Question 1
Herman Miller’s strategy chiefly focuses on using innovation to reinvent and renew its products and processes. In general, strategy of Herman Miller encompasses principles of Total Quality Management (TQM), ensuring constant development and improvement of operations and processes, empowerment of employees on all levels, team-based work design, and placing customer satisfaction as a top priority. During several periods of its history, Herman Miller managed to introduce innovative, trend-setting products such as the Action Office in the 1960s, the Mirra chair in 2003 or the Thrive Collection during 2006-2010. Production and operational strategy of Herman Miller is governed primarily by a system of lean manufacturing techniques, a combination of which is referred to as the Herman Miller Production System (HMPS). It focuses on minimizing costs and maximizing speed through just-in-time processes; ensuring the highest quality and minimal amount of defects; and limiting fixed production costs by collaborating with strategic suppliers to outsource component parts. Finally, to enhance the processes of strategy execution, Herman Miller has developed highly effective information systems. Since 1998, order entries from the company’s website were digitally linked between the company, its suppliers, distributors and clients to accelerate orders and increase their accuracy. Speed of communication with suppliers is particularly important in terms of HMPS to facilitate the just-in-time process.
There is substantial evidence that Herman Miller’s strategy produced a competitive advantage and good financial performance. Reinvention and renewal of the company’s products and management processes formed a competitive advantage that enabled Herman Miller to survive and rebound from several economic crises and recessions. When the company was facing severe financial trouble due to Great Depression, introduction of uniquely designed office furniture saved Herman Miller. After the dot-com breakthrough and decline of US economy in early 2000s, Herman Miller’s sales dropped by 34% in 2002. Effective restructuring and innovative social contracts helped the company to recover, and in 2008 Herman Miller reported record level of profits. As a result of recession in 2009, Herman Miller’s sales dropped by 19% from approximately $2.00 billion in 2008 to nearly $1.6 billion in 2009. Introduction of the SAYL line of chairs allowed Herman Miller to get back on track and in 2013 the company’s sales started to grow again, and the value of the company’s shares represented over 10% of the industry’s total stock market value.
Question 2
Curiosity and exploration are the key values at the heart of Herman Miller’s strategy execution. Even during downturns, the company did not follow the stream and allocated ample resources to its strategy-critical activity – research and development (R&D). During the struggle caused by the burst of the dot-com bubble, Herman Miller financed an investment R&D project titled Purple, which was worth tens of millions of dollars.
Engagement and inclusiveness are incredibly important values of Herman Miller that shape its strategy execution as well. All employees actively participate in the strategy execution process. Most frequently referenced unit of the company is the team, which are often cross-functional. New projects can be developed on any organizational level, and workers feel empowered. All employees are also shareholders, and through the profit-sharing plan and the employee stock purchase plan (ESPP) own roughly 8% of the outstanding company’s stock. Board directors are held to standards consistent with Herman Miller’s corporate beliefs and its employee stock ownership program (ESOP).
Another crucial value of Herman Miller is performance. In terms of strategy execution, this means that rewards are tied directly to the achievement of performance objectives. Most forms of compensation at Herman Miller are based on the performance of the company. For instance, all employees of the company receive a universal annual bonus based on the company’s performance against economic value added objectives.
Corporate social responsibility is another important value of Herman Miller. Pursuit of sustainability, environmental wisdom, and efforts to make a better world are reflected in many policies and strategic decisions of the company. For instance, in 1981, Herman Miller took a major step towards increasing its efficiency and becoming more environmentally friendly through creating an Energy Center that generated steam and electrical power by burning waste. In 1989, an Environmental Quality Action Team was established. The company has The Environmental Affairs Team that is responsible for recycling solid waste and designing products from sustainable resources, such as the Mirra chair introduced in 2003. Finally, all employees of the company are allowed and encouraged to work 16 paid hours with a charitable organization of their choice. Herman Miller sets goals for the amount of volunteer hours that employees contribute annually to its communities, and progress is reported to the CEO.
Question 3
As we can see from Exhibit 2, financial situation of the company has steadily improved year-on-year, based on results of three quarters of 2013. Sales increased from $1,303.5 million to $1,315.0 million. However, cost of sales and operating expenses of Herman Miller also grew, which led to reduction of net earnings from $63.2 million to $44.8 million. Basic and diluted earnings per share also dropped. Mr. Walker, the CEO of the company, explained this shortfall by difficulties in key economies outside the U.S. and falling revenues from the U.S. federal government, particularly the health care segment. The North-American business of the company grew, however, as well as specialty and consumer segment. Additionally, Herman Miller reported growth in emerging markets, mainly fueled by acquisition of POSH. Looking at the prior years (Exhibit 1), we can state that Herman Miller’s financial situation has been slowly improving since 2010, with both net sales and net earnings demonstrating steady growth. The decline in 2009 was mainly caused by the Great Recession, when the sales have dropped by 19% from over $2.0 billion in 2008 to approximately $1.6 billion in 2009.
Top three competitors of Herman Miller are Haworth, Steelcase, and HNI Corporation. The company’s competitive position has been improving since 2009. At the end of 2009, Herman Miller’s share of total industry’s stock market value constituted 7.3%, with company’s stock market value totaling $1 billion. In 2011, market value of Herman Miller’s stock increased to over $1.4 billion, representing almost 11% of the industry’s total stock market value.
Question 4
The practice of lifelong employment at Herman Miller had a very positive influence on the company’s ability to staff the organization with managers and employees capable of executing the strategy. Combined with the company performance-based bonuses and employee stock ownership, it created a highly motivated workforce on all organizational levels, enthusiastic about development and growth within the company. Multiple vice presidents’ careers with Herman Miller started on the production floor. Employee empowerment together with a decentralized organizational structure and cross-functional teamwork enabled each employee and manager to demonstrate their strengths and capabilities in project development and effective execution of Herman Miller’s strategy. Thanks to lifelong employment, workers felt secure about their future with the company, and because they were appreciated, empowered, and rewarded based on performance, this practice contributed to establishment of a highly result-oriented workforce, and thus built the organizational capabilities required for successful strategy execution.
Question 5
Non-monetary incentives have a great impact on strategy execution at Herman Miller, because they enhance motivation of its employees. First of all, employees are offered a wide range of standard benefits, including health insurance, disability plans, gym memberships, etc. Additionally, less common
benefits are offered, such as 100% tuition reimbursement, discount on company products, flexible schedules, concierge services, and so on. Finally, there are some unique benefits for employees, such as a certain company product provided upon birth of a child or retirement, and a special employee retreat. Another non-monetary reward used to enhance motivation and reinforce strategy execution at Herman Miller is employee empowerment. The company often acts on suggestion from employees working on any organizational level, and encourages them to put forth new ideas. When that happens, only manager’s approval is required to turn an employee’s idea into an actual aspect of strategy execution. Finally, being a furniture manufacturer, it is natural that Herman Miller offers attractive office spaces and facilities to its employees. For instance, the Living Office introduced by the company was designed to encourage team spirit, communication and group expression – elements that according to the company’s beliefs are vital “to attract, nurture, enable, and retain the talent to drive innovation and execution, and bring an organization’s strategy to life”.
Question 6
Herman Miller has an adaptive corporate culture. The company has always strived to adapt to changes by introducing innovative strategies. For instance, in 1950, when its workforce mostly consisted of production workers, a Scanlon Plan was introduced at Herman Miller. It was a productivity incentive program that fostered principles of justice and equity for all employees of the company. In 1977, the company recognized the need to change and modify the Scanlon Plan, because the majority of employees worked outside the production area. Additionally, the company’s operations expanded to overseas markets. Therefore, in 1978 a committee of 54 people from almost every operational segment of Herman Miller started to work on changing and improving the plan. The final draft was presented in 1979, and 96% of the employees voted in its favor. In 1983, an employee stock ownership plan was introduced. In 2003, Herman Miller had to refuse from the lifelong employment practice, and introduced a replacement referred to as “the new social contract”. All these actions indicate that Herman Miller recognized the changes and instantly sought a strategy to react to them. As it was mentioned above, internal entrepreneurship is encouraged and rewarded in Herman Miller. Ideas can come from any organizational level. Cross-functional teams can also be considered an element of adaptive culture. A manager can attract any employee to work on a project, even if this employee’s title or department is not directly related to his role in a team. A proactive approach to identifying and solving issues is also present in Herman Miller’s culture. It is reflected in the company’s management system under the HMPS.
As far as I am concerned, Herman Miller’s culture creates a great working environment that reinforces strategy execution. As I have mentioned numerous times, employees at Herman Miller feel empowered and appreciated. They are motivated and encouraged to introduce new ideas. Managers have the freedom to assemble the teams that they consider to be most effective for each specific project, not being constrained by departmental or functional limitations of their team members. People are the key asset of any organization, and Herman Miller has a healthy culture that enables its people to be initiative, innovative and result-oriented, thus contributing to effective strategy execution.
Question 7
Herman Miller’s current financial performance is mainly hampered by increased cost of sales and operating expenses compared to the previous year. Considering that cost of sales have most likely grown due to rise of prices on raw materials, I would recommend Mr. Walker to conduct a supplier audit and identify if there are any available suppliers, including overseas, that can provide some raw materials cheaper without negatively affecting the quality of the company’s products. Growth of operating expenses has not been significant and is natural for a large business that continuously expands its operations. In order to fuel sales, I would recommend assessing the financial viability of collaborating with certain sectors of federal government like healthcare. Decline in this sector caused the fall of Herman Miller’s net sales and orders. Therefore, it might be advisable to search for new partners in governmental or non-governmental sectors of economy, or identify opportunities of expanding collaboration with existing partners. Also, considering the reported growth in emerging markets driven by acquisition of POSH, I would advise Mr. Walker to consider the opportunity of entering new emerging markets, through opening a subsidiary and/or production facilities, if it is economically reasonable, or through acquisition of local companies with existing customer base.
In my opinion, Herman Miller demonstrates a relatively successful performance in the current poor economic conditions. Therefore, I would not advise any radical changes to the company’s strategy. However, considering the increasing demand for ergonomically sound office furniture, I would advise to increase strategic importance of this specific product line, and relocate resources to this activity from less perspective activities of the company, if such an option is possible.
HMPS reflects the company’s strategy of cost reduction and efficiency maximization, and I consider it to be very effective, especially taking into account the current economic situation. I believe that it is hard to improve this approach, because constant improvement is actually one of its key elements. HMPS is vital for Herman Miller’s survival and prosperity in these difficult times, and as I cannot think of any specific recommendations for its improvement, my only suggestion is to ensure that this strategy is implemented and executed on every organizational level of every division and department of the company.
Exhibit 2. Herman Miller’s Fiscal Year 2013 Results (unaudited), Nine Months Ending
