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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
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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,
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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.
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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
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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.
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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.
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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
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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
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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.
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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.
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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
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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.”
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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...