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Herman Miller, Inc. dominates the business and institutional market in the US office furniture industry, holding a 12% share. Despite facing declining sales due to poor macroeconomic conditions, the company has managed to outperform competitors by maintaining strong profitability through impressive operating margins and return on sales. The brand equity of Herman Miller is founded on its reputation for high quality, innovative products, excellent customer service, customizable options, and reliability. This strength in branding allows the company to reach customers across different market segments and expand its customer base.
In order to further increase sales revenue and extend customer reach, I have developed a three-year implementation plan based on an analysis of both the company and industry.
By evaluating the internal environment of Herman Miller Inc., we can identify its strengths, weaknesses, threats, and opportunities.
The advantages of this are:
The company, which specializes in manufacturing office furniture and is valued at $1.3 billion, is widely recognized for its exceptional innovation skills and management techniques.
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The following inventory of strengths provides further insight into the company's remarkable abilities.
Herman Miller is a renowned industry leader, known for its introduction of innovative products and processes. They have been credited with pioneering the first open-plan modular office system and scientifically based ergonomic seating configuration. Moreover, their products are designed with an environmentally friendly cradle-to-cradle approach. The company's culture revolves around empowering their workforce and implementing human resource practices that recognize the unique talents and potential of each individual. They foster collaboration through committees to generate improvement ideas and cultivate a risk-taking culture.
Additionally, they emphasize the importance of shared sacrifice. Herman Miller formalizes its values to bring employees together, nurture productive relationships, and inspire community contributions driven by their staff.
Herman Miller's "Business as Unusual" philosophy goes beyond measurable capabilities to expand performance. The company's HR practices, such as promoting from within, focusing on education and training, offering competitive pay and benefits, providing generous retirement packages, linking profit-sharing and bonus plans to corporate performance and values, and promoting employee stock ownership effectively result in a retention rate of over 98% and the development of a highly valuable, knowledge-based workforce. Additionally, Herman Miller's long-standing reputation for innovative design has led to the creation of revolutionary furniture designs that have been recognized by the art community, Time magazine's decade and century awards, industrial designers, and international groups.
Weaknesses
During normal economic times, Herman Miller follows conservative financial management practices and typically outperforms the industry in terms of profitability, stock market value, and leverage ratios. However, due to the recent domestic recession, the company is currently under significant financial pressure. Despite implementing measures such as selling 3 million stock shares, reducing dividends per share by 70%, and eliminating all capital expenditures, Herman Miller still has a high debt-to-equity ratio of 3.81. This indicates a substantial amount of debt being used to finance growth, even surpassing what is typically observed in capital intensive industries (which can be above 2.0). Cash has decreased by 30% over the past year (from $193 million to $135 million), while inventories have increased by 55% (from $37 million to $58 million). A more detailed analysis of the company’s income statement reveals further areas of financial concern.
Below is a table that displays the Consolidated Statements of Operations for various dates: May 29, 2010, May 30, 2009, May 31, 2008, June 2, 2007, and June 3, 2006. The values are presented in millions except for per share data.
Net sales
$1,318.80 $1,630.00 $2,012.10 $1,918.90 $1,737.20
-19.1% -19.0% 4.9% 10.5%
The cost of sales is as follows: 890.3, 1102.3, 1,313.40, 1,273.00, and 1,162.40.
67.5% 67.6% 65.3% 66.3% 66.9% Gross margin 428.5 527.7 698.7 645.9 574.8
32.5% 32.4% 34.7% 33.7% 33.1% Operating Expenses:
The data below shows the amount of selling, general, and administrative expenses over a certain period.
317.7
330.8
395.8
395.8
371.7
24.1% 20.3% 19.7% 20.6% 21.4% Restructuring expenses 16.7 28.4 5.1
Design and research: 40.5, 45.7, 51.2, 52, 45.4
The percentages are 3.1%, 2.8%, 2.5%, 2.7%, and 2.6%. Total operating expenses are 374.9, 404.9, 452.1, 447.8, and 417.1.
Operating earnings are 53.6, 122.8,246 .6 ,198.l,and157 .7
Expenses (Income) for Other: 4.1%, 7.5%, 12.3%, 10.3%, and 9.1%
Interest expense: 21.7, 25.6, 18.8, 13.7, 14
Interest and other investment income: -4.6, -2.6, -3.8, -4.1, -4.9
Other expenses: net of income tax: 1.7, 0.9, 1.2, 1.5, 1
Net other expenses: 18.8, 23.9 ,16 .2 ,1 ,10 .1
Earnings before income taxes and minority interest:34 .8 ,98 .9 ,230 .4 ,187 ,147 .6
Income tax expense :6 .5 ,31 ,78 .2 ,57 .9 ,47 .7
Minority interest :net of income tax
-0.1 -0.1
0.7 Net Earnings $28.30 $68.00 $152.30 $129.10 $99.20
2.1% 4.2% 7.6% 6.7% 5.7% Earnings per share - basic $0.51 $1.26 $2.58 $2.01 $1.46 Earnings per share - diluted $0.43 $1.25 $2.56 $1.98 $1.45
Herman Miller experienced its highest performance in 2008, but since then has seen a decline of 19% in income over the past two years. In addition, there has been a 2-point increase in the cost of sales and a 4-point rise in SGA expense. As a result, earnings as a percentage of sales have significantly decreased. In 2008, the operating margin represented 12.3% of sales, whereas it now stands at only 4.1%. Similarly, the net profit margin decreased from 7.6% to 2.1%. While the decline in sales was lower than industry predictions (26.5%), these financial results are worrisome, particularly regarding Herman Miller's profitability ratios. This raises concerns about whether their strategy can effectively enhance performance or ensure long-term sustainability.
Threats
The unstable economy has severely impacted the industry. The current recession is affecting consumers' mindset and spending patterns, causing even successful firms and individuals to make conservative purchasing decisions. They now prioritize practicality over luxury products. It is uncertain when consumer spending will recover and stimulate new product demand. The office furniture industry is both mature and volatile. Mature industries face low growth rates, which leads to increased competition and lower market prices. However, consumers also expect improved services and product features. The emergence of telecommuting poses a significant challenge as it reduces the demand for high-end office equipment.
Opportunities
The company can increase its market share by attracting customers from struggling competitors. The rise in telecommuting has resulted in a greater need for home office furniture as more work is being done at homes. Additionally, there is a growing demand for ergonomic furniture to address the problems of fatigue and injuries caused by extended computer use.
Herman Miller focuses on continuous reinvention and renewal as part of its differentiation strategy, primarily through product innovation. This strategy includes various elements such as individual employee contributions, the company's original design philosophy, an organizational structure consisting of work teams, caucuses, and councils, along with exceptional HR policies. Despite economic uncertainty, Herman Miller remains dedicated to investing in research and development (R&D), evident by a .3 percentage point increase in R&D investment over the previous two years.
Herman Miller utilizes cross-functional product development teams to promote internal innovation, integrate activities across departments, expedite new product development, enhance the commercialization of new products, and provide strategic flexibility. The company employs lean manufacturing techniques to achieve efficiencies, cost savings, reduced inventories, increased inventory turnover, improved on-time shipments, higher quality standards, and enhanced safety performance. Additionally, it establishes supply partnerships and outsources component production with strategic suppliers in order to minimize fixed production costs while increasing profitability and maintaining control over production processes that offer competitive advantages. Furthermore, Herman Miller implements green marketing strategies and cooperative advertising initiatives as a means of attracting customers.
In the past, Herman Miller has implemented various strategies to foster growth and enhance its resource pool. These tactics have included acquisitions, operational restructuring to decrease costs, the introduction of new product lines and the revival of classic designs to boost sales, the expansion of its retail network to increase small business sales, the creation of design tools targeted at medium-sized business customers, and investments in technology to establish connections across the supply chain. Since assuming the role of CEO in 1995, Volkema has overseen a doubling in Herman Miller's sales.
In 2003, Herman Miller faced challenges due to the dotcom bubble collapse and the events of September 11, 2001. Sales declined by 34% and profits dropped by 139%. However, the company successfully recovered by implementing a strategy that involved establishing a new social contract with employees, undergoing restructuring, and prioritizing customer satisfaction. The quick turnaround was made possible through collective sacrifices and it helped reinforce the company's cultural aspects while safeguarding its valuable organizational culture during a difficult period. By 2008, Herman Miller achieved record-breaking profits.
The company should exercise caution in investing in research and development due to the weak short-term and medium-term outlook for high-end design items. It is crucial for the company to develop a practical design line specifically tailored for the home office market, taking into account the ergonomic needs of telecommuters. The good news is that Herman Miller possesses the necessary strategic resources to introduce an exciting new product line catering to this expanding market segment. Emphasizing market segmentation and exploring potential opportunities for product innovation can lead to the creation of a fresh and rapidly growing market. Moreover, Herman Miller should remain open to diversification as a means of reducing profit variability and generating earnings from various markets or industries. This approach will safeguard the company against downturns in its primary industry or market.
The company must improve the return on its international business investments and promptly take action to regain stronger levels of profitability. Here are some strategic options available to Herman Miller:
When it comes to the costly and complex management of wholly owned subsidiaries, it is vital to actively seek entry into growing markets, especially emerging markets like China, India, and Brazil. Strategic alliances offer a means of entering new markets where there may be limited awareness of competitive conditions. It is essential to evaluate whether there is a requirement for greater adaptability to local preferences or the establishment of local marketing capabilities. Market research can aid in determining whether a global or transnational strategy is better suited for the specific targeted markets.
Herman Miller has utilized a combination of product development and market development strategies to set its product apart. The company operates in the premium office furniture market worldwide, spanning over 100 countries, with only a small portion (10%) of its profits originating from non-North American countries. The efforts made by the Accessories Team can be classified as related diversification.
Herman Miller's core values have had a significant impact on the company's strategy and its execution. This influence is primarily seen through the implementation of policies that promote a positive work environment, which in turn supports effective strategy implementation. The case study provides several instances of this favorable work climate, including Paul Murray's anecdote about an employee reminding him to wear his safety glasses. This example demonstrates how various policies have empowered employees, ultimately leading to Herman Miller's sustainable competitive advantage.
Curiosity and exploration are supported by encouraging risk-taking and practicing forgiveness. Engagement is about taking ownership of the company, its problems, and the responsibility to offer solutions. Engaged individuals are those who care about their company and community. Performance is a collective responsibility at Herman Miller. High performance at all levels is essential to improve employees' lives, satisfy customers, and create shareholder value. Inclusiveness is crucial for Herman Miller's success as it values every individual. This value stems from DePree's belief in the unique talents and potential of all workers. Design is about how the company solves problems. Herman Miller believes that simply meeting minimal requirements is not enough. Foundations are important to Herman Miller as it values its history without being controlled by it. A Better World is created by pursuing sustainability and environmental wisdom, making Herman Miller a better place to live and work in.
Retaining skilled individuals at Herman Miller is greatly influenced by the appealing perks offered. Furthermore, the tuition reimbursement program contributes to enhancing employees' abilities. In addition, the presence of concierge and on-site services ensures uninterrupted focus on work for employees.
These benefits consist of:
Various benefits are provided, including health insurance, vision care and prescription plans, flexible spending accounts, short-term and long-term disability insurance, life insurance and accidental death insurance, long-term care insurance, gym memberships, and employee assistance programs. Furthermore, there is a 100% tuition reimbursement program.
The text emphasizes the range of services offered by Herman Miller, which include concierge services like dry cleaning, greeting cards, and take-home meals. Additionally, they provide on-site services such as massage therapy, banking, and personal trainers. The company's culture is characterized by respect, autonomy, and accountability. Herman Miller values its employees' talents and interests in both their work and the community. This is demonstrated through granting employees 16-hours of paid leave for community service and involving them in corporate giving via the Employee Gift Committee. Autonomy is promoted by utilizing cross-functional teams to develop and improve product lines and organizational structure. Accountability is evident as a majority of compensation is tied to corporate performance. Over time, Herman Miller Inc. has nurtured a strong culture that aligns with its strategic execution.
The value foundation for this culture was evident as management and employees consistently conducted themselves in accordance with these values on a daily basis. During the recession, there was concern about whether Herman Miller could maintain its unbiased approach that fostered loyalty and commitment among its employees. One aspect that may need to be reevaluated to preserve elements of the organization's culture is the company's cost-saving decision to suspend 401(k) contributions. To increase its revenues, it would be beneficial for Herman Miller Inc. to consider expanding its global operations. Additionally, the company should always strive to reinvent itself, a practice that has been successfully implemented through dedicated cross-functional teams. As part of my analysis of Herman Miller, I have examined the five forces impacting the office furniture industry, including competitive rivalry, threat of new entrants, threat of substitutes, bargaining power of suppliers, and bargaining power of buyers.
Competitive Rivalry
Herman Miller operates in a highly competitive market in the US, where it competes with Steelcase, HNI Corporation, Kimball International, and Knoll. These competitors offer similar products and have greater resources, which increases pricing pressures in a saturated market. To combat this competition and maintain profitability in the future, Herman Miller may resort to strategies such as price reduction, increased advertising expenses, and discount offerings. Considering all these factors, the overall Competitive Rivalry can be considered High.
Threat of new entrants
Herman Miller specializes in designing and manufacturing high-end office furniture, making it a premium manufacturer in this industry. With annual research and development costs exceeding $20 million, few companies are capable of entering this market. Additionally, the prolonged effects of the recession have negatively affected the industry's future, deterring potential new entrants. The high research and development costs and significant capital investments required to start a business in this field make it challenging for competitors to imitate Herman Miller's high-end product line. Consequently, the threat of entry is low.
Threat of Substitutes
There is a wide variety of substitute products in the office furniture industry, allowing customers to easily switch based on factors such as price, service, and more. As a result, the Threat of Substitutes is high.
Bargaining Power of Suppliers
The healthcare furnishings industry has a standard set of items that are widely available from multiple suppliers. Manufacturers have the ability to easily change suppliers. The Bargaining Power of Buyers is high in the office furniture market, as customers have numerous companies and a wide range of products to choose from. They can select from various prices and quality levels to meet their specific office furniture needs.
Key Success Factors
After conducting an industry analysis, I have identified opportunities for Herman Miller to boost their sales revenue. The crucial factors for achieving success in this endeavor are as follows:
•Customer switching costs are very low •There are many substitutes available for office furniture •Input costs are increasing
Internal Analysis
Advantages
Herman Miller is a leading market player with strong brand equity, allowing it to expand its customer reach across various lines of business. As the third largest company in the office furniture industry, Herman Miller holds a 12% market share. The company has achieved top rankings in five out of nine attributes surveyed by "Fortune," including innovation, people management, corporate asset utilization, social responsibility, and product and service quality. Recognized for their exceptional design and quality, Herman Miller's brands enjoy a wide and diverse distribution network that caters to different target markets. This distribution channel comprises independent contract furniture dealers and licensees, independent retailers, owned contract furniture dealers, and direct customer sales.
Herman Miller has a total of 260 dealer locations in North America and 751 dealer locations nationwide. The company's strong and diverse distribution networks help to enhance its market position by expanding its customer base. This also enables the company to cater to different customer segments and protects them from any significant decline in demand from a specific customer group. Herman Miller places a great emphasis on Research and Development in order to develop user-friendly and innovative designs. This focus on Research and Development allows them to introduce new products and enhance their existing product lines. The company utilizes both internal and independent resources to understand and anticipate customer needs and problems, and to create innovative solutions. Among their successful healthcare products is Compass, which was introduced in 2010 and received the gold award in the healthcare furniture industry.
Weaknesses
Herman Miller relies heavily on the United States office furniture industry, with almost half (51%) of its revenues originating from U.S. office and government institutions. The industry's cyclicality and seasonality make it vulnerable to economic downturns, which have had a profound impact on the sector. High office vacancy rates, a slowdown in non-residential construction, and companies choosing to retain cash rather than expand have all contributed to this downturn. Consequently, the company has experienced a substantial decline in profits, averaging 56.5% year-on-year, largely attributed to its dependence on a single business. This overreliance exposes the company's performance to significant risks in challenging economic conditions.
Opportunities
Value Chain and Competitive Advantage
Primary Activities:
Supply Chain Management – Herman Miller has agreements with suppliers to deliver parts to its production facilities in a just-in-time manner. In addition, the company outsources component parts to suppliers as a way to reduce fixed production costs. Operations – The company maintains efficiencies and minimizes inventory costs by purchasing direct materials and parts as needed to meet demand. Distribution – Herman Miller has manufacturing operations in various countries and delivers its products to local independent dealerships. Sales and Marketing – All of the company's productions are made from recyclable materials and powered by renewable energy. Builders who use Herman Miller's products can earn points towards Leadership in Energy and Environmental Design certification, promoting sustainability in the green market. Service – The company provides detailed explanations and descriptions for its products, as well as customer support.
Support Activities
Product research and development, technology, and systems development are areas that Herman Miller focuses on to enhance and create new products. Even during the recession, the company continued to invest in these areas. (Thrive Collection Products) In addition, Herman Miller has a dedicated human resources management team that provides various benefits to its employees.
Herman Miller's competitive advantage stems from its continuous investment in research and development and its commitment to innovation. This dedication allows the company to meet the evolving needs of its customers and earn their loyalty. Additionally, Herman Miller's green and environmentally friendly strategies have garnered a positive reputation in the market. By offering new product lines that cater to the increasing demand for ergonomic health products in the workplace, the company gains a competitive edge over its rivals. Despite facing challenges such as the Great Depression, the dot-com bubble burst, and a widespread recession, Herman Miller remains at the forefront of innovation in its industry.
Despite facing turmoil, Herman Miller has managed to remain profitable under the guidance of current president and CEO Brian Walker. The company has expanded its presence to markets across all seven continents and has also recognized the importance of focusing not only on the business market but also on the residential market. However, new threats have emerged, prompting the company to reassess its strategies in order to ensure future profitability. In my recommendations for Herman Miller, I suggest that the company continues its tradition of innovation, striving for perfection, and maintaining a friendly work environment.
However, in the event that tariff legislation is implemented, they will be required to eliminate benefit programs, carry out layoffs, and potentially streamline their central focus. Additionally, there might be a need to reduce spending on research and development, as well as adopt a more cautious approach towards innovating new products. Therefore, I propose that this scenario be incorporated into their risk management plan. Nevertheless, they should still pursue the development of international assets and focus on domestic residential affairs, all while producing top-quality office furniture within the limits set by the current legislation.
Herman Miller Inc.: Dominating the US Office Furniture Market. (2016, Apr 05). Retrieved from https://studymoose.com/herman-miller-inc-the-reinvention-and-renewal-of-an-iconic-manufacturer-of-office-furniture-essay
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