World Resources Institute Sustaina A program of the World Resources Institute ble Enterprise Program IKEA AND THE NATURAL STEP In September 1995 Jan Kjellman took over as president of IKEA North America the U S and Canadian subsidiary of the Swedish furniture giant At IKEA s headquarters outside Philadelphia Pennsylvania Kjellman sat at his desk located in an open brightly sunlit bay His assistant also the service center office manager sat at a nearby desk a few feet away Co workers walked through one side of the bay heading for the coffee room On the landing below the president s office was a pedestal bearing a large gray rock It was from the rocky and poor land in lmhult a small village in the province of Sm land Sweden where IKEA s founder was born and where the design and production core of IKEA s business was still located For more than a decade WRI s Sustainable Enterprise Program SEP has harnessed the power of business to create profitable solutions to environment and development challenges BELL a project of SEP is focused on working with managers and academics to make companies more competitive by approaching social and environmental challenges as unmet market needs that provide business growth opportunities through entrepreneurship innovation and organizational change Permission to reprint this case is available at the BELL case store Additional information on the Case Series BELL and WRI is available at www BELLinnovation org Kjellman pondered the success of his predecessor Gor n Carstedt who had moved back to Sweden to take responsibility for worldwide marketing and the European retail stores Carstedt had turned the subsidiary around since 1991 increasing sales to over 700 million and moving the company to number three in the U S market Kjellman was developing an agenda to build on that success One important piece of that agenda was the company s environmental stance in North America Over the past several years IKEA had articulated a strong environmental policy and was well into its implementation in the parent company By incorporating environmental principles provided by The Natural Step TNS organization in Stockholm IKEA had developed its own environmental statement policies for product design supplier relations and operations as well as educational materials for consumers m the retail stores TNS was an educational organization that offered a practical guide to companies wishing to limit their adverse effects on the natural environment see Exhibit 1 The three co workers trained by TNS had returned to North America and trained people in the retail stores and discussions had begun with certain North American suppliers about the company s environmental values and TNS principles This case was prepared by Joel Reichert under the direction of Andrea Larson Darden Graduate School of Business Administration University of Virginia Support was provided by the World Resources Institute Copyright 1998 World Resources Institute 2 IKEA and The Natural Step Kjellman reflected on the differences between the Scandinavian European markets and the North American market Led by Germany many of the European and Scandinavian nations had been active for several years using public policy and regulation to encourage innovation and competitiveness by firms around environmental issues While the U S Canada markets generally trailed the Scandinavian European markets in these areas Kjellman felt sure IKEA s environmental strategy could become a competitive advantage here as well Public concern for environmental issues was strong in North America and local authorities were coming under increasing pressure to protect environmental resources and deal with related public health matters such as toxic materials landfill management or clean water Recent political shifts in the federal government to reduce or eliminate environmental controls would not eliminate the issues and could increase the need for private companies to become more active partners with local governments and consumers to solve problems Kjellman considered the possibilities Should he encourage the retail stores to do more The Trash Is Cash waste reduction program that had worked well in Gothenberg Sweden could be implemented in all stores Or should the emphasis be on the production side and accelerating the consideration of these issues with North American suppliers By applying European standards to North America suppliers IKEA had already caused some innovation but there was room for improvement IKEA Origins and History IKEA was an acronym derived from the initials of its founder Ingvar Kamprad his farm Elmtaryd and his county Agunnaryd in Sm land South Sweden Kamprad began his venture in 1943 at the age of 17 by selling fish magazines and seeds Within the next few years Kamprad developed IKEA into a mail order business selling a variety of consumer and household products His product line included home furniture made by subcontractors which quickly became the pr