Sunday, July 11, 2004

Treating employees like human beings at IKEA

Title: IKEA's ideas
Source: Pioneer Press
Date: July 11, 2004

The article discusses IKEA's many innovative employee policies. The basic idea is to treat employees like valuable members of a team. The contrast to Wal-Mart is unbelievable. For example:
  1. "The tight-fisted retail industry has been shaped by cutthroat price competition and constant Wall Street pressure that tends to keep wages low and benefits skimpy. Ikea's approach stands out. The company is guided by a philosophy that workers whose basic needs are taken care of tend to be more productive and ultimately more engaged in what they do. Ikea also embraces an egalitarian culture, where executive perks are shunned, everybody's called co-worker, and store managers and sales assistants alike dress in the same uniform: a bright yellow shirt and blue pants."

  2. "For Jones, who landed a logistics coordinator job in March as one of 450 workers hired by the Swedish retailer, it's the first time he's qualified for long-term and short-term disability pay. He has paid health care coverage, life insurance and three weeks of paid time off during his first year on the job. Then there's the company cafeteria, where he pays one price for anything on the menu: $2. As he ticks off his list of benefits, he nearly shouts his amazement."

  3. "Ikea operates 198 stores in more than 30 countries and has global revenue of $12.2 billion. Though it doesn't publish profit data, Geoff Wissman, a vice president at Retail Forward, estimates that its profit margin is around 6 percent, about double what's typical for furniture retailers."
What IKEA gets in return for its investment is important to the company's financial health:
  1. "When it comes to turnover, Ikea North America beats the industry as a whole. At 37 percent, its employee turnover falls below the retail industry rate of more than 60 percent. Some service companies see employee turnover of 100 percent, according to Towers Perrin, a management-consulting firm. "From a customer service perspective, certainly there's an argument to be made that having a stable work force results in a more stable face to the customer," said Don Hay, a principal in the executive compensation practice at Towers Perrin in Chicago."

  2. "The popular assumption is that in exchange for low wages, retailers will find minimally qualified people who can satisfactorily perform the duties of the job, said John Remington, a professor of human resources and industrial relations at the University of Minnesota's Carlson School of Management. "Ikea has recognized that by keeping turnover down, they not only stay cost-competitive but that builds a committed work force," he said."

  3. "Though it doesn't publish profit data, Geoff Wissman, a vice president at Retail Forward, estimates that its profit margin is around 6 percent, about double what's typical for furniture retailers."
By treating its employees like human beings, the profit at IKEA is twice that of other retailers. If Wal-Mart doubled the pay of its employees, it might also double its profit. Amazing. The implication is simple: by treating its employees in such a radically poor way, Wal-Mart may actually short-change its investors by a factor of two on profit margin.

Another company that operates this way -- treating its employees like human beings -- is Costco. See this post for details.


At 6:25 PM, Blogger Andrew Rawlings said...

The examples of IKEA and Costco then show that free markets work to increase wages. If higher wages do in fact increase profits by paying higher wages, then Walmart will eventually follow without governement telling them how much to pay. Before you think about forcing a company you don't own to do what you want, ask what right you have to do so.

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