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Corporate Social Responsibility Of IKEA

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Question:

Discuss about the Corporate Social Responsibility of IKEA.

 

Answer:

Introduction

Corporate Social Responsibility means those business practices which involve initiatives that result into some benefits to the society. CSR of any business can encompass variety of tactics from changing the company’s proceeds related to charity and work to implement business operations that are greener (Caramela, S, 2016). CSR is becoming more main stream as it helps the company to think forward and maintain sustainability into the core of their business. CSR may not provide immediate benefits to the company but it surely promotes positive environmental and social change (Paetzold, K, 2010). It is just a broad term to describe the efforts of a company to improve the condition of the society.

In this report the Corporate Social Responsibility of IKEA is discussed to know the importance and challenges that takes places at the time of implementing such practices. The Swedish company termed as a furniture giant is a company that is based on value services. This company has received an acclaim both in Sweden and abroad because of its bad CSR policies. The most striking thing is that despite of its aggressive focus cost cutting, it comes under a leading company when related with the CSR issues. IKEA is interested in promoting cheap products and it becomes difficult for other companies to integrate their business activities with IKEA.

Economical Responsibility

The first criterion of corporate social responsibility is the economic responsibility (Schwartz, M, 2011). IKEA is engaged in providing products and services that societies seek, in order to maximize profit for the owners and shareholders of the company (Ikea.greentechab.com, 2015). Milton Friedman who is a Nobel economist proposed that now the economic responsibility is considered to be a profit maximization responsibility for IKEA. This says that the company should operate on a profit oriented basis with a mission to enhance the company’s profit. In general, the profit making goals of the company is not considered to be an inadequate criterion of performance. The company treated economic gain to be a social responsibility and this is what brought troubles for the company.

 

Ethical Conduct of IKEA

The vision of IKEA is to create a better life for many people. The business supports this by providing a wide range of home furnishing products at a lower price that are well designed so that people can afford them and fulfil their needs. The company is focusing only in making profits and forgets to maintain an ethical balance of their business activities. IKEA was recently exposed of practicing unethical practices (Wadsworth, M, 2015). The suppliers use exploitative child labour and also involved in illegal logging which has the potential to destroy protected forests. IKEA has always been a part of ethical controversies since its early days. Recently the company has been investigated for promoting child labour.

Discretionary Responsibility

Discretionary responsibility means voluntary contribution made by the organization to make social contributions which are not mandated by ethics, economic and laws. This kind of activities generally includes philanthropic contributions that are truly generous and offers no payback to the company and could not even expect so.  It is one of the highest criterions of CSR as it is beyond the expectation of the society that can contribute to the welfare of the society. IKEA should understand the interest of various groups who are associated with the business such as of the shareholders, customers, employees, creditors and the suppliers. IKEA products are manufactured under working conditions that is acceptable. It also deals in products that are sold for low price so that general public can accomplish their desires. This group of company strongly believes that healthy, safe and non discriminating conditions are prerequisites for conducting business (Ukessays.com, 2015). IKEA owns a special code of conduct that solves the queries of suppliers and promotes smooth functioning of supply chain in the company. IKEA should ensure the compliance of laws and policies enforced by the government, and to avoid the influence of politics in its conduct.

IKEA believes that consideration of responsibility for the environment and society in its business conduct is mainly for the sustainability of the business. It has many managers who are working constantly to fulfil its social and environmental responsibility. There are a number of specialists who covers a wide range of areas to support IKEA’s business activities, such as foresters, chemical experts and energy experts.

Sustainable Plan for IKEA to Improve its Social Responsibility

IKEA has been practicing some form of corporate social and environmental responsibility having a broad goal that simply contributes to the well being of the society. Despite of this there is an increasing pressure to modify their CSR process so as to create business discipline and to fulfil demand that is usually initiated in delivering business activities. Too much of want to promote CSR sometimes shifts the main focus and goal of the company. Therefore to avoid such problems it is essential to develop an efficient CSR plan so that IKEA can maintain a balance between the objectives of the company and to serve the society and community. Even if IKEA embrace the broad vision of CSR, due to poor coordination and lack of logical connection they get hampered. The internal managers of IKEA should actively engage themselves to develop the CSR programs in a coordinated way.

IKEA can maximize the positive activities on the environmental and social systems in which they operate. According to the research the geographic and business spectrum states that the company has three types of practice.

 

Focusing on Philanthropy

It is not designed to produce profits or simply to improve business performance. Like donation of money, engagement with community initiatives, equipment to civic organizations and to support the volunteering by the employees.

Improving Operational Effectiveness

The business model of the company should deliver environmental and social benefits to support the business operations in the value chain to improve the efficiency and effectiveness in the conduct. IKEA should realise their responsibility towards the society and should take initiative to reduce the uses of resources that is to make optimum utilization of the resources as it may result in a favourable situation by reducing the cost. The employee working conditions should be improved, there should be some investment made by the company for health care and education of their employees who can gain some knowledge about the ethical practices and social responsibility. IKEA can enhance its productivity and also increase its reputation by improving their operational effectiveness.

Transforming the Business Model

IKEA should form new form of business keeping in mind various social and environmental challenges that can also bring improved performance. There is always a requirement of initiative in the business, therefore by taking certain initiatives the company can reorganize their conducts and activities that are socially and environmentally improved.

In terms of their suppliers, IKEA should develop a number of standards to maintain an ethical code of conduct among its suppliers. It is an urgent need for IKEA to make their suppliers realise that they should not use forced or child labour. The suppliers should among themselves assign one or more person who should be responsible to take care of such unethical practices (Larsen, T, 2007). The suppliers of IKEA shall also comply with the internal audit of every 12 months.

Working conditions is another area which requires improvement in IKEA. Among the set standards limit the working hours of labours up to 60 hours per week. The forestry standards should ensure that the suppliers are not using the wood that has been obtained from those forests that comes under the protected forests. It should establish certain provisions in this context. Suppliers should not source wood from those forests by making illegally harvests; suppliers should not engage themselves in any kind of forest related conflicts. Suppliers should not source wood from the Intact Natural Forests. The source from commercial genetically modified planted trees should be prohibited by the company. A supplier sustainability index should be made to ensure all these things (Johnsen, T, Howard, M and Miemczyk, J, 2014). 

 

Corporate Governance

Presently the corporate governance of IKEA is a serious issue. We all know that IKEA has pride of having a strong corporate responsibility, despite of this the company allowed the East German political prisoners to participate in the manufacturing of its furniture (Werther, W and Chandler, J, 2010). Even though this happened many years ago, but still this question arises whenever IKEA’s name is linked with human rights (Pedersen, E, 2015). It is a fact that the company promoted such illegal conduct and it creates a bad image for the company. IKEA should completely stay away from such practices if they want to maintain sustainability in their existence and to practice CSR effectively. Due to such commitments it becomes difficult for the company to implement plan to avoid such activities.

IKEA should keep its main focus on the quality of the product, as we know they offer products at a lower price (Edvardsson, B and Enquist, B, 2008).  But that doesn’t mean they can play with the quality of their products. There was a scandal that occurred in this company that the company was engaged in offering meatballs which was made of horse meat. After a serious investigation was disclosed that they imposition is true and the company had to suffer many lose. IKEA should promise quality products to the customers to create trust among them. IKEA’s structure is totally complex. The management structure should be redeveloped to solve this problem. As it a non- profit firm it is also being criticised of having such non-profit policies only to exempt from tax. IKEA should try to remove such allegations.

Advantages for Integrating Sustainability Portfolio into the IKEA’s Strategy

Over past years, sustainability has proved to be more important as compared to other objectives in an organization. Sustainability has business benefits when it is integrated with the operations of the business (Rogers, M, 2016). Some of the advantages for practicing CSR that can help IKEA to plan the strategy of the company are as follows:

Improved Brand Image and Competitive Advantage Over its Rivals

In a research it was developed that the customers strongly considers IKEA’s impact on the environment while making purchases from the company. The customers now want to know the social responsibility that the company is carrying and then make purchases (Stefanska, M, Nestorowicz, R and Stefaska, M, 2015). Now consumers favour those companies that are actively successful in supporting their communities and whether the company is doing well in doing well.

Increase Productivity

CSR practices in an organization while bring increase in productivity as it creates alertness and confidence among the employees to perform their task keeping in view the policies and rules that the company has implemented for its CSR policies.

Reduce Costs

Development of sustainability will certainly lead to efficient operation that can conserve resources and thus reduce cost (Werther, W and Chandler, J, 2010). Reduction in cost will encompasses conservation strategy related to the energy that can be done by simply turning lights off when not need and switch on when needed.

 

Attract Investors and Employees

IKEA should improve their CSR policies to attract more investors and employees. Usually people like to associate with the positive that too the younger generation who are very much concerned with the environmental protection issues these days (Smith, N, 2010). They only want to link with those companies who are free from such CSR issues and social welfare scandals. Therefore to attract young generation IKEA should start focusing on its CSR issues and try to develop new plane to solve such issues (Wolf and Ruth, 2014).

Make Shareholders Happy

Sustainability is not only associated with low costs, it can also bring profits. It was found out those companies having high ratings in environmental, governance and social factors have been successful in outperforming the market in both the medium and long term range. (Knudsen, B, Christensen, D and Blenker, P, 2014). It takes dedication and coordination to apply sustainability in the business activities.

Challenges Faced by IKEA

Some business has to face certain barriers in integrating sustainability and CSR in its general practices. IKEA has been facing all these challenges;

Senior Support

To become a sustainable business it is essential for the senior level management to support such CSR policies in order to maintain sustainability in its social practices and business operations (Mosher, M, 2016). The senior level governance should conduct meetings and discuss such problems on a regular basis. As they are the one who has to make responsibility decisions and initiate CSR policies.

Employee Engagement

It is important to initiate positive change that will help in bringing a greater success if the employees feel proud and if they keep themselves engaged in practicing such positive activities (Purrit, J, 2012).

Cost

Fundamentally, all businesses have been designed to enhance profit and make money (Idowu, S and Filho, W, 2008). Therefore, introducing initiatives that are sustainable in nature usually tends to cost a lot. It becomes a bit expensive to formulate and work on promoting CSR practices.

Metrics

A regulatory body can easily measure the effectiveness of any plan and practices. But without such regulatory body it becomes a way to difficult. It often becomes challenging as it tends to affect the society at macro level that cannot be quantified.

Suppliers

Supplier identification is another challenge that IKEA often comes across. It becomes to find suppliers who can match the business needs of the company. And it also becomes difficult to sustain value. Therefore it is time consuming and difficult.

Consumer Don’t Care

We know that consumers have purchasing power; they don’t communicate their desire for products that they want. There should be a change in the attitude of the consumers to maintain sustainability in social practices.

IKEA has a very strong reputation for offering low price for quality products. There is no doubt that this policy has helped IKEA to gain competitive advantage over their rivals. It should demonstrate a strong will and tendency to promote innovation, philanthropy and sustainability. The company is facing issues related to its unethical practices. There is a special investigation going on for such practices. IKEA should start obeying all the laws and practices that are applicable in the country for conducting business activities. Because of horsemeat scandal company is losing its reputation among their customers. By the initiatives that IKEA is taking we can say that the company might significantly be able to improve its CSR practices to achieve long term goals. IKEA should try to maintain a value based culture to monitor their operations in various different countries.

 

References

Caramela, S. (2016). [Online]. What is Corporate Social Responsibility? Viewed 8 October 2016 from https://www.businessnewsdaily.com/4679-corporate-social-responsibility.html

Edvardsson, B and Enquist, B. (2008). Values-based Service for Sustainability Business: Lessons from IKEA. Routledge.

Idowu, S and Filho, W. (2008). Global Practices of Corporate Social Responsibility. Springer Science & Business Media.

Ikea.greentechab.com. (2015). [Online]. Process. Viewed 8 October 2016 from https://www.ikea.greentechab.com/process

Johnsen, T, Howard, M and Miemczyk, J. (2014). Purchasing and Supply Chain Management: A Sustainability Perspective. Routledge.

Knudsen, B, Christensen, D and Blenker, P. (2014). Enterprising Initiatives in the Experience Economy: Transforming Social Worlds. Routledge.

Larsen, T. (2007). Managing the Global Supply Chain. Copenhagen Business School Press.

Mares, R. (2004). Business and Human Rights: A Complication of Documents. Martinus Nijhoff Publishers.

Mosher, M. (2016). [Online]. How to Really, Truly Integrate Sustainability into Your Business. Viewed 8 October 2016 from https://sustainability.com/our-work/insights/how-to-really-truly-integrate-sustainability-into-your-business

Paetzold, K. (2010). Corporate Social Responsibility: An International Marketing Approach. Diplomica Verlag.

Pedersen, E. (2015). Corporate Social Responsibility. SAGE.

Purrit, J. (2012). [Online]. Challenges to Being Sustainable, and How to Overcome Them. Viewed 8 October 2016 from https://www.environmentalleader.com/2012/08/14/challenges-to-being-sustainable-and-how-to-overcome-them

Rogers, M. (2015). [Online]. 6 Benefits of Becoming a Sustainable Business. Viewed 8 October 2016 from https://www.environmentalleader.com/2016/03/29/6-benefits-of-becoming-a-sustainable-business

Schwartz, M. (2011). Corporate Social Responsibility: An Ethical Approach. Broadview Press.

Smith, N. (2010). Global Challenges in Responsible Business. Cambridge University Press.

Stefanska, M,  Nestorowicz, R and Stefaska, M. (2015). Fair Trade in CSR Strategy of Global Retailers. Springer.

Ukessays.com. (2015). [Online]. Corporate Governance and Business Ethics of IKEA Commerce Essay. Viewed 8 October 2016 from https://www.ukessays.com/essays/commerce/corporate-governance-and-business-ethics-of-ikea-commerce-essay.php

Wadsworth, M. (2015) [Online]. IKEA exposed over ‘child labour’ and green issues. Viewed 8 October 2016 from https://www.the-latest.com/ikea-exposed-over-child-labour-and-green-issues

Werther, W and Chandler, J. (2010). Strategic Corporate Social Responsibility: Stakeholders in a Global Environment. SAGE.

Wolf and Ruth. (2014). Empowering Organizations through Corporate Social Responsibility. IGI Global.

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