IKEA Managing cultural Diversity

Expanding to new countries all over the world, every company surely has to face a lot of new cultures with all their singularities, strange traditions, unknown behaviors and ways of thinking. Sometimes it has to be an adventure but more often it is a challenge for the company and their employees, in which it has to prove that it deserves its place in the world and its place in the specific country. These challenges will be differently for each company as every company will be proved by their unique characteristics, their weaknesses and the things which are most important for it. And even if they will be fractious in the beginning, they often will have to relinquish parts of their soul as a tribute to be successful in the end. These are the challenges the Swedish furniture retailer IKEA had to face, when it decided to blow up the chains of Scandinavia and to push forward into new countries: Germany, as the most populous European country, was IKEAs first step out of the quite homogeneous area of Scandinavia. And it did not take long until the problems appeared: As Germans are very disciplined and enjoy a strong hierarchy they are working in a completely different way than the Swedes. They need procedures and rules (p.228 passage 1) and they think that Swedish management does not sufficiently assess risks before taking action (p.228 passage 1). They got problems with The Dutzen and they call the Swedish management style peculiar (compare p. 227 Dealing with the Europeans passage 2). As a consequence there were a lot of communication problems between the German workers and the Swedish managers (compare p.227 Dealing with the Europeans passage 3). In France other problems appeared: As informality *is seen+ as a sign of weakness some French managers felt that the Swedish informality meant they could do whatever they wanted (p.228 passage 2). It is also not liked, that everyone was put on the same level (p. 228 passage 3) and so hostile relations to unions, workers and customers appeared. But this is just a short resume of the problems and challenges IKEA had to face in its first countries as they are already standing in the text. The interesting question is where the problems came from, how they could have been solved and whether they could have been avoided. So that in the end it will be possible to analyze whether IKEA did a good job or simply failed: First of all, IKEAs problems in Central Europe were caused by an oversimplification of the situation and a lack of adaption. Because IKEA was working well in Scandinavia with the IKEA-Way they just do not want to change anything when leaving Scandinavia. The idea was to be IKEA everywhere (p.226 Adapting to National Markets passage 2). So they seem to follow a never change a winning team-device which is indeed often working, not only in sports. But as in Scandinavia Ice hockey is the most popular sport and in Central Europe it is soccer you should probably not let the Swedish Ice hockey team play in the German soccer-

league even if it was the best in the world. These are two completely different sports and so are the cultures. So when its said that for example bedding could be substantially different from country to country (p. 226 Adapting to National Markets passage 1) it seems really strange that only 5 to 10 percent *of the product range+ is country specific and 90% *+ is the same all over the world (p.226 Adapting to National Markets passage 4). And although Germany alone makes plus minus 30% of the total group sales of IKEA (p. 227 Dealing with the Europeans passage 1) they do not want to adapt to Germany. The simplest way to a target is always the straight way and you also cannot get lost using this way. But sometimes you have to make some turns, drive in an other direction for some time or you will rarely reach your target. So when IKEA saw a rock on the road (symbolizing a cultural difference) they preferred crashing it and destroying it instead of evading even if it causes a flat tire. So they do not want to adapt, they want a whole country to adapt instead. As a consequence, especially French felt insulted by this behavior. As in France unadjusted immigrants are often not tolerated by the public, unadjusted companies arent either. And IKEAs different thinking caused problems with the employees, because IKEA finally had to realize that they can hardly change the peoples behavior or core culture to force them to adapt to them. Avoidable problems which I already described above appeared and finally the company was forced to make some small turns. But still they are making as less as possible. So how could they have done better? If they had been more engaged in getting to know the country, the people and the culture they were expanding in they could have understood the people, they would have known what they were going for and which problems could appear. They could also have been a little more engaged in working with the countries instead of thinking they would only have to open shops in Central Europe and the rest will work anyhow. Furthermore there is a controversial in the IKEA system which is related to the first point and which seems important to me. There is a strange sentence in the text: it *the system+ is flexible, and it should stay that way (p.228 passage 3). Cogitating a little bit about this sentence you realize that something does not fit. Because when something is flexible it normally is open for adaption and new ways but on the other hand it is said that it has to stay this way, what means that it is fixed. Are they trying to force their employees to be flexible? Politically you could compare this with a democracy (standing for representation, co-determination, and flexibility in this case) which does not allow any elections (so its fixed). So is it a democracy then? IKEA was not able to see this but in my opinion it makes a system fixe if you force it to be flexible. And this is exactly what IKEA did not want to happen - a change in the IKEA concept. Later on it is said that as the years went by we learned to be more flexible (p. 226 Adapting to National Markets passage 2). This sounds like a confession that the system lost its flexibility and is now searching for it again. So let me give you an example to show what I mean: IKEA tells us that people like to participate in making decisions (p. 227 Human Resource Management passage 1). This is of course modern and flexible, but when employees in Germany do not want to participate because they prefer

rules, The Swedes get angry and see it as a problem. So Participation is no right, it is a duty in spite of the gentle formulation. And this is something they really have to abolish. So instead of remaining their product range when going to new countries they should probably have remained their flexibility, leading to an adaption to the country they are operating in. This would probably have been less treason to the IKEA Way than the way they really acted and it would probably have caused less problems. Another challenge was the lack of accordant qualified managers. For IKEA it is very important that their stores all over the world are linked closely to their roots in Sweden. They dont want them to lose their Swedishness or to deviate from the IKEA Way because they think thats all about their uniqueness, their niche, their giant advantage. If you want to express it in a more critical way you could also say, that they mistrust everything not Swedish and think of their way as the only right way (This point will be explained further in the second part). So to assure the Swedishness only managers who are of Swedish nationality or Swedish enough for the company can really move up to the leading positions of the company and all foreign stores are led by Swedish managers. But established in a big part of the world, IKEA has a huge problem to find enough Swedish IKEA managers who are willing to work overseas for long periods (p. 227 Human Resource Management passage 5). This is a problem it really seemed to burden itself because of its strict rules and believe in the IKEA Way. So some foreign managers which are expected to be Swedish enough can also move up in the IKEA hierarchy. But It is still very difficult for non-Scandinavians to work their way up the corporate ladder (p.227 Human Resource Management passage 5). They have to speak Swedish, adapt Swedish values and to know the Swedish culture. And the fact that it is particularly difficult for people over 35 *to work for IKEA+ because IKEA is different from all other workplaces (p. 228 passage 3) will not make the search for sufficient qualified managers easier. IKEA really has to ask itself whether their Swedishness cannot be satisfied without this point or guaranteed another way. Because consequences of this behavior are numerous: The motivation and engagement of foreign employees suffers because they got no chance to move up the ladder. Cultural problems cannot be avoided if the leading managers do only know the Swedish culture. Customers complain about to many foreign employees in the stores (compare p.228 passage 4). And if you just take it mathematically: can Sweden with its 10 million inhabitants really have enough high-potentials which are although willing to work overseas for the giant company IKEA? Can the Swedish guy they nominate as their newest store leader really be better than all the foreign employees working for IKEA all over the world? And in what way does speaking Swedish help you to lead a store in the heart of Germany? But there are solutions which could still satisfy the Swedish demand for surveillance and Swedishness. One regional Swedish surveillant could be introduced for each region instead of Swedes all over in stores and establishments. It should still be enough to guarantee the Swedishness. Managerial training camps to learn the IKEA-Way could be built in the specific

countries. I do not see the necessity to work in Almhult or to speak Swedish for learning Swedish attitudes. This would certainly help to abate the problem. In the end, IKEA made a lot of mistakes when they started their world-wide expansion, they was faced to a lot of problems and often they didnt look that good along their way. But whether you make or have problems and how you deal with them is not the benchmark for the question whether you pass or fail the challenge of international expansion although it is also very important and will affect the true benchmark. But the true benchmark is whether you have success or not! And being established in a big part of Europe and the world today and also beeing the most popular furniture retailer not only in Germany really expresses a huge success.

So after finally doing good work in Europe IKEA way searching for a new challenge and found it in the United States of America. Reading the text you find a lot of things which went wrong when IKEA tried to enter the US-market: some of them were mistakes made by IKEA, others were things they just didnt think of and again others were totally unpredictable. Sometimes things were made consciously and sometimes they happened accidentally. Many of them are explained exactly in the text and are accepted by everyone, others are hidden and did probably not even come to the mind of the IKEA-bosses until today. In the following I will try to reveal some hidden aspects because I think it is more exciting for you and also for me to get into the not yet leached out points of the text. My first point is called the Walt-Disney-effect. I had to invent this word because I found no already existing word expressing what I want to say. So what do I mean? In America a lot of things are different compared with Europe. In the text you often get the impression IKEA still thinks of the US as just another country. But you have to make yourself aware of the fact that it is a completely different continent. Of course Germany and Sweden are very different too, of course people think, act and behave different in both countries but after all there is still a European mentality within all European countries. IKEA should have realized that the US is further away than other markets not only in distance. Referring to the text again you find a lot of cultural inequalities between the Swedish company and their American customers, employees, suppliers, competitors and stakeholders. Again and again there is a problem, there are negative consequences and in the end there will be a solution. But when they just have found the solution the next problem appears. I think handling mistakes this way is a mistake itself! IKEA saw all these problems independent from each other while I will argue why at least many of them are caused by the same thing: The Walt-Disney-effect! In my opinion it is the best way of expressing an important part of the American mentality.

So, why did I call it Walt-Disney-effect? Americans often seem to be very unconcerned and relaxed like they were living after a in the end everything always gets fine just as in all the Walt Disney movies-device. Thats why the American guy goes into the shop and just buys a TV spontaneously. Hes not thinking is that really necessary? What about my old TV? What might my wife say? What if something happens and I need a lot of money suddenly? Can I really pay that? Am I making a good business or is the price to high? Can I get a cheaper one somewhere else? as especially the German guy but also all other Europeans would do. Hes just going there and buying it (compare p. 229, 230 impulse buying) and in the end everything will be fine and it will have been a good decision. And if not, next spontaneous decision will maybe be better. They are acting the same when they buy big-sized items like beds or glasses. It does not matter whether you got less space in your bedroom with a big bed or whether you can get less glasses in the closet if they are too big, they are just big, big is cool, lets buy them. They take it easy; they take it the Walt-Disney-Way. (compare p. 229 customers would purchase flower vases thinking they were American-size drinking glasses + the turkey-case). You also get back to the Walt-Disney-effect when you think about the public American opinion of themes like global warming (was this year warmer than last year?). You could call all this primitive but in the end the American economy is working well this way and the Americans are happy, too. So what could IKEA have done if they realized this? First of all they could have applied products for the US-market in general by thinking in the American Way. When IKEA realized that their dining tables were too small for an American turkey they made their furniture bigger. But knowing this, they could have changed a lot more things, preventing future problems. More pillows for couches no matter if they are needed, cooler and more risky designs which Europeans would probably call inappropriate and additional stuff which is not really needed. That is exactly what I meant, when I said that all the problems were not independent. Second they could have done things faster if they realized the Walt-Disneyeffect: When the American managers recognized that their furniture was too small they had to go to Sweden and show them a turkey before anything happened and I am quite sure, that they were still then thinking whether it is a good idea to produce bigger products. Knowing the Walt-Disney-effect they should just have produced bigger glasses for watching what happens. Even if the Americans would not need bigger glasses, they would have bought them if they looked cool and new. And in the end you can probably sell every dispensable, unneeded item to an American. So a little more of take-it-easy would maybe also have helped to understand the US-mentality and market. I think if they had done all this, they would not have been faced to so many problems with the US market and they would have understood the market easier. And even if they had not solved the problem they could have seen it as the Walt-Disney-Problem instead of just another completely different and unpredictable problem in the US-problem-jungle.

The second point I want to mention is called bullheadedness and is especially important because of its conflict with the Walt-Disney-effect. In the text I often recognized that IKEA was surprisingly self-confident, very mulish and extremely stubborn; characteristics which cannot be good for any firm and which can in some situations get very dangerous. IKEA seemed confident that going about in their own way would prove an exception to the laws of failure that seemed to doom European entrants to the U.S. market (p. 228 Doing Things Different in the United States passage 1). This shows that they were really thinking of themselves as a better, fitter and more intelligent company than any other company entering the U.S market. It takes longer to do things our way but we want to train people to know how to do things the right way (p.230 unresolved Issues passage 2). So IKEA is thinking of their way, the IKEA-way as the only right way and all other people, companies and nations are just doing things wrong or bad. It resembles a religion which tells you that it is the only true way to heaven and all the other religions are just leading you to hell. Actually IKEA is really talking about on-site missionaries (p. 231 passage 2) when they talk of their Swedish managers in the U.S. What are the consequences of this behavior? Although flexibility is very important for IKEA, it gets inflexible because they are too bullheaded: sticking to our proven ways, we must protect our unique concepts (p. 231 passage 2) leading to no new ideas, progress or amelioration. So when the Soviet Union crushed and their competitors found new furniture suppliers in East-Europe (compare p. 231 Clouds on the Horizon passage 4), IKEA wasnt able to adapt to the situation. And their self-confidence leaded to imprudence because when they went in the US market they hadnt planned a clear strategy of how to supply the American market at a low cost (p. 230 passage 4) what could although be explained by arrogance or just the thinking that everything IKEA touches will become gold in any way. And when finally the U.S. managers find solutions for upcoming problems by changes and ameliorations, these changes are criticized by IKEA international headquarters (p. 230 passage 2) and later on the same people will complain that decision making took longer and longer (p. 232 passage 3). Of course it takes longer, if you dont let them make their own decisions. They are like a mother unwilling to accept that her son has grown up and can make his own decisions now. Their bullheadedness is even the reason why they cannot attract young managers: they are so self-confident that they think no American could do the job his way as good as a Swedish would do it the IKEA way. So when Swedish bullheadedness meets American carelessness (compare with first argument) we got a real clash of cultures! Problems do have to appear and both sides will not be able to understand the other side because they are either caught in their own thinking (Sweden) or are just unconcerned (U.S.). My suggestion for IKEA concerning this point is quite simple: Not everything foreign is bad, not everything new means treason on the principles and only because a concept is working,

it does not mean that it is perfect. Being a little less self-confident and bullheaded could really help to improve international organization, decrease cultural problems and solve a lot of the problems mentioned above. And it should not crush the principles of the IKEA Way or betray the principles, but just improve them. The third mistake I want to mention is the giant lack of foresight, when IKEA tried to enter the US market. Reading the text you find a lot of bad circumstances and obstacles for IKEA in the US especially after their great boom in the first years. But when you analyze them you realize two things: 1. they knew that would happen 2. the bad circumstance or the obstacle is just the normality. You just have to take a look at the circumstances and obstacles they were faced: Less furniture was needed because baby boomers moved into middle age (p. 231 Clouds on the Horizon passage 1). Isnt a baby boom something special and no baby boom the normality? Should they not have known? The honeymoon ended suddenly when the dollar went down (p. 229 passage 2). Did they think the honeymoon would last forever? Did they think the dollar would always be floating in the clouds? They also seemed to be surprised about raising costs and that the administration got more difficult with much more stores. Both are completely normal. It seems as if they forgot making a worst-case-calculation instead of their it-will-ever-staythis-way-calculation. That really does neither fit to the Swedish mentality nor to the IKEAway. There is only one passage of the text, where this problem is shortly mentioned: Perhaps we were blinded by the booming years of the 1980s which increased the geographical spread of our operations to new markets (p. 232 passage 2). As it is said here the consequences of the booming years was a spread, meaning much more stores were opened. So they did not only forget that there could be bad times, they even made their expansions and their plans based on the fact that the great years will never end. And all that in a time when they should have known that things like the oil-shock of 1973 could bring down the economy really quickly. They were just like a squirrel having a great summer, but forgetting to make supplies for the winter. Of course, IKEA survived the crisis and worked perfectly after it, but I think they had to pay a huge price for it: Because when the economy went down and the problems appeared, IKEA had to solve the crisis by a mass-volume-strategy with small but many revenues (compare p. 229 passage 6). So they lost their image as a valuable brand and got one step closer to a mass distributer. I think this would not have happened if they hadnt expanded blindly and naive because of only looking at the present situation. I will come back to this point later. Another point which is related to the point above is the expansion tactics of IKEA itself. It shares its consequences with that coming from the lack of foresight. In my opinion IKEAs

expansion tactic in general is too chaotic and not well-considered. This happens because of a confrontation between strategic planning and the IKEA-way. In Germany, when you want to do something right, you go through all the points, you complete every single point one after the other, you check whether you forgot something and when you are finished you can do the next thing. IKEAs strategy seems to be a lot more confusing: They are expanding here and there, suddenly stopping and expanding somewhere else and the results are problems. They began their US-mission in Canada by opening shops there (compare p. 228 Doing things different in the United States passage 2) and you already ask yourself whether they think Canada and the US are quite the same. And why dont they just take a point and spread from there instead of having a kind of test-markets which will be isolated later? Being in the US-market they dont want to get into the whole country but prefer heavy investment in longer term expansion into Eastern Europe and China putting pressure on IKEAs capital reserves so that the focus in the United States is now on developing sales and profit from its existing stores before expanding into new regions (p.230 passage 4). Wouldnt it be a better idea to finish one country first before you start the expanding into the next? IKEA acted this way because of important parts of the IKEA way: Test-markets in hard environment as in Switzerland and Canada are important for them to get proved. The potato field approach instead of strategic planning is also part of the IKEA-way. And of course new markets in the former Soviet Union and China are always more interesting and have their own attraction. And they admit that expansion outside of Scandinavia was driven by Ingvar Kamprads intuitive quest for new opportunities (p. 225 IKEAs Strategy of international Expansion passage 1). But probably they should worry about the problems they cause with this way of thinking and acting. But I have to make one thing clear in order to assure that there will be no confrontation between my third and my last argument: Because in point three I said dont spread blindly only because the times are good right now and now Im telling you take the whole US before you go somewhere else. What I want to express is, when you got no shop in Memphis, you should open a shop there and not in china. But you should not open 10 shops there only because there is a boom and people will buy furniture at the moment. So what are the advantages, that evidence that it would be more intelligent to finish one market first: Organization, structure and administration are always easier when your shops are close to each other or in a cohesive area. You can focus on one market and you can concentrate on the problems and the situation there. You can make a marketing campaign for the whole country instead of many less effective regional campaigns. Because if you have 100 shops in one country you can send a TV spot for them all, if you have 100 shops in 20 countries you will need to send 20 spots. Also the risk of imitators (compare p.229 passage 7 Stor) is lower when you have shops in the whole country instead of leaving out parts of the country. And you can share suppliers and services like for example complaint management.

The consequences here are quite the same as in point three: cost consciousness because of heavy investment in new markets leads to mass production with small revenues and a loss of value for the brand. And in the text its also said that its extended network made it difficult to provide employees and mid-level managers with a clear perception of how their local business impacted on the cooperation as a whole and that they were suffering in many ways from too much decentralization (p. 231 Clouds on the Horizon passage 2) I think especially point three and four led to an immense loss of reputation for IKEA. And you realize that when you read the text as a young person: all the time you think oh, that was IKEA once, because today IKEA is far away of being a sign of luxury; IKEA is today just the cheapest furniture-seller. The evidence: In the last year it happened to me twice that I went to a friend and seeing his apartment for the first time I said hey you got a cool couch, because for students couches are nothing common and both times the answer was Oh, no, its nothing special, its only from IKEA. And that is exactly what they lost in the last years!