ASSIGNMENT SUBMITTED BY BRAVO GROUP

Mishal Zikria

Tauseef Raza

Mahnoor Amjad

Tehmina Malik

Shafique Abbasi

Question No 1. How would assess IKEA Group’s People and Planet Positive
sustainability plan? Is the plan likely to help the company transform its business? Are the
plan’s targets too limited, appropriate, or too ambitious?

Solution:
(a) How would assess IKEA Group’s People and Planet Positive sustainability plan?
IKEA’s People and Planet Positive sustainability plan mainly focused on three areas i.e.
more sustainable life at home for consumers, resource & energy independence for the company
through independently power generation and a better life for the people and communities
impacted by IKEA business. The company created a group of four teams, who worked with the
operating units to implement their people and planet sustainable plan. Moreover, they also
concentrated on the following:
 Intended to concentrate on the full value chain of the business, from the sourcing of raw
materials to consumer lifestyle
 Independent power generation and effective resource use
 Got cost saving of € 40 Mil by Substantially invested € 21 Mil to reduce energy
consumption
 Intended to produce as much renewable energy as the total energy it consumed
 Improving people's / labors’ working conditions, protect labor rights and prevent child
labor
  Speeding up transformation in the power sector

SUSTAINABILITY: Core Business Strategy & Driver of Growth

 The People and Planet Positive sustainability plan by IKEA Group completely alters the
organization's goal and vision.
 A welcome switch, a modification that furthers its current goal of offering reasonably
priced furniture.
 IKEA will be able to establish a strong market position and increase consumer awareness
with the aid of this long-term strategy.

(b) Is the plan likely to help the company transform its business? Are the plan’s targets
too limited, appropriate, or too ambitious?

Solution:

Yes, the strategy is likely to aid the corporation in changing its operations which are as
follows:

 It plays in the niche market for both and is probably the market leader in that niche
 It offers both economical solutions as well as sustainable products.
 Additionally, through seeking additional raw materials, improving relationships with
customers and value chain participants, and maintaining a better supplier base
 The combination of the two tactics also results in an overall gain in productivity
 The plans call for significant modifications, thus they are highly ambitious. The
effectiveness of their efforts determines the company's profitability.

IKEA had emphasized three main change agents:

 Motivating customers to live sustainably and involving them in the process.

 Pursuing energy independence from resource dependence.
 Being a leader in advancing better living conditions and workplace labor rights.

 The CEO established a new vertical, and the Chief Sustainability Officer joined the
GMO.
  Although challenging, it is a move that is beneficial for the company's long-term
survival.

Question No 2: How do you feel about the progress IKEA Group has made
implementing this plan?

Solution:

 For implementation of said plan IKEA created a group named as Sustainability Group
that comprises on four teams, who worked with the operating units to implement their
people and planet sustainable plan. Nearly 500 people at IKEA were directly accountable
for implementing various aspects of this plan.
 Senior management intended to achieve approximately half of its growth targets by
expanding sales at existing stores and the remaining by opening 200 new stores, primarily
in emerging markets in which the company had much lower penetration.
 Planned to achieve this by sales growth at their existing stores and by opening new stores
that would boost the number of stores from 303 in 2013 to 500 throughout 2020.
 IKEA wanted to alter every part of the business' value chain with its People & Planet
Positive Strategy.
 By 2020, the firm wanted to produce quite so much renewable energy as it used for
operations. By 2012, it had already achieved one-third of this objective.
 Advisory board was tasked with wanting to hold IKEA accountable as well as
challenging and empowering the organization on strategic sustainability issues.
 People & Planet Positive advisory panel would include board level representatives from
important development and environmental NGOs, including World Resource Institute.
 Nearly 500 individuals at IKEA Group were directly responsible for implementing
various aspects of the company's sustainability objectives.
 Up from 54% in 2008, IKEA's 90 auditors completed 917 audits and cleared all the
company's suppliers for home furnishings.
 "IWAY is a business discipline as well as an auditing framework," Suppliers are no
longer able to provide the IKEA Group if they decide not to maintain compliance. We
incorporate IWAY into the business and ensure suppliers' compliance by placing internal
 auditors in every aspect of the company. Suppliers who did not adhere with IWAY were
eventually phased out.
 "We were able to adopt a step-by-step strategy that has led to greater standards from
across supply chain by collaborating with suppliers on the IWAY Foresting Standard,
providing a new baseline of what we believe as being more sustainable wood."
 By the end of 2013, the company's sourcing had achieved 32.4% from More Sustainable
Sources, comprising of 28.4% FSC-certified wood as well as 4% recycled material.
IKEA pledged to achieve 50% of wood from the more Sustainable Sources by 2017 and
100% by 2020.

Question No 3. How does IKEA’s sustainability strategy align with its business
model? What are the overlaps? What are the conflicts?

Solution:

Sustainability and IKEA’s Business Model:

IKEA is a retailing company that specializes mostly in furniture; therefore, its sustainability plan
fits with its business model. The business is greatly depends on forests as their primary resource
because most of their furniture is made of wood, and most of these woods are owned and
managed by outside parties. In the worldwide retail as well as consumer goods sector, the IKEA
Group is also one of the biggest consumers of lumber. There are drawbacks to using resources
from the forests, including deforestation, severe disruption of the lives of those who live nearby,
and loss of biodiversity. The primary cause of both the reduction in long-term wood supply and
global climate change is recognized to be deforestation. As a result, IKEA's People & Planet
Positive approach is in line with its concerns about sustainability.

Overlaps and Conflicts:

IKEA’s group CEO and President were confident that there would not be any conflict between
growth of their company and sustainability targets. However, among the areas where their
strategies overlap and conflicts in execution are as follows:
  To offset the high fixed expenses of the lease to manage the forest property, the IKEA
Company would need to make additional capital investments.
 Leasing forestland necessitates thorough forestry planning and management because the
IKEA group's contract may supply 1–5 years of wood.
 Additionally, they must be capable of selling the goods manufactured from their wood,
including the leftover material, which is frequently very difficult to sell.
 Clear-cutting, or the consistent removal of every tree in a square of forest, is required by
Russian law, where IKEA obtains 20% of its wood. This method is incompatible with
sustainable forestry methods.
 Concerning the length of the forest rotation period, it may be unclear when the business
will be able to gain from managing forest lands responsibly. After being harvested, a
forest needs a certain amount of time to regenerate. This time frame might go beyond the
lease duration. For instance, the lease period in Russia usually 49 years, although the
length of the forest may be between 50 and 60 years or 70 and 80 years.
 Particleboard production capacity development requires a sizable initial investment in
nations like China and India that have low particle board demand or markets.
 IKEA may need to make a significant expenditure to use recycled wood because few
nations have the infrastructural or regulatory framework in place for the collecting and
shipping of discarded wood.

Question No 4: Which option(s) should IKEA Group pursue to address IKEA’s Wood
Supply Chain sustainability? Which has the highest leverage for IKEA?

Solution:

IKEA's first "CSO," Howard, founded the people and planet ideology as well as its efforts to
reduce the use of natural products (most especially wood), that aims to get/produce a different
material to reduce the impact that their product process of production has on the environment.
Sustainability is crucial to IKEA's production and distribution cycles, as well as their stores.
Such a choice has a significant impact on costs, the length and nature of the process of
production, and not to mention the kind and quantity of labor required. Although change within
such a large industry is never simple to manage, some changes have proven to be more effective
and productive, such as the decision to switch to LED bulbs in 2016. IKEA has immersed itself
in the idea of sustainability as well as the "people planet" worldview, integrating these ideas into
every step of the creation from every IKEA product as well as its environs. IKEA is a well-
known corporation; therefore, it goes without saying that it has many suppliers since the need for
every single product they create is so great that it has had some unintended negative impacts on
the environment.

The worries were outlandish because some of the materials, like wood, had a direct impact on
several other issues, one of which is obviously impacting biodiversity and indeed the ecological
process because such procedures led to deforestation, which meant eradicating the natural
diversity. To focus on the subject at hand, there are many suggested solutions provided in the
case, but there are still a few minor adjustments that might be made to reach a conclusion or
choice.

Per Bergen first suggested that IKEA may own greater forests as a possibility, however the terms
as well as restrictions the company originally established may not entirely support that
suggestion. Although it might open a few new possibilities, no firm wants to deal with the
operating expenditures that come along with it, not to mention the extra duties that come along
with it. Another difficulty being that it takes ten years to create the desired amount of wood, thus
it is not something that can be significantly rely on.

Another alternative is promoting higher procurement standards and targets, which included using
more recycled wood, a riskier move, for instance, when calculating the quantity of FSC wood
required to meet its 2017 50% target of more sustainable sources. Clarifying this will mean that
their goal might, in some places, achieve 100%. These regions, for example, had a combined
score of 20% of their wood bought from IKEA. Nevertheless, such action would be sending a
clear signal to IKEA's customers about just how IKEA concerns about sustainability. Even
though many successful programs and efforts have been made in the past (such as the 11 projects
started with the WWF in 2002), which in 2013 were declared to be a sum of more of about three
hundred million hectares of forests, having the above flexibility in resources still doesn't mean
that the problem is solved as this land's wood could be easy to sell to any other competitor,
making it an unguaranteed source.

Thirdly, there is the concept of employing particle wood, an artificial or engineered substitute for
wood. Particle wood is created by combining wood fibers and particles, linking them with wood,
and is frequently surrounded by a thin layer of genuine natural wood. Furniture is the main
product that uses particle wood. Additionally, since a tree log yields much more particle wood
than solid wood, using particle wood instead of genuine wood will significantly reduce IKEA's
use of wood. Since IKEA invented a new lightweight form of particle wood that is 30% less
dense than the standard particle wood, the company has made the necessary shift, and by 2013,
more than 45% of the wood that IKEA sourced was particle wood. This reduces costs associated
with both transportation and consumer costs. Consumers who disagree with the decision to
embed particle wood in products believe that doing so degrades the product's quality and renders
it somewhat less desirable or even unworthy. These consumers are most frequently found in
Asia, particularly in China and India, where the decision to embed particle wood in products was
made.

Finally, the concept of gathering recycled wood and concentrating on raising its percentage from
4% (as indicated in the year 2013) to 10% by 2020. Recycled wood has a significant cost
advantage than particle wood in some regions, but it is difficult to gather because some nations
lack the infrastructure to do so (India is one of these). It is also difficult to transport and requires
a little bit more work, which may need investment.

As a result, and based on our own perspective, we believe that the use of particle wood and
increasing its usage percentage is a much better option because it covers nearly all factors and
satisfies the majority of demand, is less expensive for consumers to purchase, as well as being
less costly to transport because of its lower density and weight, and finally but certainly not least
is more effective and reduces the quantity of wood and logs required. Moreover, Wood sourcing
constituted a key lever that IKEA group could use to increase its positive impact on suitability.