are enabling people to do more of what they love, to learn and try new and different jobs that weren’t possible before. We want to relieve people of repetitive tasks, so a lot of our work right now consists of reskilling and helping people carry out a variety of roles.

The pandemic, of course, changed and accelerated everyone’s plans regarding projects like these. But what has your experience been, and what have you learned from it?

There’s been a lot of learning throughout this process. And many challenges remain. But the key is resilience, it’s never quitting. Giving the organization the strength to solve any problem. The resilience we have built so far is why we are where we are now, in a position of strength, always looking to grow and improve.

Editor’s note: This interview has been edited and condensed for clarity.

ikea business model 2021

  • Thomas Stackpole is a senior editor at Harvard Business Review.

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The IKEA vision and values

Inspired by our vision and driven by our values, we’re passionate about life at home. 

Three young children in bare feet, jumping on a blue IKEA sofa.

We bring the IKEA brand to millions of homes, offering well-designed, functional, durable, affordable and sustainable home furnishing solutions to people with big dreams and thin wallets. We’re curious about the world around us, and want to make a positive difference in people’s lives.

The IKEA vision

“To create a better everyday life for the many people.” This vision goes beyond home furnishing. We want to have a positive impact on the world – from the communities where we source our raw materials to the way our products help our customers live a more sustainable life at home.

By sharing what we do, and speaking up for what we believe in, we can be part of positive change in society.

The IKEA business idea

While our vision tells us why we exist, our business idea tells us what we want to achieve. And if you’ve ever visited IKEA, you’ll have probably worked out what our business idea is – “to 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.”

Ingvar Kamprad, IKEA Founder

IKEA founder Ingvar Kamprad in the parking lot of the first IKEA store in Älmhult.

IKEA is not the work of one person alone. It is the result of many minds and many souls working together through many years of joy and hard work.

Ingvar Kamprad IKEA Founder

The IKEA values

Our values reflect what we consider to be important. So important in fact that we refer to them as one of our “forever parts”. They guide us in our everyday lives at work in everything from how we treat people and the planet to how we make decisions - large or small.

Togetherness or “Tillsammans” as we say in Swedish, is a big deal for us. In fact, it’s at the very heart of the IKEA culture. We know we’re at our best when we trust each other, pull in the same direction and, not least, have fun together.

We want to be a force for positive change. Our reach gives us the possibility to make a significant and lasting impact - today and for the generations to come. We will continue to offer more sustainably sourced and manufactured products and help people live a more sustainable life at home.

We’re constantly challenging ourselves and others to make more from less without compromising on quality. Every day, everywhere, we do our best to discover and eliminate unnecessary costs, because low prices are impossible without low costs.

A simple, straightforward and down-to-earth approach is part of our heritage. In our world, simplicity means efficiency and doing what comes naturally. We say “no” to complicated solutions and see bureaucracy as our greatest enemy.

We believe that whatever we are doing today, we can do a bit better tomorrow. To us, there is no such thing as impossible. In fact, finding solutions to “impossible” challenges is what made us successful.

We are not like other businesses, and we don’t want to be. We want to challenge conventions and drive positive changes in our industry and sometimes even in the world. We are restless doers, driven by curiosity, enthusiasm and a desire to create a better world.

We make a point of giving people a lot of responsibility early on in their IKEA journey. We believe in empowering people and in the power of the individual who wants to grow. And each one of us grows with bigger and more challenging tasks.

To us, leadership is an action, not a position. We give people’s values as much weight as their competence and experience. People who ‘walk the talk’ and lead by example.

ikea business model 2021

From humble origins to global brand – a brief history of IKEA

ikea business model 2021

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IKEA Business Model Case: How IKEA Makes Money

Started 79 years ago, in 1943, IKEA has gone on to become the  largest furniture retailer . And like any brand that goes on to become a market leader, IKEA pioneered multiple innovations in its industry. To add to that, IKEA, in recent years, has also adapted itself to stay relevant in the digital era. 

In this blog, we will dive into the strategies that propelled IKEA to the top of the furniture industry, look into how IKEA has maintained relevancy in the digital world and understand IKEA’s business model.

IKEA Founding & Growth Story

Like most entrepreneurs who impact the world, IKEA’s founder, Ingvar Kamprad, had an entrepreneurial streak since he was a child. He first took baby steps in the business world,  at age 5 , by selling matches. He enlisted his aunt, who lived in Stockholm, to buy big, less expensive cartons of matches and send them to him in the Swedish province of Småland, where he lived. Ingvar would then split the matches into smaller packages and resold them at low prices. Although Ingvar could source them cheap, selling matches wasn’t a good enough business, leading him to quit. 

Later on, Ingvar dabbled in selling pens, watches & wallets in college, but he finally settled for furniture. One of the reasons IKEA’s furniture became distinguishable in its early days was due to its pricing philosophy. 

“To design a desk which may cost $1,000 is easy for a furniture designer, but to design a functional and good desk which shall cost $50 can only be done by the very best,” a  famous quote from Ingvar  formed the foundational pillar of IKEA’s operating philosophy. 

IKEA’s prices were so low that many Swedish furniture retailers felt threatened by them. They even teamed up together to pressure suppliers to boycott IKEA products and prevent Ingvar from exhibiting at furniture fairs. At around the same time, IKEA launched its first annual IKEA home furnishing catalog, which one could say, was, content marketing in its primitive form. 

A few years later, IKEA  launched its first store  in Älmhult, Sweden, in 1953. It was during this year that IKEA revolutionized the furniture industry with the launch of  flat-pack furniture . For the uninitiated, customers themselves assemble flat-pack furniture, which consists of separate furniture components packed into cartons with assembly instructions. 

Furniture retailers like IKEA benefit from selling ready-to-assemble furniture because assembled furniture is more expensive to store and deliver. In the case of flat-pack furniture, since the assembly work is done by the customers, the overall pricing of the furniture turns out to be lesser.

Now, to be clear, IKEA didn’t invent the concept of flat-pack furniture. The idea existed before IKEA, but the company played a significant role in popularizing the concept. And in doing so, the company leveraged the physiological hack now referred to as the  IKEA effect . 

The IKEA effect states — “that labour alone can be sufficient to induce greater liking for the fruits of one’s labour” — meaning assembling IKEA’s flat-pack furniture themselves induces the customer to value furniture even more. And research has shown that when people build or create something themselves, the act of making also subtly nudges them to be willing to pay more for their creation. In the case of IKEA, this meant people perceived they have attained ‘greater value for money’ because they assemble the furniture themselves.

Besides the IKEA effect, how IKEA designs its store layouts has also largely contributed to its success. Stores are designed in a circular format and use a one-way system. Because of the circular design, buyers can’t see what is coming next & fear they’ll miss out on something they need if they don’t continue to the end. The stores have potential escape points throughout them, but using them would mean customers miss several sections, and they take that risk infrequently. And since it would take extra effort to revisit a particular item later, customers are inclined to pick them up when they see it. In 2019 alone, around  1 billion  people worldwide visited such IKEA stores designed to maximize customer spending. The number of visits reduced to 825 million and 775 million in 2020 & 2021 respectively, partly due to the COVID-19 pandemic.

To get potential buyers to spend more time shopping,  IKEA stores also feature restaurants . You might think that luring people to shop more by providing eatery options is a common feature among offline brands today. Still, it wasn’t as common back when IKEA incorporated the idea in its marketing mix. 

As we’ve seen, low-cost flat-pack furniture & well-designed stores unique store designs played a significant role in making IKEA a big player in the furniture industry in the offline-dominated, pre-internet era. But in recent years, IKEA has also adapted to the new age digital world.

In FY20, e-commerce accounted for more than 16% of total retail sales compared to 10% in FY19. This sharp increase in online sales was mainly due to the coronavirus, but IKEA had incorporated the online channel as a part of its sales mix before the pandemic. In FY21, the online segment contributed to 26% of IKEA sales.

As part of its digital transformation strategy, IKEA also launched an augmented reality app that buyers can use to visualize how a piece of furniture would look in their homes.

IKEA Business Model

IKEA makes money from two different sources: an offline franchise-driven setup & a direct-to-consumer online setup. In the franchise setting, IKEA charges an annual fee of 3% on net sales to franchisees. Apart from franchise fees, IKEA also makes money from wholesale selling of IKEA products to franchisees & other income. The other income mainly revenue consists of money generated from the IKEA catalogue and other marketing materials created for IKEA retailers.

As of FY21, IKEA franchisees operated 458 traditional IKEA stores in 61 markets as well as several test locations. In FY22 IKEA franchisees will enter three more new markets: Puerto Rico, the Philippines, and Oman. IKEA owns and operates only one store by itself (non-franchise) in the Netherlands.

In FY21, IKEA made EUR 25.6 billion in revenue from franchise fees, sales of goods, and other income, up from the 23.6 billion made in FY20. Here’s a segment-wise breakdown of revenue. 

IKEA Revenue & Net income ( FY21 & FY20 )

However, if we were to include the income from IKEA’s online division and services to customers, total sales in FY21 amounted to EUR 41.9 million. In FY20 & FY19, IKEA’s total revenue stood at EUR 39.6 million and EUR 41.3 million.

IKEA Acquisitions

Being a traditional offline retailer, IKEA was a little late to adopt the relatively newer strategy of making acquisitions to retain market share and expand market dominance. 

Nevertheless, IKEA has made  three acquisitions  since 2017, namely  Task Rabbit ,  Geomagical , and  Veja Mate . To explain what the three companies do briefly, task rabbit connects customers who need a helping hand to assemble furniture with contractors, Geomagical is an augmented reality home designing tool & Veja Mate is an offshore wind farm supposed to help IKEA reach its sustainability targets.

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    February 26, 2022 1299 IKEA Business Model Case: How IKEA Makes Money Started 79 years ago, in 1943, IKEA has gone on to become the largest furniture retailer. And like any brand that goes on to become a market leader, IKEA pioneered multiple innovations in its industry.