Financial accounting and reporting can be challenging for many organizations, but for the world’s largest home furnishings company this proved to be especially difficult at the end of the 20th century. IKEA, the Swedish-founded global furniture giant based in the Netherlands operates 280 retail stores in 26 countries, 29 trading 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 suppliers across 55 countries and the framework is set for a truly global organization where the potential for growth is seemingly limitless, however at the same time it creates a complex global network where accounting information can be hard to manage.
IKEA has experienced solid sales growth every year since its first store opened in Almhult, Sweden in 1958, yet the company has just recently started to grow at a rapid pace. Since 2000, annual sales have more than doubled from 9.6 million euros to 23.1 million euros 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, manufacturing efficiency and economies of scale, and company-wide culture of frugality and doing things within small means. However, despite all of these strong attributes the success of any company is highly dependent on its ability to manage cash flow and financial information so that it can make strategic business decisions and drive future growth.
One often-overlooked aspect of a company’s financial success is the quality of its accounting information systems. Because of its global nature, IKEA was forced to examine its financial system in the late 1990’s due to euro compliance regulation and the Y2K threat. Roger Neckelius, IKEA’s Chief Information Officer and other IKEA executives quickly realized that the company’s myriad of antiquated accounting systems was inadequate for their short term goals of regulatory compliance and their long-term goals of a common, streamlined system that could be used across the IKEA world.
Ulrika Martensson, the Project Manager responsible for implementation of the replacement system began her search with certain criteria that had to be met, such as having one system for all of IKEA that was flexible enough to handle the different needs of the various business units and its users. The system would have to be capable of a quick implementation, and possess the ability to grow along with the company.
Martensson got everything she wished for when IKEA decided on Coda Financials from the United Kingdom, but wasn’t quite prepared for the amount of work that was required to tailor their product to IKEA. The Coda system required that every type of financial transaction was “defined” such as payables and receivables. However, in a way 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 numerous components all over the world. But it is also a privately-held company with a unique “ownership” structure. The IKEA Group is the group of companies within IKEA that handles the core elements of the business 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 the Stichting INGKA Foundation, established by the IKEA’s founder Ingvar Kamprad. Furthermore, the Stichting INGKA Foundation funds the Stichting IKEA Foundation, a Dutch charitable organization which supports humanitarian initiatives throughout the world. Because the Coda system was customizable, it allowed for a much easier conversion process for the variety of business units within 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 company culture – to work together and come to an agreement before making a decision. However, when it comes to financial information system standardization and compliance this democratic approach isn’t always ideal. Martensson admitted that she gave the users too much leeway and instead should have taken a firm stance that the users were required to adapt to.
Nonetheless, Martensson and her team made quick progress rolling out Coda to 12 countries over a 4 month period. They overcame differences in foreign banks automated payment systems, Europe’s complicated VAT system, and the complexity of IKEA’s organization itself to achieve their goal of a September 1st, 1999 go live date.
IKEA’s journey in the late 1990’s to switch over to a common financial system shows the effect of globalization and the need for companies to adapt in an ever-changing business environment. Not only did the successful implementation of CODA ensure regulatory compliance by IKEA, but it also enabled the company to be more transparent in terms of financial reporting throughout the organization. Executive management no longer had to extract information from the myriad of financial reports that existed prior to the CODA implementation; it had common information in a common format at its fingertips to help make sound decisions to secure the long term financial success of IKEA.