Proceedings of the International Conference on Industrial Engineering and Operations Management
Manila, Philippines, March 7-9, 2023
Sustainability as a competitive advantage: IKEA as a case
study
Anan Alzoubi
Faculty of Business and Law
Anglia Ruskin University,
Cambridge UK, CB1 1PT
[email protected]
Moayad Al-Talib and Walid Khalid Al Saad
Centre for Supply Chain Improvement,
University of Derby,
Derby, UK, DE22 1GB
[email protected],
[email protected] Abstract
Companies seek to utilise sustainability strategies to gain a competitive advantage and improve their performance.
This research focuses on the role that sustainability plays in companies and its impacts on the firm performance and
competitive advantage by taking Ikea as a case study. Ikea has made significant efforts to promote sustainability.
The environment and local communities have benefited greatly from it. Ikea creates a variety of environmentally
friendly items, such as those that conserve water or energy. It has also adopted new packaging techniques that can
cut down on shipping and emissions. Additionally, many of Ikea's stores, shopping centres, etc. now have solar
panels installed. Ikea engages in several sustainability strategies that are effective in preserving resources. Despite
all of Ikea's environmental initiatives, the research revealed that Ikea sees sustainability as a competitive advantage.
However, focusing on other sustainability practices in the future may have a positive impact on the company's
performance. Starting with customer awareness of and interest in sustainable development, as well as customer
satisfaction with the company's sustainable products, the impact may be felt over a longer period.
Keywords: Sustainability, Competitive advantage, IKEA
© IEOM Society International 2732
Proceedings of the International Conference on Industrial Engineering and Operations Management
Manila, Philippines, March 7-9, 2023
1. Introduction
The term sustainability was developed in 1980. It became important for the public, science, and politics within less
than forty years. On the other hand, sustainability is an inconsistent perception such as the welfare of animals,
conservation of nature, and reduction in hunger. The philosophy behind sustainability is the desire to encompass but
should have trust in scientific knowledge (Noe and Alroe, 2015).
The first record of sustainability was used in the context of the environment which was like the record of 1980. The
terminology of environment refers to the summation of exterior conditions that are required to sustain life that goes
to the nineteenth century. It can also be said that sustainability is the replacement of the natural economy which has
been used to raise the natural world since the 17th century (Portney, 2015).
The development in sustainability is such an improvement that fulfils the need of the present world without
compromising the future needs of coming generations (Brundtland, 1987). The United States Environmental
Protection Agency (EPA) defined a complete description of sustainability in 1969. According to the US agency,
“sustainability maintains and forms such conditions which are suitable for human beings to live in a productive
world which fulfils the economic, social and other needs of present and future generations”.
The overall aim of this study is to explore the role that sustainability plays in the firm, particularly its impacts on
Ikea's performance, and if it can be a competitive advantage. The competitive advantage explains the company’s
advantages over the rival companies (Burn, 2008). It can also be defined as the resources and features of a
corporation that are helpful to compete with its competitors (Leaning, 2009; Ojo et al., 2015).
Competitive advantage is the quality of any company to deliver both tangible and intangible assets in competition
with its rivals. It can be any patent, service, innovation, product, or anything that differentiates the company from its
competitors in a positive manner (Ojo et al., 2015).
2. Literature review of sustainability impact on the IKEA performance
IKEA Group announced a total investment of EUR 2.8 billion in warehouses, distribution networks, customer
satisfaction, shopping malls, renewable energy, and forestry during the year. (Schneider and Bermudez, 2018).
IKEA's FY18 sustainability report ensures that some preliminary structural changes have been made in the company
over the next three years at the company. The report also stated that the relevant investment and business
transformation of the company will be affected by the cost structure and result (Schneider and Bermudez, 2018). To
reward environmental protection, company management identifies the specific set of incentives, threats, restrictions,
and opportunities (Schaltegger and Synnestvedt, 2002). Then, goals and objectives should be defined, plans created,
and substantial action is taken. This new thought will lead to a new and different environmental profile, which may
reduce costs. It has been assumed that beginning at a specific point of economic success; the economic success will
be reduced by every environmental activity, which is anticipated to decline in the short term. The marginal cost can
be reduced by developing environmentally friendly technology, which leads to improved economic performance.
Due to legislation, marginal costs of environmental protection across countries and industries might be different.
The relationship between economic success and environmental performance depends on the level of economic
success, and the environmental performance level (Schaltegger and Synnestvedt, 2002).
The linkage between environmental and economic performance depends on the company's internal variables
affected by management, and the company's external variables (regulations) (Ameer and Othman, 2012). Additional
costs are created due to environmental regulations thus profits decrease. It has been argued that firms in industries
with higher environmental effects confront a competitive disadvantage if rigorous regulations cumber them with
relatively higher environmental costs than other industries. Another “revisionist view” proposes that environmental
performance reduces costs, which leads to an increase in sales and thus improves economic performance. It can be
said that the best possible description of the relationship between economic and environmental performance is an
inversely U-shaped curve (Wagner and Schaltegger, 2004). Companies have the motive to research new production
approaches and technologies to alleviate negative externalities. In this regard, companies have been helped to
systematically define, gauge and managed their environmental risk and obligations (Epstein and Roy, 2001,
Adeseun et al., 2018).
The revisionist view states that, from a dynamic perspective, a greater determinant of economic success and
competitiveness is the ability to develop and innovate new production processes and technologies (Ameer and
© IEOM Society International 2733
Proceedings of the International Conference on Industrial Engineering and Operations Management
Manila, Philippines, March 7-9, 2023
Othman, 2012). Winning time is a crucial problem for sustainability, especially in uncertain duration, and when
costs are more than benefits, as best practice is not cost-effective it may be stopped (Rimmer et al., 1996). It has
been argued that paying attention to intermediate performance measures such as brand loyalty and customer
satisfaction is important (Ameer and Othman, 2012).Those companies which value philanthropic behaviour,
environmental protections, and ethical business practices can attract customer loyalty and distinguish themselves
from competitors (Cacioppo et al. 2007). By implementing sustainable practices adopted by the Global, most
sustainable companies can differentiate themselves in a long term in their business practices, which eventually leads
to better financial performance (Ameer and Othman, 2012). A firm’s performance can be negatively affected due to
the costs of social responsibility (Friedman, 1970). In the same sense, firms’ value maximisation might be
constrained by social responsibilities leading to poorer financial performance (Preston and O’Bannon, 1997; Jensen
2001). Ameer and Othman ( 2012) found that companies which concern about sustainability practices have higher
financial performance measured by cash flow from the operation, profit before taxation, and return on assets than
those without such commitments.
The findings of the previous research vary; empirical studies showed that the relationship between corporate
financial performance and corporate sustainability performance is negative, positive, and non-significant (Margolis
et al 2007, Flammer, 2015). The current study shows that there is no clear answer to whether sustainability strategies
do influence a firm’s performance or not. IKEA’s sustainability reports between the years 2016 and 2018 do not
have a clear statement that indicates the existence of any relationship between its sustainability practices and the
firm performance. Although the sales of IKEA’s sustainable products have increased, the company has not gained
more profit because of such products as its sustainability reports say that the increased sales and profits are due to
the currency exchange.
This can be explained based on the past literature in different ways. First, the effects of sustainability practices on
financial performance might be seen in the long run (Ameer and Othman, 2012). Second, the cost of social
responsibility is relatively high (Friedman, 1970). Third, the additional cost that might be created by environmental
regulations (Ameer and Othman, 2012). Fourth, this relationship depends upon the economic success level and the
level of environmental performance (Schaltegger and Synnestvedt, 2002). And finally, the country's level of
involvement in sustainability.
2.1 Is sustainability a competitive advantage for IKEA?
Organisations aim to develop a sustainable competitive advantage to be able to provide value to the customers better
than the existing competitors at a lower or affordable price. Price and sustainability are the two-principal value-
creating strategies of IKEA (Rankin, 2015). IKEA has been focusing on developing a sustainable competitive
advantage by offering its products at the most affordable prices to discourage inequalities within the consumer
market (Li, 2010). For over 50 years, IKEA had been successfully leading the value chain link, where it does not
only sell furniture but also manufactures it enjoying economies of scale on the raw material.
IKEA is a wide-ranging home furnishing brand that offers to furnish at affordable prices. Instead of adopting cost
leadership in its competitive market, IKEA offers low prices on home furnishing products that help more customer
base to afford them reasonably (Li, 2010). IKEA’s sustainability strategy called “People & Planet Positive” is
focused on creating a better living for most people. According to Dudovskiy (2017), IKEA's business strategy
constitutes integral points that ensure sustainability. IKEA promotes cost-effectiveness as one of its competitive
advantages. IKEA, being able to sell the most comprehensive range of home furnishing products at lower prices,
offers technology integration and economies of scale.
Moreover, the full range of home furnisher product portfolio of IKEA offers it a competitive advantage. IKEA offers
over 9000 products and launches approx. 2500 new products annually (IKEA Group, 2016). Moreover, IKEA is
found to be expanding its product portfolio within the catering and food industry (Dudovskiy, 2017). The global
expansion strategy of IKEA involved it in new market development. Presently, IKEA has a chain of 340 stores
across 28 countries which also enables IKEA to pertain a competitive advantage over the competition.
IKEA has focused on philanthropy “giving back to society” to develop a positive relationship with society. IKEA's
sustainable management believed that sustainable thinking is crucial to organisations for long-term survival and to
have a positive impact on the community. As organisations seek to move towards sustainable management, it gets
better at understanding society. This helps the organisation in maintaining its reputation for "environmental, social
and governance" (ESG) within the community. In the case of IKEA, its campaign "give back" made an impressive
record for €50,000 in waste cost and converted them into €40,000 net profit.
© IEOM Society International 2734
Proceedings of the International Conference on Industrial Engineering and Operations Management
Manila, Philippines, March 7-9, 2023
From the research conducted by (Li, 2010), the competitive advantage of IKEA came from its sustainable utilisation
of competitive forces (Li, 2010). The following table represents IKEA’s competitive advantage model and the
methods that IKEA used in achieving competitive advantage.
Table 1: IKEA’s competitive advantage model
Five Competitive Forces Methods Used
Suppliers’ bargaining power ● Suppliers from across the boundaries
● The array of suppliers providing economies
of scale
Customers’ bargaining power ● Quality in products
● Affordable price
● Quality service
● High-quality designs
● Vast product portfolio
New Entrants ● Highly efficient SCM
● Economies of Scale
Substitute Products ● Development of new technology and
technological developments
Existing Competition ● Economies of Scale for the low price
● Developing public reputation
● Logistics model
Moreover, (Li, 2010) highlighted how IKEA can increase its competitive advantage. As for cost leadership, product
differentiation and focus are the three generic ways by which brands like IKEA can develop sustainability in
performance and revenues.
3. Result and discussion
In 2015, IKEA launched SDGs to provide an inspiring framework highlighting what a company is looking forward
to. The figure below represents the overview of IKEA's ambition for sustainable living for the year 2030. The
critical enablers for IKEA as represented are advocacy, inclusiveness, partnership and co-creation and
entrepreneurship that could support IKEA in developing sustainable and better living. IKEA (2018) defined its
vision for sustainability as “We are committed to creating a better everyday life for many people and to be People &
Planet Positive” (IKEA, 2018).
Figure 1: IKEA’s SDGs
© IEOM Society International 2735
Proceedings of the International Conference on Industrial Engineering and Operations Management
Manila, Philippines, March 7-9, 2023
1. Healthy and Sustainable Living
For the goals of "healthy and sustainable living", IKEA use households as a perfect example that use 1/3rd of global
energy and 10% of water. IKEA enabled people in generating renewable energy instead of water consumption and
home energy that would have a significant impact on environmental sustainability (Edvardsson and Enquist, 2011).
In this manner, the consumer base expected IKEA to have made a living more sustainable and innovative. Besides
that, IKEA in the catering and food industry ensures nutritious and healthy food. According to IKEA (2018), the
company had been sustainably offering resources and energy efficiency, and in future, the company has the aim to
influence the mindsets of customers toward healthy living. The company aims for 2030 and committed to creating a
social movement, enabling, and inspiring people towards a healthy lifestyle and promote sustainable consumption
(Frödpromoting Lawrence, 2010).
2. Circular and Climate Positive
To remain environmental-friendly, IKEA has focused on preserving natural resources. According to IKEA (2018),
fisheries and agriculture, pressure on forests, loss of wildlife and biodiversity are and profoundly being affected by
an organisation's operations. To develop “people, planet and planet positive”, IKEA has developed responsible
programs to ensure improve and efficient use of scarce improves. By the year 2030, IKEA aims to transform into a
circular business that uses sustainable ways of using resources, to become climate positive, and regenerate resources
(Jones and Comfort, 2020).
3. Fair and Equal
IKEA has always looked forward to challenging inequality within society. Thus, IKEA has embraced change in a
way to make people's lives better. IKEA has been producing decent and fair products to create a "fair and equal"
society. By 2030, IKEA aims to provide and support meaningful and reasonable products throughout the value
chain, to become an inclusive business and to promote equality (Bookman and Hall, 2022).
Conclusion
Ikea has extensively switched with sustainability. It has done a lot to preserve communities and the environment.
Regarding the Sustainable Development Goals framework, Ikea produces a range of sustainable products, for
example, products that save energy or water, it has also employed new packaging ways which can reduce the
number of shipments, and thus, reduce emissions. Additionally, Ikea has installed solar panels in many of their
stores, shopping centres, etc. there are many sustainability practices that Ikea uses which are really contributing to
sustaining res
Despite all the sustainability practices that are followed by Ikea, the research found that sustainability is considered
as a competitive advantage of Ikea. But it can be in the future may focus on other sustainability practices may
positively affect the firm perform that performance, starting from customer’s awareness and interest in sustainable
development, and customer satisfaction with the company’s sustainable products, the impact may be noticed in a
longer time.
© IEOM Society International 2736
Proceedings of the International Conference on Industrial Engineering and Operations Management
Manila, Philippines, March 7-9, 2023
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