Listen to Steve Howard talk about principles, and he sounds like the Chief Sustainability Officer at Any Old Firm Plc. He ticks all the boxes. ‘For business today to be successful, it needs a clear purpose’. Sustainability at IKEA has moved from a ‘nice to do to a must do’. Our market driven global economy has been in ‘planetary deficit since 1980. There are three billion people coming out of poverty in 2030, which is great for them but a big challenge for us’. Rapid changes in both values and technology frame our world. The bar ‘for big brands is now set really high’. So far, so decent, so principled, so predictable.
It’s when the head of sustainability at IKEA starts to talk about what he and the company that he has worked for since 2011 are doing about these challenges, how they are putting these principles into action, that the triathlon-running Mr Howard starts to sound really exciting, and you can understand why the former chief executive of a leading environmental charity saw this as the job in which ‘I can maximise my personal impact’.
In the past, he explains, sustainability meant ‘expecting people to trade down’, to accept a worse quality product. Company sustainability reports were ‘deliberately printed on rough paper’, despite human beings having ‘spent years making paper better’.
“It’s paid off: a better quality product at a lower price has persuaded consumers to change their behaviour”
IKEA believes the opposite – that sustainability is about human progress, about making a better product for consumers at lower cost. For example, the company promised to stop selling old-style light bulbs by 2016, and switch to LED. It upped the manufacturing quality – its light bulbs are turned on and off 100,000 times during testing. Bulbs are now expected to last over 20 years. And it’s paid off: a better quality product at a lower price has persuaded consumers to change their behaviour, and last year within the space of a few weeks in July, customers in IKEA stores worldwide ‘flipped the market’, as LEDs won the argument.
Or consider an IKEA kitchen. It is guaranteed for 25 years. The kitchen drawers have been tested to open and close 200,000 times (this is not unusual – a 150kg weight is rolled across their mattresses 50,000 times). It is built to last. But it’s the level of detail in the design that makes the sustainable difference. First, IKEA worked out that solid wood doors were a waste of trees, as each log yielded too few kitchens. Then they considered that if you made a wooden door from particle board, you could vary the density of the wood in different parts of the door. Some parts, like the hinges and handle, required high-density wood – others, like the middle of the door, needed low density. Then consider that you could in parts replace the wood with a honeycomb of paper. The result is that IKEA can make four or five times as many doors from the same log, can reduce the cost of making that door and therefore the cost it charges the consumer, without compromising on quality.
Another example is flat packing, the ‘IKEA DNA’. This is not just a technique for torturing those unable to reassemble their coffee table upon getting it home. It is in fact part of a company-wide war on ‘sweet air’. This, it turns out, is not an industrial disease in confectionary factories, but the empty space that IKEA effectively pays to ship in containers, the gaps between products. So as the company ‘hates sweet air’ they have designed even their best- selling sofas so that they pack flat for travel, with the result that three times as many sofas can be fitted into the same cargo container. Over time, the company has effectively ‘tripled fuel efficiency for the whole transport process’. Of course, all this takes investment. One designer spent months redesigning ‘one lamp in the range’, with the result that he managed ‘to take out about half the components, half the weight’. This produced a lighter lamp that used fewer scarce planetary resources – only possible because of the vast economies of scale available to a company the size of IKEA.
Nor is this extraordinary attention to detail confined to production. It also finds its way into the supply chain. A few years ago, IKEA decided that all of its suppliers must meet a much stricter code of conduct about the way they treated employees regarding their age, working hours and so on. A few – 75 suppliers out of more than a thousand – declined. They were phased out straight away, demonstrating to those who had made the effort to meet the code that it was worth it, because ‘they’d been rewarded with continued business’.
The same is true for the production of cotton used in IKEA products. According to Mr Howard, it’s a great raw material, except that its production can have bad environmental impacts. Cotton is very demanding of water use in some of the world’s driest places. It encourages flood irrigation; a quarter of all the world’s pesticides are used on cotton; it uses a great deal of fertilizer; and yet many of those producing it are not making much money. So IKEA wants to ‘flip the market’ and now ’72 per cent of our cotton is more sustainable’, produced using a quarter to a third less water, fewer pesticides and less fertiliser. And by reducing the inputs, profits for the small farmer rise; by ’24 per cent in Pakistan’ for instance. By the end of 2015, all the cotton IKEA uses will be produced this way.
Mr Howard works for a company that thinks differently. It even applies this process to profits. At a total group level, the company aims to keep profits at around 10 per cent of sales, ‘if it’s more than that, we adapt by lowering prices further’. As a result, IKEA prices in real terms have fallen by 25 per cent since 2000.
Of course, the company is hugely profitable, but that’s because over roughly the same period it has grown four-fold in size. But is its ability to take this long-term view of sustainability the result of its ownership structure? It was founded by one man, Ingvar Kamprad, and is now owned by foundations he established. He agrees that companies bound by the quarterly reporting cycle will find this kind of long-term innovation more difficult, but not impossible, because according to Mr Howard, if you are in good financial shape and have a ‘strong business model, any business can do it regardless of ownership structure’.
“Sustainability at IKEA has moved from a ‘nice to do’ to a ‘must do’”
Which brings us back to IKEA, where Mr Howard sits on the nine-person group management board as a real contributor, not an ‘exotic extra’. That’s possible because IKEA is a different kind of company, where employees are encouraged to dare to be different and take risks, whilst at the same time ‘most people are ready to say yes and step up’. It’s also a place with ‘decent people and decent values’.
So go back to the opening paragraph, to those lofty sounding commitments about sustainability having moved from a ‘nice to do to a must do’, and it’s clear that IKEA and Steve Howard have found a profitable, decent, purposeful, values-driven way to put those principles into action.