Wim Blaauw On The Enormous Digital Development Of IKEA

Originally from Sweden, IKEA, which celebrates its 80th anniversary this year, now has branches around the world. For many years, these were only showrooms with self-service warehouses, outwardly recognizable as blue ‘boxes’ on the outskirts of cities. In 1995, the first website was launched, followed in 2013 by the first app. Only as of 2018 were digital and tech really embraced by the retailer as tools to enable new ways of interacting with customers. The then-established digital organization gained momentum in part due to the pandemic. In addition to digital teams in 30 countries worldwide, seven digital hubs in three continents emerged at the group level. The hub in Amsterdam opened in 2019, later followed by six more in five different countries. All seven hubs fall under the responsibility of Wim Blaauw.

As formality is not the IKEA style: when you were asked in 2020 to lead digital transformation at the group level, you had no background in that field yourself. Why the position anyway?
‘We did not have the right digital skills at all and had to hire hundreds, if not thousands, of people globally. It was great to introduce something new into the company, but we also realized that it was necessary to bring our values, our leadership style, and our network into the capillaries of that digital organization.
Jesper Brodin, our CEO, asked me if I would take it on. Not only because I worked at IKEA for 21 years, but also because at the time I was responsible at group level for all our fulfillment and service operations. There are many interfaces between logistics and supply chain on the one hand and digital on the other. Both principally deal with structuring, tying systems and processes together and making sure that both employees and customers have a positive and consistent experience.’

What is the essence of IKEA’s digital transformation?
‘Our strategy ultimately revolves around making our furniture and design more affordable, accessible, and sustainable. We translated that into what we call 10 jobs in 3 years, the 10 most important tasks we wanted to accomplish within a three-year period in several areas, but with a focus on retail. The digitization strategy, for which I am responsible, is the engine for achieving those tasks. It starts with establishing a modern, future-proof system structure. Like many companies that have been around for many years, we built up a wide variety of systems. If we optimize those processes, if we manage to make lasagna out of spaghetti, so to speak, the customer should notice this indirectly through a lower price for items, but that obviously takes time.
In addition, we want to accommodate changing customer shopping behavior. Online sales grew from 7 to 25 percent from before the pandemic to now. And even with in-store customers, 80 percent go to the website first for orientation. So, there is much more talk of ‘phygital,’ a combination of physical and digital. Until now, the answer to this has been mainly to add new channels: from only stores to web, app, remote selling, pick-up points.... Now we want to progress from multichannel to omnichannel: ensuring that customers - wherever, however, and whenever they do a purchase - have a consistent IKEA experience when it comes to product visualization, functionality, ordering convenience, personalization, fulfillment, services, or anything you can think of.
A third pillar of the digital strategy revolves around the employee. How can we make things easier for them by unifying systems as well as through automation? For example, we now have a functionality within the IKEA app that allows customers to scan and check out products themselves. Employees who used to do nothing but scan products, can now focus on things that add more value, such as giving advice and service. A fourth pillar of our digital transformation is called digital DNA: how do we get digital skills from the digital teams and hubs to the totality of the company? An important aspect of this, which runs like a thread throughout the digital strategy, is human-centric technology: we want to deal with data and technology in an ethical and responsible way.’

What precisely does ‘dealing with data responsibly’ mean for a company like IKEA?
‘Our principle is that we want to deal openly and transparently with customer and employee data, but specifically around artificial intelligence or AI, as it is known, there is the risk of a gray area. We of course already use AI and machine learning, especially within logistics, fulfillment, and inventory management, but we now want to take substantial strides toward personalizing the customer experience. Machines will increasingly determine what the customer gets to see online, but our focus on equality, diversity and inclusion must not be compromised by this. Bias is a danger; for example, it can be commercially tempting to show or not show certain products to someone with a very high or very low income, but that is not what we want.
It is incredibly important to us that all our digital products are easily accessible to anyone, regardless of income, age, or disability, for example. Within the digital organization, we therefore have an AI team dedicated to getting it right. We are also starting a leadership program to impress upon our managers our perspective on this: what are the opportunities and risks and, above all, how do we want to deal with them as a company? We would like to be a role model within retail for the ethical use of AI-systems.’

The Amsterdam digital hub alone employs 600 people. In this competitive market, are you managing to bring in the necessary talent?
‘That is a challenge all over the world. Yet it is going quite well. Every company is different, and every company has something special that makes you choose it. We are not a tech organization pure and simple and not a startup, but a retail organization that has embraced digital and tech as an important part of retail transformation. That attracts people who believe in that vision and feel something about our corporate culture. Moreover, we do not build everything ourselves. Sometimes the digital competence is elsewhere, and it makes sense to partner with another company or buy it in. For example, in 2020 I was closely involved in the purchase of the startup Geomagical Labs, a software company specializing in analyzing and visualizing geospatial data. That recently resulted in the launch of IKEA Kreativ: a tool in our app that allows you to virtually decorate spaces. For example, you scan your living room, can remove, or move objects that are currently there and place IKEA products. We can add many more features to that, such as furniture suggestions based on filters you specify.
It also has a sustainability component to it because it saves returns if people can judge in advance whether a specific sofa or chair fits their interior. Our most recent acquisition is Made4Net. Their warehouse management system SCExpert offers, among other things, real-time inventory visibility and should deliver faster order processing and lower costs in the distribution centers. We also want to use it in the fulfillment units we are going to set up in more and more stores. Currently we often have huge unused space above the self-service warehouses near the checkouts. We can set that up far more efficiently with supplies, then transport the items directly from the store to customers in the immediate area. That would be a win-win situation. We would need fewer logistics units in the long run. Less damage would occur as without intermediate storage products pass through fewer hands. And the customer will receive the items faster, more sustainable and at lower service cost because of the shorter transport routes.’

Key word sustainability. Along with affordable and accessible, sustainability is one of the pillars of IKEA’s strategy. On the product side, IKEA is working on sustainability and circularity in many ways, but AI and digitalization are also energy guzzlers. To what extent do you as CDO engage with that?
‘We are most definitely aware of it. For example, during a recent presentation, a colleague from the AI team showed what can happen with energy consumption when you go from version 1 to version 4. We need and want to do something about this, but what? We do not have the detailed answer yet, as much around AI is not yet completely clear. Ultimately, though, it starts with product development. We are in the last year of our current retail and digital strategy and will be working on the next version in the coming months. I expect it to move more and more towards circularity and for digitalization to play an even bigger role. We sell millions of objects worldwide with a quite complex supply chain. It takes time to achieve full circularity and it is important to do it step by step and gradually investigate what works or does not work. You could, for example, think about track and trace codes throughout the chain.’

Your entire working life has been at IKEA. What makes the company so appealing?
‘It was never my plan to remain this long. There were three reasons to apply to IKEA after I graduated from college. First, it seemed like a nice company based on my experience. On top of that, I heard there were many opportunities to develop yourself. And third, the vision and values appealed to me. The last were the least decisive for me at the time but became increasingly more important. Our founder Ingvar Kamprad had the famous saying, ‘Most things still remain to be done. A glorious future!’ This means that we always want to continue with development in a positive way. This is also what drives me to choose IKEA again and again. I like looking back at what we as a company have improved for customers and employees. The development in the five to ten years from single channel retailer to where we are today has been enormous. It is wonderful to be able to build on that.’

You had nine different jobs in 21 years at IKEA. What have been the highlights?
‘I always enjoyed developing myself broadly. I started in the store, had the opportunity to advance to store manager and then work in a national management team in the Netherlands. Every time an opportunity presented itself, I could show good results, had a sponsor, and said ‘yes’. A first highlight was my time as deputy country retail manager for the United Kingdom and Ireland. I lived with my family in London, as far as I was concerned the most amazing city on the globe: I fell in love with it. Moreover, the organization was facing challenges in all areas, but with good strategy and solid leadership we were able to turn that around in a few years. That gave me a lot of energy. My current role as CDO is a new personal highlight, mainly because I have learned an incredible amount in the past three years. After 21 years, I still enjoy going to work.’

Interview by Vincent Wormer, partner at Valcon. Published in Management Scope 08 2023.