Designing the Future: IKEA's Digital Transformation Journey

IKEA Retail's Chief Digital Officer Parag Parekh joins CXOTalk episode 835 to explore digital transformation, customer experience, and retail innovation. Learn how IKEA is embracing technology. data, and AI.

53:38

Apr 19, 2024
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In episode 835 of CXOTalk, we discuss the digital transformation journey of IKEA, the world's largest furniture retailer. We speak with Parag Parekh, the Global Chief Digital Officer at IKEA Retail.

Parag explains how IKEA is navigating the shift from a traditional, physical retailer to an omnichannel and e-commerce approach that meets customers wherever they prefer to shop.

This episode explores the strategic initiatives IKEA has implemented to enhance customer interaction, empower employees, and optimize supply chain operations through digital technology. The conversation offers insights into how a global retail company navigates the challenges and opportunities of digital transformation in an ever-changing landscape.

Episode Highlights

Embrace Digital Transformation to Stay Current

  • Adapt business models and operations to meet changing customer expectations in the digital age and establish clear policies and guidelines to your customers for the ethical use of data and AI technology.
  • Embed digital capabilities across the organization, from customer touchpoints to back-office processes.

Align Digital Transformation with Company Values and Culture

  • Ensure that your digital initiatives remain true to the company's core mission, values, and DNA while aiming to foster a culture of agility and innovation.
  • Provide employees with advanced tools and systems that simplify their tasks, allowing them to focus more on customer service rather than routine processes.

Use Data and AI for Improved Decision-Making and Personalization

  • Utilize data analytics to optimize supply chain, inventory management, and logistics, to gain insights into customer preferences and behaviors, and to improve the speed and accuracy of product delivery.
  • Take advantage of AI and machine learning to personalize customer experiences and enhance services, such as home design.

Adapt Quickly to Changing Customer Behavior

  • Constantly analyze changes in customer behavior and preferences to adapt offerings quickly and efficiently, ensuring brand relevance and competitiveness.
  • Explore new ways to interact with customers, such as using social media and other digital platforms, to meet them where they are choosing to engage.

Develop an Omnichannel Strategy for Seamless Customer Experiences

  • Integrate digital and physical touchpoints to create a cohesive, convenient customer experience across all platforms.
  • Utilize physical stores not just as retail spaces, but as vital components in the distribution network, optimizing the supply chain and improving delivery times to customers. Explore new store formats and even store sizes to meet evolving customer preferences.

Key Takeaways

Embrace Digital Transformation to Stay Relevant

IKEA recognized the need to adapt to changing customer behaviors and expectations in the digital age of online shopping. The company embarked on a digital transformation journey to evolve from a physical retailer to an omnichannel and e-commerce retailer, meeting customers through various digital touchpoints such as leaving reviews on its website.

Align Digital Transformation with Company Values and Culture

While undergoing significant changes to its business model, IKEA continues to remain true to its core values of simplicity, togetherness, and constant renewal. The company sells its products online, but still maintaining its focus on affordability, accessibility, and sustainability that they were known for with their physical retail sales model.

Experiment with New Formats and Business Models

As part of its digital transformation, IKEA tests new store formats and layouts to better serve customers in different locations. This includes introducing smaller city center stores with specific product categories, alongside its traditional large-format stores. IKEA also explores new services and delivery options to meet evolving customer needs in the digital age.

Episode Participants

Parag Parekh is the Chief Digital Officer at IKEA Retail (Ingka Group). He has the responsibility for developing digital capabilities and accelerating the digital transformation of the business. Parag joined Ingka Group as Chief Technology Officer, Group Digital, in 2021 and has more than 20 years of technology experience working for global companies.

Prior to IKEA, Parag held senior roles at Adidas with responsibilities for omnichannel transformation, ecommerce, and product engineering. He also spent several years as Senior Program Manager and as part of the leadership program at General Electric (GE).

An engineer by trade, Parag also has a Master’s in Business Administration (MBA), Information Technology from Narsee Monjee Institute of Management Studies (NMIMS). He is also a graduate of the Executive Development, Business Administration and Leadership program at Harvard Business School.

Michael Krigsman is an industry analyst and publisher of CXOTalk. For three decades, he has advised enterprise technology companies on market messaging and positioning strategy. He has written over 1,000 blogs on leadership and digital transformation and created almost 1,000 video interviews with the world’s top business leaders on these topics. His work has been referenced in the media over 1,000 times and in over 50 books. He has presented and moderated panels at numerous industry events around the world.

Transcript

Michael Krigsman: Welcome to episode 835 of CXOTalk. I'm Michael Krigsman, and today we are talking about digital transformation at IKEA. They are the world's largest furniture brand. Where speaking with Parag Parekh, he is the global Chief Digital Officer of IKEA retail.

Give us some context and tell us about your work.

Parag Parekh: I head digital here at Ingka Group, which is the largest franchisee for IKEA, also sometimes referred to as IKEA Retail. And, we are the largest home furnishing retailer with, sales approximately 90% of, the IKEA group and, with, approximately 374 plus stores in 30 plus countries and about 200,000 employees.

Michael Krigsman: You're chief digital officer. What does that involve?

Parag Parekh: It's really being responsible for the digital agenda for IKEA Retail and the entire group of companies, but also right from and that goes right from if I say the basics into our stores, but also to anything that we need to develop, to meet our customers, help our coworkers, and look from a supply chain perspective.

So, it's literally the end to end, digital agenda and the digital transformation, within the group itself.

Michael Krigsman: When you talk about the digital agenda at such a large organization in retail, which is changing so dramatically. Can you give us an overview of what that agenda actually is?

Parag Parekh: We originally started as a cash and carry retailer. So, if we look at the stores as we know it to be called, big blue boxes, they are going through a fundamental transformation. So, all digital capabilities that we have had existing in our stores, all new ways and customer meeting points in terms of how we will reach out to our customers, be at our web app in China.

We approach them through social media, though, some of the other marketplaces. All of these are responsibilities that, comes under the responsibility of digital to say, how do we really bring this to life and how do we, engage with our customers, at the different customer meeting points? But also, how do we, enable our coworkers with all the capabilities they need to be able to serve our customers in the front office, but also everything in the back office?

So, it's literally the full end to end responsibility from a run from an improve, but also from developing and building the agenda for tomorrow.

Michael Krigsman: So, this is a very broad set of changes and transformations across the company, both in terms of what the customer sees, but also behind the scenes as well.

Parag Parekh: Absolutely. Goes from customer facing very visible to that. You see, in the broader context, around the world, but also everything that, a coworker deals and works with, but also everything that goes into the back office, right from if it's the networking in the stores, the WiFi in the stores to, getting some of the basic, ERP and enterprise systems up and running.

Michael Krigsman: Parag, any type of transformation is hard. What drove IKEA to start this very large transformation project? I'm almost hesitant to call it a project. I mean, it's really underlying so much of how the company operates.

Parag Parekh: If you look at IKEA, IKEA has had, 80 years of history, behind us. And for a large part of that history, we were the disruptors. We started with, as a mail order company, if I may say so, in, 1943 with our founder, Ingvar. And literally he started with, mail order in a catalog when he started reaching out to a small community in, in Sweden.

And from there on, he identified there was a huge opportunity. And we had the first store that opened in 1953. And since then we have seen, IKEA retail grow. Of course, in Sweden, but also in different parts of the different parts of the world. And if you look at it, we continue to keep disrupting the retail world.

If you look at the definition of flatpack, if you look at the concepts of having a small land to bring the young, customers into, into the IKEA stores, if you look at the restaurants, to help with our customers on their journey during that customer shopping, all of these were ideas that probably went way back in 1970s, 1980s and fundamentally disrupted.

However, the customer journey could look like. And you all, of course, have heard about, all of the inspirations, the showroom setups that we have in the IKEA store that you walk through to really experience life at home and really get a feel of how your life at home could look like. So we really were disrupting how retail needs to be, and more importantly, setting the stage of how retail of tomorrow would look like.

But at the turn of the century, we also saw that customer behavior started changing, the rise of the smartphone in 2005 and then going into the decade of 2010. And all of a sudden, we realized that, customers are, probably wanting to meet in different places. And this is where the disruptor, IKEA retail started getting disrupted.

And already by 2015 and 2016, there was a strong realization that IKEA will need to relook what has had been successful historically needs to be adjusted to how customers are wanting to meet us in the reality of the time. And this is when, there was a strong need and, a realization that we will need to figure out how we adapt from being a cash and carry brick and mortar retailer towards, really being an omnichannel retailer, which means, really start putting the basics and the foundations.

And we were very late to the game. But this is where in the last, 6 to 7 years, we have come a long way for the foundations in place, but also really caught up to our journey of how we really go from cash and carry to omnichannel retailing. So really, it was the customers that really triggered to say, we need to change, we need to adapt.

And this is where IKEA was disrupted. And that's where we said, we need to undertake digital transformation and really put it at the heart of changing how we want to meet our customers going forward.

Michael Krigsman: from IKEA standpoint, what then is the difference between customer interactions on a retail level or a brick-and-mortar level versus through the app? So, there's a difference in how customers relate to you, but there's also a mindset difference as well.

Parag Parekh: IKEA, we always say, love your past and create the future. And we really believe the store is the heart and soul of IKEA. And we really put store and our products at the heart and soul of IKEA. And, of course, with that, we make sure that we are accessible to the customers, be it when it comes to website, when it comes to app meet, any of that, customer meeting point that they would like to connect and engage with, but also figure out how in that journey we really bring back that customer to experience the best of IKEA and the different touch points that they would like to connect and engage with us. and this is where, of course, if you look at historically, the IKEA business model was, really about, we would decide to say, here is a glass. I would want to make this glass available at, cash and carry, brick and mortar retail at, let's say, a price point of, to €99.

And, for achieving that price point, we would really say we need to achieve these volumes, and then we really would go after and make sure that we optimize our whole business model to hit that price point, which makes it affordable for the many customers that we want to reach out to. Now, as, as we said. And that, of course, meant in our business model to keep the price to a to 99.

We as IKEA, we would do our part, but we also asked the customers to do their part, which means historically, they would come to the store, they would pick the products on their own. They would take the products in their car, get it back to their homes and, assemble in some cases, in their homes. So it was we do our part, you do our part, and together we keep affordability for our products and make sure that you can enjoy the fantastic range.

But as we started to look into switching and looking to say, how do we go Omni retail. And we started meeting the customers in different touch points, we had to make sure that we started providing the different services. And this is where also we ran into one of our second disruptions that we had to start to address. How do we really make sure that we start providing the services along with our omnichannel model?

And this is where we also started looking at different business model adoption. into our, into, at IKEA retail, supply chain.

Michael Krigsman: Subscribe to our newsletter and subscribe to our YouTube channel. Did you know that we have a CXOTalk audio podcast? You can listen on the go.

So, there's a set of core IKEA values, or approach to working with the customer. Sort of core customer relationships. And you wanted to adapt to this new form of interaction, meaning digital, while keeping intact those core values and culture, essentially.

Parag Parekh: Absolutely. First and foremost, at IKEA, we have, in our values, we have what we call simplicity. how do we really make things simple from a customer perspective. And that simplicity is at the heart of being able to drive affordability into our system. The other thing, which is very much at the heart of our business, which is very, Swedish also, in a sense, is the aspect of togetherness to say, to get to serving our customers the way we would like to, with our three principles of affordability, accessibility and sustainability, we would need to work together towards that goal.

And, and the most important that we have always had been applying is how do we constantly renew and how do we constantly improve that is always an opportunity to do better than where we are today. And this is something that, we continue to bring as we looked into the transforming, into omnichannel retailing, we had to of course, we adapted to the new omnichannel world in the different touchpoints, the web, the app.

But then we had to go back and constantly look at what does this mean from a supply chain perspective? What does this mean from a cost perspective? How do we bring affordability back into the system? And that meant we clearly had to work together across different functions of our business, but also, we had to make sure that we constantly renew and constantly continue to improve.

And really lead by example on this one. So all of these are, how would you say values which have been true and clearly something that we have been, bringing to together.

Michael Krigsman: We have a very interesting question from Twitter. This is from Arsalan Khan, who is a regular listener. And, Arsalan, thank you always for your great questions. And Arsalan says this, did IKEA need to change its culture based on feedback from external and internal customers? And did you add new strategic objectives as you were going through this transformation?

Parag Parekh: We love our past and culture is something we truly believe has had been what has helped us to be successful in the last eight years.

And this is something that we hold our culture and our DNA is something that we hold true. And to the aspect of we change almost everything except eating our culture and our values. And this is something that we continue to bring forward with, of course, having a growth mindset in terms of what needs to change on our business model to be able to adapt.

So to give you a very concrete example, and Michael, we were discussing earlier, as we also adopted, our business model from cash and carry to brick and mortar, to omnichannel. We also wanted to figure out how do we get closer to the customer. And that meant we probably had to start thinking about maybe there is an opportunity to move away from being from having only a certain format, which is the big blue boxes that you usually see on the outskirts of the city, to having smaller formats in the city close to where the customer is probably with different square footage, but also with different, category.

Now, this is very religious for IKEA, which for the last eight years had a very clear set layout and which was used to building stores only a certain way. This was something very religious. But we also said with, our, our values offered a new and improved, I think we need to test and try and figure out how we look at different culture.

So if I give you concretely as an example, this was one of the examples that was, that we said we will test and try. And today we have small city formats which are operational. and we have a little bit more than 150 plus different store formats besides the 374, plus, big blue boxes that we speak about.

So, a lot of emotions, but, we stay true to being, constantly testing, trying and improving.

Michael Krigsman: So, the disruption for IKEA, then. It's not just a matter of, oh, now we have a new website, and we have an app. But it really relates to experimenting and trying new things, even at the very core of what the company actually does.

Parag Parekh: Absolutely. And it goes back to, the topic I called out to say the business model was really about we keep it affordable by IKEA doing its part, and you as a customer are doing your part picking up the products, bringing it home, installing and assembling it. But now in the new world with the web app, we also had to figure out to say maybe in some cases the customer wants a click and collect.

The customer wants us to ship at home, but at the same time, we want to stay true to our goal of being affordable. So when you add the additional cost, be it in terms of picking meat in terms of delivery, how do you really continue to stay affordable and this is where we had to relook at how do we fundamentally look at, supply chain, how do we adapt our supply chain.

And that's where we had to also start challenging some of the norms we had from, supply chain perspective, some of the norms we had from a design perspective to really figure out, staying true to being affordable and accessible. So I always say there are, at IKEA, when I look at this digital transformation, there are three transforming things which are happening concurrently, if I may say so.

It's about, the transformation from, being cash and carry brick and mortar to really being omnichannel, meeting the customer at different touchpoints, but making sure that it's seamless. The customer can seamlessly move between, the different channels that they engage with, be it web app and in-store and or other formats. But the second transformation is really about the transformation of our physical formats itself from the 40 plus thousand square meters of formats to far smaller formats much closer to where the customer is.

And of course, the third transformation is that we also start looking at providing the customers on a lot more services, which we historically did not, which the customer was used to. So be it delivery services, be it financial services, all with an intent to make life easier and convenient for the customer. So literally three transformations all, together.

Michael Krigsman: What I find fascinating is you've mentioned issues such as supply chain several times. So this transformation has had very deep roots going through how you retail in stores all the way back to how you design your products. And I find that I find that kind of amazing because you started off with this change in customer behavior, all of which now is or as a reaction to that. I don't mean to be putting words in your mouth.

Parag Parekh: the first adaptation that we had to do as we, as we went so literally in 2016 or 2017, 1% of our business was digital. We didn't have E-Com presence in large parts of the world to today, we have approximately 25 to 30% of our business digital, and in some markets, touching 40 or 45% of our business being digital. And of course, with digital comes the need to, allow for the click and collect. So, capabilities or allows the possibility of delivery and to optimize our supply chain, we had to adapt the traditional role of a store as a pure retailing store to also start becoming distribution centers.

So had we not done that, we would have additional cost anywhere. If I look at 2021, anywhere about 15 to 20 new DCs to be able to, cater to the demand of the e-commerce business. But all of a sudden we realized we have one of the biggest assets with our retail stores. And literally all 374 stores have had to be adapted to start becoming also distribution centers.

So we had to really look at the back office and start adapting to allow for click and collect in the back office of a store, but also allow for, deliveries ecom deliveries that are shipped out of the store, of course, helping our sustainability agenda, but in the back end, also helping to optimize cost when it comes to our logistics and our last mile deliveries.

So that's just one example. Then you also mentioned, Michael, about how do we adapt to, and from a design perspective. So clearly, what we also see is, through our touchpoints, we get a lot of, information in terms of what the feedback the customer is providing through the reviews. we also see a lot of information in terms of what products, are more relevant in which parts of the world, and that helps us to take that information and then figure out what categories and how best we merchandise into the store.

But also, as we start looking at adapting to an omnichannel journey, we realized to optimize the cost of delivery, it's probably easier if we have a 1% delivery versus a 2% delivery. And that meant we had to go back and look at our flat packs to say, how could we design? Or flat packs end up products in a fashion where it allows to have the flat pack to be delivered by one person instead of two people, and that optimizes the cost, into a delivery and logistics.

We had to adapt to, making sure that when we ship out products, say, glass products to, our customers, how do we make sure we have the right packaging that can be reached? So we really had to make changes both in terms of the store, the store, the back office of the store, but also right up to, the design aspects of the product to make sure that they as well can adapt to the new reality of, omnichannel journey.

Michael Krigsman: And this dovetails with another question that Arsalan Khan had, which is. What is the purpose of the stores and having inventory at stores in a digital online world? And I think you've just addressed that so that the stores become an integral part of the digital plan.

Parag Parekh: Absolutely. So the way we now start looking at historically, while we used to look at store as individual units, the store really became a part and parcel of, how we look at, a city. So a city typically would have, a few small units, a couple of, big units on the outskirts. And of course, then, the web or the app and or any other touchpoints through which we engage with our customers and literally some of these bigger blic, formats start becoming also the last mile distribution centers to reach out to the customers, both with an intent of how do we drive convenience and get our products faster to the customer.

But also being kind to the planet and making sure that we don't ship products from a central DC thousands of kilometers away? but really, approach it sustainably and making sure that we ship the products from where it's nearest to the customer. And maybe the side return is it helps us with that logistics. And, last mile cost.

Michael Krigsman: we have a really good question from Twitter. And this is from another regular listener, Chris Peterson, who says he has a question about data. And he says with hundreds of stores in dozens of countries, how does IKEA balance cloud versus edge computing and the data sovereignty across these different geographies?

Parag Parekh: We are still at a point where a, we are working through establishing stellar foundations. So we really talk about a data assets which are fundamental to our journey of digital transformation. This goes right from the customer data set.

The supply data set, the product data assets. So we literally have each of our data assets where we say it is fundamentally critical for us to make sure that we have these data assets really continue established and continue to work on. And what while we are doing that, we also are running through the aspect of how do we start leveraging these data assets to help us to really become a data driven business? This is something that we are still working through. I would say we are further ahead in the journey thanks to the fantastic work of, 400 plus, members, in our data organization. But it's also something that I feel, in all humility, there's still quite some work to be done.

Michael Krigsman: Can you talk about some of the the technologies that you're using to help drive this seamless experience between online and the retail?

Parag Parekh: This week, I had the possibility of doing what we call front days. and it's a very interesting concept. Maybe I take, one minute diversion before I come to the question itself, where everyone who works in a corporate office, and or, otherwise, takes a few days where they actually go into a store and experience different parts of the store to really, pulse and feel, how it is on ground, to experience what the customers, what the coworkers feel while meeting the customers, but also in the back office and, of course, as a part of, as a part of one of my front days, this week, I had the opportunity to be, part of, meeting and spending time with, the sales manager, who is, sitting in, in the store and being responsible for what we call, the, HFP, which is, living room.

And, this is in Malmo in Sweden, where the stories and one of the very interesting, input that she shared is, she has, access and information in terms of what are the top, seller list that we have on living room that customers are looking at and that customers are really browsing, while being online, in our web and app.

And historically, that information was never used to say, how should you best merchandise in that setup? But she is now using this information to figure out what are the best up of the ducks that she should, essentially set up in the living room. She has that linked to what the customers are talking about in terms of the reviews which are available online.

And of course, she uses this to then also decide, different, combinations that she could, how to say merchandise in store. So this is one of those examples where, she uses this information to drive how best to, set up and merchandise her store. But we also have had other is where based on data and based on inventory availability, we also have had to, adapt how we showcase and look at things from an online world perspective.

So somewhere back in, back in 21 when we had supply challenges, across the globe for certain bed frames, we, we got information that, the, the slats, which really help hold the mattress, are, not available. And that would mean it's impossible for us to be able to, start looking at figuring out, to to not be able to sell specific articles which, use those slats.

And, of course, we use this information from an inventory availability perspective to start figuring out how do we merchandise differently and how do we sell steer customer to products which are available, versus two products which are using slats which are not available. So those are just two examples of how information from online helps and can be leveraged, to engage offline, but also vice versa, the other way around, differently.

Maybe it's data, but it's more in terms of, what we see with I most recently we, in 2022, we went live with what we call IKEA creative. And it's a complete new experience of how we want our customers to experience how they should home furnish. and we started seeing that customers start with the home furnishing journey at that home.

They, they experiment with, with taking a scan of the room. They experiment with putting products, into, into the room. But they also save this design. And when they visit the store, they bring the design along with them to maybe in some cases, continue the journey with, planning services. So this is where also we have started seeing that customers are really telling us how they would like to use some of these capabilities.

And, what are the possibilities in terms of end, as IKEA, we are taking cues from our customers and really adapting how the experience needs to be adapted.

Michael Krigsman: We have a couple of questions from Twitter now. Both from Arsalan Khan again and from Lisbeth Shaw, who are asking, how does I change the company's digital transformation plan? And can you give some examples? I think everybody's really interested in AI, and also in this whole question of the types of data. And Arsalan is also asking what kind of new data are you collection collecting, and how does all this enable transformation.

Parag Parekh: What you were just talking about. Our vision is really about creating, better everyday life for the many people. So if I, if I take the example of, how a typical customer journey in the new omnichannel world historically used to be, it literally was, you is Michael.

He has, he has a specific need. He browses through the IKEA catalog in a web or, app he selects. so far he selects, a few other articles. He puts it into the checkout, he transacts, he checks it out, either picks up from the store or gets it delivered home. So this is typically how the customer journey has had been.

But sometimes it's about Michael is not necessarily trying to purchase a sofa, but he is really wanting to figure out how does he change his, his experience at home. so we decided to say maybe there is a different way of looking at things. So instead of instead of, the transaction, what if we give Michael the possibility of literally first experiencing how, that sofa would look like and feel like in that home.

And this is where in 22, as I mentioned, we launched IKEA create a and IKEA created was literally with a few swipes, you are able to take a scan of your room. And then with AI we really allow you to erase some of your existing furnitures and then place the sofa in your living room to figure out if this is something that fits your style, that fits your taste, and if yes, then allow you to check out and, buy the product.

We are now taking this a level further where because when we did this, the assumption also is that Michael is very good when it comes to, life at home in terms of, the design experience and, how best to style your home. But maybe, I personally realized when I did my home, I had to go back and ask for help on planning services.

But what if we can democratize this and make planning services available for every person that engages with IKEA?

What if I ask you a few questions in terms of what's your taste? What's your style? What does your budget look like from an affordability perspective? And based on that, once we have a scan of your room already, make a first few proposals to say, here is how five different versions of how IKEA can help, shape your life at home.

Yet is how your living room could look like. And if you decide that picture number three is much closer, we then continue our conversation to allow you to either adapt that using AI or, really go to the next stage. And if you say you really need help with a coworker to get some nish further established, then really allow you to, try that out.

So this is where with AI, we are really looking to figure out how can we fundamentally transform and more importantly, democratize, the user experience of, home furnishing.

Michael Krigsman: I have to assume that given IKEA's vast amount of experience working with customers and understanding how customers make decisions that in one way or another, you're able to embed or incorporate that kind of expertise into the app.

Parag Parekh: absolutely. We have about 80 years of life at home experience historically, we have had, what we call our IKEA catalogs, which were literally a furnishing life at home statements that we used to publish on a year on year basis. This is tremendous amount of information that we have in terms of what's the best in terms of affordably and sustainably, styling your home.

And of course, this is something that through AI and, through with a combination of generative AI, we want to bring forth, to the many customers and really also figure out how do we do this, in a very, how do you say affordable way and really democratize and put these capabilities in the hands of the customers?

Michael Krigsman: We have another question from LinkedIn. And again, I encourage everybody ask your questions. I love take you guys in the audience are amazing and so smart. So we have a question from Lakshmi Pappu. And she says how are you capturing and monetizing the first party data that you collect?

Parag Parekh: As we started on this journey of, digital transformation, we, came to a realization data will be at the heart of, making sure that we are able to bring to life the digital transformation that we want to.

But at the same time, this also meant there was tremendous responsibility for IKEA, to make sure that the task we had built over the years is something that we can continue also into the many years that we started working with. And this is we're already two years into our transformation journey. We put out what we call, data promise, but also a digital ethics policy.

We are very clear that when it comes to data, we'll be absolutely responsible, will be very transparent. and, we will leverage data only when it makes sense for the customer and adds value to the customer. So when it comes to really leveraging, we make sure that we only look at use cases where we are doing so ethically and responsibly, towards, the help of the customer. And clearly, when it comes to, monetizing into any third party, this is something that, are values, and IKEA values don't allow us to look into.

Michael Krigsman: Tell us more about this digital ethics policy. And by the way, I also recognize that her question was a little bit of a trap because she made the assumption in her question that you are monetizing this first party data. So I know that this digital ethics policy is very important to you. So can you tell us more about that and how does it actually help drive the decisions that you make on a on a practical basis?

Parag Parekh: The one thing we feel we have earned over the years is, is that just when a customer walks into an IKEA store or when a customer engages in, transacts with, with the IKEA brand? And, as we started to look into the digital transformation, we also realized that the one currency we need to be mindful of is making sure that we bring this trust also into a digital ecosystem. The digital trust. 

And this is where we, going into 2020, we, established what we call, digital ethics policy, which we also subsequently have had to adapt, to making sure that it starts covering everything we do from an AI perspective and, really start looking at, the ethics policy with regards to, data, with regards to algorithms and with regards to our use cases.

We have had. This, is something that we have already put out. We are taking the lead in terms of, advocating it and making sure that, we, we not only be compliant to what's required, but really go over and above to make sure as corporate, we we are the leaders in terms of taking the corporate leadership on, making sure that we are responsible.

We drive fairness. and we drive inclusivity and, absolute transparency in terms of how we use data for, all of, the algorithms and, for everything that we would in terms of AI as well.

Michael Krigsman: We have a question on LinkedIn from Eric Johnson, who says, how does AI care's digital transformation impact or support frontline workers in the stores? That's a really good question.

Parag Parekh: We have started to look at opportunities and probably when we looked at the digital transformation, we were some we focused a lot in terms of setting the foundations, in the first place, when it comes to capabilities around our web and capabilities around that app. but at some point, we also started realizing that, after having those foundations in place, how do we start bringing some of these capabilities? Also, in our store. 

So there we have started to look into capabilities that can help augment, our sales workers and sales workers, when it comes to, digital capabilities in-store, we call it kiosk, be it in terms of uptake. So when it comes to planning systems, when it comes to, the ability to allow for configurations when it comes, these are some of the capabilities we have started looking to install in a store that, our customers can really start intending and using.

Then we also have, we have started to upgrade and modernize what we call, our sales system. So of course, sometimes when you are in the store, you, you do approach an IKEA coworker with, the ask for additional information with us for, placing an order. and these are some of the systems where historically they didn't necessarily have, all of the modernized, technology to be able to do so in a quick and and efficient manner.

That's where we have, looked to figure out how do we start modernizing some of those capabilities in what we call as supplier pro? and these are capabilities we have started to roll out to, different parts of the world. Also in the back office, we are starting to look into what are the opportunities that we can to help our customers to pick better, to help with their, picking route optimization.

How do we make it easier to realize that when a customer is there and from, picking up a click and collect, they are informed they are able to service the customer in the very best way. So a lot of, development that's currently ongoing, both in terms of customer facing digital in store, but also in terms of the back office.

And in many cases, we are also trying to say, could we put some of those digital capabilities back into the hands of the customer so that it does not engage a coworker? So one of the most recent, how to set developments we have gone live is, the app in-store version of the app, where now customers can really get a lot of information about events happening in the store, products in the store, and can literally also use their own phone to drive, what we call scan and go, and literally that frees up coworkers time to really focus on meeting the customer and, servicing them in the very best way.

Michael Krigsman: So again, this is all driving towards creating a seamless experience for the customer. Regardless of how they're interacting with IKEA, whether it's through the physical store or through the app or the website, what have you.

Parag Parekh: With an attempt to say, how do I optimize the ability for a coworker who traditionally used to, do a lot of tasks that I can actually help digitize or automate and in the process, help free up his time to really focus on the on attending to the customer versus attending to the tasks that, he or she historically would have had.

So, it's both ways. How do I improve the customer experiences and digitize, in-store? But it's also about how do I free up the coworker to really focus on what matters, which is the customer in the store.

Michael Krigsman: Arsalan Khan comes back yet again with an interesting question about AI and data. He says, when it comes to AI, there is so much gimmickry out there. And so how do you make the design decision, essentially, of where to apply AI in a meaningful way, as opposed to just, oh, we're using AI because, you know, we have to use AI and everybody's talking about AI.

Parag Parekh: A lot of the organizations have had been using AI, maybe the traditional aspects of AI already since 2018, 2019. But ever since the emergence of, generative AI, it's become the poster boy, if I may say so. And there's a lot of, hype around it, which, really, as organizations, you need to figure out how best to approach.

But we have been very mindful in terms of how we start looking at, AI and how we also approach II. And the first thing, Michael, we started to do when we looked at AI is we said there are four pillars which are, necessary for an organization to put in place, to make sure that they, they really are successful when it comes to AI.

And the first and foremost for was, for us was how do we really create awareness in the organization on what? I mean, where, what would this mean for the year or now? But also what would this mean for the business as we go forward? And we literally started with educating the first 500 leaders, within, within eNCA.

And this was already last year. And we now have a commitment of educating 30,000 plus workers by the end of FY 24.

So, we really believe that once you start doing that, that's where you create an awareness in the organization, which is fundamentally critical to create the awareness. And through those sessions, we are saying, what's AI for good and what's not necessarily AI that we so it's it's first starts with creating that awareness.

It then of course be the second pillar for us has had been, what's the ecosystem, what's the, what's the partnership that we work with? And there we at IKEA, we have what we call Ivy, and we make sure that we work with partners who are like minded. and for us, it is about using AI for good.

And we will really partner with, with like minded, companies who also believe in using AI for good. So really defining the ecosystem then coming into what are the policies that we put in place. And this goes a little bit back to we adopted a digital ethics policy to say, here are the things where we will be mindful of beat fairness, beat inclusiveness, be it, sustainable towards how we leverage.

And this is something that we publish, and also started educating the organization to be ready to be compliant to some of the laws that are coming in different parts of the world. But more importantly, to also start going over and beyond of that compliance. So those once those three pillars were applied, we then felt we are now ready to start discussing with our business together to say which are the areas where we believe we want to leverage AI, an AI for good.

And that's where we went into discussions with our retail organization to say, how should we fundamentally look at generative AI or traditional AI for improving the customer experience? We went into discussions with our, what we call our customer fulfillment team to say what should we do when it comes to supply chain and logistics? We then went into discussions with our growth and marketing teams to say, how could we leverage AI when it comes to content and when it comes to connecting?

And that the fact that we had a strong education, around AI, the fact that we had policies helped us to say, here are a few use cases we'll experiment with, but here are also a few use cases where it doesn't make sense. We'll stay away from. And that's how we started looking at, use cases like everyone else.

We are on the journey of, figuring out what AI means and how best we can leverage AI into the future of IKEA. And, we continue to test, try and let.

Michael Krigsman: And so, Arsalan Khan on Twitter comes back yet again. Arsalan is really on a roll today. And he says, what happens when business leaders do not agree with the decisions that an AI makes?

Parag Parekh: The first place where we have had been leveraging AI has had been around sales forecasting. And if you go back to 2014, 2015, we there was not necessarily, a lot of trust in terms of, the forecasting capabilities. But over the years, when businesses have started engaging with, the forecasting capabilities, there has been stronger engagement and trust that they have built in terms of leveraging.

And they have really seen the capabilities and, the intelligence that an AI, can that the traditionally AI can apply to forecasting. And now in many cases, the leverage of traditional sales forecasting capabilities is much more rooted and much more not questioned by the businesses. Then let's say a few years ago. So in one case, it's about, using it and building trust.

And it takes time. It does not happen overnight, but also in other cases. I also believe that as we go, maybe there is an opportunity of how do we make this symbiotic where maybe we allow for, human in the chain approval process, where maybe AI proposes and we allow for a system where business we put some control back into the system where the business starts feeling that they are in control.

And maybe over time, they'll realize that in many cases, they are just clicking through, and they'll start adapting and start feeling much more comfortable. So maybe, leveraging, human in the chain approval process could be one idea of how we could start building that trust and figuring out how we tackle it.

Michael Krigsman: On LinkedIn, Professor Eric Johnson wants you to know he loves the idea of automating routine work to allow frontline workers to focus on delighting customers. He says this will change the types of employees you hire and the kind of training you provide.

And, as we finish up, do you have any final thoughts or words, words of advice or wisdom that you can share to other business leaders who are looking at this kind of disruption and recognizing they're going to have to go through it too, sooner or later?

Parag Parekh: It's a lot about staying curious. And, I think what has really helped us is, really having a mindset where, you stay humble and by, humility, it really means having the confidence to accept there are things, you know, there are things you don't know.

But as long as you have the mindset to be curious, to look into it and to find the right answers and going back to, what we at IKEA really believe in, how do we constantly test, try and learn, renew and improve. So stay curious and, really have, really have a growth mindset.

Michael Krigsman: Linking the transformation back to the core values and beliefs of the organization. That seems to me to be the common underlying thread here.

Parag Parekh: I would have wished to bring the one slide that we continuously keep bringing, into all our forums. we, we always talk about think long term, but also when you think long term, it's really about how do you love your past and using using that really look into figuring out how do you create the future.

Michael Krigsman: And with that, I'm afraid we're out of time. A huge thank you to Patrick Perak. He is the global chief digital officer of IKEA Retail Park. Thank you so much for taking time to be with us.

Parag Parekh: Much appreciated. It was a pleasure.

Michael Krigsman: Everybody who listened, thank you for watching. Before you go, subscribe to our newsletter and subscribe to our YouTube channel. Did you know that we have a CXOTalk audio podcast? You can listen on the go. It's available everywhere. We have incredible shows coming up. Everybody, thank you for watching and we'll see you next time. Have a great day.

Published Date: Apr 19, 2024

Author: Michael Krigsman

Episode ID: 835