BMG918 (CRN 50220) MSc Business Development and

Innovation
Department of Management, Leadership and Marketing.

Student Name:
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Date of Submission:
Module Coordinator: Prof. Michael Brennan
Wordcount (Part 2 – Innovation and Development.): 3089 words
Table of Contents
1. Context 3
1.1 Introduction 3
1.2 Importance of sustainability in today's business environment 3
1.3 IKEA's current sustainability initiatives 4
1.4 Relevance of circular economy principles 4
2. Theory 5
2.1 Innovation theories and their application 5
2.2 How IKEA's adoption of circular economy principles aligns with innovation theory 6
2.3 How IKEA has applied innovation theory to its sustainability initiatives 6
3. Change 7
3.1 Identification and analysis of different trends in the furniture retail industry 7
3.2 How these trends impact IKEA's operations 7
3.3 Sources supporting the identified trends 8
3.4 Potential risks and opportunities associated with these trends for IKEA 8
4. Development 9
4.1 Potential strategies for IKEA 9
4.2 Specific actions IKEA Could take 10
4.3 Evaluation of the expected outcomes and challenges 11
4.4 Reflection on the implications of IKEA's circular economy 11
5. References 12

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1. Context:

1.1 Introduction:

Ingvar Kamprad established the furniture retailer IKEA in 1943, and today it is a major player
in the world economy. Due to their distinctive business model and emphasis on
sustainability, they have gained notoriety. According to IKEA Group Facts and Figures 2021,
the company serves millions of clients worldwide, with 445 locations spread across 52
countries as of 2022. Their €44.6 billion in sales in FY2021 [IKEA Group Financial Summary
FY21] further cemented their leadership in the industry. Stated differently, a significant
portion of the furniture market is dominated by IKEA.

Several things spring to mind. First, there is the actual furniture they have. IKEA offers self-
assembly, flat-packable furniture in addition to other furnishings (Kümpel et al., 2018).
Although this may seem strange, avoiding sending by air lowers shipping costs and benefits
the environment. Furthermore, it facilitates the process of bringing that new bookcase
home, particularly if you depend on public transit. However, it goes beyond just cutting
costs. IKEA understands that consumers demand functional, fashionable furniture at an
affordable price, and they succeed in meeting that need (Hansen et al., 2020). IKEA has
developed a devoted fan base and stayed ahead of the curve in a cutthroat industry thanks
to their customer-focused approach. IKEA is a pioneer in the furniture industry's use of
sustainability. By 2030, they want all of their products to be made entirely of recycled or
renewable resources (IKEA Sustainability Report FY21, 2021). That's a significant pledge and
demonstrates their concern for the environment. Along with striving to improve the energy
efficiency of their whole business, they are also investing in renewable energy sources like
solar and wind power (Henriksson et al., 2021). Thus, the next time you assemble that IKEA
bookcase, you can do it with the knowledge that you're helping a business that's kind to the
environment and your pocketbook.

1.2 Importance of sustainability in today's business environment:

sustainability is a make-or-break concern for the majority of businesses, but in the past it
was an afterthought. Sustainability needs to be a company's top focus if it is to remain
relevant and competitive. This is particularly valid for a multinational behemoth like IKEA.

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More than ever, customers are concerned about the environment. An astounding 71% of
consumers worldwide, according to a McKinsey report (McKinsey report, "Sustainability's
strategic worth: McKinsey Global Survey Results," 2020), take this into consideration when
making decisions about what to buy. It's a significant portion of the market that IKEA cannot
afford to overlook. IKEA can enhance their brand image, draw in eco-aware consumers, and
ultimately save money by adopting sustainable practices. Not only is sustainability beneficial
to the environment, but it may also benefit businesses. Furthermore, it completely fits with
IKEA's long-term objectives and basic beliefs. Prioritizing sustainability in a market that is
changing quickly can spur innovation, increase productivity, and ultimately help IKEA
succeed in the long run.

1.3 IKEA's current sustainability initiatives:

IKEA practices sustainability not merely by talking the talk but also by doing it. Throughout
their whole company, they have started a number of interesting projects to combat climate
change and achieve their lofty objectives. Being totally climate positive by 2030 is one of
their main objectives. In other words, they aim to absorb more carbon from the atmosphere
than they release (IKEA: climate positive aims, 2019). It's going to be really difficult, but IKEA
has a strategy. They're pushing for more environmentally friendly ways to transport their
goods, investing in solar and wind power, and upgrading the energy efficiency of their
facilities and retail spaces. IKEA is not going to stop there. They also have environmentally
friendly product lines, such as furniture constructed from wood from sustainably managed
forests and an initiative to support moral cotton cultivation (IKEA, 2021). These initiatives
demonstrate IKEA's commitment to sustainability and appeal to consumers who are
becoming more conscious of their environmental impact. IKEA has the potential to
significantly impact the environment by implementing these actions. Not only are they
tidying up their own act, but they're also encouraging the rest of the furniture industry to do
the same.

1.4 Relevance of circular economy principles:

I've read that IKEA places a high value on sustainability, and they seem to be a great fit for
the circular economy, According to the Ellen MacArthur Foundation (2019), it's a method
that essentially eliminates waste by reusing resources repeatedly. It all comes down to

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decreasing waste, recycling and reusing materials, and extending the life of items. This
strategy is perfect for IKEA's objectives. IKEA should reconsider their whole business plan to
become more effective and sustainable by embracing the circular economy. They might
create long-lasting furniture with recyclable or renewable materials, and they could even
make it simpler for customers to recycle, fix, or revitalize their old IKEA items. The good
news is that companies can gain from the circular economy in addition to the environment.
By relying less on scarce materials, IKEA may save money and have a smaller environmental
effect. Additionally, by providing furniture rental or resale services, companies might open
up completely new revenue sources.

2. Theory:

Innovation theory is essentially concerned with how companies may stay ahead of the curve
in this constantly changing environment by generating new ideas, implementing them, and
utilizing cutting-edge technology. To put it briefly, it's about being imaginative,
experimenting, and changing. Companies that prioritize innovation are better at anticipating
client needs, staying abreast of technological advancements, and observing market trends.
In the end, all of this produces better outcomes. Innovation theory, however, suggests that a
company's culture must embrace new ideas, have strong leadership, and have everyone on
the same page in order for innovation to be successful. It takes more than just having an
epiphany to implement a plan and ensure that it is advantageous to the whole organization
("The Innovator's Dilemma," 1997).

2.1 Innovation theories and their application:

IKEA's success story is a shining example of innovation in action. Let's talk about disruptive
innovation, which is when a business upends the industry with a completely new concept
that ultimately changes the game. IKEA did this with their furniture; forget about the heavy,
expensive furniture sets of the past; instead, they introduced flat-pack furniture that you
assemble yourself. This may seem like a little tweak, but it was a game-changer ("The
Innovator's Dilemma," 1997). IKEA reduced expenses and paved the way for reasonably
priced mass production by creating furniture that is simple to carry and assemble at home.
This invention revolutionized the furniture market and established IKEA as a household

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brand. By providing something wholly unique to the market—convenient, reasonably priced
furnishings for everyone—they upended the established market (Dharmawan et al., 2019).

Open innovation is one strategy. This means that IKEA collaborates with suppliers, designers,
and even customers to generate ideas and create new items rather than merely depending
on their own (Chesbrough, 2003). Together, they can create innovative furniture and
solutions that take into account sustainability while still addressing what consumers actually
need and want. Speaking of sustainability, IKEA excels in this regard as well. Sustainable
innovation is a notion that focuses on inventing new products and services that benefit the
economy, society, and environment (Schaltegger et al., 2016). One excellent illustration of
this is IKEA's dedication to minimizing waste, conserving resources, and producing long-
lasting furniture. A significant component of their sustainable innovation approach is their
adoption of the circular economy, which emphasizes the reuse and recycling of resources
rather than their disposal (Ellen MacArthur Foundation, 2019).

2.2 How IKEA's adoption of circular economy principles aligns with innovation
theory:

Making the most of resources and minimizing trash going to landfills are the cornerstones of
the circular economy. This is a fantastic match for IKEA's furniture philosophy (Kirchherr et
al., 2017). They create long-lasting furniture that can be recycled at the end of its useful life
and utilized again by another person. Consider their well-known modular furniture, they are
utilizing an increasing amount of recycled materials in their goods and offer programs where
you may return your old IKEA furniture. Not only is this circular strategy environmentally
friendly, but it is also wise commercial practice. IKEA optimizes operations and saves money
by cutting waste and making better use of resources. It also helps them stand out from the
competitors. Customers that care about the environment appreciate that IKEA is thinking
green, and this helps the company expand in a cutthroat industry (Lacy et al., 2015). IKEA is a
prime illustration of how innovation theory can result in profitable business models and
sustainable practices.

2.3 How IKEA has applied innovation theory to its sustainability initiatives:

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Consider their LED lights, for instance. This product wasn't merely novel; rather, it
completely revolutionized the lighting sector. Energy-efficient LED bulbs from IKEA helped
consumers save money and the environment by consuming less energy (IKEA, 2021). That's
the epitome of disruptive innovation. IKEA is aware of the importance of cooperation. To
take on difficult sustainability challenges, they collaborate with social entrepreneurs and
NGOs (think non-profit organizations) (IKEA, 2021). They're essentially stating that "two
heads are better than one" when it comes to coming up with solutions for fair pay and
ethical sourcing, which is a great example of open innovation. IKEA is dedicated to more
than simply relationships and lightbulbs. They are creating furniture that is both aesthetically
pleasing for your house and environmentally friendly (IKEA, 2021). Reusing materials rather
than throwing them away is the foundation of a circular economy, which emphasizes
sustainable design and production.

3. Change:

3.1 Identification and analysis of different trends in the furniture retail

industry:

First, environmental awareness and social responsibility are growing among people. Their
preferences are for environmentally friendly and ethically produced furniture (McKinsey
Global Survey Results, "Sustainability's strategic worth," 2020). Secondly, our lifestyle is
evolving. Families are becoming smaller or older, and more people are relocating to cities.
This means that consumers require multipurpose furniture that fits into smaller places
(Henderson et al., 2021). Given the increasing popularity of online shopping, furniture
manufacturers must make it simple for customers to shop from home. Retail furniture is
being significantly impacted by technology. Imagine having a computer program anticipate
how much stock a retailer needs to have on hand, or using your phone to see how a new
couch would appear in your living room. The game is being changed in a number of ways by
artificial intelligence, virtual reality, and other technological instruments ("Digital Furniture
Market - Growth, Trends, and Forecast," 2022).

3.2 How these trends impact IKEA's operations:

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Regarding sustainability, IKEA's dedication to sustainability is propelled by consumers'
demand for eco-friendly furniture (IKEA, 2021). They are concentrating even more on
employing renewable energy, reusing products, and circularizing their entire operation.
Stated differently, their goal is to extend the life of resources. These days, customers are also
purchasing in different ways. They want a seamless online and in-store buying experience
because they enjoy how simple it is to shop online. IKEA recognizes this and is investing in
digital marketing, e-commerce, and ensuring seamless integration between their online and
physical locations (IKEA, 2021). Regarding furniture, there are new regulations that are more
tougher in regards to environmental issues and product labeling [Ellen MacArthur
Foundation, 2019]. Although it could appear like a barrier, IKEA sees it as a chance to
innovate. To satisfy these new requirements, they're reevaluating the way they create,
procure, and design furniture.

3.3 Sources supporting the identified trends:

There has been a lot of research done on these furniture business trends, so they are not
merely conjecture. For instance, a McKinsey study (McKinsey report, "Sustainability's
strategic worth: McKinsey Global Survey Results," 2020) revealed that an astounding 71% of
individuals worldwide take social responsibility into consideration when making purchases.
IKEA is paying attention to the large number of clients who are searching for furniture that is
environmentally friendly, The way that technology is transforming furniture shopping is also
being covered by trade journals like "Digital Furniture Market - Growth, Trends, and
Forecast" [Digital Furniture Market - Growth, Trends, and Forecast," 2022]. They forecast a
significant increase in digital marketing and online furniture sales. Academic studies are also
making an impact. Research on the circular economy and its applicability to furniture has
been published by the Ellen MacArthur Foundation [Circular Economy in Cities, 2019]. This
strategy is all about conserving resources and generating less waste, which is exactly in line
with IKEA's dedication to sustainability.

3.4 Potential risks and opportunities associated with these trends for IKEA:

IKEA's emphasis on sustainability pays off twice. IKEA is already offering eco-friendly
furniture, which is something that more people are yearning for. IKEA is able to differentiate
itself from competitors and demonstrate their concern for the environment with this trend.

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Additionally, it gives IKEA access to a whole new market of environmentally concerned
consumers, which will ultimately boost sales and strengthen the company's brand (IKEA
Sustainability Report FY21, 2021). However, everything isn't sunshine and rainbows. It can
be costly to make sustainable furniture, and it can be challenging to stay on top of all the
current environmental laws. IKEA must carefully manage its investments to ensure that its
sustainability initiatives benefit both the environment and its financial performance. In order
to prevent penalties or harm to their reputation, they must also keep up with evolving legal
requirements and industry standards. Basically, as stated in the (IKEA Sustainability Report
FY21, 2021), the company needs to do more than just talk the talk. Despite certain obstacles,
IKEA is well-positioned to benefit from the rising demand for digital shopping and ecological
furniture. IKEA can maintain its position as a market leader in the furniture sector by making
investments in environmentally friendly operations and staying current with emerging
trends.

No longer is IKEA the only store in town. There are more furniture retailers and internet
retailers than ever before. The rivalry is intensifying, and in order to maintain its lead, IKEA
must raise its game. The way that people shop has also evolved. Customers now demand a
flawless experience whether they're shopping in person or surfing the web, all thanks to
technology. IKEA must make technological investments and ensure that its physical and
virtual stores operate seamlessly together. To keep clients interested, they must also never
stop inventing and coming up with fresh concepts. Their reputation is built on their excellent
designs, reasonable costs, and dedication to sustainability. IKEA may maintain its position as
a market leader in the furniture sector and attract new clients by emphasizing these benefits
and providing excellent in-store and online shopping experiences.

4. Development:

4.1 Potential strategies for IKEA:

Creating long-lasting furniture design: Imagine a piece of furniture that is easily

reconfigurable, expandable, composed of recycled materials, and easily recyclable when its
time comes to an end. As a result, their products last longer and fewer resources wind up in
landfills (Kirchherr et al., 2017). Imagine comfortable seats made from recycled plastic
bottles or movable shelves that can be adjusted to suit your needs.

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Developing closed-loop systems: IKEA can take back, refurbish, and resell furniture rather
than having it wind up in a landfill. This lowers trash, generates a completely new source of
income, and clients adore the environmentally responsible solutions. 2019; Ellen MacArthur
Foundation. Imagine receiving a discount on a new couch from IKEA while revitalizing your
old one.

Together for a greener future: It benefits all parties to collaborate with manufacturers,
suppliers, and recycling facilities. Together, they can eliminate waste at every stage of the
process, develop more creative methods to use the materials, and produce even more
inventive ideas [Hobson, 2020]. To build a more sustainable future for all, cooperation is
essential.

4.2 Specific actions IKEA Could take:

IKEA could take the lead in circular design in the future, One idea is that they may establish
dedicated design teams whose goal would be to make each new product as environmentally
friendly as possible. When a product's life was coming to an end, these teams would come
up with ideas for using materials that are simple to recycle. They could also create furniture
that is easy to disassemble and reassemble, and they could simplify repairs. Fortunately,
Hansen et al. (2021) report that IKEA has already achieved a balance between affordability
and trendy designs.

Encouraging customers to return unwanted furniture and other items would be a great way
for IKEA to raise their environmental game. IKEA could invest in fancy recycling facilities and
tech to streamline the process, so instead of all that old furniture filling up landfills, just drop
it off and they'd take care of the recycling. Additionally, in order to make it win-win, they
might collaborate with trash management and recycling firms. With fewer trash in landfills
and IKEA achieving their sustainability targets, everyone is pleased. According to reports,
IKEA could be able to recycle even more and extract even more value from that used
furniture if they had access to state-of-the-art sorting technology and efficient
transportation. As of 2019 (EU Environment Agency).

IKEA has significant purchasing power, which they could definitely use to their advantage!
Consider the scenario in which they informed their vendors, not only would this benefit the
environment, but it would also make IKEA an excellent partner for any provider looking to

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project a green image. IKEA and its suppliers might collaborate to continuously increase their
environmental friendliness. We're talking about environmentally friendly production
techniques, more intelligent delivery systems, and sourcing materials from ethical suppliers
(Kirchherr et al., 2017).

4.3 Evaluation of the expected outcomes and challenges:

Being environmentally friendly benefits not only the environment but also IKEA
financially. Adopting the "circular economy" approach can help them reduce waste, resource
consumption, and environmental impact—all positive things. Research conducted in 2019 by
the EU Environment Agency demonstrates that this can also result in increased productivity,
creativity, and even new revenue streams for IKEA Hansen et al. (2021). Making the
changeover to this circular approach could need some work. They and their suppliers may
also need to modify their mindsets in order to adapt to changing regulations and
technological advancements. Obstacles are merely stepping stones. IKEA can turn them into
opportunities by putting an emphasis on innovation, continuous development, and strong
departmental collaboration (Kirchherr et al., 2017).

4.4 Reflection on the implications of IKEA's circular economy:

Not only is IKEA leading the furniture business in innovation, but they are also innovating for
themselves. IKEA is demonstrating to the world that ethical and ecological business practices
are not only feasible, but also beneficial to companies by adopting the circular economy
(Hobson, 2020). They are leading the industry as a whole toward a future that is more
resilient and sustainable, much like a lighthouse. There are cascading effects when IKEA
promotes circular design. Other businesses are motivated to adopt it after realizing how
successfully it functions. Within the industry, cooperation is encouraged by this type of
leadership. Enterprises begin exchanging information and collaborating to discover even
more sustainable business practices (EU Environment Agency, 2019). IKEA is pushing the
circular economy in ways other than furniture. It's about creating a more promising future
for all. IKEA is setting the standard and fostering the development of a more just and
sustainable economy for future generations (Hansen et al., 2021).

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5. References:

1. "Circular Economy: Towards a Sustainable Future." (2019). European Environment

Agency. Retrieved from Circular economy (europa.eu)

2. "Circular Economy in Cities: Evolving the Model for a Sustainable Urban Future."
(2019). Ellen MacArthur Foundation. Retrieved from The Circular Economy in Cities:
resources suite (ellenmacarthurfoundation.org)

3. "Digital Furniture Market - Growth, Trends, and Forecast." (2022). Mordor

Intelligence. Retrieved from Furniture Market Size & Share Analysis - Industry
Research Report - Growth Trends (mordorintelligence.com)

4. "IKEA Circular and Climate Positive Strategy." (2022). IKEA. Retrieved from Circular &
Climate Positive - IKEA

5. "IKEA Group Facts and Figures 2021." (2021). Retrieved from IKEA grows again in
FY21 – IKEA Global

6. "IKEA Group Financial Summary FY21." (2021). Retrieved from

https://about.ikea.com/en/investors/financial-summary

7. "IKEA Group Sustainability Strategy for 2030." (2023). IKEA. Retrieved from Our
sustainability strategy for 2030 - IKEA

8. "IKEA Sustainability Initiatives." (2022). IKEA. Retrieved from IKEA Sustainability

Report FY22 – IKEA Global

9. "IKEA Sustainability Report FY21." (2021). Retrieved from IKEA Sustainability Report
FY21 - IKEA Global

10. "IKEA: climate positive targets." (2019). IKEA. Retrieved from Our climate agenda –
IKEA Global

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11. "IKEA’s strategy for becoming the world’s most successful retailer." Kümpel, T.,
Stumpp, M., & Vöpel, H. (2018). Wirtschaftsdienst, 98(11), 774-781.

12. "Sustainability's strategic worth: McKinsey Global Survey Results." (2020). McKinsey
& Company. Retrieved from
https://www.mckinsey.com/business-functions/sustainability/our-insights/
sustainabilitys-strategic-worth-mckinsey-global-survey-results

13. "Sustainability's strategic worth: McKinsey Global Survey Results." (2020). McKinsey
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https://www.mckinsey.com/business-functions/sustainability/our-insights/
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