Term Project (a case analysis)

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undefined Strategic Management Concepts and Cases 11th -655-668.pdf 

THE TERM PROJECT

The term project is a case analysis.

Students in the class will be grouped into teams on the second week of the course. A case will be assigned for each team from the case section of the textbook for the analysis. A discussion forum will be set up for each team to discuss and analyze their case throughout the term.

Each student should read the case at least two-three times before the analysis. Students are also encouraged to do external research to gather more information about their assigned companies. (Please keep in mind that each time you use an external source to gather information you need to cite the source.)

The members of each team will share the items #1-4 fairly. Everybody in the team will contribute to the item# 5 and the references. The analysis will include:

1) General environment analysis (the demographic segment; economic segment, political segment; socio-cultural segment; technological segment and the global segment). Each portion of the analysis should be titled. The headlines will be in bold, centered and underlined. Each portion of the analysis will be in bullets (refer Chapter 2).

2) Industry environment analysis (threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products, intensity of rivalry). Each segment will be in bold, centered and underlined headlines and the analysis will be in bullets (Chapter 2).

***P.S. THESE FIRST 2 ANALYSES ARE PRELIMINARY ANALYSIS.  The preliminary analysis will help you to get an accurate SWOT analysis.****

3) SWOT analysis (strength, weaknesses, opportunities and threats.) (refer Chapters 1-3) ( (use bullets, underlined and centered headlines)

4).What is the business level strategy, corporate level strategy and international strategy of the company?

5) What are your recommendations for the company? Please include well thought recommendations with a rationale. Provide your reasoning for each recommendation. The recommendations should have pros and cons. Each recommendation should be elaborated. (Each person in the team is required to provide a recommendation for this section. Please include the initials of each student next to the recommendation that they suggest.)

FORMAT

1.  Title page: (The name of the company and the names of the individuals in the team.)

2.  Table of contents page (List the sections of the project and include the initials of the team members who are responsible for that sections.)

3.  The case analysis. (Please see the items # 1-5 listed above for the  case analysis.)

i.   Each section should have a title; centered, bold and in capital.

ii.  The paper will be double spaced, Times Roman (12 pts)

iii.  Each page will be numbered.

4.  References (The references will be in the APA format. Please include detailed information for your sources.)

PLEASE PAY ATTENTION TO THE FORMAT (10 POINTS WILL BE DROPPED FOR THE LACK OF FORMATING)


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Case 15 Herman Miller: An On-Going Case of Reinvention and Renewal1 Frank Shipper, PhD Perdue School of Business, Salisbury University Karen P. Manz, PhD Author & Researcher Stephen B. Adams, PhD Perdue School of Business, Salisbury University Charles C. Manz, PhD Nirenberg Professor of Leadership, Isenberg School of Management, University of Massachusetts 194 Background Herman Miller’s roots go back to 1905 and the Star Furniture Company, a manufacturer of traditional style bedroom suites in Zeeland, Michigan. In 1909, it was renamed Michigan Star Furniture Company and hired Dirk Jan (D.J.) De Pree as a clerk. D.J. De Pree became president in 1919. Four years later D.J. convinced his father-in-law, Herman Miller, to purchase the majority of shares and renamed the company Herman Miller Furniture Company in recognition of his support.3 In 1927, D.J. De Pree committed to treating “all workers as individuals with special talents and potential.” This occurred after he visited the family of a millwright who had died unexpectedly. At the visit, the widow read some poetry. D.J. De Pree asked the widow who the poet was and was surprised to learn it was the millwright. This led him to wonder whether the millwright was a person who wrote poetry or a poet who was also a millwright. This story is part of the cultural folklore at Herman Miller that continues to generate respect for all employees and fuels the quest to tap the diversity of gifts and skills held by all. © Vividfour / Shutterstock.com At first glance Herman Miller would appear to be only a $1.65 billion dollar manufacturer of office furniture. Herman Miller is, however, a company that is known beyond furniture for its innovation in products and processes since D.J. De Pree became president over 90 years ago.2 It is one of only four organizations and the only non-high technology one selected to Fortune’s 100 Best Companies to Work For and Most Admired Companies, and FastCompany’s Most Innovative Companies in both 2008 and 2010. The three high technology organizations selected were Microsoft, Cisco, and Google. Not usual company for a firm in a mature industry and definitely not for an office furniture company. Ever since D.J. De Pree became president, Herman Miller has followed a different path from most firms. It is one distinctively marked by reinvention and renewal. This path has served it well. Early in its history it survived the Great Depression and multiple recessions in the 20th century. In the early part of the 21st century, it recovered from the dot.com bust. As it enters 2010, Herman Miller once again faces a turbulent economy. Will this path allow it to flourish once again? Case 15: Herman Miller: An On-Going Case of Reinvention and Renewal In 1930, the country was in the Great Depression and Herman Miller was in financial trouble. D.J. De Pree was looking for a way to save the company. At the same time, Gilbert Rhode, a designer from New York, approached D.J. De Pree and told him about his design philosophy. He then asked for an opportunity to create a design of a bedroom suite at a fee of $1000. When D.J. De Pree reacted negatively to such a fee, Gilbert Rhode suggested an alternative payment plan, 3% royalty on the furniture sold, to which D.J. agreed, figuring that there was nothing to lose. A few weeks later, D.J. received the first designs from Rhode. Again, he reacted negatively. He “thought that they looked as if they had been done for a manual training school and told him so.” Gilbert Rhode explained in a letter his design philosophy – first, “utter simplicity: no surface enrichment, no carvings, no moldings,” and second, “furniture should be anonymous. People are important, not furniture. Furniture should be useful.” Rhode’s designs were antithetical to traditional designs, but D.J. saw merit in them and this set Herman Miller on a course of designing and selling furniture that reflected a way of life. In 1942, Herman Miller produced its first office furniture – a Gilbert Rhode design referred to as the Executive Office Group. He died two years later and De Pree began a search for a new design leader. Based largely on an article in Life magazine, he hired George Nelson as Herman Miller’s first design director. In 1946, Charles and Ray Eames, designers based in Los Angeles, were hired to design furniture. In the same year, Charles Eames’ designs were featured in the first one-man furniture exhibit at New York’s Museum of Modern Art. Some of his designs are now part of the museum’s permanent collection. In 1950, Herman Miller, under the guidance of Dr. Carl Frost, Professor at Michigan State University, was the first company in the state of Michigan to implement a Scanlon Plan. Underlying the Scanlon Plan are the “principles of equity and justice for everyone in the company….” Two major functional elements of Scanlon Plans are the use of committees for sharing ideas on improvements and a structure for sharing increased profitability. The relationship between Dr. Frost and Herman Miller continued for at least four decades. During the 1950s, Herman Miller introduced a number of new furniture designs including those by Alexander Girard, Charles and Ray Eames, and George Nelson. Specifically, the first molded fiberglass chairs were introduced and the Eames lounge chair and ottoman were introduced on NBC’s Home Show with Arlene Francis, a precursor to the Today Show. Also in the 1950s, 195 Herman Miller began its first overseas foray, selling its products in the European market. In 1962, D.J. became chairman of the board and his son, Hugh De Pree, became president and chief executive officer. D.J. had served for over 40 years as the president. During the 1960s, many new designs were introduced both for home and the workplace. The most notable design was the Action Office System, the world’s first open-plan modular office arrangement of movable panels and attachments. By the end of the 1960s, Herman Miller had formed a subsidiary in England with sales and marketing responsibility throughout England and the Scandinavian countries. Also, it had established dealers in South and Central America, Australia, Canada, Europe, Africa, the Near East, and Japan. In 1970, Herman Miller went public and made its first stock offering. The stock certificate was designed by the Eames Office staff. In 1971, it entered the health/science market, and in 1976, the Ergon chair, its first design based on scientific observation and ergonomic principles, was introduced. In 1979, in conjunction with the University of Michigan, it established the Facility Management Institute that established the profession of facility management. Also, in the 70s, Herman Miller continued to expand overseas and introduce new designs. By 1977, over half of Herman Miller’s 2500 employees worked outside of the production area. Thus, the Scanlon plan needed to be overhauled since it had been designed originally for a production workforce. In addition, employees worked at multiple U.S. and overseas locations. Thus, in 1978, an ad hoc committee of 54 people from nearly every segment of the company was elected to examine the need for changes and to make recommendations. By January 1979, the committee had developed a final draft. The plan established a new organization structure based on work teams, caucuses, and councils. All employees were given an opportunity in small group settings to discuss it. On January 26, 1979, 96% of the employees voted to accept the new plan. After 18 years Hugh De Pree stepped down, and Max De Pree, Hugh’s younger brother, became chairman and chief executive officer in 1980. In 1981, Herman Miller took a major initiative to become more efficient and environmentally friendly. Its Energy Center generated both electrical and steam power to run its million square foot facility by burning waste. In 1983, Herman Miller established a plan whereby all employees became shareholders. This initiative appeared to be a natural outgrowth from the adoption of the Scanlon Plan in 1950. Employees from 1983 forward shared in both the ownership and the profits of the firm. 196 In 1984, the Equa chair, a second chair based on ergonomic principles, was introduced along with many other designs in the 1980s. In 1987, the first non-family member, Dick Ruch, became chief executive officer. By the end of the decade, the Equa chair was recognized as a Design of the Decade by Time magazine. Also, in 1989, Herman Miller established its Environmental Quality Action Team. It is to “… coordinate environmental programs worldwide and involve as many employees as possible.” In 1990, Herman Miller was a founding member of the Tropical Forest Foundation and was the only furniture manufacturer to belong. That same year, it ­discontinued using endangered rosewood in its award-­ winning Eames lounge chair and ottoman, and substituted cherry and walnut from sustainable sources. It also became a founding member of the U.S. Green Building Council in 1994. Some of the buildings at Herman Miller have been used to establish Leadership in Energy & Environmental Design (LEED) standards. Because of its environmental efforts, Herman Miller received awards from Fortune magazine and the National Wildlife Federation in the 1990s. In the 90s, Herman Miller again introduced some ground-breaking designs. In 1994, it introduced the Aeron chair and almost immediately it was added to the New York Museum of Modern Art’s permanent Design Collection. In 1999, it won the Design of the Decade from Business Week and the Industrial Designers Society of America. In 1992, J. Kermit Campbell became Herman Miller’s fifth CEO and president. He was the first person from outside the company to hold either position. In 1995, Campbell resigned and Mike Volkema was promoted to CEO. At the time the industry was in a slump and Herman Miller was being restructured. Sales were approximately 1 billion. Mike Volkema had been with Meridian, a company Herman Miller acquired in 1990, for seven years. So with approximately 12 years of experience with either Herman Miller or its subsidiary and at the age of 39, Mike Volkema became CEO. In 1994, Herman Miller for the Home was launched to focus on the residential market. It reintroduced some of its modern classic designs from the 40s, 50s, and 60s as well as new designs. In 1998, hmhome.com was set up to tap this market. Additional marketing initiatives were taken to focus on small and mid-size businesses. A network of 180 retailers was established to focus on small businesses and a 3-D design computer program was made available to mid-size customers. In addition, order entry was Part 4: Cases digitally linked among Herman Miller, suppliers, distributors, and customers to expedite orders and improve their accuracy. The 2000s The 2000s started off spectacularly with record profits and sales in 2000 and 2001. The Board of Directors approved a special one-time option grant of 100 shares to each nonexecutive, North American-based employee in June of 2000, and the Eames molded plywood chair was selected as a “design of the century” by Time magazine. Sales had more than doubled in the six years that Mike Volkema had been CEO. Then the dot.com bubble burst and the events of September 11, 2001 occurred in the U.S. Sales dropped 34% from $2,236,200,000 in 2001 to $1,468,700,000 in 2002. In the same years profits dropped from $144,100,000 to losses of $56,000,000. In an interview for FastCompany magazine in 2007, Volkema said, “One night I went to bed a genius and woke up the town idiot.” Although sales continued to drop in 2003, Herman Miller returned to profitability in that year. To do so, Herman Miller had to drop its long-held tradition of lifelong employment. Approximately 38% of the work force was laid off. One entire plant in Georgia was closed. Mike Volkema and Brian Walker, then President of Herman Miller North America, met with all the workers to tell them what was happening and why it had to be done. One of the workers being laid off was so moved by their presentation that she told them she felt sorry for them having to personally lay off workers. To replace the tradition of life-long employment, Mike Volkema, with input from many, developed what is referred to as “the new social contract.” He explains it as follows: We are a commercial enterprise, and the customer has to be on center stage, so we have to first figure out whether your gifts and talents have a match with the needs and wants of this commercial enterprise. If they don’t, then we want to wish you the best, but we do need to tell you that I don’t have a job for you right now. As part of the implementation of the social contract, benefits such as educational reimbursement and 401K plans were redesigned to be more portable. This was done to decrease the cost of changing jobs for employees whose gifts and talents no longer matched customer needs. Sales and profits began to climb from 2003 to 2008. In 2008, even though sales were not at an all-time high, profits were. During this period, Brian Walker became president in 2003 and chief executive officer in 2004. 197 Case 15: Herman Miller: An On-Going Case of Reinvention and Renewal Mike Volkema became chairman of the board in 2004. They continue in these positions in 2012. Then Herman Miller was hit by the recession of 2009. Sales dropped 19% from $2,012 billion in 2008 to $1,630 billion in 2009. In the same years profits dropped from $152 million to $68 million. In March 2012, Mark Schurman, Director of External Communications at Herman Miller, predicted that the changes made to recover from the 2001-2003 recession would help it better weather the 2007-2009 recession. ■■ Herman Miller Entering 2012 Herman Miller has codified its long practiced organizational values and publishes them on its web site under a page entitled “What We Believe.” These beliefs are intended as a basis for uniting all employees, building relationships, and contributing to communities. Those beliefs as stated in 2005 and remaining in effect in 2012 are as follows: ■■ Curiosity & Exploration: These are two of our greatest strengths. They lie behind our heritage of research-driven design. How do we keep our curiosity? By respecting and encouraging risk, and by practicing forgiveness. You can’t be curious and infallible. In one sense, if you never make a mistake, you’re not exploring new ideas often enough. Everybody makes mistakes: we ought to celebrate honest mistakes, learn from them, and move on. ■■ Engagement: For us, it is about being owners– actively committed to the life of this community called Herman Miller, sharing in its success and risk. Stock ownership is an important ingredient, but it’s not enough. The strength and the payoff really come when engaged people own problems, solutions, and behavior. Acknowledge responsibility, choose to step forward and be counted. Care about this community and make a difference in it. ■■ Performance: Performance is required for leadership. We want to be leaders, so we are committed to performing at the highest level possible. Performance isn’t a choice. It’s up to everybody at Herman Miller to perform at his or her best. Our own high performance–however we measure it–enriches our lives as employees, delights our customers, and creates real value for our shareholders. ■■ Inclusiveness: To succeed as a company, we must include all the expressions of human talent and potential that society offers. We value the whole person and everything each of us has to offer, obvious or ■■ ■■ ■■ not so obvious. We believe that every person should have the chance to realize his or her potential regardless of color, gender, age, sexual orientation, educational background, weight, height, family status, skill level—the list goes on and on. When we are truly inclusive, we go beyond toleration to understanding all the qualities that make people who they are, that make us unique, and most important, that unite us. Design: Design for us is a way of looking at the world and how it works–or doesn’t. It is a method for getting something done, for solving a problem. To design a solution, rather than simply devising one, requires research, thought, sometimes starting over, listening, and humility. Sometimes design results in memorable occasions, timeless chairs, or really fun parties. Design isn’t just the way something looks; it isn’t just the way something works, either. Foundations: The past can be a tricky thing–an anchor or a sail, a tether or a launching pad. We value and respect our past without being ruled by it. The stories, people, and experiences in Herman Miller’s past form a unique foundation. Our past teaches us about design, human compassion, leadership, risk taking, seeking out change, and working together. From that foundation, we can move forward together with a common language, a set of owned beliefs and understandings. We value our rich legacy more for what it shows us we might become than as a picture of what we’ve been. A Better World: This is at the heart of Herman Miller and the real reason why many of us come to work every day. We contribute to a better world by pursuing sustainability and environmental wisdom. Environmental advocacy is part of our heritage and a responsibility we gladly bear for future generations. We reach for a better world by giving time and money to our communities and causes outside the company; through becoming a good corporate citizen worldwide; and even in the (not so) simple act of adding beauty to the world. By participating in the effort, we lift our spirits and the spirits of those around us. Transparency: Transparency begins with letting people see how decisions are made and owning the decisions we make. So when you make a decision, own it. Confidentiality has a place at Herman Miller, but if you can’t tell anybody about a decision you’ve made, you’ve probably made a poor choice. Without transparency, it’s impossible to have trust and integrity. Without trust and integrity, it’s impossible to be transparent. 198 All employees are expected to live these values. In a description of the current processes that follow, numerous examples of these values in action can be found. Management Mike Volkema is currently the chairman of the board, and Brian Walker is the president and chief executive officer. Walker’s compensation was listed by Bloomberg Businessweek as $693,969 in 2011. Compensation for CEOs at five competitors was listed by Bloomberg Businessweek to range from $777,923 to $973,154. Walker and four other top executives at Herman Miller took a 10% pay cut in January, 2009, and they took another 10% pay cut along with all salaried workers in March, 2009. The production workers were placed on a 9 day in two weeks work schedule, effectively cutting their pay by 10% as well. A little over one year later in June, 2010 most employees’ pay cuts and furloughs were rescinded. That the executives would take a pay cut before all others and twice as much is just one way human compassion is practiced at Herman Miller. By Securities and Exchange Commission (SEC) regulations a publicly traded company must have a board of directors. By corporate policy, the majority of the 14 members of the board must be independent. To be judged an independent, the individual as a minimum must meet the NASDAQ National Market requirements for independent directors (NASDAQ Stock Market Rule 4200). In addition, the individual must not have any “other material relationship with the company or its affiliates or with any executive officer of the company or his or her affiliates.” Moreover, any “transaction between the Company and any executive officer or director of the Company (including that person’s spouse, children, stepchildren, parents, stepparents, siblings, parents-in-law, childrenin-law, siblings-in-law and persons sharing the same residence) must be disclosed to the Board of Directors and is subject to the approval of the Board of Directors or the Nominating and Governance Committee unless the proposed transaction is part of a general program available to all directors or employees equally under an existing policy or is a purchase of Company products consistent with the price and terms of other transactions of similar size with other purchasers.” Furthermore, “It is the policy of the Board that all directors, consistent with their responsibilities to the stockholders of the company as a whole, hold an equity interest in the company. Toward this end, the Board requires that each director will have an equity interest after one year on the Board, and within five years the Board encourages the directors to have shares of common stock of the company with a Part 4: Cases value of at least three times the amount of the annual retainer paid to each director.” In other words, board members are held to standards consistent with the corporate beliefs and its ESOP program. Although Herman Miller has departments, the most frequently referenced work unit is a team. Paul Murray, Director of the Environmental Health and Safety explained their relationship as follows: At Herman Miller, team has just been the term that has been used since the Scanlon Plan and the De Prees brought that into Herman Miller. And so I think that’s why we use that almost exclusively. The department — as a department, we help facilitate the other teams. And so they aren’t just department driven. Teams are often cross-functional. Membership on a team is based on ability to contribute to that team. As Gabe Wing, Design for the Environment Lead Chemical Engineer, described it, You grab the appropriate representative who can best help your team achieve its goal. It doesn’t seem to be driven based on title. It’s based on who has the ability to help us drive our initiatives towards our goal. Teams are often based on product development. When that product has been developed, the members of that team are redistributed to new projects. New projects can come from any level in the organization. At Herman Miller leadership is shared. One way in which this is done is through Herman Miller’s concept of “talking up and down the ladder.” Workers at all levels are encouraged to put forth new ideas. As Rudy Bartels, Environmental Specialist said, If they try something, then they have folks there who will help them and be there for them. And by doing that, either — whether that requires a presence of one of us or an email or just to say, “Yeah, I think that’s a great idea.” That’s how a lot … in the organization works. Because the workers feel empowered, a new manager can run into some behavior that can startle them. As Paul Murray recalled, I can remember my first day on the job. I took my safety glasses off … and an employee stepped forward and said, “Get your safety glasses back on.” At Company X, Company Y,4 there was no way would they have ever talked to a supervisor like that, much less their supervisor’s manager. It’s been a fun journey when the work force is that empowered. The beliefs are also reinforced through the Employee Gifts Committee, and Environmental Quality Action 199 Case 15: Herman Miller: An On-Going Case of Reinvention and Renewal Team. True to its practice of shared leadership the Employee Gifts Committee distributes funds and other resources based on employee involvement. As explained by Jay Link, manager of Corporate Giving, the program works as follows: …our first priority is to honor organizations where our employees are involved. We believe that it’s important that we engender kind of a giving spirit in our employees, so if we know they’re involved in organizations, which is going to be where we have a manufacturing presence, then our giving kind of comes alongside organizations that they’re involved with. So that’s our first priority. In addition, all employees can work 16 paid hours a year with the charitable organization of their choice. Herman Miller sets goals for the number of employee volunteer hours contributed annually to its communities. Progress toward meeting those goals is reported to the CEO. The Environmental Affairs Team has responsibility for such areas as solid waste recycling and designing products from sustainable resources. It was formed in 1988 with the authorization of Max De Pree. One success that it has is in the reduction of solid waste taken to the landfill. In 1991, Herman Miller was sending 41 million pounds to the landfill. By 1994 it was down to 24 million pounds and by 2008 it was reduced to 3.6. Such improvements are both environmentally friendly and cost effective. These beliefs are carried over to the family and community. Gabe Wing related how, “I’ve got the worst lawn in my neighborhood. That’s because I don’t spread pesticides on it, and I don’t put fertilizer down.” He went on to say how his wife and he had to make a difficult decision this the summer of 2009 because Herman Miller has a policy “to avoid PVC (polyvinyl chloride) wherever possible.” In restoring their home, they chose fiber cement board over PVC siding even though it was considerably more costly. Gabe went on say, “Seven years ago, I didn’t really think about it.” Rudy Bartels is involved in a youth soccer association. As is typical, it needs to raise money to buy uniforms. Among other fund raisers that it has done is collecting newspapers and aluminum cans. As he tells it, “When I’ll speak they’ll say, ‘Yeah, that’s Rudy. He’s Herman Miller. You should — you know we’re gonna have to do this.’” These beliefs carry over to all functional areas of the business. Some of them are obviously beneficial and some of them are simply the way Herman Miller has chosen to conduct its business. Marketing Herman Miller products are sold internationally through wholly owned subsidiaries in various countries including Canada, France, Germany, Italy, Japan, Mexico, Australia, Singapore, China, India, and the Netherlands. Its products are offered through independent dealerships. The customer base is spread over 100 countries. Herman Miller uses Green Marketing to sell its products. For example, the Mirra Chair introduced in 2003 with PostureFit Technology was developed from its inception to be environmentally friendly (cradle-to-cradle principles). These chairs are made of 45% recycled materials, and 96% of their materials are recyclable. In addition, they are assembled using 100% renewable energy. In 2003, Architectural Record magazine and Environmental Building News named the Mirra chair as one of the “Top 10 Green Products.” Builders who use Herman Miller products in their buildings can earn points toward LEED’s (Leadership in Energy & Environmental Design) certification. In addition, Herman Miller engages in cooperative advertising with strategic partners. For example, at Hilton Garden Inns, some rooms are equipped with Herman Miller’s Mirra chairs. On the desk in the room is a card explaining how to adjust the chair for comfort and then lists a Hilton Garden Inn web site where the chair can be purchased. Herman Miller segments its markets into work, home, healthcare education, and government. Many products are marketed across segments. To enhance its marketing analysis and promotions, Herman Miller also segments its markets geographically. The North American, Asian, European and Latin American markets are all tracked independently. Production/Operations Herman Miller is globally positioned in terms of manufacturing operations. In the United States, its manufacturing operations are located in Michigan, Georgia, and Washington. In Europe, it has considerable manufacturing presence in the United Kingdom, its largest market outside of the United States. In Asia, it has manufacturing operations in Ningbo, China. Herman Miller manufactures products using a system of lean manufacturing techniques collectively referred to as the Herman Miller Performance System (HMPS) (Figure 1). It strives to maintain efficiencies and cost savings by minimizing the amount of inventory on hand through a JIT (Just in Time) process. Some suppliers deliver parts to Herman Miller production facilities five or six times per day. 200 Part 4: Cases Figure 1 The Herman Miller Production System TECHNICAL n Product ion ller Mi S True North True North (perfection is the goal) Customer Satisfaction • Zero defects • 100% value added • 1×1 in sequence on demand tem ys He rm a The Herman Miller Production System . . . an integrated system Human Development • Physical and mental safety • Security • Professional challenge Definitions Y PH MA NA GE ME NT wo rk SO ILO PH .. .th d ew an ay we think 1. Philosophy (Things That Matter) • Customer first • People are the most important resource • Kaizen is a way of life • Shop floor focus 3. Technical Tools (the tools of HMPS) Heijunka Standardized Work Continuous Flow Eliminating the stagnation of work between processes by producing one piece at a time. Takt Time Is the time which should be taken to produce a product based on customer demand. Total Daily Operating Time Total Daily Customer Requirement Pull System A production system where processes withdraw from proceeding processes the parts they need, when they need them, in the exact needed amount. Jidoka The ability of production lines to be stopped in the event of a problem such as equipment malfunctions or quality problems. Heijunka The leveling of the production schedule by volume and variety over a given time period. Kaizen The process of people making improvements to eliminate waste and improve their work. Standardized Work The most efficient workflow considering safety, quality, quantity and cost with the main consideration on human movement. Value (Quality, Cost and Lead Time) Human Development Production and conveyance of only what is needed, when it is needed, in the amount needed, meeting the exact demand of the customer. Takt Time = 2. Management System • Support and develop team members • Quick response to problems • Provide vision and motivation to move to True North Just In Time • Continuous Flow • Takt Time • Pull System JIT (Just-In-Time) Jidoka • Stop & notify of abnormalities • Separate man/ machine work Kaizen Stability Stability The dependability of 4Ms: man, machine, material, and method in daily production. Kanban A visual signal that is the key control tool for JIT production. 7 Forms of Waste • Over Production • Waiting • Conveyance • Process • Inventory • Motion • Correction 0512-001 Front Production is order-driven with direct materials and components purchased as needed to meet demand. The standard lead time for the majority of its products is 10 to 20 days. As a result, the rate of inventory turnover is high. These combined factors could cause inventory levels to appear relatively low in relation to sales volume. A key element of its manufacturing strategy is to limit fixed production costs by outsourcing component parts from strategic suppliers. This strategy has allowed it to Back increase the variable nature of its cost structure while retaining proprietary control over those production processes that Herman Miller believes provide a competitive advantage. Because of this strategy, manufacturing operations are largely assembly-based. The success of the Herman Miller Performance System (HMPS) was the result of much hard work. For example, in 1996, the Integrated Metals Technology (IMT) subsidiary was not going well. IMT supplied Case 15: Herman Miller: An On-Going Case of Reinvention and Renewal pedestals to its parent company Herman Miller. Its prices were high, lead time long, and quality was in the 70% range. The leadership of the subsidiary decided to hire the consulting arm of Toyota, Toyota Supplier Support Center (TSSC). Significant improvements were made by inquiring, analyzing, and “enlisting help and ideas of everyone.” For example, quality defects in parts per million decreased from approximately 9000 in 2000 to 1500 in 2006. Concurrently, on-time shipments improved from 80% to 100% and safety incidents per 100 employees dropped from 10 to 3 per year. The organizational values mentioned earlier were incorporated into the design of The Greenhouse, Herman Miller’s main production facility in Michigan. The building was designed to be environmentally friendly. For example, it takes advantage of natural light and landscaping. Native plants are grown without the use of fertilizers, pesticides, or irrigation. After the facility was opened, aggressive paper wasps found the design to their liking. Employees and guests were stung, frequently. In keeping with Herman Miller beliefs a solution was sought. Through research it was learned that honey bees and paper wasps are incompatible. Therefore, 600,000 honey bees and their 12 hives were co-located on the property. The wasps soon left. Two additional consequences were that due to pollination by the bees, the area around the facility blooms with wild flowers and a large amount of honey is produced. Guests to the home office are given a four-ounce bottle of the honey symbolizing its corporate beliefs. Human Resource Management Human resource management is considered a strength for Herman Miller. It is routinely listed on Fortune’s 100 Best Companies to Work For, including 2010. It had approximately 278 applicants for every job opening. In the 2009 downturn, Herman Miller cut its workforce by more than 15%, reduced pay of the remaining workforce by at least 10%, and suspended 401(k) contributions. Employees praised management for “handling the downturn with class and doing what is best for the collective whole” according to Fortune magazine’s February 8, 2010 issue. Fortune also estimated voluntary turnover to be less than 2%. On June 1, 2010, the time-and-pay cuts of 10 percent begun in the spring of 2009 were discontinued due to Herman Miller’s quick turnaround. Herman Miller practices “Business as Unusual” as pointed out many years ago by Hugh De Pree, former president, and it appears to pay off in both good and tough times. Herman Miller shares the gains as well as the pains with its employees especially in regards to compensation. 201 Pay is geared to firm performance, and it takes many forms at Herman Miller. As in other companies, all employees receive a base pay. In addition, all employees participate in a profit-sharing program whereby employees receive stock based on the company’s annual financial performance. Employees are immediately enrolled in this plan upon joining Herman Miller and immediately vested. Profit sharing is based on corporate performance because as one employee explained: The problem we see is you get to situations where project X corporately had a greater opportunity for the entirety of the business, but it was difficult to tell these folks that they needed to sacrifice in order to support the entirety of the business when they were being compensated specifically on their portion of the business. So you would get into some turf situations. So we ended up moving to a broader corporate EVA (Economic Value Added) compensation to prevent those types of turf battles. The company offers an Employee Stock Purchase Plan (ESPP) through payroll deductions at a 15% discount from the market price. Also, all employees are offered a 401(k) where they receive a 50% match for the first 6% of their salaries that the employee contributes. Again, employees are immediately eligible to participate in this plan upon joining Herman Miller and immediately vested. The company match was suspended in 2009 due to the recession. Through the profit sharing and the ESPP, the employees own approximately 8% of the outstanding stock. Furthermore, all employees are offered a retirement income plan whereby the company deposits into an account 4% of compensation on which interest is paid quarterly. Employees are immediately eligible to participate in this plan upon joining Herman Miller, but are required to participate for five years before being vested. Additionally, a length of service bonus is paid after 5 years of employment. Finally, the company pays a universal annual bonus to all employees based on the company’s performance against Economic Value Added (EVA) objectives. EVA is a calculation of the company’s net operating profits, after tax, minus a “charge” for the cost of shareholder capital. This is in addition to the other compensation programs, including profit sharing, with the same calculation used to determine both employee and executive bonus potential. Thus, pay takes a number of forms at Herman Miller, but most all forms are at least partially, if not wholly, contingent on corporate performance. One employee summed up pay as follows, “You can dip into Herman Miller’s pocket several times based on the performance of the company.” 202 Other benefits also take many forms at Herman Miller. Employees are given a range of benefits, as they are in many organizations. Some are, however, quite different from those found in other organizations, such as a $100 rebate on a bike purchase. It is justified as “part of our comprehensive program designed for a better world around you.” Other benefits that Herman Miller provides that are identified by the company as “unique” are, ■■ 100% tuition reimbursement ■■ Flexible schedules: job sharing, compressed workweek, and telecommuting options ■■ Concierge services: help in getting directions, dry cleaning, greeting cards or a meal to take home, these services make it easier for you to balance work and home life ■■ Employee product purchase discounts ■■ On-site services including massage therapy, cafeterias, banking, health services, fitness center, fitness classes, and personal trainers Herman Miller in keeping with its beliefs offers extensive wellness benefits including fitness facilities or subsidized gym memberships, health services, employee assistance programs, wellness programs/classes, and health risk assessments. The other benefits that are offered that most large organizations also offer include health insurance, dental insurance, vision care plans, prescription plans, flexible spending accounts, short and long term disability, life insurance, accidental death and disability insurance, and critical illness/personal accident/long-term care. All benefits are also available to domestic partners. When appropriate, Herman Miller promotes people within the organization. Education and training are seen as key to preparing employees to take on new responsibilities. For example, Rudy Bartels, Environmental Specialist, as well as multiple vice presidents, began their careers at Herman Miller on the production floor. Three other benefits are unique to Herman Miller. First, every family that has or adopts a child receives a Herman Miller rocking chair. Second, every employee who retires after 25 years with the company and is 55 years or older receives an Eames lounge chair. Third, Herman Miller has no executive retreat, but it does have an employee retreat, The Marigold Lodge, on Lake Michigan. This retreat is available to employees for corporate related events, such as retirement parties and other celebrations, and in some instances includes invited family and guests. Finance During normal economic times, financial management at Herman Miller would be considered conservative. Part 4: Cases Through 2006, its leverage ratio was below the industry average and its times interest earned ratio was over twice the industry average. Due to the drop-off in business, the debt to equity ratio rose precipitously from 1.18 in 2006 to 47.66 in 2008. To improve this ratio, over 3 million shares were sold in fiscal year 2009.5 In the four previous fiscal years, Herman Miller had been repurchasing shares. The debt to equity ratio was reduced to 3.81 by the end of 2009. To improve short-term assets, dividends per share were cut by approximately 70% and capital expenditures were reduced to zero in 2009 (Financial statements for years 2006-2010 can be found in Tables 1 and 2.). For fiscal year 2008, 15% of Herman Miller’s revenues and 10% of its profits were from non-North American countries. In 2007, non-North American countries accounted for 16.5% of revenues and approximately 20% of Herman Miller’s profits. Financially, Herman Miller holds true to its beliefs. Even in downturns, it invests in research and development. In the dot.com downturn, it invested tens of millions of dollars in R & D. Inside Herman Miller this investment project was code named “Purple.” In the December 19, 2007 issue of FastCompany magazine commenting on this project, Clayton Christensen, Harvard Business School professor and author of The Innovator’s Dilemma, is quoted as saying, “Barely one out of 1000 companies would do what they did. It was a daring bet in terms of increasing spending for the sake of tomorrow while cutting back to survive today.” Herman Miller continues to receive awards both for the design of its product and for its treatment of its employees. For example, in 2011, it was designated as one of ten design icons in Fast Company’s “Thirty Companies That Get It,” and in 2012, Herman Miller was recognized with the Huntington Pillar Award, given by the Women’s Resource Center to companies that demonstrate outstanding dedication to empowering women in the workplace. Accessories Team: An Example of HM’s Strategy, Leadership, and Beliefs in Action The Accessories Team was an outgrowth of project “Purple.” One of the goals of this project was to stretch beyond the normal business boundaries. Office accessories is one area in which Herman Miller has not been historically involved even though it is a big part of what the independent dealers sell. Once identified, “Robyn was tapped to put together a team to really explore this as a product segment that we could get more involved 203 Case 15: Herman Miller: An On-Going Case of Reinvention and Renewal Table 1 Consolidated Balance Sheets (In millions, except share and per share data) May 28, 2011 May 29, 2010 May 30, 2009 May 31, 2008 June 2, 2007 June 3, 2006 Assets Current Assets: Cash and cash equivalents 148.6 Short-term investments (Note1) $ 134.8 $ 192.9 $ 155.4 $ 76.4 $ 106.8 – – 15.7 15.9 15.2 Marketable securities 11.1 12.1 11.3 – – – Accounts receivable 193.1 144.7 148.9 209.0 188.1 173.2 Less allowances in each year Inventories, net Prepaid expenses and other 4.5 4.4 7.3 5.6 4.9 5.0 66.2 57.9 37.3 55.1 56.0 47.1 59.2 45.2 60.5 58.0 48.3 47.9 478.1 394.7 450.9 493.2 384.7 390.2 19.9 19.4 18.8 19.0 18.9 20.9 Buildings and improvements 149.5 147.6 137.4 139.4 137.2 139.1 Machinery and equipment 531.0 546.4 552.0 547.4 543.3 523.8 Total Current Assets Property and Equipment: Land and improvements Construction in progress Gross Property & Equipment Less: accumulated depreciation Net Property and Equipment Goodwill and indefinite-lived intangibles Other amortizable intangibles, net 13.0 10.7 9.8 17.4 17.6 23.5 713.4 724.1 718.0 723.2 717.0 707.3 (544.3) (548.9) (538.8) (526.9) (520.4) (504.0) 169.1 175.2 179.2 196.3 196.6 203.3 133.6 132.6 72.7 40.2 39.1 39.1 24.3 25.0 11.3 – – – Other assets 9.3 43.1 53.2 53.5 45.8 35.4 Total Assets 814.4 $770.6 $767.3 $783.2 $666.2 $668.0 6.4 4.3 3.9 8.5 7.4 6.5 – 100.0 75.0 – 3.0 3.0 Liabilities and Shareholders’ Equity Current Liabilities: Unfunded checks  Current maturities of long-term debt Accounts payable 112.7 96.3 79.1 117.9 110.5 112.3 Accrued liabilities 153.1 112.4 124.2 184.1 163.6 177.6 Total Current Liabilities 272.2 313.0 282.2 310.5 284.5 299.4 Long-term debt, less current maturities 250.0 201.2 302.4 375.5 173.2 175.8 Other liabilities 87.2 176.3 174.7 73.8 52.9 54.2 Total Liabilities 609.4 690.5 759.3 759.8 510.6 529.4 – – – – .3 .2 – – – – – – Minority Interest Shareholders’ Equity:  Preferred stock, no par value (10,000,000 shares authorized, none issued) Continued 204 Part 4: Cases Table 1 (Continued) Consolidated Balance Sheets (In millions, except share and per share data)  Common stock, $0.20 par value (240,000,000 shares authorized, 57,002,733 and 53,826,061 shares issued and outstanding in 2010 and 2009, respectively) Additional paid-in capital May 28, 2011 May 29, 2010 May 30, 2009 May 31, 2008 June 2, 2007 June 3, 2006 11.6 11.4 10.8 11.1 12.6 13.2 82.0 55.9 5.9 – – – Retained earnings 218.2 152.4 129.2 76.7 197.8 192.2  Accumulated other comprehensive loss (104.2) (136.2) (134.1) (60.1) (51.6) (63.3)  Key executive deferred compensation (2.6) (3.4) (3.8) (4.3) (3.5) (3.7) Total Shareholders’ Equity 205.0 80.1 8.0 23.4 155.3 138.4 $814.4 $770.6 $767.3 $783.2 $666.2 $668.0 Total Liabilities and Shareholders’ Equity Table 2 Consolidated Statements of Operations (In millions, except per share data) Net sales Cost of sales Gross margin May 28, 2011 May 29, 2010 May 30, 2009 May 31, 2008 June 2, 2007 June 3, 2006 $1,649.2 $1,318.8 $1,630.0 $2,012.1 $1,918.9 $1,737.2 1,111.1 890.3 1102.3 1,313.4 1,273.0 1,162.4 538.1 428.5 527.7 698.7 645.9 574.8 366.0 317.7 330.8 395.8 395.8 371.7 Operating Expenses:  Selling, general, and administrative Restructuring expenses 3.0 16.7 28.4 5.1 – 45.8 40.5 45.7 51.2 52.0 45.4 414.8 374.9 404.9 452.1 447.8 417.1 123.3 53.6 122.8 246.6 198.1 157.7 Interest expense 19.9 21.7 25.6 18.8 13.7 14.0  Interest and other investment income (1.5) (4.6) (2.6) (3.8) (4.1) (4.9) Design and research Total operating expenses Operating earnings Other Expenses (Income): Other, net Net other expenses Earnings before income taxes and minority interest Income tax expense 2.4 1.7 .9 1.2 1.5 1.0 20.8 18.8 23.9 16.2 1 10.1 102.5 34.8 98.9 230.4 187.0 147.6 31.7 6.5 31.0 78.2 57.9 47.7 (.1) (0.1) Minority interest, net of income tax Net Earnings 0.7 70.8 $28.3 $68.0 $152.3 $129.1 Earnings per share - basic $1.24 $.51 $1.26 $2.58 $2.01 $1.4 Earnings per share - diluted $1.06 $.43 $1.25 $2.56 $1.98 $1.45 Source: Herman Miller’s 10_K’s $99.2 205 Case 15: Herman Miller: An On-Going Case of Reinvention and Renewal with,” according to Mark Schurman, Director of External Communications at Herman Miller. In 2006, Robyn established the team by recruiting Larry Kallio to be the head engineer and Wayne Baxter to lead sales and marketing. Together, they assembled a flexible team to launch a new product in 16 months. They recruited people with different disciplines needed to support that goal. Over the next two years, they remained a group of six. Some people started with the team and then as it got through that piece of work, they went on to different roles within the company. The team during its first eight months met twice a week for half a day. Twenty months out it met only once a week. The group acts with a fair amount of autonomy, but it does not want complete autonomy because, “We don’t want to be out there completely on our own because we have such awesome resources here at Herman Miller,” Robyn explained. The group reaches out to other areas in the company when different disciplines are needed for a particular product, and tap people that could allocate some of their time to support it. Wayne described what happened on the team as follows: We all seem to have a very strong voice regarding almost any topic; it’s actually quite fun and quite dynamic. We all have kind of our roles on the team, but I think other than maybe true engineering, we’ve all kind of tapped into other roles and still filled in to help each other as much as we could. Another member of the accessories team described decision making as follows: If we wanted to debate and research and get very scientific, we would not be sitting here talking about the things that we’ve done, we’d still be researching them. In a sense, we rely upon our gut a lot, which I think is, at the end of the day, just fine because we have enough experience. We’re not experts, but we’re also willing to take risks and we’re also willing to evolve. Thus, leadership and decision making is shared both within the team and across the organization. Ideas and other contributions to the success of the team are accepted from all sources. Out of this process has grown what is known as the “Thrive Collection.” The name was chosen to indicate the focus on the individual and the idea of personal comfort, control, and ergonomic health. Products included in the collection are the Ardea® Personal Light, the Leaf® Personal Light, Flo® Monitor Arm, and C2® Climate Control. All of these are designed for improving the individual’s working environment. Continuing Herman Miller’s tradition of innovative design, the Ardea light earned both Gold and Silver honors from the International Design Excellence Awards (IDEA) in June, 2010. The Industry Office equipment is an economically volatile industry. The office furniture segment of the industry was hit hard by the recession. The AKTRIN Research Institute stated in a 2003 industry report, “…corporate profitability is one of the most forthright determinations for business office furniture acquisition.” Neither the industry nor Herman Miller has returned to their sales peaks of 2007. Herman Miller’s stock market value of $1,437,979 at the end of 2011 represented 10.79% of the total stock market value of the industry identified by Standard & Poor’s Research Insight as Office Services & Supplies. Both figures represented increases from the ending 2009 market value of $1,095,322,000 and total stock market value of the industry of 7.3%. According to Hoover’s, Herman Miller’s top three competitors are Commercial Furniture Group, Inc., Flexsteel Industries, Inc., and HMU, LLC. All three of these are different than what Hoover’s listed as the top three competitors for Herman Miller in 2009. The industry has been impacted by a couple of trends. First, telecommuting has decreased the need of large companies to have office equipment for all employees. Some companies such as Oracle have a substantial percentage of their employees telecommuting. The majority of Jet Blue reservation clerks telecommute. Second, more employees spend more hours in front of computer screens than ever before. Due to this trend, the need for ergonomically correct office furniture has increased. Such furniture helps to decrease fatigue and injuries such as carpal tunnel syndrome. As with most industries, the cost of raw materials and competition from overseas has had an impact. These trends tend to impact the low-cost producers more than the high-quality producers. The Future In a June 24, 2010, press release, Brian Walker, Chief Executive Officer, stated, “One of the hallmarks of our company’s history has been the ability to emerge from challenging periods with transformational products and processes. I believe our commitment to new products and market development over the past two years has put us in a position to do this once again. Throughout this period, we remained focused on maintaining near-term profitability while at the same time investing for the 206 Part 4: Cases future. The award-winning new products we ­introduced last week at the NeoCon tradeshow are a testament to that focus, and I am incredibly proud of the collective spirit it has taken at Herman Miller to make this happen.” The financial results in 2011 appear to indicate that this strategy is working. However, in a press release accompanying the third quarter results for 2012, Mr. Walker stated, “Our financial results this quarter (see Tables 3, 4, & 5) reflect the continued strength of our international business, particularly within Asia and Latin America. These emerging markets remain an important point of emphasis in our growth strategy, and we are thrilled to announce the planned closing of the POSH acquisition (a Hong Kong-based designer, manufacturer, and distributor of office furniture systems, freestanding furniture, seating, and filing and storage).” Mr. Walker continued explaining, “Within North America, business levels in the quarter were constrained by a slowdown in sales and orders to the U.S. federal government and within the healthcare sector. We were, however, very encouraged to see solid year-over-year increases across most other North American customer groups as well as in our Specialty and Consumer segment. Given the momentum of our international operations, the acquisition of POSH, and the improving state of the broader U.S. economy, we are Table 3 Herman Miller, Inc. Condensed Consolidated Statements of Operations (Unaudited) (Dollars in millions, except per share data) Nine Months Ended March 3, 2012 Net Sales February 26, 2011 $1,303.5 100.0% $1,207.7 100.0% Cost of Sales 862.9 66.2% 815.3 67.5% Gross Margin 440.6 33.8% 392.4 32.5% Operating Expenses 332.8 25.5% 297.6 24.6% – – 3.0 0.3% Operating Earnings 107.8 8.3% 91.8 7.6% Other Expense, net 14.0 1.1% 16.1 1.3% Earnings Before Income Taxes 93.8 7.2% 75.7 6.3% Income Tax Expense 30.6 2.3% 21.9 1.8% Net Earnings $63.2 4.8% $53.8 4.5% Earnings Per Share – Basic $1.09 $0.94 58,144,031 57,032,799 $1.08 $0.77 58,414,707 57,652,948 Restructuring Expenses Weighted Average Basic Common Shares Earnings Per Share – Diluted Weighted Average Diluted Common Shares Source: Herman Miller Reports Planned Strategic Investments, Strong Cash Flow in the Third Quarter of FY2012, Press Release, March 21, 2012 Table 4 Herman Miller, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (Dollars in millions) Nine Months Ended March 3, 2012 Net Earnings February 26, 2011 Percentage Change $63.2 $53.8 17% Cash Flows provided by Operating Activities 82.4 52.5 57% Cash Flows used for Investing Activities (6.2) (23.0) −73% Cash Flows used for Financing Activities (0.6) (4.3) −86% Effect of Exchange Rates – 3.7 N/C 75.6 28.9 162% Cash, Beginning of Period $142.2 $130.5 9% Cash, End of Period $217.8 $159.4 37% Net Increase in Cash Source: Herman Miller Reports Planned Strategic Investments, Strong Cash Flow in the Third Quarter of FY2012, Press Release, March 21, 2012 207 Case 15: Herman Miller: An On-Going Case of Reinvention and Renewal Table 5 Herman Miller, Inc. Condensed Consolidated Balance Sheets (Unaudited) (Dollars in millions) March 3, 2012 May 28, 2011 Percentage Change Assets Current Assets Cash and Cash Equivalents Marketable Securities Accounts Receivable, net Inventories, net Prepaid Expenses and Other $217.8 $142.2 53% 10.7 11.0 −3% 154.9 193.1 −20% 56.3 66.2 −15% 50.7 59.2 −14% 490.4 471.7 4% Net Property and Equipment 159.3 169.1 −6% Other Assets 166.0 167.2 −1% $815.7 $808.0 1% Accounts Payable 93.2 112.7 −17% Accrued Liabilities 129.1 153.1 −16% Total Current Liabilities 222.3 265.8 −16% Long-term Debt 250.0 250.0 0% Other Liabilities 74.3 87.2 −15% Total Liabilities 546.6 603.0 −9% Shareholders’ Equity Totals 269.1 205.0 31% $815.7 $808.0 1% Total Current Assets Total Assets Liabilities and Shareholders’ Equity Current Liabilities Total Liabilities and Shareholders’ Equity Source: Herman Miller Reports Planned Strategic Investments, Strong Cash Flow in the Third Quarter of FY2012, Press Release, March 21, 2012 increasingly confident in the future growth prospects of our business.” Questions to address: Will the strategies that have made Herman Miller an outstanding and award-winning company continue to provide it with the ability to reinvent and renew itself? Will disruptive global, economic, and competitive forces compel it to change its business model? Notes 1. Many sources were helpful in providing material for this case, most particularly employees at Herman Miller who generously shared their time and viewpoints about the company to help ensure that the case accurately reflected the company’s practices and culture. They provided many resources, including 2. 3. internal documents and stories of their personal experiences. Corporate titles such as president and chief executive officer are not capitalized in this case because they are not capitalized in company documents. At Herman Miller, people, including D.J. De Pree, are referred to by their first 4. 5. or nicknames or in combination with their surnames, but hardly ever by their titles or surnames alone. The names of the two Fortune 500 companies were deleted by the authors. Herman Miller’s fiscal year ends on May 30th of the following calendar year. Case 15 Herman Miller: An On-Going Case of Reinvention and Renewal1 Frank Shipper, PhD Perdue School of Business, Salisbury University Karen P. Manz, PhD Author & Researcher Stephen B. Adams, PhD Perdue School of Business, Salisbury University Charles C. Manz, PhD Nirenberg Professor of Leadership, Isenberg School of Management, University of Massachusetts 194 Background Herman Miller’s roots go back to 1905 and the Star Furniture Company, a manufacturer of traditional style bedroom suites in Zeeland, Michigan. In 1909, it was renamed Michigan Star Furniture Company and hired Dirk Jan (D.J.) De Pree as a clerk. D.J. De Pree became president in 1919. Four years later D.J. convinced his father-in-law, Herman Miller, to purchase the majority of shares and renamed the company Herman Miller Furniture Company in recognition of his support.3 In 1927, D.J. De Pree committed to treating “all workers as individuals with special talents and potential.” This occurred after he visited the family of a millwright who had died unexpectedly. At the visit, the widow read some poetry. D.J. De Pree asked the widow who the poet was and was surprised to learn it was the millwright. This led him to wonder whether the millwright was a person who wrote poetry or a poet who was also a millwright. This story is part of the cultural folklore at Herman Miller that continues to generate respect for all employees and fuels the quest to tap the diversity of gifts and skills held by all. © Vividfour / Shutterstock.com At first glance Herman Miller would appear to be only a $1.65 billion dollar manufacturer of office furniture. Herman Miller is, however, a company that is known beyond furniture for its innovation in products and processes since D.J. De Pree became president over 90 years ago.2 It is one of only four organizations and the only non-high technology one selected to Fortune’s 100 Best Companies to Work For and Most Admired Companies, and FastCompany’s Most Innovative Companies in both 2008 and 2010. The three high technology organizations selected were Microsoft, Cisco, and Google. Not usual company for a firm in a mature industry and definitely not for an office furniture company. Ever since D.J. De Pree became president, Herman Miller has followed a different path from most firms. It is one distinctively marked by reinvention and renewal. This path has served it well. Early in its history it survived the Great Depression and multiple recessions in the 20th century. In the early part of the 21st century, it recovered from the dot.com bust. As it enters 2010, Herman Miller once again faces a turbulent economy. Will this path allow it to flourish once again? Case 15: Herman Miller: An On-Going Case of Reinvention and Renewal In 1930, the country was in the Great Depression and Herman Miller was in financial trouble. D.J. De Pree was looking for a way to save the company. At the same time, Gilbert Rhode, a designer from New York, approached D.J. De Pree and told him about his design philosophy. He then asked for an opportunity to create a design of a bedroom suite at a fee of $1000. When D.J. De Pree reacted negatively to such a fee, Gilbert Rhode suggested an alternative payment plan, 3% royalty on the furniture sold, to which D.J. agreed, figuring that there was nothing to lose. A few weeks later, D.J. received the first designs from Rhode. Again, he reacted negatively. He “thought that they looked as if they had been done for a manual training school and told him so.” Gilbert Rhode explained in a letter his design philosophy – first, “utter simplicity: no surface enrichment, no carvings, no moldings,” and second, “furniture should be anonymous. People are important, not furniture. Furniture should be useful.” Rhode’s designs were antithetical to traditional designs, but D.J. saw merit in them and this set Herman Miller on a course of designing and selling furniture that reflected a way of life. In 1942, Herman Miller produced its first office furniture – a Gilbert Rhode design referred to as the Executive Office Group. He died two years later and De Pree began a search for a new design leader. Based largely on an article in Life magazine, he hired George Nelson as Herman Miller’s first design director. In 1946, Charles and Ray Eames, designers based in Los Angeles, were hired to design furniture. In the same year, Charles Eames’ designs were featured in the first one-man furniture exhibit at New York’s Museum of Modern Art. Some of his designs are now part of the museum’s permanent collection. In 1950, Herman Miller, under the guidance of Dr. Carl Frost, Professor at Michigan State University, was the first company in the state of Michigan to implement a Scanlon Plan. Underlying the Scanlon Plan are the “principles of equity and justice for everyone in the company….” Two major functional elements of Scanlon Plans are the use of committees for sharing ideas on improvements and a structure for sharing increased profitability. The relationship between Dr. Frost and Herman Miller continued for at least four decades. During the 1950s, Herman Miller introduced a number of new furniture designs including those by Alexander Girard, Charles and Ray Eames, and George Nelson. Specifically, the first molded fiberglass chairs were introduced and the Eames lounge chair and ottoman were introduced on NBC’s Home Show with Arlene Francis, a precursor to the Today Show. Also in the 1950s, 195 Herman Miller began its first overseas foray, selling its products in the European market. In 1962, D.J. became chairman of the board and his son, Hugh De Pree, became president and chief executive officer. D.J. had served for over 40 years as the president. During the 1960s, many new designs were introduced both for home and the workplace. The most notable design was the Action Office System, the world’s first open-plan modular office arrangement of movable panels and attachments. By the end of the 1960s, Herman Miller had formed a subsidiary in England with sales and marketing responsibility throughout England and the Scandinavian countries. Also, it had established dealers in South and Central America, Australia, Canada, Europe, Africa, the Near East, and Japan. In 1970, Herman Miller went public and made its first stock offering. The stock certificate was designed by the Eames Office staff. In 1971, it entered the health/science market, and in 1976, the Ergon chair, its first design based on scientific observation and ergonomic principles, was introduced. In 1979, in conjunction with the University of Michigan, it established the Facility Management Institute that established the profession of facility management. Also, in the 70s, Herman Miller continued to expand overseas and introduce new designs. By 1977, over half of Herman Miller’s 2500 employees worked outside of the production area. Thus, the Scanlon plan needed to be overhauled since it had been designed originally for a production workforce. In addition, employees worked at multiple U.S. and overseas locations. Thus, in 1978, an ad hoc committee of 54 people from nearly every segment of the company was elected to examine the need for changes and to make recommendations. By January 1979, the committee had developed a final draft. The plan established a new organization structure based on work teams, caucuses, and councils. All employees were given an opportunity in small group settings to discuss it. On January 26, 1979, 96% of the employees voted to accept the new plan. After 18 years Hugh De Pree stepped down, and Max De Pree, Hugh’s younger brother, became chairman and chief executive officer in 1980. In 1981, Herman Miller took a major initiative to become more efficient and environmentally friendly. Its Energy Center generated both electrical and steam power to run its million square foot facility by burning waste. In 1983, Herman Miller established a plan whereby all employees became shareholders. This initiative appeared to be a natural outgrowth from the adoption of the Scanlon Plan in 1950. Employees from 1983 forward shared in both the ownership and the profits of the firm. 196 In 1984, the Equa chair, a second chair based on ergonomic principles, was introduced along with many other designs in the 1980s. In 1987, the first non-family member, Dick Ruch, became chief executive officer. By the end of the decade, the Equa chair was recognized as a Design of the Decade by Time magazine. Also, in 1989, Herman Miller established its Environmental Quality Action Team. It is to “… coordinate environmental programs worldwide and involve as many employees as possible.” In 1990, Herman Miller was a founding member of the Tropical Forest Foundation and was the only furniture manufacturer to belong. That same year, it ­discontinued using endangered rosewood in its award-­ winning Eames lounge chair and ottoman, and substituted cherry and walnut from sustainable sources. It also became a founding member of the U.S. Green Building Council in 1994. Some of the buildings at Herman Miller have been used to establish Leadership in Energy & Environmental Design (LEED) standards. Because of its environmental efforts, Herman Miller received awards from Fortune magazine and the National Wildlife Federation in the 1990s. In the 90s, Herman Miller again introduced some ground-breaking designs. In 1994, it introduced the Aeron chair and almost immediately it was added to the New York Museum of Modern Art’s permanent Design Collection. In 1999, it won the Design of the Decade from Business Week and the Industrial Designers Society of America. In 1992, J. Kermit Campbell became Herman Miller’s fifth CEO and president. He was the first person from outside the company to hold either position. In 1995, Campbell resigned and Mike Volkema was promoted to CEO. At the time the industry was in a slump and Herman Miller was being restructured. Sales were approximately 1 billion. Mike Volkema had been with Meridian, a company Herman Miller acquired in 1990, for seven years. So with approximately 12 years of experience with either Herman Miller or its subsidiary and at the age of 39, Mike Volkema became CEO. In 1994, Herman Miller for the Home was launched to focus on the residential market. It reintroduced some of its modern classic designs from the 40s, 50s, and 60s as well as new designs. In 1998, hmhome.com was set up to tap this market. Additional marketing initiatives were taken to focus on small and mid-size businesses. A network of 180 retailers was established to focus on small businesses and a 3-D design computer program was made available to mid-size customers. In addition, order entry was Part 4: Cases digitally linked among Herman Miller, suppliers, distributors, and customers to expedite orders and improve their accuracy. The 2000s The 2000s started off spectacularly with record profits and sales in 2000 and 2001. The Board of Directors approved a special one-time option grant of 100 shares to each nonexecutive, North American-based employee in June of 2000, and the Eames molded plywood chair was selected as a “design of the century” by Time magazine. Sales had more than doubled in the six years that Mike Volkema had been CEO. Then the dot.com bubble burst and the events of September 11, 2001 occurred in the U.S. Sales dropped 34% from $2,236,200,000 in 2001 to $1,468,700,000 in 2002. In the same years profits dropped from $144,100,000 to losses of $56,000,000. In an interview for FastCompany magazine in 2007, Volkema said, “One night I went to bed a genius and woke up the town idiot.” Although sales continued to drop in 2003, Herman Miller returned to profitability in that year. To do so, Herman Miller had to drop its long-held tradition of lifelong employment. Approximately 38% of the work force was laid off. One entire plant in Georgia was closed. Mike Volkema and Brian Walker, then President of Herman Miller North America, met with all the workers to tell them what was happening and why it had to be done. One of the workers being laid off was so moved by their presentation that she told them she felt sorry for them having to personally lay off workers. To replace the tradition of life-long employment, Mike Volkema, with input from many, developed what is referred to as “the new social contract.” He explains it as follows: We are a commercial enterprise, and the customer has to be on center stage, so we have to first figure out whether your gifts and talents have a match with the needs and wants of this commercial enterprise. If they don’t, then we want to wish you the best, but we do need to tell you that I don’t have a job for you right now. As part of the implementation of the social contract, benefits such as educational reimbursement and 401K plans were redesigned to be more portable. This was done to decrease the cost of changing jobs for employees whose gifts and talents no longer matched customer needs. Sales and profits began to climb from 2003 to 2008. In 2008, even though sales were not at an all-time high, profits were. During this period, Brian Walker became president in 2003 and chief executive officer in 2004. 197 Case 15: Herman Miller: An On-Going Case of Reinvention and Renewal Mike Volkema became chairman of the board in 2004. They continue in these positions in 2012. Then Herman Miller was hit by the recession of 2009. Sales dropped 19% from $2,012 billion in 2008 to $1,630 billion in 2009. In the same years profits dropped from $152 million to $68 million. In March 2012, Mark Schurman, Director of External Communications at Herman Miller, predicted that the changes made to recover from the 2001-2003 recession would help it better weather the 2007-2009 recession. ■■ Herman Miller Entering 2012 Herman Miller has codified its long practiced organizational values and publishes them on its web site under a page entitled “What We Believe.” These beliefs are intended as a basis for uniting all employees, building relationships, and contributing to communities. Those beliefs as stated in 2005 and remaining in effect in 2012 are as follows: ■■ Curiosity & Exploration: These are two of our greatest strengths. They lie behind our heritage of research-driven design. How do we keep our curiosity? By respecting and encouraging risk, and by practicing forgiveness. You can’t be curious and infallible. In one sense, if you never make a mistake, you’re not exploring new ideas often enough. Everybody makes mistakes: we ought to celebrate honest mistakes, learn from them, and move on. ■■ Engagement: For us, it is about being owners– actively committed to the life of this community called Herman Miller, sharing in its success and risk. Stock ownership is an important ingredient, but it’s not enough. The strength and the payoff really come when engaged people own problems, solutions, and behavior. Acknowledge responsibility, choose to step forward and be counted. Care about this community and make a difference in it. ■■ Performance: Performance is required for leadership. We want to be leaders, so we are committed to performing at the highest level possible. Performance isn’t a choice. It’s up to everybody at Herman Miller to perform at his or her best. Our own high performance–however we measure it–enriches our lives as employees, delights our customers, and creates real value for our shareholders. ■■ Inclusiveness: To succeed as a company, we must include all the expressions of human talent and potential that society offers. We value the whole person and everything each of us has to offer, obvious or ■■ ■■ ■■ not so obvious. We believe that every person should have the chance to realize his or her potential regardless of color, gender, age, sexual orientation, educational background, weight, height, family status, skill level—the list goes on and on. When we are truly inclusive, we go beyond toleration to understanding all the qualities that make people who they are, that make us unique, and most important, that unite us. Design: Design for us is a way of looking at the world and how it works–or doesn’t. It is a method for getting something done, for solving a problem. To design a solution, rather than simply devising one, requires research, thought, sometimes starting over, listening, and humility. Sometimes design results in memorable occasions, timeless chairs, or really fun parties. Design isn’t just the way something looks; it isn’t just the way something works, either. Foundations: The past can be a tricky thing–an anchor or a sail, a tether or a launching pad. We value and respect our past without being ruled by it. The stories, people, and experiences in Herman Miller’s past form a unique foundation. Our past teaches us about design, human compassion, leadership, risk taking, seeking out change, and working together. From that foundation, we can move forward together with a common language, a set of owned beliefs and understandings. We value our rich legacy more for what it shows us we might become than as a picture of what we’ve been. A Better World: This is at the heart of Herman Miller and the real reason why many of us come to work every day. We contribute to a better world by pursuing sustainability and environmental wisdom. Environmental advocacy is part of our heritage and a responsibility we gladly bear for future generations. We reach for a better world by giving time and money to our communities and causes outside the company; through becoming a good corporate citizen worldwide; and even in the (not so) simple act of adding beauty to the world. By participating in the effort, we lift our spirits and the spirits of those around us. Transparency: Transparency begins with letting people see how decisions are made and owning the decisions we make. So when you make a decision, own it. Confidentiality has a place at Herman Miller, but if you can’t tell anybody about a decision you’ve made, you’ve probably made a poor choice. Without transparency, it’s impossible to have trust and integrity. Without trust and integrity, it’s impossible to be transparent. 198 All employees are expected to live these values. In a description of the current processes that follow, numerous examples of these values in action can be found. Management Mike Volkema is currently the chairman of the board, and Brian Walker is the president and chief executive officer. Walker’s compensation was listed by Bloomberg Businessweek as $693,969 in 2011. Compensation for CEOs at five competitors was listed by Bloomberg Businessweek to range from $777,923 to $973,154. Walker and four other top executives at Herman Miller took a 10% pay cut in January, 2009, and they took another 10% pay cut along with all salaried workers in March, 2009. The production workers were placed on a 9 day in two weeks work schedule, effectively cutting their pay by 10% as well. A little over one year later in June, 2010 most employees’ pay cuts and furloughs were rescinded. That the executives would take a pay cut before all others and twice as much is just one way human compassion is practiced at Herman Miller. By Securities and Exchange Commission (SEC) regulations a publicly traded company must have a board of directors. By corporate policy, the majority of the 14 members of the board must be independent. To be judged an independent, the individual as a minimum must meet the NASDAQ National Market requirements for independent directors (NASDAQ Stock Market Rule 4200). In addition, the individual must not have any “other material relationship with the company or its affiliates or with any executive officer of the company or his or her affiliates.” Moreover, any “transaction between the Company and any executive officer or director of the Company (including that person’s spouse, children, stepchildren, parents, stepparents, siblings, parents-in-law, childrenin-law, siblings-in-law and persons sharing the same residence) must be disclosed to the Board of Directors and is subject to the approval of the Board of Directors or the Nominating and Governance Committee unless the proposed transaction is part of a general program available to all directors or employees equally under an existing policy or is a purchase of Company products consistent with the price and terms of other transactions of similar size with other purchasers.” Furthermore, “It is the policy of the Board that all directors, consistent with their responsibilities to the stockholders of the company as a whole, hold an equity interest in the company. Toward this end, the Board requires that each director will have an equity interest after one year on the Board, and within five years the Board encourages the directors to have shares of common stock of the company with a Part 4: Cases value of at least three times the amount of the annual retainer paid to each director.” In other words, board members are held to standards consistent with the corporate beliefs and its ESOP program. Although Herman Miller has departments, the most frequently referenced work unit is a team. Paul Murray, Director of the Environmental Health and Safety explained their relationship as follows: At Herman Miller, team has just been the term that has been used since the Scanlon Plan and the De Prees brought that into Herman Miller. And so I think that’s why we use that almost exclusively. The department — as a department, we help facilitate the other teams. And so they aren’t just department driven. Teams are often cross-functional. Membership on a team is based on ability to contribute to that team. As Gabe Wing, Design for the Environment Lead Chemical Engineer, described it, You grab the appropriate representative who can best help your team achieve its goal. It doesn’t seem to be driven based on title. It’s based on who has the ability to help us drive our initiatives towards our goal. Teams are often based on product development. When that product has been developed, the members of that team are redistributed to new projects. New projects can come from any level in the organization. At Herman Miller leadership is shared. One way in which this is done is through Herman Miller’s concept of “talking up and down the ladder.” Workers at all levels are encouraged to put forth new ideas. As Rudy Bartels, Environmental Specialist said, If they try something, then they have folks there who will help them and be there for them. And by doing that, either — whether that requires a presence of one of us or an email or just to say, “Yeah, I think that’s a great idea.” That’s how a lot … in the organization works. Because the workers feel empowered, a new manager can run into some behavior that can startle them. As Paul Murray recalled, I can remember my first day on the job. I took my safety glasses off … and an employee stepped forward and said, “Get your safety glasses back on.” At Company X, Company Y,4 there was no way would they have ever talked to a supervisor like that, much less their supervisor’s manager. It’s been a fun journey when the work force is that empowered. The beliefs are also reinforced through the Employee Gifts Committee, and Environmental Quality Action 199 Case 15: Herman Miller: An On-Going Case of Reinvention and Renewal Team. True to its practice of shared leadership the Employee Gifts Committee distributes funds and other resources based on employee involvement. As explained by Jay Link, manager of Corporate Giving, the program works as follows: …our first priority is to honor organizations where our employees are involved. We believe that it’s important that we engender kind of a giving spirit in our employees, so if we know they’re involved in organizations, which is going to be where we have a manufacturing presence, then our giving kind of comes alongside organizations that they’re involved with. So that’s our first priority. In addition, all employees can work 16 paid hours a year with the charitable organization of their choice. Herman Miller sets goals for the number of employee volunteer hours contributed annually to its communities. Progress toward meeting those goals is reported to the CEO. The Environmental Affairs Team has responsibility for such areas as solid waste recycling and designing products from sustainable resources. It was formed in 1988 with the authorization of Max De Pree. One success that it has is in the reduction of solid waste taken to the landfill. In 1991, Herman Miller was sending 41 million pounds to the landfill. By 1994 it was down to 24 million pounds and by 2008 it was reduced to 3.6. Such improvements are both environmentally friendly and cost effective. These beliefs are carried over to the family and community. Gabe Wing related how, “I’ve got the worst lawn in my neighborhood. That’s because I don’t spread pesticides on it, and I don’t put fertilizer down.” He went on to say how his wife and he had to make a difficult decision this the summer of 2009 because Herman Miller has a policy “to avoid PVC (polyvinyl chloride) wherever possible.” In restoring their home, they chose fiber cement board over PVC siding even though it was considerably more costly. Gabe went on say, “Seven years ago, I didn’t really think about it.” Rudy Bartels is involved in a youth soccer association. As is typical, it needs to raise money to buy uniforms. Among other fund raisers that it has done is collecting newspapers and aluminum cans. As he tells it, “When I’ll speak they’ll say, ‘Yeah, that’s Rudy. He’s Herman Miller. You should — you know we’re gonna have to do this.’” These beliefs carry over to all functional areas of the business. Some of them are obviously beneficial and some of them are simply the way Herman Miller has chosen to conduct its business. Marketing Herman Miller products are sold internationally through wholly owned subsidiaries in various countries including Canada, France, Germany, Italy, Japan, Mexico, Australia, Singapore, China, India, and the Netherlands. Its products are offered through independent dealerships. The customer base is spread over 100 countries. Herman Miller uses Green Marketing to sell its products. For example, the Mirra Chair introduced in 2003 with PostureFit Technology was developed from its inception to be environmentally friendly (cradle-to-cradle principles). These chairs are made of 45% recycled materials, and 96% of their materials are recyclable. In addition, they are assembled using 100% renewable energy. In 2003, Architectural Record magazine and Environmental Building News named the Mirra chair as one of the “Top 10 Green Products.” Builders who use Herman Miller products in their buildings can earn points toward LEED’s (Leadership in Energy & Environmental Design) certification. In addition, Herman Miller engages in cooperative advertising with strategic partners. For example, at Hilton Garden Inns, some rooms are equipped with Herman Miller’s Mirra chairs. On the desk in the room is a card explaining how to adjust the chair for comfort and then lists a Hilton Garden Inn web site where the chair can be purchased. Herman Miller segments its markets into work, home, healthcare education, and government. Many products are marketed across segments. To enhance its marketing analysis and promotions, Herman Miller also segments its markets geographically. The North American, Asian, European and Latin American markets are all tracked independently. Production/Operations Herman Miller is globally positioned in terms of manufacturing operations. In the United States, its manufacturing operations are located in Michigan, Georgia, and Washington. In Europe, it has considerable manufacturing presence in the United Kingdom, its largest market outside of the United States. In Asia, it has manufacturing operations in Ningbo, China. Herman Miller manufactures products using a system of lean manufacturing techniques collectively referred to as the Herman Miller Performance System (HMPS) (Figure 1). It strives to maintain efficiencies and cost savings by minimizing the amount of inventory on hand through a JIT (Just in Time) process. Some suppliers deliver parts to Herman Miller production facilities five or six times per day. 200 Part 4: Cases Figure 1 The Herman Miller Production System TECHNICAL n Product ion ller Mi S True North True North (perfection is the goal) Customer Satisfaction • Zero defects • 100% value added • 1×1 in sequence on demand tem ys He rm a The Herman Miller Production System . . . an integrated system Human Development • Physical and mental safety • Security • Professional challenge Definitions Y PH MA NA GE ME NT wo rk SO ILO PH .. .th d ew an ay we think 1. Philosophy (Things That Matter) • Customer first • People are the most important resource • Kaizen is a way of life • Shop floor focus 3. Technical Tools (the tools of HMPS) Heijunka Standardized Work Continuous Flow Eliminating the stagnation of work between processes by producing one piece at a time. Takt Time Is the time which should be taken to produce a product based on customer demand. Total Daily Operating Time Total Daily Customer Requirement Pull System A production system where processes withdraw from proceeding processes the parts they need, when they need them, in the exact needed amount. Jidoka The ability of production lines to be stopped in the event of a problem such as equipment malfunctions or quality problems. Heijunka The leveling of the production schedule by volume and variety over a given time period. Kaizen The process of people making improvements to eliminate waste and improve their work. Standardized Work The most efficient workflow considering safety, quality, quantity and cost with the main consideration on human movement. Value (Quality, Cost and Lead Time) Human Development Production and conveyance of only what is needed, when it is needed, in the amount needed, meeting the exact demand of the customer. Takt Time = 2. Management System • Support and develop team members • Quick response to problems • Provide vision and motivation to move to True North Just In Time • Continuous Flow • Takt Time • Pull System JIT (Just-In-Time) Jidoka • Stop & notify of abnormalities • Separate man/ machine work Kaizen Stability Stability The dependability of 4Ms: man, machine, material, and method in daily production. Kanban A visual signal that is the key control tool for JIT production. 7 Forms of Waste • Over Production • Waiting • Conveyance • Process • Inventory • Motion • Correction 0512-001 Front Production is order-driven with direct materials and components purchased as needed to meet demand. The standard lead time for the majority of its products is 10 to 20 days. As a result, the rate of inventory turnover is high. These combined factors could cause inventory levels to appear relatively low in relation to sales volume. A key element of its manufacturing strategy is to limit fixed production costs by outsourcing component parts from strategic suppliers. This strategy has allowed it to Back increase the variable nature of its cost structure while retaining proprietary control over those production processes that Herman Miller believes provide a competitive advantage. Because of this strategy, manufacturing operations are largely assembly-based. The success of the Herman Miller Performance System (HMPS) was the result of much hard work. For example, in 1996, the Integrated Metals Technology (IMT) subsidiary was not going well. IMT supplied Case 15: Herman Miller: An On-Going Case of Reinvention and Renewal pedestals to its parent company Herman Miller. Its prices were high, lead time long, and quality was in the 70% range. The leadership of the subsidiary decided to hire the consulting arm of Toyota, Toyota Supplier Support Center (TSSC). Significant improvements were made by inquiring, analyzing, and “enlisting help and ideas of everyone.” For example, quality defects in parts per million decreased from approximately 9000 in 2000 to 1500 in 2006. Concurrently, on-time shipments improved from 80% to 100% and safety incidents per 100 employees dropped from 10 to 3 per year. The organizational values mentioned earlier were incorporated into the design of The Greenhouse, Herman Miller’s main production facility in Michigan. The building was designed to be environmentally friendly. For example, it takes advantage of natural light and landscaping. Native plants are grown without the use of fertilizers, pesticides, or irrigation. After the facility was opened, aggressive paper wasps found the design to their liking. Employees and guests were stung, frequently. In keeping with Herman Miller beliefs a solution was sought. Through research it was learned that honey bees and paper wasps are incompatible. Therefore, 600,000 honey bees and their 12 hives were co-located on the property. The wasps soon left. Two additional consequences were that due to pollination by the bees, the area around the facility blooms with wild flowers and a large amount of honey is produced. Guests to the home office are given a four-ounce bottle of the honey symbolizing its corporate beliefs. Human Resource Management Human resource management is considered a strength for Herman Miller. It is routinely listed on Fortune’s 100 Best Companies to Work For, including 2010. It had approximately 278 applicants for every job opening. In the 2009 downturn, Herman Miller cut its workforce by more than 15%, reduced pay of the remaining workforce by at least 10%, and suspended 401(k) contributions. Employees praised management for “handling the downturn with class and doing what is best for the collective whole” according to Fortune magazine’s February 8, 2010 issue. Fortune also estimated voluntary turnover to be less than 2%. On June 1, 2010, the time-and-pay cuts of 10 percent begun in the spring of 2009 were discontinued due to Herman Miller’s quick turnaround. Herman Miller practices “Business as Unusual” as pointed out many years ago by Hugh De Pree, former president, and it appears to pay off in both good and tough times. Herman Miller shares the gains as well as the pains with its employees especially in regards to compensation. 201 Pay is geared to firm performance, and it takes many forms at Herman Miller. As in other companies, all employees receive a base pay. In addition, all employees participate in a profit-sharing program whereby employees receive stock based on the company’s annual financial performance. Employees are immediately enrolled in this plan upon joining Herman Miller and immediately vested. Profit sharing is based on corporate performance because as one employee explained: The problem we see is you get to situations where project X corporately had a greater opportunity for the entirety of the business, but it was difficult to tell these folks that they needed to sacrifice in order to support the entirety of the business when they were being compensated specifically on their portion of the business. So you would get into some turf situations. So we ended up moving to a broader corporate EVA (Economic Value Added) compensation to prevent those types of turf battles. The company offers an Employee Stock Purchase Plan (ESPP) through payroll deductions at a 15% discount from the market price. Also, all employees are offered a 401(k) where they receive a 50% match for the first 6% of their salaries that the employee contributes. Again, employees are immediately eligible to participate in this plan upon joining Herman Miller and immediately vested. The company match was suspended in 2009 due to the recession. Through the profit sharing and the ESPP, the employees own approximately 8% of the outstanding stock. Furthermore, all employees are offered a retirement income plan whereby the company deposits into an account 4% of compensation on which interest is paid quarterly. Employees are immediately eligible to participate in this plan upon joining Herman Miller, but are required to participate for five years before being vested. Additionally, a length of service bonus is paid after 5 years of employment. Finally, the company pays a universal annual bonus to all employees based on the company’s performance against Economic Value Added (EVA) objectives. EVA is a calculation of the company’s net operating profits, after tax, minus a “charge” for the cost of shareholder capital. This is in addition to the other compensation programs, including profit sharing, with the same calculation used to determine both employee and executive bonus potential. Thus, pay takes a number of forms at Herman Miller, but most all forms are at least partially, if not wholly, contingent on corporate performance. One employee summed up pay as follows, “You can dip into Herman Miller’s pocket several times based on the performance of the company.” 202 Other benefits also take many forms at Herman Miller. Employees are given a range of benefits, as they are in many organizations. Some are, however, quite different from those found in other organizations, such as a $100 rebate on a bike purchase. It is justified as “part of our comprehensive program designed for a better world around you.” Other benefits that Herman Miller provides that are identified by the company as “unique” are, ■■ 100% tuition reimbursement ■■ Flexible schedules: job sharing, compressed workweek, and telecommuting options ■■ Concierge services: help in getting directions, dry cleaning, greeting cards or a meal to take home, these services make it easier for you to balance work and home life ■■ Employee product purchase discounts ■■ On-site services including massage therapy, cafeterias, banking, health services, fitness center, fitness classes, and personal trainers Herman Miller in keeping with its beliefs offers extensive wellness benefits including fitness facilities or subsidized gym memberships, health services, employee assistance programs, wellness programs/classes, and health risk assessments. The other benefits that are offered that most large organizations also offer include health insurance, dental insurance, vision care plans, prescription plans, flexible spending accounts, short and long term disability, life insurance, accidental death and disability insurance, and critical illness/personal accident/long-term care. All benefits are also available to domestic partners. When appropriate, Herman Miller promotes people within the organization. Education and training are seen as key to preparing employees to take on new responsibilities. For example, Rudy Bartels, Environmental Specialist, as well as multiple vice presidents, began their careers at Herman Miller on the production floor. Three other benefits are unique to Herman Miller. First, every family that has or adopts a child receives a Herman Miller rocking chair. Second, every employee who retires after 25 years with the company and is 55 years or older receives an Eames lounge chair. Third, Herman Miller has no executive retreat, but it does have an employee retreat, The Marigold Lodge, on Lake Michigan. This retreat is available to employees for corporate related events, such as retirement parties and other celebrations, and in some instances includes invited family and guests. Finance During normal economic times, financial management at Herman Miller would be considered conservative. Part 4: Cases Through 2006, its leverage ratio was below the industry average and its times interest earned ratio was over twice the industry average. Due to the drop-off in business, the debt to equity ratio rose precipitously from 1.18 in 2006 to 47.66 in 2008. To improve this ratio, over 3 million shares were sold in fiscal year 2009.5 In the four previous fiscal years, Herman Miller had been repurchasing shares. The debt to equity ratio was reduced to 3.81 by the end of 2009. To improve short-term assets, dividends per share were cut by approximately 70% and capital expenditures were reduced to zero in 2009 (Financial statements for years 2006-2010 can be found in Tables 1 and 2.). For fiscal year 2008, 15% of Herman Miller’s revenues and 10% of its profits were from non-North American countries. In 2007, non-North American countries accounted for 16.5% of revenues and approximately 20% of Herman Miller’s profits. Financially, Herman Miller holds true to its beliefs. Even in downturns, it invests in research and development. In the dot.com downturn, it invested tens of millions of dollars in R & D. Inside Herman Miller this investment project was code named “Purple.” In the December 19, 2007 issue of FastCompany magazine commenting on this project, Clayton Christensen, Harvard Business School professor and author of The Innovator’s Dilemma, is quoted as saying, “Barely one out of 1000 companies would do what they did. It was a daring bet in terms of increasing spending for the sake of tomorrow while cutting back to survive today.” Herman Miller continues to receive awards both for the design of its product and for its treatment of its employees. For example, in 2011, it was designated as one of ten design icons in Fast Company’s “Thirty Companies That Get It,” and in 2012, Herman Miller was recognized with the Huntington Pillar Award, given by the Women’s Resource Center to companies that demonstrate outstanding dedication to empowering women in the workplace. Accessories Team: An Example of HM’s Strategy, Leadership, and Beliefs in Action The Accessories Team was an outgrowth of project “Purple.” One of the goals of this project was to stretch beyond the normal business boundaries. Office accessories is one area in which Herman Miller has not been historically involved even though it is a big part of what the independent dealers sell. Once identified, “Robyn was tapped to put together a tea...
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