Organisational Culture: The Frugal Billionaire who Founded Ikea

It is often claimed that the organisational culture of a business is formed and developed in the "shadow of the leader". And perhaps nowhere is this more true than the organisational culture of Ikea which was founded by Ingvar Kamprad. Here is a some evidence which helps explain the concept and also tells us more about the core values that have been used to build the Ikea business.

Kamprad started his business around the kitchen aged just 17-years old. His earliest venture was buying matches in bulk in Stockholm and reselling them locally. He went on to sell fish, Christmas decorations and seeds before eventually settling on furniture.

By any measure, Kamprad's Ikea is a successful business. It recently recorded an annual net profit of £3.2 billion and achieved sales of £27.6 billion throughout 44 countries.

However, what is less well-known is that Ikea is actually a not-for-profit organisation. The profit achieved has to be reinvested into Ikea and its social enterprise activities.

The Daily Mail recently featured an article which focused on the frugal lifestyle led by Kamprad. Despite his personal fortune, he prefers to travel economy class, take the bus and eat at Ikea stores. I'm not convinced the claim that he takes the salt and pepper sachets from cafe tables is true - but you can imagine how this helps sustain the image and reputation of a man who believes in value for money!

In a recent, related article in the FT. Luke Johnson praised the cost-conscious approach of Kamprad. Johnson argued that frugality has never really been in fashion in business, but now more than ever it is needed. He wrote that:

"A founder with a profound sense of value is able to build a more resilient corporate culture. Ingvar Kamprad has become one of the wealthiest men ever born by making Ikea the largest and cheapest retailer of furniture in history. It sells home furnishings at prices no rival can match because it is managed with a spirit of thrift. Mr Kamprad practices what he preaches. He always flies economy-class, drives a 15-year-old Volvo, and says: “I am a bit tight with money, a sort of Swedish Scotsman. But so what? If I start to acquire luxurious things then this will only incite others to follow suit.”

How can a focus on frugality, thrift or cost control result in a successful organisational culture? Can frugality be a source of competitive advantage?

As Luke Johnson points out, a culture of thrift isn't particularly exciting. It doesn't result in glamorous head office buildings, a jet-set lifestyle for top executives and sky-high bonuses for modest achievement.

However, a culture of thrift or frugality is often a vital ingredient of being able to sustain profits (profit quality), particularly through economic downturns. High-profile businesses that fail, often spectacularly (think RBS, Lehman Brothers, Enron) often have organisational cultures which emphasise greed and excess rather than frugality. When the good times end, the business comes tumbling down.

A culture of frugality is not enough on its own to guarantee success. Other key parts of the mix must exist - good quality; customer service; a product customers want to buy again and again. However, a culture that emphasises cost control helps set the tone for management decision-making and helps employees know what is expected of them.

I'll leave the last work on a culture of frugality to Ikea itself. You can read what they say about the link between Ingvar Kamprad's background and lifestyle here on their website. Here are two relevant quotes:

The values and culture of Inter IKEA Group reflect the entrepreneurial spirit of our founder Ingvar Kamprad. Our values have its roots in the Småland region of Sweden, where Ingvar Kamprad was born and grew up. It is a stony and rather rugged landscape where the inhabitants often were forced to get by on small means and make use of the scarce resources at their disposal. Smålanders have a reputation for being thrifty and innovative with a straightforward, no-nonsense approach to problem-solving in general and to business challenges in particular. This ‘Småland legacy’ is built into the IKEA culture and values, all over the world.

In the practical business world of today this means that IKEA values encourage a constant desire for renewal and a willingness to make changes, as well as a cost-conscious mindset applied in all areas of operations. They also imply a willingness to try solutions other than the conventional ones and daring to be different while maintaining practical connections with the day-to-day activities. Humbleness in approaching our task and simplicity in our way of doing things are also cornerstones in the IKEA culture.