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Published: May 25, 2010
 / Summer 2010 / Issue 59

 
 

Herman Miller’s Design for Growth

So far, Legrand has trained 400 sales reps to sell the Convia technology. And Herman Miller continues to expand its product line. It recently introduced an energy management component to help companies detect energy-saving opportunities and monitor reductions.

Herman Miller has moved itself from selling furniture to providing the entire building envelope with intelligent infrastructure. If it succeeds in this effort, the company will have demonstrated that it has successfully applied a new process for producing breakthrough products in new markets. That capability would add another leading-edge practice to its portfolio of management capabilities.

Steady in the Storm

The biggest challenge of late for Herman Miller has been staying focused on its management practices during the financial meltdown. Innovative programs often fall by the wayside when corporations are under severe financial pressures. But Herman Miller seems to regularly demonstrate that time-tested practices will not lose support.

As markets contracted in 2009, CEO Walker says he told executives that the company had to cut costs more, but cutting more people would probably hurt the company’s future. Walker decided to make other moves instead. First, he made a decision similar to one made by many other companies during the downturn. To save money, all employees, executives included, would be furloughed every other Friday. He also suspended matching contributions to 401(k) plans.

Second, he created a new bonus plan called a wage-recovery plan. On top of the bonus that originated with the Scanlon plan (and that had been reformulated to use EVA), Walker and his executives proposed to pay people back for money they lost in the furlough — provided the company did well. The finance people calculated how much money the company had to make to sustain itself, without cutting outlays for key investments. Walker then guaranteed that if the company reached that goal, the plan would split every additional dollar 50/50 between employees and shareholders. Walker admits that there were skeptics. The board, he recalls, asked: “You’re going to pay them when they don’t even work the day?”

But Walker argued that in the feeble economy, the main goal was to keep the business sustainable, not to increase profitability at the expense of employees. He believed that instead of sapping employees’ energy during a retrenchment, the wage-recovery plan would show them they should continue to make progress through the management practices that had sustained the company for so long. Walker says he hoped employees would reason this way: “Gee, I can continue to innovate in my work in a way that improves the performance of the business, and if I do that, I’ll get some of the money back.”

As it turned out, in the first three months after the plan was initiated in the spring of 2009, Herman Miller earned more than the threshold amount. Employees won a wage-recovery bonus worth nearly half of what they had lost in the furlough. In the second three months, employees earned no bonus, but in the third, they earned well more than half of what they lost. Walker says he has no regrets about paying people for time not worked, as the program generated a lot of goodwill and credibility for top management.

Of course, the program has done something else as well: It has reinforced Herman Miller’s dedication to sticking with its longtime management practices — in this case, paying bonuses to people for improving company fortunes, just the way D.J. De Pree did nearly 60 years ago.

Reprint No. 10206

Author Profiles:

  • Bill Birchard is a journalist, author, and book consultant who specializes in management and the environment. He is at work on a book about Herman Miller.
 
 
 
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Resources

  1. John Berry, Herman Miller: The Purpose of Design (Rizzoli, 2009): A definitive history of the company’s continuing collaboration with some of the giants of modern design.
  2. Kevin Dehoff and John Loehr, “Innovation Agility,” s+b, Summer 2007: How to build the capability to manage a large, global product development portfolio and consistently deliver winners.
  3. Max De Pree, Leadership Is an Art (Dell, 1990): The former CEO on why a leader should recognize human diversity and make full use of his or her employees’ gifts.
  4. Kaj Grichnik and Conrad Winkler, with Jeffrey Rothfeder, Make or Break: How Manufacturers Can Leap from Decline to Revitalization (McGraw-Hill, 2008): A guide to emulating companies like Herman Miller.
  5. Art Kleiner, “Leaning Toward Utopia,” s+b, Summer 2005: Lean production experts James Womack and Daniel Jones talk about how the system has revolutionized industry and can transform the world.
  6. Tim Laseter, “An Essential Step for Corporate Strategy,” s+b, Winter 2009: Though often missing, a formal operations strategy can guide the crucial decisions that build competitive advantage.
  7. Richard Verity and Chris McNally, “Virtuous Connections,” s+b, Spring 2010: How a fine-tuned supply chain can improve performance throughout an organization.
  8. For more thought leadership on this topic, see the s+b website at: www.strategy-business.com/strategy_and_leadership