Business Administration

Question

Q1 : How IKEA succeeded not only in implanting the sustainable cotton  but also helping local farmers care about the environment.

Q2: The initiative taken by many companies toward becoming environmentally sustainable one is not free of cost. What motivates Ikea to take this initiative? What are the consequences of ignoring and removing sustainability from their future strategies

Q3: How IKEA, views, anticipates and responds to emerging signals alongside global trends, risks and opportunities, and business challenges to inform its plans?

Q4: How sustainability supports IKEA strategy, creates value for stakeholders, moderates risk and makes business more resilient?

Answer

IKEA Case Study

Question 1: How IKEA succeeded not only in implanting the sustainable cotton but also helping local farmers care about the environment.

IKEA is a global group of companies operating in the retail industry and dealing in the design and selling of ready-to-assemble furniture like sofas, bed linen, cushion covers, and lamp shades. What all these products have in common is the use of cotton. It is in fact estimated that the company uses about 0.7 percent of the world’s cotton supply (Thorpe). It has contributed significantly to environmental protection while at the same time educating the local community farmers on the importance of sustainability. The company has invested heavily in sustainable cotton farming projects alongside some stakeholders like World Wide Fund for Nature (WWF), leading to the formation of Better Cotton Initiative (BCI).

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The production of sustainable cotton through BCI has led to numerous benefits for the company, cotton farmers, and the environment. For instance, it has transformed IKEA’s cotton supply chain leading to more profits. Similarly, the costs incurred by farmers when purchasing expensive pesticides and using chemical fertilizers have been reduced by 50 percent and 30 percent respectively. These benefits have not only helped local farmers but also the environment. Moreover, the low costs incurred by the farmers during the production of sustainable cotton has led to increased earnings, and this development offers strong motivation for continued production.

Question 2: The initiative taken by many companies toward becoming environmentally sustainable one is not free of cost. What motivates IKEA to take this initiative? What are the consequences of ignoring and removing sustainability from their future strategies?

IKEA’s need for sustainable resources its concern for environment has motivated it to take up the idea of sustainable production. Because the company’s operations are dependent on cotton, the need to embrace the idea of embracing sustainable practices seemed appealing (Thorpe). Environmental sustainability is one of the beneficial programs that companies have only recently started to embrace. It involves promoting sustainable systems that take into consideration both the wellbeing of human beings and compatibility with environmental protection. In IKEA’s case, investment in sustainable cotton farming was embraced as a step towards becoming an environmentally sustainable company.

Over the years, the company has invested so heavily in the production of sustainable cotton that it has gained recognition for the same. In turn, the efforts have become one of its main strategies for generating unmatchable profits. For this reason, removing sustainability from its future strategies would be a disadvantage in terms competitive advantages. The move would reduce the company’s appeal to some of its loyal customers. In turn, the progress that had been made in moving cotton farmers towards a more sustainable approach would stall.

Question 3: How does IKEA, view, anticipate and respond to emerging signals alongside global trends, risks and opportunities, and business challenges to inform its plans?

Companies that thrive on the use of farm products face a significant number of risks and challenges.  However, they also get access to numerous opportunities. To begin with, conventional farming forms one of the main business risks as it involves the use of genetically modified organisms (GMO), synthetic chemical fertilizers, and the massive water utilization through irrigation. Other risks associated with conventional farming methods include soil depletion, dropping water tables, and unpredictable weather conditions.

Upon the evaluation of the risks associated with conventional farming and its potential effects on retail operations, IKEA responded by investing in sustainable cotton farming. It is being driven primarily by the existence of these risks in its efforts to sensitize farmers on sustainable farming methods. By educating them, it hopes that the acquired information will be spread to the other farmers across the world to create environmentally sustainable products. This approach has enabled the company to attract more investors as it is compatible with both business objectives and the world’s quest for environmental protection. Additionally, it has led to business-friendly changes across the supply chain in a way that transcends basic tenets of direct involvement. In areas where sustainability projects have been introduced, farmers stand to derive increased profits from their work whether they sell their cotton to IKEA or not. In fact, it only bought about 20 percent of the sustainable cotton that farmers produced in 2013 (Thorpe). Evidently, the company has created space for other cotton users to contribute to the process of enhancing the tradability of sustainable cotton.

Question 4: How does sustainability support IKEA strategy, create value for stakeholders, moderate risk and make business more resilient?

Environmental sustainability supports IKEA’s strategy by ensuring that farming always remains profitable to farmers while simultaneously making IKEA’s products more affordable for customers. Using this approach, the company is not only improving its own supply chain but also transforming the market. One would expect cotton produced using sustainable means to be transformed into slightly expensive products. On the contrary, the sustainably produced cotton products are being sold at the same price as their conventionally produced counterparts.

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Moreover, the company has initiated pilot projects in two Asian countries, Pakistan and India, to help farmers with water preservation during irrigation especially in the water-scarce regions (Thorpe). This project not only creates value for the stakeholders but also makes the business more resilient in the face of changing environmental conditions such as soil depletion and extreme weather conditions. Therefore, by supporting sustainability in various countries all over the world and investing on the production of sustainable cotton, IKEA is bound to stay at the top of the cotton supply chain. Similarly, transferring to sustainably produced cotton will ensure the existing risks and challenges do not threaten the long-term profitability of cotton cultivation.

Works Cited

Thorpe, Lorna. “IKEA Makes 75% of Its Home Furnishings from Sustainable Cotton.” The Guardian. 30 April 2015. Web. 12 April 2016.