Fall

Herman Miller Inc. In 2012: An

Ongoing Case of Reinvention
and Renewal
Prof. Patrick Morrison

Team 6: BRENDA, CHETAN, CONNOR & TASNUVA

08

1. Describe Herman Millers strategy. Is there evidence it has

produced a competitive advantage and good financial
performance?
Herman Miller is a high-end furniture store. It was established in 1905
as Michigan Star Furniture Company. In 1919, it was renamed to be
Herman Miller and the name has stuck since. In 1942, Herman Miller
produced its first office furniture that was referred to as the Executive
Office Group, before that, Herman Miller only manufactured bedroom
suites. Ever since, Herman Miller has been manufacturing high-end
office furniture. In the 1950s, Herman Miller expanded internationally
and in 1970 it went public and made it first stock offering. Although it
has had its ups and downs, overall, Herman Miller has been doing very
well and today is valued at $1.6 billion.
Herman Miller has followed product and market development
strategies with clear focus on differentiating its product. It operates in
the upper end office furniture in over 100 countries, although only 10%
of its profits were from non- North American countries.
Herman Millers production strategy was to limit fixed production costs
by outsourcing component parts from strategic suppliers. This strategy
allowed 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. Due to
this strategy manufacturing operations were largely assembly-based.
Financially, Herman Miller held true to its beliefs. Even in downturns, it
invested in research and development (R&D). In the dot-cum
downturn, it invested tens of millions of dollars in R&D. It was codenamed Purple which had huge success. The goal of this project was to
stretch beyond the normal business boundaries.

2. How have companys values shaped its strategy and

approach to strategy execution? Provide illustrations of how
these values are reflected in company policies.
Herman Miller values are based on building relationships, unity among
the employees, and contribution in the communities and environment.
This company values curiosity & exploration, engagement,
performance, inclusiveness, design, foundations, a better world,
transparency. Their operational strategy is a reflection of limiting
production cost, on- time shipment, employee empowerment, and
innovative production. They celebrate their honesty of mistakes and
learn from them. To keep low production costs they are outsourcing the
component parts, which are one of their competitive strategies.
Herman Miller values the human talent, and offered a lot of
compensation to its employees. For the employees the company
offered profit sharing, employee purchase plan (ESPP), annual bonus
based on companys performance against economic value added (EVA)
objectives, moreover, employees are the owner of 8% of the
companys outstanding stock. The company also providing health &
dental benefits, vision care plans, prescription plans, shot-term and
long-term disability plan, accidental and disability insurance, long term
care, and so on. Those incentives helped Herman Miller to promote
better corporate strategy and its execution process. They are also
environmentally friendly. Mirra chair was made of 45% recycled
materials, and 96%of its materials were recyclable, and among in the
lists of Top 10Green Products. They located 600, 000 honeybees in
12 hives in their main production facility of Michigan to facilitate the
Greenhouse project. The company also wants to work for the
community by providing 16 paid hours a year of working in the
charitable organizations of the employees choice by employees.

3. How you describe HMIs financial situation? How does its

performance compare to prior years? The competition?
Currently, HMIs financial situation is quite strong. With net sales of
$1.65 billion and earnings of $70.8 million for 2011, HMI is in an
economically healthy situation. In 2010, net earnings were a mere
$28.3 million, an increase of about $52 million. However it is not allgood news for HMI, after seeing great success through 2006-2009, HMI
has seen a decline in sales, profits and common stock value. At its
peak in 2008, HMI had sales over $2 billion and earnings of $152.3
million, about double the earnings they saw in 2011. The recession
struck HMI hard, however they survived it and seem to have
rebounded nicely, with finances now trending back upwards. If HMI is
able to build on this, there is no reason to believe they wont be able to
achieve equivalent levels of prior success, just as they rebounded from
the recession of the early 2000s.
Herman Miller Inc.s has a competitive advantage over its competitors.
Their superior products and company values has given it a repute
above other firms in the same industry. This has put them in an
advantageous position economically over the competition.

4. Until 2003, HMI offered lifelong employment. How did this

practice affect the companys ability to staff the organization
with managers and employees capable of executing the

strategy? How did this practice build the organizational

capabilities required for successful strategy execution?
The first decade of 21st century started off spectacularly for Herman
Miller, with record profits and sales in 2000-2001. The company offered
an employee stock option plan (ESOP) in July 2003.
In 2001 September 11, the terrorist attack shook the US economy.
Herman Millers sales dropped by 34 percent, from more than $2.2
billion in 2001 to less than $1.5 billion in 2002. In the same two years,
the company saw a decline in profits from a positive $144 million to
negative $56 million.
Sales in 2003 kept dropping but still Herman miller returned to
profitability in that year. To do so, Herman Miller had to drop its longheld tradition of lifelong employment. Approx. 38% of workforce was
laid off, and an entire plant in Georgia was closed. Mike Volkema and
Brian Walker met with all the workers to tell why it has happened. They
explained it as follows:
We are a commercial enterprise, and the customer has to be on
center stage, so we have to first figure our whether your gifts and
talents have a match with the needs and wants of this commercial
enterprise if they dont, then we want to wish you the best, but we do
need to tell you that I dont have a job for you right now.
7. What recommendation would you make to Herman Millers
CEO Brian Walker to improve the companys current financial
performance? Does the company need to radically alter its
strategy because of poor economic conditions? Should it
improve its approach to implementing the strategy to reduce
costs and improve efficiency? Explain.
In order to improve Herman Millers financial performance is to

maintain its current strategy. Through their continued ethical and

moral practices, as well as quality products, HMI has gained a positive
reputation and are well received by their loyal customers. They are
economically trending upwards and are rebounding well from the
recession. As sales and profits continue to rise, HMI will find itself in a
continuously more stable economic position.
However despite their high sales of over $1.6 billion total revenue in
2011, their net earnings were only $70 million. With revenues as high
as HMI is seeing, they should look to expand their profit margins and
cut back on costs where applicable. The bulk of their costs stems from
their costs of goods sold, totalling up to $1.1 billion. In order to do
maximize profits we think HMI should move more of their operations
overseas, where things like real estate and labour costs will offer them
reduced costs.
In addition to moving some operations overseas, we recommend HMI
strengthen their international presence. This currently represents
16.5% of revenues and 20% of profits. These figures state that the
profit margins are greater overseas than within North America. We
would also recommend a 5-year objective of reaching 30 percent
profits generated overseas.
At last, If HMI is able to maintain their ethical and moral procedures,
continue their excellent reputation, cut back on costs where it is
available and continue to expand further internationally, they will find
themselves in an excellent economic position in the near future.