Herman Miller is a leading U.S. manufacturer of office furniture, noted for developing quality, innovative designs for corporate, government, home office, and healthcare environments. Its products include office furniture systems and accessories, freestanding furniture, filing and storage systems, lighting, textiles, wooden casegoods, and ergonomic devices. Headquartered in Zeeland, Michigan, the company manufactures its products in the United States, the United Kingdom, and Italy. Its major competitors include Steelcase and Haworth, also located in western Michigan, and HON Industries, a low-price manufacturer in Iowa.
Herman Miller sells worldwide through a dedicated sales staff and dealer network that has the specialized knowledge and expertise to sell its complex products. Along with Steelcase and Haworth, Miller insists on semiexclusive relationships with its dealers. Miller dealers are prohibited from selling Steelcase or Haworth, although these dealers may represent smaller manufacturers. (HON allows any dealer or retailer to sell its products.)
The company was founded in 1928 to produce and sell office furniture. Over the years it came to focus not on the sale of individual pieces or small groups of furniture but on contracts to furnish whole offices, where the specifications for cubicles, desks, and chairs are often part of the architectural planning process. By the 1990s, Herman Miller had become known for its product innovation. For instance, it was the first company to develop and produce "open office" panel systems, which were the beginning of today's cubicles. Currently, it is still considered a leader in the production of "system furniture," which means its wall panels and desks contain built-in accommodations for network cabling and electrical wiring. Herman Miller's sales and design staff help their customers design their new office spaces, and then sell those customers all the furniture and accoutrements for the whole office.
Herman Miller was particularly successful during the dot-com frenzy, with its annual sales reaching $2.2 billion in its fiscal year that ended in June 2001. During the four years prior to that date, its annual profits ranged from $128 million to $142 million. The company was hit hard in 2001-2002 when its sales fell sharply (-33.9 percent) as the dot-com explosion became a huge dot-com bust. Herman Miller's furniture had become a symbol of excess spending because so many of the dot-com companies had wasted millions of dollars on fancy offices before they had ever even earned a penny. When so many dot-coms went under, large quantities of slightly used Herman Miller products were auctioned off at low prices, greatly decreasing the demand for brand new Herman Miller products. The company experienced a loss of $56 million in fiscal 2002 (ending in June 2002). Roger Gunderson, a sales representative, commented, "In today's market, it's survival we're worried about." Herman Miller did return to profitability for the first two quarters of fiscal 2003 (beginning in July 2002) by aggressively cutting costs. The upward change continued through 2005 when Herman Miller achieved a gross annual profit in excess of $400 million for the third consecutive year.
One of the key reasons for Herman Miller's success during the highly profitable years was its decision to rely on innovative three-dimensional design software for laying out and configuring clients' offices. That software, known as z-Axis, enabled Herman Miller salespeople to walk into a customer's office with a powerful laptop, connect that laptop to a big-screen projector, and work jointly with the client to design that company's new office space, altering the design as they went along. At the end of the sales/design process, the salesperson would treat the customer to a computer-projected, three-dimensional tour of the planned office space. The representative then generated a bill of materials for all the Herman Miller products used in the plan with their prices calculated. If the price was too high or the configuration had to be changed, the Miller sales representative could make adjustments on the spot rather than have to return another day with new drawings and a new price quote. Using this approach the sales representatives were sometimes able to close the sale on the very first day. During the whole process, each and every part of the office would be designed, including cubicles, desks, chairs, and electrical and electronic connections. Gunderson's comment was that z-Axis "was the reason we got most of these jobs-because other people couldn't do it that quick." Once the software was refined, its users did not require much training and it was distributed to Herman Miller's more than 150 dealers across the country at no expense to the dealers.
Prior to Herman Miller's adoption of z-Axis, the entire business furniture field was heavily manual, particularly the office design and product sales processes. The salesperson (who was also a trained designer or worked alongside a Herman Miller designer) would meet with the customer and together they would explore many different ideas, perhaps taking a whole day. The result of that meeting was a preliminary office design, which would be passed along to a Herman Miller design team, who would in turn refine the design and create sketches. Next someone on staff would research the prices for all items in the design. Only then (after several of days or even weeks) would the salesperson return to the client with sketches, measurements, and pricing. Usually, that meeting would result in some changes, causing the whole process to be repeated. "It was a very time-consuming and costly process," said Gary Millard, the CEO of Wooden Thumb, a Milwaukee, Wisconsin, kitchen design and construction company. "It [the old manual approach] also placed limitations on our ability to grow the business." Z-Axis so significantly sped up the whole process that Herman Miller's average time to close a deal shrank from 12 weeks to 12 days. The company had achieved a powerful competitive advantage using software that could not be quickly and easily duplicated.
Herman Miller began using z-Axis to support a new semi-independent division named SQA, which stood for Simple, Quick, and Affordable- simplicity of service, speed of delivery, and affordability. SQA focused on offering small, growing businesses a basic selection of quality furniture using a simplified sales and ordering process where orders would be shipped quickly and reliably. SQA tried to follow Dell Computer's model of building its products to individualized orders. Z-Axis had originally been developed by a Seattle company called Computer Human Interaction (formerly known as Lembersky/Chi) for lumber giant Weyerhauser Co. to help it market its wood products used in building decks and making home improvements. The development process was expensive, and when Weyerhauser stopped its funding, Lembersky/Chi needed another sponsor for the product. It approached Herman Miller, asking it to step in and help with funding. According to Bix Norman, then the president of SQA, "It was one of those weird coincidences, where I was looking for a technology to make the specification of furniture easier to do, and I had actually written a business plan saying we should do something like this." Herman Miller accepted the Lembersky/Chi proposal on the condition that it be given exclusive rights to use the software.
Z-Axis was linked to SQA's production systems to focus on speed and reliability of production, order fulfillment, and customer service. The software ensured that all parts of an order were either in stock or quickly available from Herman Miller's suppliers. The system also automatically organized production so that all the parts were assembled quickly and completely at the same time, even if they were produced in different locations. Completion data (including the final cost and date) would be automatically calculated when the order was written. The whole order would arrive together and on time. SQA's delivery time goal was two weeks (or less). If a problem arose with the availability of any part of the order, the system automatically alerted a manager who would step in and become responsible for solving the problem so the order would be filled on time. Z-Axis even checked the accuracy and completeness of the order during the design process so that when installation occurred, the SQA dealers would not suddenly find that critical parts had not been ordered.
One example of the use and value of the z-Axis software was the experience of Daniel F. Morley, president of BFI, an independent Herman Miller dealer in Elizabeth, New Jersey. Herman Miller had already begun offering Resolve, a product line that eliminates cubicles, replacing them with vertical poles from which desks and shelves are hung, creating workstation clusters. Morley said that Resolve was so different that customers feared it. However, a Fortune 1000 company approached him with its plan of combining the staff from three locations into one. Competitor Steelcase had shown the potential client a design that fit 188 people in the planned new location, but Morley showed the same potential customer that Resolve would nicely fit 250 people. Morley said, "We sold it not on the basis of purchase price but real estate savings." The key was the ability to quickly design with the client, enabling that client to see a rotating three-dimensional view of the results on the spot, including price and a specific but rapid delivery date.
In another example, Frank Falsetti, a sales representative for a dealer in Milwaukee, Wisconsin, learned that TDI, a local engineering firm, was moving into new offices and had budgeted $15,000 for furniture, which they would purchase at Home Depot. Falsetti saw TDI's plans and worked on an alternative overnight for eight hours using z-Axis to create a better solution. He then used a three-dimensional rendering to demonstrate to the potential client his plan. Falsetti's price was $30,000, including the cost of wire and cabling, but it so pleased TDI that TDI ultimately spent about $80,000 on Herman Miller products. Falsetti later said, "What made this particularly sweet was I was up against a guy from Haworth, a competitor who was on this job before me." He said the Haworth rep gave a quote but did not follow through. "They never went through the detail like I was able to do with z-Axis-and, really, win the owner's heart over." As Dennis Dederich, a principal at TDI, observed, "When you're just looking at furniture in a catalog, sometimes it's difficult to envision how it will look in your space."
The system also minimized Herman Miller's inventory, a good saving in both space and cost. David Bovet of Mercer Management Consulting and co-author of a book on breaking the supply chain to unlock hidden profits noted that the office furniture business offers a much greater variety of items and options than does the computer business (a reference to Dell's sales approach). He concluded that SQA had figured out how to make the process simpler and quicker for the customers and more efficient for itself. The Herman Miller parent company was so impressed and satisfied that z-Axis was adopted by the rest of the company, and then, in 1998, SQA was integrated into the parent company. Z-Axis supports an expanded product catalog that is updated every few months. SQA can offer custom designs for large businesses as well as simple, quick, and affordable solutions for smaller firms.
When the dot-com collapse occurred and the company was hard hit, Herman Miller faced serious problems. Its expenses were too high relative to the drop in sales revenue. It clearly had to reduce expenses to try to return to profitability. The remnants of SQA were closed down. Herman Miller eliminated more than 2,500 jobs worldwide, including a number of information systems positions. It also closed down its RED retail Web site and eliminated the Web site specialty line of furniture, although individuals can still make small purchases of some of its regular items over the company's home Web site. RED, which seemed to be an exciting venture, proved to be expensive to maintain ($4 million a year when it was just beginning to show a profit and was eliminated). But it had created a serious problem with Herman Miller dealers. Although the site became attractive to many Herman Miller customers, it also established another channel for customers to order their products, thus bypassing the dealers, causing them to lose a significant amount of business. To make matters worse, potential customers would learn about and look at specific items online, then visit a dealer showroom to try out the product before returning to their computers to place an order online.
Several of Herman Miller's competitors recognized the problem earlier and avoided online sales. "We have stayed true to having the dealers as distribution partners," declared Jeff English, Haworth's global information systems process manager. According to Ken Tamelin, director of e-tools at Steelcase, his company uses its Web site to support its dealers, not to compete with them. However, Michael Volkema, Herman Miller's CEO, had seen the Web as a risk worth taking because it served customers in a new way. But the channel conflict problem became too serious, and Herman Miller finally closed RED down when it was reducing expenses in 2001 and 2002.
The company did create an alternative Web site for its bigger customers called eZConnect, but the orders entered at that site go through the dealer network, not directly to Herman Miller. Also, Herman Miller gave its dealers the opportunity to adopt a common set of business applications, enabling them to replace their large varieties of financial management, software management, and contact management with unified systems that are project driven, thus helping the contract furniture businesses of Herman Miller dealers.
Management also had to face the high expenditures for its information systems and consider what could be cut back. Being the lone supporter of z-Axis cost the company several million dollars per year. Meanwhile, commercial software packages with similar capabilities are now available for Herman Miller's competitors at a much lower cost. In the past several years, the quality of competitors' software has greatly improved, particularly Giza, a package from 20-20 Technologies of Montreal, Canada. Herman Miller dealers have expressed loyalty to z-Axis, claiming it is both easier to use and does a better job of enforcing rules about how different items do or do not fit together. A newer version of Giza, called 20-20 Office Design was demonstrated at a furniture industry trade show, and it won an award for the "Best of Show." 20-20 Technologies now offers a number of software packages, each of which is designed for a specific discipline, such as sales and planning (20-20 Giza), AutoCAD space planning (20-20 CAP Studio), and advanced presentation (20-20 Office Sales). Kimball International of Jaspar, Indiana, says it will be using 20-20 Technologies products just the way Herman Miller uses z-Axis. This software can be sold to many companies because it supports the catalogs of many manufacturers, giving dealers flexibility. In addition it enables users to embellish three-dimensional representations of a design with textures and colors that match the walls and carpets. It even adds potted plants to give the place a more lived-in feel.
Z-Axis does not have these capabilities, and it may take millions of dollars to add them. Herman Miller will have to decide whether it is worthwhile to keep paying such high costs to maintain this exclusive technology, especially during lean times when its operating budgets have been reduced. Bill Rosser, a vice president of a Gartner Group and its research director, said, "There comes a point where the value you get from being ahead is comparatively small." However, Mercer Management's Bovet believes that the competition will find it difficult to leapfrog over Herman Miller because its brilliance "was how they put the whole together." His point was that although the newer software may share some features with z-Axis and even add a few, z-Axis ties the sales directly into Miller's manufacturing and supply chain systems.
