Ikea Business Model; and Growth and Society

comments on: Peak Stuff and the Hierarchy of Useless Things

"stock analysts" don't exist for Ikea. They have no stock holders. They are completely owned by a "charity."

But all you have to do is look at all the extremely highly paid executives in USA charities to see that charities often take on the form of corporations being run 1st to make executives happy and 2nd for other reasons (charitable in the instance of charities, education in the instance of large universities, profits of shareholders and all the other stakeholders in the instance of companies).

Another similar model you can view is tax evasion trusts set up by the rich which subvert the social contract. They have bought laws and regulation that allow them to set up trusts to benefit them, and/or their kids, and/or their grandkids and have those trusts treated beneficially for the rich, at the expense of society. Some argue Ikea has the same model, pretend it is a charity and use the funds primarily to benefit those creating the charity ("What emerges is an outfit that ingeniously exploits the quirks of different jurisdictions to create a charity, dedicated to a somewhat banal cause, that is not only the world's richest foundation, but is at the moment also one of its least generous"). In Ikea's case some amount does go for the "charitable purpose of Ikea": interior design.

The growth mindset certainly permeates Ikea, as it does public USA companies and "wall street."

> "not as much in the quality of customer experience"

This is so true. As a consumer, I find the customer experience painful much more often that it is good. Basically, the best it gets in the USA (for 95% of the companies) is when you don't have to interface with them at all. Then things are good. And I do think companies have made strides in removing the need to call to get things fixed... But oh my, when you do need them to actually get a hold of them the extremely bad experience is pitiful and truly far beyond pitiful most of the time. They setup extremely insulting processes that completely disrespect your time and humanity.

The horrible experiences when needing to deal with large USA companies is by far my biggest frustration of being back in the USA. As long as you don't have to contact them things are usually decent but I dread any time I need to contact one of them.

My father really liked Small is Beautiful by EF Schumacher which I think takes issue with the growth focus that permeates society (it has been decades since I read it) and instead wishes to focus on better lives not lives with more things.

Related: Kleptocrat CEOs and Their Apologists - Pretending to Listen to Customers Rather Than Actually Doing So - Why Pay Taxes or be Honest - Corrupt Looters at AIG

Did Deming and Drucker Agree on Important Management Practices?

Response to, Help needed fleshing out differences between Drucker & Deming? on The W. Edwards Deming Institute LinkedIn group.

Here are some links about the topic

• video of Drucker discussing Juran, Deming and himself
• Driving Out Fear and Other Similarities Between Drucker and Deming by Kelly Allan
• Podcast with Kevin Cahill and Joyce Orsini where they discuss the interaction between Deming and Drucker and their ideas

There were cases where Deming and Drucker disagreed but in many ways the ideas they proposed were compatible.

Drucker did propose MBO, his version was not the same thing we criticize. Drucker did criticize how it was being implemented. I think you can argue even with the way Drucker wanted it done, but that way isn't nearly as bad as the way it was done in practice (so don't think Drucker was promoting managing in the way MBO has often been practiced).

And also don't tie Drucker to just MBO, he had lots of ideas over a very long career and many work fine with a Deming management system. I think in many ways Drucker's stuff can be more easily molded to whatever someone wants it to be - this is one reason I think you see Drucker taught in business school. They can claim Drucker wouldn't object to many things, even though, really I think he would - I am not sure Drucker spoke out so directly (especially compared to Deming).

But Drucker was direct on some things, like how bad excessive taking of company's money by executives was. And MBA programs seem perfectly fine ignore this, even though what Drucker found horrible has become mathematically 10 times worse than it was.

I think Drucker was ahead of Deming on this. I don't know that Deming ever was clear on how bad this practice was, but I think he would be clear about it today (though that is just my guess, I could be wrong). I think Dr. Deming would add that to the list of deadly diseases. Remember the original list was 5 before he added 2, to make it 7.

Related: Deming's Point 11.b of 14 - Deming versus Drucker - Why There's No Right Way to Do MBO - 3 Deming-Based Alternatives to Management by Objective

Drucker's CEO Pay Suggestion 15 to 25 Times the Lowest-Paid Employee Pay. Actual CEO Pay Today: 354 times Median Employee

Payday Disclosure (on the Drucker Institute blog):

Today, the CEOs of the largest U.S. companies make 354 times more than the average rank-and-file worker. At some companies— including Abercrombie & Fitch, CBS and Nike—the ratio is in excess of 1,000 to 1.

As far as Drucker was concerned, this sort of pay structure was absurd. “It is surely not professional altogether for people who are employees and not ‘owners’ to pay themselves salaries and bonuses greatly in excess of what their own colleagues, that is, other members of management, receive,” Drucker wrote in The Frontiers of Management. “And it is not professional to pay oneself salaries and bonuses that are so far above the social norm as to create social tension, envy and resentment. Indeed there is no economic justification for very large executive incomes.”

In fact, in The Changing World of the Executive, Drucker recommended that companies have a “published corporate policy that fixes the maximum compensation of all corporate executives, after all taxes but including all fringes, as a multiple of the after-tax income of the lowest paid regular full-time employee (including fringes).” He added, “The exact ratio is less important than that there should be such a ratio.” (His suggestions ranged from 15-to-1 to 25-to-1, depending on the size of the company.)

Thanks for posting this. I have been posting about the damage done by excessive executive pay for years. In doing so I have pointed to Drucker as someone who saw this practice as extremely damaging.

I agree the burdens of regulation need to be considered. The abuses by those on boards and in the senior executive positions of the control they have over the corporate treasury to take what they don't deserve completely overwhelms the regulatory burden. We sadly have many boards and senior executives that are enriching themselves at the expense of companies and doing great damage to those companies, the stock holders, the employees and other stakeholders.

Related: Narcissistic Cadre of Senior Executives - Tilting at Ludicrous CEO Pay 2008 - Pay Practices Say More About Respect for People Than Words Say - CEOs Plundering Corporate Coffers - Obscene CEO Pay (2006)

The Failure of Hero Worship Thinking at JC Penney

Where J.C. Penney And Ron Johnson Went Wrong

Penney’s board opted for a silver bullet that didn’t exist. Rather than do the hard work and heavy lifting necessary to turnaround a brand that had been mismanaged for years, they wanted a quick fix – they bought smoke and mirrors rather than sound business practice.

I think 2 fatal mistakes were made.  First paying Johnson and 3 executives $170 million shows a failure to understand management, leadership and organizations.  It values up hero worship and huge risk taking instead of valuing the deep changes needed to improve a company such as JC Penny.

Lots of boards share this hero worship vision of organizations.  Largely pushed by such a hero worship vision they then took huge gambles instead of experimenting learning and adjusting, experimenting some more and adjusting and only once the evidence supported the wisdom of adopting changes system wide taking that step.  Using the PDSA improvement cycle would have made the experiments much less damaging and hopefully a success strategy (certainly they didn't find one) could have been found.

I have written previously that the CEO is only one person. Ron Johnson showed 4 people (that paid themselves $170 million) are not enough either. The whole attitude such people have about the appropriateness of hero worship and disrespect for the vast majority or workers sets up likely failure.

Related: Netflix is Well Managed, People are Overreacting to Short Term Issues - The Market Discounts Proven Company Leadership Far Too Quickly - How Could They Know?