The annual report to the stockholders of furniture maker Herman Miller, INC. (HMI),was not your typical mix of product information, new directions, and earnings statements. The new President and CEO, Kerm Campbell, quickly summarized the company’s financial position as “good” and added:”To me, the most encouraging news was this: Even though the first quarter of fiscal 1993 was among our most disappointing, each successive quarter improved---the fourth quarter was very good.” The detailed financial statements were included at the back. The remainder of the annual report consisted of letters Herman Miller employees had received from customers during the previous year praising particular sales of service people, or the quality of the company’s products, or the company’s willingness to help potential clients and provide service. The front cover of the report was a reproduction of a handwritten note from a firm of architects to a company executive. The report even included an aerogram to encourage shareholders to write to the company.CEO Campbell noted :”None of these letters is an official endorsement, of course, but they sure do lift my spirits!”
This represented a significant improvement over the company’s situation just 2 years earlier. The cover of the packet containing the 1991, annual report summed up the situation differently; it declared,’ there’s good news and bad news.’ The financial statements showed that net income at HMI had declined from $1.82 to $55 per share.? The net income from 1988 to1990 showed virtually no growth. Sales had grown only 1.6 percent from 1990 to1991, and most of the increase could be traced to changes in currency exchange rates between the dollar and currencies of the countries where HMI did business. These sales figures were in contrast with decline in sales of the furniture industry, overall however. But in 1993, sales had increased 6.3 percent, and net income had risen to $.88 per share. The number of orders was increasing, and there was a backlog of $129.8 million.
Herman Miller, Inc., headquartered in Zeeland, Michigan, is one of the largest furniture manufacturers in the United States. In 1993, it earned $885.7 million in sales, much of which came from its office furniture division, which is second only to its nearby competitor, Steelcase, Inc. Overall sales had increased from $40 million in 1974 to a high of $878.7 million in 1991. Sales growth had slowed considerably since 1988 and had decreased in 1992, a result of increasing price competition in the office furniture industry.
Top management at HMI felt that much of the company’s past growth and its improving profitability during the most recent fiscal year could be traced to be the policy of participation in the decision-making process within the company. This process was developed at HMI by its founder, D.J. DePree, starting in 1950. It was further solidified by D.J.’s son and eventual successor, Max DePree. When Max relinquished the title of CEO to President Dick Rush in 1988, the two reaffirmed their commitment to the concept of participative management and the Scanlon Bonus Plan developed by D.J. The Scanlon Plan, named for its developer, a professor at the Sloan School of Management at MIT, was based on the following four principles, as described in company publications:
Identity: All employees have the opportunity to understand the business and to know how they can be meaningfully involved in meeting its goals and objectives;
Participation: All employees work together responsibly to accomplish the company’s goals and objectives.
Equity: All employees realize a fair return on their personal investments of time and talent.
Competence: All employees commit to using their utmost capabilities to achieve the success of the organization.
These principles have been brought into HMI operations through various policies. Even during the difficult years of the late 1980s, HMI continued to pay bonuses to all its employees under its Scanlon Bonus Plan. The bonuses, based on average quarterly wages, are paid for cost savings instituted by the employees, productivity gains, employees’ attitudes toward their work, and a combination of their supervisors’ and their own perceptions of their value to the company. Furthermore, the company limits the total compensation of the CEO to 20 times the average pay of a factory worker. Moreover, every employee who has worked at the company for at least 1 year is granted ownership in the firm through an employee stock ownership plan.
All employees, from the CEO down to the factory project teams, are evaluated by their team members twice a year in order to ensure competence and commitment to company objectives. Participation in the decision-making process is both valued and encouraged, according to top management. Max DePree noted, however, that whereas all employees have input into the decision process, the decisions themselves are ultimately made by management.
Management firmly believes that the values instilled in the employees through these policies help to achieve superior results within the company. The purpose of all of these policies is to provide HMI customers with value through quality and excellence, both in products and in service. DePree gives an example of how this process works:”For years at Herman Miller, we’ve had a large display area in the factory where the final products are set up pretty much the way they would be in the user’ office. So if you’re making one of the components for a piece of furniture, you can see how your component fits, and also get a picture of who might be using the things you make.” DePree feels that this display allows the workers to become “meaningfully involved in the working of the system.” The productivity gains and production savings proposed by employees, averaging over $11 million per year, helps HMI provide this value at a cost to the consumer that meets the prices offered by competitors.
The increasing importance of price competition in the office furniture industry is a concern to top management, since the company competes on the basis of service and speed of delivery as well as price. Management sees research and design as two of the company’s competitive strengths and stresses the important role improved manufacturing productivity has played in improving profits. So far, HMI management has not had to consider any cutbacks in employment and are proud of the fact that layoffs are used only as a last resort; in fact, they had to lay off employees only twice during the 1980s, despite a severe economic downturn in the early 1980s and a later sharp downturn among the company’s primary customer group, the electronics and computer industries. Management hopes that its emphasis on value within the company will continue to translate into an environment characterized by continued growth in sales and rebounding profits during the upcoming years.
Questions
1.What are the critical components of leadership at Herman Miller, Inc., that have led to continued growth in the company?
2.How are quality and excellence fostered at HMI?
3.What threats are management at HMI facing as they look toward the future?