With a combination of three analytical tools we were able to determine the major obstacles Herman Miller need to overcome in order to obtain and sustain success. The first analytical tool we used PEST, this is a acronym for Politics, Economy, Social and technological forces that will effect a organization in a particular industry. For politics there are no strong political factors effecting Herman Miller or the furniture industry for that matter. As far as the economy goes the service and supplies industry is an economically volatile industry.
The recession hit the office furniture segment hard resulting in a 26. 5 decrease in industry sales. This resulted in Herman Miller’s sales being down 19%, the domino effect cause Herman’s debt- to Equity ratio to rise from 1. 18 to 47. 66 in two years. With the increase cost of raw materials and increasing competition from overseas, Herman Miller success will be limited if they cannot adapt to their environment. For the social culture aspect of the analysis Herman Miller is observing a higher number of their employees spend time in front of the computer.
As a result, employees have requested ergonomically created furniture. Essentially, changing the behavior and culture of the work place. Lastly, the increase in telecommunication employers need less office equipment for employees, so the technology increase has decrease the demand for furniture. The second analytical tool that was used to evaluate Herman Miller was SWOT. This measures the strength, weaknesses, opportunities and threats the organization faces. The strength of Herman Miller’s lies in its loyalty to employees, rich legacy, strong management, brand name and customer loyalty.
The weakness of Herman Miller is that their revenue is widely impacted by the change of the market and trends. The opportunities that Herman Miller can take an advantage of is it financial leverage. Herman Miller can quickly expand into other markets and products, especially in fragmented industries, “Financial Leverage” has a significant impact, so an analyst should put more weight into it. “Financial Leverage” will have a long-term positive impact on this entity, which adds to its value. So analyst should put more weight into it.
Financial leverage will have a long-term positive impact on this entity, which adds to its value. Another opportunity that could be taken a advantage is creating new products. With the resources that Herman Miller has at their disposal they are highly capable of expanding its product line to obtain sustainability. The last tool that was used to analyze Herman Miller was the five forces of competitive advantage. The first force is the threat of new organizations entering the market. The furniture industry has many competitors many of whom are new to the industry.
The next is bargaining power of suppliers. The next force is bargaining power of the customer, for the industry that Herman Miller is in the buyers requires special customization. This gives Herman Miller an advantage due to the fact they are creating value in offering one of a kind furniture to the consumer. The next force effecting the organization is threat of substitute, substitutes in this industry offer lower quality and performance standards, which happens to cause a high cost in switching to substitutes. The threat of new competitors is always looming around the corner.
The difference between new entrants and new competitors is that new entrants are entering the market for the first time. Were as new competitors could have already been in the market just not in that specific segment. So the threat of new competitors will not necessarily have n impact on Herman Miller profit. The reason is because this industry requires economies of scale along with high capital requirements. So Herman Miller will be able to retain a high level of it customers to help the organization accomplish its goals.
Several improvements can be implemented to increase business diversity, enhance marketing, and increase vertical integration. With licensing, instead of using the Herman Miller name, HM would engage in a non-compete and disclosure agreement with similar companies; providing the potential for Herman Miller to manufacture new furniture for another company, essentially outsourcing manufacturing costs for other firms; depending on the companies specific design requirements.
Next, the furniture and designs produced would obviously be marketed as a natural product of the company that hired Herman Miller to out source. Ultimately, using private labeling and outsourcing will introduce HM to consumer markets domestically and internationally. Additionally, the brands could leverage Herman Miller’s internationally renowned expertise in producing exceptional high quality designed furniture.
For example, showcasing Herman Miller’s industry leading, 12 year, 100% is an obvious display of Herman Miller is synonymous with high quality and workmanship. Next, by changing Herman Miller’s business model slightly to incorporate the aforementioned white-labeling process, and utilizing manufacturers with already established distribution networks; HM can easily diversify. Furthermore, research has shown that the consumer market for furniture and especially designer furniture isn’t stressed or affected by financial declines and recessions.
Therefore, an additional solution could include using established networks and resources currently in place at other companies through joint ventures with established furniture manufacturers. Another great solution would be for HM to backward or vertically integrate by acquiring in wood products, timber, and related processing entities. Indeed, each of these strategies would make HM more responsive and adaptive to economic downturns and recessions, simultaneously maintaining their industry leading branding and image.
