Blueprint for success

By Ben Thompson

You can spot the stores from a mile away: huge, hulking warehouses painted in distinctive blue and yellow, dominating the skyline as their parent company does the home furnishings retail landscape. In a little over half-a-century, IKEA has expanded beyond the boundaries of its native Sweden to become one of the most successful multinational retailers of the modern age, with global sales of €21.5 billion last year.

The numbers alone are staggering. Its stores welcomed a total of 590 million shoppers in 2009, its website attracted 561 million visitors, while its cult catalogue was printed in 27 languages and 56 editions to produce a whopping 198 million copies. The IKEA range consists of 9500 home furnishing products; the company employs 123,000 co-workers in 39 countries; suppliers number 1220 in 55 countries. And as of August last year, the firm operated 267 stores with a further 34 owned and run by franchisees outside the IKEA Group.

But just as impressive as the financial figures has been the way the company has stamped itself indelibly into the public consciousness. IKEA has become a byword for affordable style and, more importantly, a lifestyle choice for an ever-expanding army of fans who love its clean lines and simple elegance. It has also become a common popular culture touchstone, referenced in everything from The Simpsons to Hollywood movies such as Fight Club. And while some see it as representing the very height of mass-market populism and the enemy of individual style, they are far outnumbered by those who just want their home to look good and not pay too much for the privilege. One way or another, people are passionate about IKEA.

And for its own part, the company is just as passionate about its customers. The firm's legendary hands-off policy to in-store service may seem like an abdication of consumer responsibility, but scratch beneath the surface and it actually reveals a remarkably grown-up approach to its customers - a "we're here if you need us but won't constantly pressure you into buying" style of retail. Customers find it empowering, and it frees IKEA staff up to concentrate on the store visitors that genuinely require help.

The devil is in the details. IKEA plans its stores meticulously to ensure customers are best able to help themselves. Each one carries products from the same, centrally developed, range and is carefully designed to have the same look and feel so that the customer experience is as consistent as possible - whether you're in Malmo, Manchester or Moscow.

But surprisingly for a firm that has put consistency and standardisation at the heart of its business model, the same rigour has not always been applied to the evolution of its IT architecture - until now. Of course, IKEA is not alone in facing the challenge of how to deal with the sprawl of legacy applications while effectively planning for the future; it's a common problem given the pace at which the technology landscape has evolved over the past few decades. The difference is that IKEA is committed to changing the status quo to better reflect the needs of the 21st century and enable it to serve its customers more efficiently and effectively. And leading that effort to overhaul its IT processes is the firm's recently appointed Global CIO, Paolo Cinelli.

Cinelli joined IKEA from beverage giant Heineken, where he was responsible for IT services for over 30,000 users, in late 2009. His appointment is a bold move for a company that traditionally prefers to hire from within, but adds valuable IT delivery competencies to the leadership team - critical skills as the firm looks to embark on the next phase of its phenomenal growth trajectory. In this exclusive interview, Cinelli reveals his technology priorities and explains how IKEA is tackling the challenge of retailing in an environment where the customer is increasingly king - and one where the right strategic uses of technology will become key competitive advantages and the difference between success and failure.

What are your current technology priorities at IKEA? What have been the major IT programs you have been working on in the last 12-18 months?

Paolo Cinelli. Currently, the priorities are all under the umbrella of the IT4Business program that we launched last year. It's not a technology priority per se, it is more of an organisational change in terms of IT governance and the IT organisational model, but the reason it is important is that it is focusing us on efficiency and effectiveness. In terms of information-enabled business priorities for IKEA, customer relationship management is one big focus area for us. We have another significant initiative on product lifecycle management, which is an area where we see a lot of opportunities and benefits. And the third is the online segment, including social media, multi-channel interaction, communication and presence.

How important is it for you as an IT organisation to align with company goals?

PC. The trigger for IT4Business was a diagnostic of what we were able to do compared with what the business needed, and it has given us the chance to bring the discussion to a very high level in the company. And senior management have really taken it seriously, because there is a lot of potential in the company to take advantage of information technology due to the nature of the business model, where we have the full value chain - from product development to the end customer like you and me - which is a very powerful vantage point. As such there is a big effort to improve the competencies in IKEA regarding IT and what we call IT demand - formulating requirements and owning projects and programs on the business side, and improving how to interpret those requirements and execute on them in terms of IT delivery.

So how are these initiatives really helping to improve retail operations?

PC. One of the exercises we did in the early phase was to outline success criteria in order to define the result we expect in terms of the business. We have a business strategy that is called Growing IKEA Together, and the objectives of IT4Business tie directly into that: for example, we have a KPI based around increasing the success rate of our projects, and that has a clear link to the growth of the company.

We realised very quickly that nowadays you cannot do any project without a substantial IT component. That's just a fact. Whatever you want to do, whether it's generating new business or opening a new channel or even driving quality improvements, you need a lot of IT investment. So if we increase the probability of success of projects with an IT component, we actually increase the probability of success of projects in general, because those are the biggest ones. So, that is one key example of how IT4Business contributes directly to improving company results.

But it is not only about project management; it is also about portfolio management. One of the reasons why we fail in too many projects is that we actually start too many of them. So that also has triggered an understanding that we should be more selective and should adopt a portfolio approach to make sure that we focus on those projects that are of most value and have a good probability of success. It's about introducing a greater rigour and discipline into the approval process.

One of the things you mentioned you were going to be looking at was customer relationship management. What are you doing with regards to CRM at the moment? Why is that a big focus area for you?

PC. The 'why' is because we have a huge attachment to our customers. We really value them and this is a really deep principle of the company overall. But while we've always had that focus, we actually found an inconsistency between what is written in our values and what we believe in, and how we actually connect with customers, in that we don't make the most of the feedback they give us everyday. We see this as a missed opportunity. We're not good enough at understanding and capturing this feedback in a structured way so that we can actually listen to it, interpret it and react more appropriately.

Take the IKEA family card, as an example. This card is owned by over 30 million people now, and is a potential goldmine of information. But we don't take advantage of it because of missing links between systems. For example, if you want to ask for clarification on a product, you might have to provide your information again even though you already have a family card and have previously stored your information in our system. Or if you a contact centre with a query, at the moment staff can't identify you with just the card, which many people find irritating - they start to wonder why they should give us that information in the first place if we aren't going to use it when they need us to. That's just a simple example of what we see in terms of the potential to connect our various, complex systems.

A similar example is between the website and the store. There's a lot more we could do to help customers plan their visit to the store, or better evaluate their needs. There are things like augmented reality, for example, which we have experimented with but are not currently able to scale up to a global service. At the moment, it's very rudimentary but it could be a great service in addition to what we can already offer with the home plan or the kitchen plan currently available on the internet.

I imagine that joining those dots in terms of customer relationships is especially key for somebody like IKEA, where the whole business model is based on a slightly hands-off approach to customers; the whole idea of self-service, flat pack, buy-and-build-it-yourself means that, in the stores at least, those touch points aren't always obvious.

PC. Yes, that's a very insightful remark. In fact, we don't call it CRM here; actually what we call it is self-managed relations. The unwritten deal with our customers is that 'you do your part, we do ours'. That's in the DNA of the relationship. By being prepared to help yourself in the store, not only do you feel more free because you don't have other people interfering with your shopping process, you also know that it's probably going to cost less as a result because we don't need to have so many staff on-site.

So, we aim to take the same approach with CRM. In all the opportunities where you have a touch point, customers can actually do most of the relationship management themselves. For instance, when you enter your card you might want to update some information about yourself. We don't want to force the customer to go to a sales attendant or sales rep to do that; we see that as old fashioned and inefficient, and something that can be achieved much faster when you can do it yourself. So, we are trying to marry the spirit of do-it-yourself with CRM.

What impact does this have on your workforce? Store associates are increasingly being placed in a difficult position in today's environment in that the customer quite often knows more about products and pricing and competition than associates do themselves. How big a concern is this for you, and how are you addressing this issue at IKEA?

PC. It is a big issue. We are aware that our customers often have access to more information than our co-workers, and we aim to equip our co-workers with far more information than they have now. Historically, that has not been the case, and as a result our co-workers do sometimes struggle, both in-store and in the contact centres, to cope with the level of information that the customer has. Ultimately, we want to provide our co-workers with at least the same level of information as the customer, but to be honest we haven't sorted out how to do it yet. It's a more of a target than a plan.

For us, I have to say that one of the mitigations of this risk is that our prices are always very good, so most often the customer will come to us rather than the other way around when looking for the best price. I think we have a built-in advantage there. However, it's not always about the price; it's about knowledge. It's really overwhelming how smart the customer is, and through mobile technologies and social networks they are often able to access knowledge about the products that hasn't reached our co-workers yet.

The rise of mobile commerce and social media certainly offers tremendous opportunities and challenges for retailers. What do you see as the major issues and opportunities with regards to both mobile and social?

PC. Mobile technology is making communication faster and easier, and we don't see this as a threat but an opportunity; however, we still have to find our way in this area. For example, we are reluctant to become a mass marketing company that puts pressure on customers to go and buy through the use of big promotions; we are not into aggressive mobile marketing. We see it more as an opportunity to provide information and to make people more aware, but certainly not in an aggressive way. We have apps for smartphones and have experimented here and there with augmented reality experiences through the phone camera. You can browse the catalogue on the mobile phone and things like that. So we have a softer approach to using mobile channels.

With regards to social media, we see big opportunities in areas like user-generated content and co-invention. We have a lot of people that are willing to share - both amongst themselves and with us - how they use IKEA products. There are people that only have IKEA furniture in their home, and they are even using things in ways they were not designed for. I saw a website that shows how you can use certain pieces of IKEA furniture to cover up water tanks and boilers in the cheapest possible way, misusing parts of the product and throwing away the rest. We respect those types of activities and don't want to interfere with them. The question is, how can we contribute to that? What's the impact of that on our business? And I cannot say that we have sorted that out yet.

I wanted to touch on the idea of what Bob Parker from IDC calls omni-channel retailing - the idea that the retailer somehow needs to present a consistent picture of their brand across all touch points; a ubiquitous brand presence across channels. What are your thoughts on this and the challenges that it presents?

PC. I totally agree that customers expect more and more precision. As customers we cannot stand deviation between what we see on one screen and what we see in the store or on another screen. So the demand for accuracy is increasing, definitely. I think the underlying problem is that most companies have multiple systems in the back office, and these different applications have been developed in a rather disconnected and layered way. So there is a fundamental problem in all IT landscapes that creates inaccuracies and differences - and it is very difficult to fix. It will take time and investment, so CIOs have a big role in driving this transformation. Part of IT4Business is to change our architecture in the direction of fewer, more integrated systems, but it will take time. What's important is recognition of the fact that customers now expect there will be no difference between channels of information. That is the challenge.

You also mentioned product lifecycle management as a focus area. What are you doing with regards to this in terms of managing the whole value chain through PLM?

PC. First of all, it's a joint initiative that involves almost all of our suppliers. We have many suppliers in different parts of the world, and with most of them there is a very strong relationship that goes back many years. It is a really high-value relationship on both sides, and they are part of our development cycle. We have a lot of interaction with suppliers - for example, we have to manage the way we share documentation with them because our specifications are very detailed and they have to be globally consistent. So the starting point is actually looking at the product documentation and finding a way to share it in a much smarter fashion than we do now. Currently, it's pretty paper-based with a lot of text, and it doesn't really help in focusing the attention on the most important things - even for the simplest products that have been in the market for 30 years, there is still a lot of documentation to read. Suppliers are really struggling with that, and of course we struggle as well. So we started by simplifying the product documentation, and already that has highlighted the fact that we have to standardise our product hierarchies better. A lot of the master data is getting cleaned up as we speak, triggered by this. That is step one, and then there will be many more steps in terms of facilitating better collaboration with external designers, suppliers and networks. We have selected technology platforms that we believe can scale up to all this, but it is still early days so I don't want to disclose too much about it.

One of the things I wanted to talk about was the IKEA experience; you visit an IKEA store, and it's a unique shopping experience. How do you translate that to a multi-channel environment? And as an IT professional, how do you support that?

PC. One new way we're looking at this is using the concept of inclusion, rather than seeing store and web as two competing things. The paradigm of the past was to see these as opposing forces. One school of thought said we should only sell online; another said we should only sell in stores. For me, that is the wrong starting point. It's more about how the two channels can complement each other. They have different possibilities, opportunities and roles, but at the moment, we are not always in the best position to take advantage of them. For example, home shopping can be very good for selling some things - e.g. repetitive purchases or simple items - but nobody would feel comfortable buying a kitchen online. For that you want to be in-store, you want to talk it through with someone. So the point is to find the best complementary approach and to enrich the services in the process. Even for a company like IKEA, it is important to give the option of shopping in different channels. Obviously, delivery would cost a bit more if you were to buy online rather than pick it up yourself, but some customers want that option. Click-and-reserve is another option for customers who want something specific and don't want to have a wasted trip if it is not in stock. For us, that also gives an opportunity for an actual visit to the store, during which the customer might want to buy something else that they didn't plan to in addition to picking up the reserved item.

Finally, I wanted to talk about how retailers - and specifically their IT departments - address the problems of today while also anticipating the needs of the future. How do you balance the need to focus on the complex legacy of the past as well as build for tomorrow?

PC. I can't speak for other companies but my feeling is that most face the same challenge - that of having a big legacy drawing the majority of resources. So how do you address that? First of all, it goes back to the transformation that I mentioned at the beginning. Someone has to take the lead in cutting the loop, in saying, "Okay, we will not fix this overnight, but if we don't act now it will grow worse and worse." That's the first realisation.

Next you need to put in place simple KPIs to measure how to increase the investment and reduce the operational cost of running the business. It's one of the things we are targeting alongside our focus on improving the likelihood of project success, and we are starting to increase the budget share that goes into investment compared with operations.

Finally, it's about bringing the same level of standardisation and consistency to the IT architectures that we bring to the rest of the organisation. One of the things I found a little strange on joining the company is that while the stores are pretty much the same everywhere you go - they look the same, they have the same products, they have very similar layouts - there is a massive deviation between the different IT systems we use across the organisation. That consistency in store layout is the result of orderly planning; of course we have several blueprints we work from, but there are a limited number of versions and everybody sticks to them. It is a really strong value for the company. But in contrast, the IT landscape is largely unplanned. It just evolved over the years to become what it is today. So we put this example in front of senior management and asked what would happen if our stores suffered from the lack of planning that the IT systems suffer from. Imagine what they would look like? Badly planned, disorganised, inconsistent - if, as a customer, you were ever able to get out of that store in the first place, you would never come back again.

And that discussion triggered the sponsorship of an IT architecture landscape redesign for the future. It won't happen overnight - it took a long time to get the stores as they are now, and we still haven't finished yet - but at least we'll have a reference architecture that can drive our decisions going forward. And it feels really exciting because senior management are looking at it and saying, "Okay, finally we have a target. At last we have a reference point." And of course, you also see resistance as well; I realise that in order to make that blueprint a reality, we will have to give up a lot of the investments that were done in the past. Managers from the big departments will worry about having to retrain all their people to shift from the current systems to whatever standard system we will implement. So the effort ahead of us is daunting; I am not denying that. But I think overall the balance of the company is determined to do it, which is great.

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IKEA'S JOURNEY

How IKEA went from the backwoods of Sweden to international success story.

1920s At the age of five Ingvar Kamprad starts selling matches to his nearby neighbours and by the time he is seven, starts selling further afield using his bicycle. He finds that he can buy matches in bulk cheaply in Stockholm and re-sell them individually and make a profit. From matches he expands to selling flower seeds, greeting cards, Christmas tree decorations, and later pencils and ballpoint pens.

1940s-1950s The roots of a furniture dealer. Ingvar Kamprad is entrepreneurial in developing IKEA into a furniture retailer. This period sees the exploration of furniture design, self assembly, advertising, the use of a catalogue and a showroom to reach many people.

1960s-1970s The IKEA concept starts to take shape. New IKEA stores open and hero products are developed such as POÄNG, KLIPPAN and BILLY bookcase. It is a time where concept takes shape and is documented in Ingvar Kamprad's The Testament of a Furniture Dealer.

1980s IKEA expands dramatically into new markets such as the US, Italy, France and the UK. More IKEA classics arrive such as LACK and MOMENT. The company begins to take the form of today's modern IKEA.

1990s IKEA grows even more. Children's IKEA is introduced and the focus is on home furnishing solutions to meet the needs of families with children. The IKEA Group is formed and responsibility for people and the environment is seen as a prerequisite for doing good business.

2000s IKEA expands into even more markets such as Japan and Russia. Everything for the bedroom and kitchen is explored and presented in co-ordinated furnishing solutions. This period also sees the successes of several partnerships regarding social and environmental projects.

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FAST FACTS

IKEA stores welcomed a total of 590 million visitors last year

IKEA Group co-workers total 123,000 in 39 countries

A total of 198 million IKEA catalogues were published in 27 languages last year

IKEA websites attracted 561 million visits in 2009

The IKEA range consists of 9500 home furnishing products

Loyalty programme IKEA Family has 29 million members in 21 countries

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BRÄNNMÄRKE BRAND

Each store carries the same range, and is carefully designed to have the same look and feel so that the customer experience is consistent

PRODUKTEN PRODUCTS

With many items costing just a few cents, by the time you reach the checkout your basket is inevitably full of things you had no idea you needed/wanted

KUNDEN CUSTOMERS

IKEA has built up a passionate following amongst its customers, many of whom come as much to browse as to shop; usually, they do both

ARBETSTAGARNA STAFF

IKEA's hands-off approach to customer service frees its staff to concentrate on attending to customers with genuine service needs

PLANRITNING LAYOUT

The notorious 'conveyor belt' store layout is designed to take the customer on a self-service journey - one that ends, inexorably, at the checkout