Reference no: EM133099302

IKEA: An Economic Downturn, and Problems with Corruption

During the prolonged recession that began in 2008, IKEA ran into two significant stressors: decreasing product demand and unpredictability in the Russian market.[1] The global economic recession led to sharp increases in debt and decreases in sales. In addition, the company ran into difficulties in its operations in Russia. As acknowledged by most officials, even president Demitri Medvedev, businesses in Russia are often the target of extortion and corruption. It is, to say the least, quite difficult to operate in Russia without bribing a local, regional or even national government officer. Every business encounters challenging times, but what defines the company is how it responds to difficult times.

In the short term, the best strategy for IKEA may be to defend its own corporate integrity and the well-being of its executives and employees by resisting bribery. How about the economic downturn? That larger source of stress for the company requires a much different kind of coping response. There is a saying that the strong survive. If that is so, what is the source of strength for survival? In IKEA's case, it may be its core business model of selling minimalist, flat-pack furniture, something that its competitors are trying to emulate.

Duke behavioral economist Dan Ariely has a theory that IKEA's build-it-yourself furniture creates long-term customer loyalty.[2] Why? Because you like the furniture even more after struggling to put it all together with a minimum of useful instructions. No one would suggest that the instructions are overly detailed. This mild ambiguity creates a customer opportunity, specifically, the opportunity for the customer to engage, or invest, in the whole process of creating the furniture. Engagement and involvement lead to commitment. That may be the underpinning for Ariely's theory about IKEA's model for creating loyalty and business. While the company's business model may be an internal source of strength to survive and thrive in a very competitive retail environment, IKEA may draw strength too from its loyal and lasting customer base who has displayed their own strength and achievement in assembling IKEA furniture.

1. How might the methods that IKEA uses to deal with external stressors, such as global economic and political conditions, be applied to the treatment of individual employee's stress in the company?

2. What are some ways in which the two stressors IKEA faced could function as positive stress for the organization?

3. If you were an official at IKEA, how would you deal with the question of bribery? Would you rather pay a bribe to make life for your company easier, or would you not pay the bribes and face a bigger challenge in doing business in a foreign market?

[1] M. Leroux, "Thinking Outside the Box Finally Flusters Ikea's Growth," Times of London (June 24, 2009); A. E. Kramere, "Ikea Curtails Russia Plans, Citing Corruption; Retailer's Investments Are Put on Hold Because of ‘Unpredictability,' " The New York Times/International Herald Tribune (June 26, 2009).

[2] M. Sasso, "IKEA Theory: ‘Do-It-Yourself' Creates Loyalty, Business," Tampa Tribune (May 1, 2009).