Herman Miller Inc Essay
Herman Miller Inc
1. Herman Miller, Inc employs a broad differentiation strategy. The essence of a broad differentiation strategy is to offer a unique product or service attributes that a wide range of buyers find appealing and worth paying for, and Herman Miller (HMI) does just that through innovative products and processes. Unlike most firms, especially those in mature industries and most of its office furniture rivals, Herman Miller pursued a path distinctively marked by reinvention and renewal. The company obtained a competitive advantage by studying buyers’ needs and behaviors carefully in order to learn what buyers think has value and what they are willing to pay for. Even in downturns, it invested in millions of dollars in research and development. This not only allowed a wider product variety, but it improved product quality as well and in turn enhanced differentiation. We see throughout the case the results of Herman Miller’s high-quality inputs and innovation in the launch of award-winning product after product. Some of the inputs and superior product features include the physical and functional features of the furniture, first-on-the-market victories, and successful marketing and brand management activities.
The Ergon Chair is a good example as it was the first design based on scientific observation and ergonomic principles. And with the help of designers such as Gilbert Rhode, Alexander Girard, Charles and Ray Eames and George Nelson, Herman Miller has been able to consistently deliver innovative designs in order to keep up with the ever-changing wants and needs of the consumer. Not only that, but also effectively communicate product information; increasing the value of the product in the consumers’ mind. For Rhode’s designs the emphasis was on simplicity and how people are important, not furniture. More recently the ‘Living Office’ highlighted the shift of importance to camaraderie, connection and group expression to bring an organization’s strategy to life. Herman Miller communicated relevant information to the consumer and therefore it reached and resonated with the consumer. Herman Miller doesn’t just differentiate through tangible features, but through lowering the buyer’s costs, coordinating with suppliers and incorporating intangible features as well.
It all started in 1981 when the company took initiative to become more efficient and environmentally friendly. One of the first initiatives was for its energy center to generate both electrical and steam power to run its 1-million-square-foot facility by burning waste. Some of the buildings at Herman Miller were even used to establish Leadership in Energy and Environmental Design (LEED) standards. To speak to something product related, in 1990 Herman Miller discontinued using endangered rosewood in its award-winning Eames lounge chair and ottoman, and substituted cherry and walnut from sustainable sources. Another good example is the Mirra Chair, introduced in 2003, and how environmentally friendly it was due to being made of 45 percent recycled materials and 96 percent of its materials were recyclable. Assembly of the chairs used 100 percent renewable energy. The use of green marketing to sell products appealed to the environmentally conscious consumers.
Herman Miller also appealed to the price conscious consumer with the launch of the SAYL line of chairs in 2010 accentuating affordability while offering a full-featured, ergonomically sound chair. This further supports HMI’s use of a broad differentiation strategy because buyers’ needs and preferences are too diverse to be fully satisfied by a standardized product or service. As far as coordinating with suppliers, Herman Miller’s order entries were digitally linked among the company and its suppliers, distributors and customers. This allows the company to expedite orders and improve their accuracy. This close coordination with suppliers enhances differentiation by speeding up new-product development cycles and speeding delivery to end customers. Finally, lean manufacturing techniques strove to maintain efficiencies and cost savings by minimizing the amount of inventory on hand through a just-in-time process.
Production was order-driven, with direct materials and components purchased as needed to meet demand. Herman Miller also limited fixed production costs by outsourcing component parts from strategic suppliers. This allows the company to increase the variable nature of its cost structure while retaining proprietary control over those production processes that it believed provided a competitive advantage. Financially, Herman Miller survived the Great Depression early in its history and multiple recessions in the 20th century. In the early part of the 21st century, it recovered from the dot-com bust. Sales dropped due to the Great Recession (2008-2010) but were on the rebound as the company entered 2013. 2. Herman Miller’s values have shaped its strategy and approach to strategy execution. There are many values that the company holds dear, but I will start with inclusiveness. This value speaks to the success of the company being dependent on the inclusion of all of the expressions of human talent and potential that society offers.
Herman Miller believes that all workers are individuals with special talents and potential and that it is necessary to tap into the diversity of gifts and skills held by all. Empowering employees from every source to make decisions related to daily operations relies on the capability of these employees to make timely, informed and competent decisions. Herman Miller makes a concerted effort to recruit quality people who can function as agents of change and further the cause of first-rate strategy execution. Teams are cross-functional, where membership on a team is based on the employee’s ability to contribute to that team. Workers at all levels were highly encouraged to put forth new ideas and therefore leadership was shared through the concept of “talking up and down the ladder.” At Herman Miller, this created a whole that is greater than the sum of individual efforts. Another belief at Herman Miller is performance and how it is required for leadership. If you want to be leaders in the industry you must be committed to performing at the highest level. This value is fostered through the implementation of the Scanlon Plan.
It is a productivity incentive program founded on the principles of equity and justice fore everyone in the company. Based on the company’s financial performance, employees at all levels share in increased profitability. Making performance a major piece of the total compensation package has united all employees and instilled a drive to perform for the greater good of the company, not just their own department. Engagement at Herman Miller is about being owners who are actively committed to the life of this community, sharing in its success and risk. This is promoted through an established a plan whereby all employees became shareholders. The Employee Stock Ownership Plan (ESOP) was an incentive for workers to become more engaged and to choose to step forward and make a difference. The value at the heart of Herman Miller was to contribute to a better world. This belief was reinforced through the Employee Gifts Committee (EGC) and the Environmental Quality Action Team. The EGC distributed funds and other resources based on employee involvement.
The company honors organizations where their employees are involved, engendering a giving spirit. Employees can even work 16 paid hours with a charitable organization of their choice. This contributed to higher rates of satisfaction with employees and in turn increased productivity. Also, the Environmental Affairs Team is responsible for recycling solid waste and designing products from sustainable resources. Herman Miller also incorporated this value into the environmentally friendly design of the Greenhouse (main production facility). This commitment to green marketing not only increased the company’s value in the mind of the consumer, but it specifically appealed to the environmentally conscious consumer. Finally, through Herman Miller’s strengths of curiosity and exploration have come research-driven designs.
The company respected and encouraged risk and so financially, HMI held true to its beliefs. Even in downturns, it invested in research and development. In the dot-com downturn, it invested tens of millions of dollars in R&D. It was a courageous act to increase spending for the sake of tomorrow while having to cut back to survive today. This is what truly set the company apart from its competitors. 3. Please see Exhibit 1 for a summary of Herman Miller’s financial situation and how its performance compares to prior years.
For gross profit margin we see for the most part an upward trend in percentages, which shows an increase in the percentage of revenues available to cover operating expenses and yield a profit. We also see this with operating profit margin, except for a slight fallback during the Great Recession; profitability of current operations is increasing. Tax profits per dollar sales has also been trending upwards as HMI is on the rebound after decreasing significantly in 2009-2010. Return on equity is above average but is trending downward. Debt-to-equity ratio is trending downward and is indicating a greater capacity to borrow additional funds if needed. Inventory management efficiency is decreasing and so has inventory turnover from 2012-2013. Collection time has also been trending upward; HMI should focus on shortening collection time.
4. The practice of lifelong employment positively affected the company’s capability of successfully executing strategy. The stories, the people, and experiences in Herman Miller’s past form a unique foundation and from that, the company can move forward together with a common language. This practice wouldn’t have been successful if Herman Miller wasn’t committed to putting together a strong management team and recruiting and retaining employees with needed experience. The quality of an organization’s people is always an essential ingredient of successful strategy execution. Through incentives, policies, etc., HMI had the competitive advantage of retaining knowledgeable, engaged employees. Lifelong employment was a huge advantage for Herman Miller until they got hit hard by the recessions.
They were no longer able to financially be profitable while supporting so many employees so they had to drop its long-held tradition of lifelong employment; approximately 38 percent of the workforce was laid off, and an entire plant in Georgia was closed. When tough decisions like this have to be made, it is key to inform your workers and explain to them what is going on. The President of HMI North America at the time met with all workers to tell them what was happening and why it had to be done.
In place of the tradition of lifelong employment, “the new social contract” was developed. It asked the question, do your gifts and talents have a match with the needs and wants of this enterprise? If not, the company wishes you the best, but does not have a job for you right now. From here, Herman Miller was able to weed out those without the suitable skill sets to continue on with the company. Educational reimbursement and 401(k) plans were made to be more transferable so that the cost of changing jobs for employees wasn’t as high. 5. Successful companies, such as Herman Miller, make an extensive use of nonmonetary incentives. The overall goals of a business are both bottom-line-oriented and employee satisfaction-oriented. When Herman Miller developed a reward system, they not only created programs to help the bottom-line, but they also created programs to enhance employee satisfaction in an effort to retain valuable employees and increase performance. Some of these programs consist of attractive perks such as tuition reimbursement, fitness facilities, wellness programs/classes, health services, etc. HMI fosters a work environment in which there is genuine mutual respect among workers no matter what your job title is.
There is constant promotion of teamwork and cross-functional collaboration, which empowers employees at all levels and increases motivation and satisfaction, as well as boosting productivity. A final example is the belief that without transparency, it’s impossible to have trust and integrity. HMI shares information on financial performance (Scanlon Plan), strategy, market conditions etc. and in turn employees feel a part of something and tend to be more invested and loyal. This reinforcement of employee motivation has enabled HMI to reach its business objectives time and time again. 6. The culture at Herman Miller is both high-performance and adaptive. The culture is definitely a healthy one and largely supportive of good strategy execution. Herman Miller shared the gains as well as the pains with its employees, especially in regard to compensation. As discussed earlier, HMI provides constructive pressure to achieve good results; this is a valuable contributor to good strategy execution.
When cultures are results-oriented, they are infused with a spirit of achievement and have a good record in meeting or beating performance targets. Pay was geared to firm performance and took many forms at Herman Miller. All employees received a base pay and, as mentioned before, participated in a profit-sharing program whereby they received stock according to the company’s annual financial performance. Employees are immediately enrolled in this plan upon joining HMI, and immediately vested. The company offered an Employee stock purchase plan (ESPP) through payroll deductions at a 15% discount from the market price. Through the profit sharing plan and the ESPP, the employees owned approximately 8 percent of the outstanding stock. Practices such as this inspired high loyalty and dedication on the part of employees.
Also, as an adaptive culture, Herman Miller is very supportive of managers and employees at all ranks who propose or help initiate useful change. In the case we see how groups acted with a fair amount of autonomy: people with different disciplines were brought together to fill a need on the team and everyone seemed to have a very strong voice regarding almost every topic. This made it fun and dynamic, and most importantly formed a culture that thrived on change; driving it leading it, and capitalizing on it. This is shown through their innovative designs and first-on-the-market victories. The leadership and decision making was shared across the organization. Ideas and other contributions to the success of the team were accepted from all sources. Adaptive cultures are avid practitioners of entrepreneurship and innovation, with a demonstrated willingness to take bold risks to create new products, new businesses and new industries. Out of this process grew Herman Miller’s Thrive Collection. The name was chosen to indicate the focus on the individual and the idea of personal comfort, control, and ergonomic health 7.
My recommendations to CEO Brian Walker are as follows. First and foremost, there needs to be an increase in cash returns to shareholders. Increasing dividends can further enhance this. You cannot continue to grow and prosper without those who are helping to fund and drive your business, so let’s make them happy. Secondly, put even more emphasis on research and development. Consumer needs are constantly changing and Herman Miller needs to continue to thrive on that change and introduce new innovative products and designs. Competition is not getting any weaker and HMI needs to invest in R&D to stay ahead of the game.
Also, Herman Miller needs to start tapping into new markets; introducing new offerings to appeal to an even more diverse group of consumers. Improving offerings to gain market share in consumers’ homes, in organizations, hospitals, classrooms, etc. Serving not only the majority of large businesses, but expanding and bridging the gap to fill the needs of the medium small businesses as well. I also recommend making that shift from a business mostly being centered in North America to a business that is global. The company needs to check into a research markets such as India or Latin America, which encompass a lot of promise and potential. These are all promising areas for opportunities for growth. With that in mind, continue to improve production capabilities and working with strategic partners to stay cost efficient and to prepare for new growth in emerging markets.
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 19 September 2016
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