Ikea’s New Global Financial System: Some Assembly Required

GLOBAL BUSINESSES DEMAND GLOBAL FINANCIAL SYSTEMS?an inescapable conclusion for most international companies, and one that furniture retailer Ikea came to grips with in late 1996 as Y2K and euro compliance deadlines loomed. Because Ikea has stores in 33 countries, 1,960 suppliers in 53 countries, and 36 purchasing offices in 29 countries, executives realized that the company’s existing systems weren’t up to the challenge.

Some countries were using a legacy Swedish system, some were relying on a very old version of Computer Associates’ Masterpiece system, and others were relying on a vintage U.S. system, explains the company’s Helsingborg, Sweden-based CIO, Roger Neckelius.

In addition, although Ikea couldn’t put a figure on it, the company had recognized that the cost of ownership of common systems worldwide was markedly lower. So the call went out for a single replacement system to implement globally. The answer came, but Ikea found that implementation was not without challenges.

The search for the new system had several parameters, says Neckelius. “First, we wanted a financial system that would be the same worldwide. Second, we wanted a system that could grow with us. And we knew we couldn’t delay too long; we needed something that could not only handle the euro but would also address the Y2K problems.” In mid-1998, Ikea settled on Coda-Financials from Harrogate, U.K.-based Coda. Implementation fell to Ikea Project Manager Ulrika Martensson, whose background in software implementation for Computer Associates and a Swedish software company led to her being recruited specially for the task. Her mission, assigned by a joint IT and finance steering committee reporting to Neckelius and Ikea’s CFO, was to implement the system in 12 countries by Sept. 1, 1999, the start of fiscal 2000. The 12 countries were targeted because their lack of euro and Y2K compliancy was putting Ikea’s business at risk. After that?and certainly by mid-2001?the goal was to implement the system in most of the rest of the world, at a pace that matched Ikea’s growth rate. It was a mission that was to launch Martensson and her two-person team of Ikea accounting managers on a steep learning curve that would see them not only come to grips with quirky accounting conventions in far-off climes but also experience an ironic situation. Coda-Financials, it turned out, required a great deal of customer assembly, just like Ikea’s own furniture products.

This End Up

“We hadn’t appreciated this [element of assembly] and thought that the system was much more predefined than it actually was,” Martensson explains. “We weren’t prepared for the degree of flexibility. In a traditional financial system, you know what the accounts payable are. In Coda, you’re building a model of transaction that flows in and out of the company, and you have to first define everything?even the accounts payable.”

The definition challenge was compounded by Ikea’s convoluted corporate structure. Although Ikea was founded in Sweden in 1943, the Ikea concept is actually owned and managed by Netherlands-based Inter Ikea Systems. Ikea Sweden is responsible for the product range, while management activities are coordinated by Ikea International of Denmark. The ultimate owner, Ikea Group, is in turn owned by a Netherlands charitable foundation.

Martensson and her team, based in Zaventem, Belgium, close to Brussels, had to not only embrace this international potpourri but also cope with the different kinds of Ikea businesses within the overall company. They break down to three?retailers, wholesalers and service companies that take care of activities such as overseas sourcing, treasury functions and real estate. Whole-salers, for example, have significant flows of goods and multiple currencies, and they have relatively few invoices. Retailers, on the other hand, operate in one currency but have many more invoice transactions.

Define and Conquer

A recommendation from Coda at the outset of the project was to establish prototype definitions for each type of business in order to capture and codify the diversity. With hindsight, Martensson says, this strategy gave the project a huge head start?even though she admits to having initial reservations over whether individual Ikea businesses would accept any compromises. “We now realize that it saved time during the implementation, and it continues to save time,” she says.

Ikea derived the prototype definitions by talking to users about their needs, and Martensson accordingly invested time in canvassing opinion from around Ikea as to what the system should deliver. In retrospect, she says, the team took too much advantage of the system’s malleability, which offered its international users considerable flexibility. If she were given a second run at it, Martensson wouldn’t repeat that mistake. “We’d go for a more fixed structure and say to people: ’Adapt to this,’” she says. “It would make the implementation much more efficient.” It’s hard to quantify the savings that would have achieved, but defining the rules took between five and 10 days for each implementation?an interval that wouldn’t have been required with an “Adapt to this” policy.

Considering everything, progress wasn’t that slow. Four months into the project, workable prototypes were in place for three businesses?a Spanish retail operation, a Belgian wholesale business and a small service company in Germany. They were the role models for the rest of the Ikea rollout. But even with the prototypes in place, hurdles emerged as the implementation date for switching over the 12 Western European countries edged closer. Foreign banks’ automated payment systems varied widely, not just from country to country but also from bank to bank. That diversity needed to be recognized and appropriate fixes put in place.

Another headache was Europe’s value-added tax (VAT)?similar to U.S. sales tax but levied at each stage of the trading chain, including business-to-business transactions. “Even within the [European Union], VAT is handled differently from country to country,” warns Martensson. Off-the-shelf Coda-Financials, it turned out, could handle all the differences except the quirky Italian VAT system, for which a special add-on was required.

Nevertheless, all 12 countries, containing a mix of retail, wholesale and service companies, successfully went live by the target date of Sept. 1, 1999, sidestepping Y2K worries as well as euro concerns.

To begin with, in each type of company, the strategy was to manage transactions in national currencies and track them in euros. Accounting and financial reporting were switched over to euros for wholesale companies in the euro zone a year after implementation. And euro-zone retail operations will switch to euro accounting in September 2001. (See “Accounting for Euros” on this page for the lowdown on upcoming euro deadlines.)

Timing It Right

Another learning point, says Martensson, is to implement in the middle of the financial year?even though doing so at the beginning is theoretically cleaner from the systems point of view. “It’s best to spread it out,” she says. “At the beginning of the year, the accounting department is busy closing the books, and they don’t want to learn a new system.” The mid-year start date is not difficult, she adds. At the point of switch-over, the ledger balances are transferred and subsequent transactions recorded on the new system.

The drawback to this approach is that management accounts for that particular financial year are spread over two systems, necessitating a search through two lots of books if there is a query. But the obligation isn’t especially onerous, says Martensson. The information held on the previous systems must in any case be kept for between five and 10 years, depending on the legal stipulations of the country involved.

By year-end, Martensson hopes that the last few countries will have switched over, or at least have timetables for the switch. It’s basically a sweep-up operation, such as an implementation at a small trading office in Turkey, which buys goods on behalf of the wholesale companies. With that done, her frenetic travel schedule can at last start to wind down; so far, her team has visited 21 countries since the project began, with Martensson herself visiting 17.

“Australia?it’s just too far. Coming back, it takes 30 hours,” she says with a sigh. “Nice country, terrible trip.”