Financial accounting and reporting can be challenging for many organizations, but for the world’s largest home furnishing company, this proved particularly difficult in the late 20th century. IKEA, the Swedish-based global furniture giant based in the Netherlands, operates 280 retail outlets in 26 countries, 29 retail offices in 25 countries and 11 distribution centers in 16 countries. IKEA also owns and operates its own industrial supplier called Swedwood, which has 5 production units in 5 countries. Add to the mix over 1000 other vendors in 55 countries and the framework is set for a truly global organization where the potential for growth is seemingly limitless, yet at the same time it creates a complex global network where accounting information can be difficult to manage.
IKEA has experienced solid sales growth every year since its first store opened in Almhult, Sweden in 1958, but the company has only recently begun to grow at a rapid pace. Since 2000, annual sales have more than doubled from € 9.6 million to € 23.1 million in 2010. IKEA is able to achieve these results for a number of reasons, such as its strong focus on supply chain management, raw material sourcing, cost management, production efficiency and economies of scale and company-wide thrift culture and doing things in small amounts. In spite of all these strong characteristics, the success of any business is highly dependent on its ability to manage cash flow and financial information, enabling it to make strategic business decisions and generate future growth.
An often overlooked aspect of a company’s financial success is the quality of its accounting information systems. Due to its global nature, IKEA was forced to investigate its economic system in the late 1990s due to regulation of euro compliance and the Y2K threat. Roger Neckelius, IKEA’s Chief Information Officer and other IKEA executives quickly realized that the company’s myriad of obsolete accounting systems were insufficient for their short-term regulatory compliance goals and their long-term goal of a common, streamlined system that could be used across the IKEA world.
Ulrika Martensson, project manager responsible for implementing the replacement system began her search with certain criteria that needed to be met, e.g. To have a system for the entire IKEA that was flexible enough to handle the different needs of the different business units and its users. The system must be capable of rapid implementation and have the ability to grow with the company.
Martensson got everything she wanted when IKEA decided on Coda Financials from the UK, but wasn’t quite prepared for the amount of work needed to tailor their product to IKEA. The Coda system required that any type of financial transaction be “defined,” such as debt and receivables. In a way, however, this was a blessing in disguise because of IKEA’s enigmatic and complex organizational structure. As mentioned earlier, IKEA has a vertically integrated supply chain with several components worldwide. But it is also a privately owned company with a unique “ownership structure”. The IKEA group is the group of companies within IKEA that handles the core elements of the company such as product research and development, production and distribution and retail sales. The IKEA group has a parent company called INGKA Holding B.V., which in turn is owned by Stichting INGKA Foundation, which was established by IKEA’s founder Ingvar Kamprad. In addition, the Stichting INGKA Foundation funds the IKEA Foundation, a Dutch charity that supports humanitarian initiatives around the world. Because the Coda system was customizable, it enabled a much easier conversion process for different business units in IKEA.
Martensson also took advantage of the system’s flexibility to solicit input from end users across IKEA and tailor the system to their needs. This is an ingrained part of the IKEA corporate culture – to collaborate and reach agreement before a decision is made. However, when it comes to standardizing and adhering to the financial information system, this democratic approach is not always ideal. Martensson admitted that she gave users too much leeway and should instead have taken a firm stance that users should adapt.
Nevertheless, Martensson and her team made rapid progress in rolling out Coda to 12 countries over a four-month period. They defeated differences in automatic payment systems in foreign banks, Europe’s complicated VAT system and the complexity of IKEA’s organization itself to reach their goal of a September 1, 1999 start date.
IKEA’s journey in the late 1990s to switch to a common financial system demonstrates the impact of globalization and the need for businesses to adapt to an ever-changing business environment. Not only did it ensure the successful implementation of CODA regulatory compliance with IKEA, but it also enabled the company to be more transparent in terms of financial reporting throughout the organization. The Executive no longer had to extract information from countless financial reports that existed prior to CODA implementation; it had common information in a common format at hand to help make sound decisions to ensure IKEA’s long-term financial success.