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The Cage Match in the Office Furniture Industry

Partnership Project with

Tyler Gayheart
Jaclyn Meeuwenberg
Zachary Piorkowski
Asad Ali
Chase Parker

December 2020
 Table of Contents

INTRODUCTION 4
PROBLEM STATEMENT 5
PROJECT PLAN 5
RESEARCH 6
Primary Research 6
Secondary Research 6
Necessary Information 6
OFFICE FURNITURE INDUSTRY ANALYSIS 6
Power of Customers 7
Substitute Products 7
Threat of New Entrants 7
Supplier Power 8
Rivalry 8
Industry Analysis Summary 8
Resource Based Analysis 9
CURRENT STRATEGIES ANALYSIS 9
Corporate Level Strategies 10
International Level Strategies 10
Business Level Strategies 11
HYPOTHESIS STATEMENTS 11
What we want to test 11
What information or data is needed 12
Method for collecting data 12
How data will be analyzed 13
Analytical tools that will be used 13
SUMMARY OF DATA COLLECTED 14
Results and Analysis 14
Report Findings 15
RECOMMENDATIONS 16
Enter the Office Sharing Industry 16
Steelcase and the Acquisition of Knoll 17
Steps of Implementation 18

The Cage Match in the Office Furniture Industry 2

CONCLUSION 19
REFERENCES 22

INTRODUCTION

The Cage Match in the Office Furniture Industry 3

This proposal is being written to explain how we will examine the differences between Steelcase and
Herman Miller, and how the growth battle between the two has evolved from the past 20 years. We
will also be analyzing the industry to describe the role that Herman Miller and Steelcase have in the
industry, what is going on inside of the industry, and the state of the market. By examining the
differences, we will be able to identify their strategies and compare their performances to one another
and make our recommendations for Steelcase on how to diversify from Herman Miller for the
opportunity to outgrow them.

Steelcase (NYSE:SCS) and Herman Miller (NasdaqGS:MLHR) are two of the largest firms in the office
furniture industry that are very similar companies in terms of their performance. They are involved in
the office equipment & furniture sector, producing office furniture as their main product line, and
dominating the industry in that regard. Both companies have operations/brands that could fall under
the SIC codes 337211 (wood) and 337214 (except wood). Because wood products are a relatively small
component of both Steelcase and Herman Miller, a SIC for both companies of 2522 and an NAICS
code of 337214 is the best choice based on their primary offering of non-wood products.

Herman Miller and Steelcase are among the top 3 office furniture distributors in the world, along with
Haworth. They are both headquartered in West Michigan, meanwhile their manufacturing is global.
In their Fiscal year 2020, Steelcase had $3.2B in revenue. In comparison, Herman Miller had $2.4B
in revenue and $138.8M in net income. Herman Miller’s comparatively low income can be attributed
to write-offs and restructuring costs associated with strategies under the new CEO. Adjusting for this
would increase their income by roughly $200M, which is most consistent with their previous years.

Steelcase

Steelcase’s vision is “We empower people to reach their full potential”. This ties into their
mission, which is split into two parts. The first cultivates quality, public education, and
communities that empower children to realize their full potential. The second is to foster the
vibrancy of communities by supporting artistic and social efforts. These tie into their values,
which include people, partnerships, integrity, and results.

Steelcase was founded in 1912 under the name Metal Office Furniture Company by Peter Wege,
Walter Idema, and David Hunting in the city of Grand Rapids (the same location as today). It
was rebranded to Steelcase in 1956, and currently has 12,700 employees. It has different office
locations around the globe with 32 WorkLife Centers between the Americas, Europe, Middle
East, Africa, and Asia Pacific regions. They are partnered with both in-store and online
retailers such as Amazon, Wayfair, and Custer to name a few.

Herman Miller

Herman Miller’s mission, simply put, is “Inspiring designs to help people do great things”.
They solve real problems for people and the organizations they work for. This is built on the
values they have and are expressed as the “Things that matter”. Some of these values include
performance, relationships, and a collective commitment to making a better world.

Herman Miller was originally named Star Furniture Company when it was founded in 1905 in
the city of Zeeland (where it still is today). It was renamed to Herman Miller in 1923. It has
approximately 7,600 full-time employees. Herman Miller has different offices and retailers
that expand to 40 different countries. Some of these include Design Within Reach, Hay, Maars,
and Naughtone.

The Cage Match in the Office Furniture Industry 4

PROBLEM STATEMENT
Our team compares Herman Miller and Steelcase on several key performance and success indicators.
The problem we will discuss is over the last 20 years, the major office furniture manufacturers have
been locked in a battle for growth and market share in an industry plagued with significant over
capacity. With significant over capacity and numerous capable product alternatives from other
players in the industry, the manufacturers have been in price wars for years; shipping more product
for fewer dollars. A major challenge as a result of this are profitable growth and return on invested
capital.

We will conduct primary and secondary research to make recommendations for Steelcase that will
enable them to solve the problem of their lack of real growth and profitability. Our group will take up
the challenge of solving the problem for Steelcase, meanwhile the other group will address Herman
Miller.

PROJECT PLAN
We will deliver 6 regular reports to the client according to this schedule. We will present via Zoom a
final report of our research.

Deliverable Date

Proposal 10/10

Progress Report #1 with industry analysis and updated project scope 10/17

Progress Report #2 with company resource-based analysis and financial review 10/24

Progress Report #3 with strategic analysis of business, corporate, and 11/7

international strategies in place currently

Progress Report #4 with an outline of the methodology of our study, including 11/14
hypothesis

Progress Report #5 with result of our analysis and findings 11/28

Final Project Report and Presentation 12/14

RESEARCH
Our project approach will utilize both primary and secondary research. We conducted this research to
determine which company has had a better performance over the last 20 years.

The Cage Match in the Office Furniture Industry 5

We need the two companies’ internal resources, capabilities, and information about their core
capabilities, their tangible and intangible resources for both firms. This includes assets, capital
equipment, employees’ skills, technology development, Innovations, patents, Finance, Human
Resources, etc. We also need to know how both firms are using their resources to achieve their desired
goals. We need to know the growth rate (CAGR), profit margin, and their market share for the past 20
years. Furthermore, we need information about the core capabilities for both firms and the
combination of the resources that make them valuable, rare, in-imitable and shared throughout the
organization.

Primary Research
We will conduct primary research by interviewing the key employees in both firms, and we will also
conduct interviews and Zoom meetings with people involved in the community, and other local
businesses that have used or dealt with the firm’s products in the past.

Secondary Research
Although primary research is a key ingredient to learn about a firm, we still need to conduct
additional research. To get the secondary resources, we will use Grand Valley State University Library
databases. These databases include Business Source Ultimate, Mergent Intellect, Mergent Online,
Capital IQ, Statista, etc.

Necessary Information

Some specific questions and statements that we will focus on while doing research for Herman Miller
and Steelcase are: which company is winning the battle of growth and market share for the past 20
years? What are the business level strategies that the both companies have used and have their
strategies been successful for the past 20 years? Where does most of the revenue come from for each
company? What are the strengths and weaknesses of both companies? We need information about the
business level strategies that both companies have used to gain advantages against their competitors
in the market. We need to know how their growth rate and profit margin have changed since 2001.
How do both firms overcome the changes that they have faced in the past?

OFFICE FURNITURE INDUSTRY ANALYSIS

We need to assess the office furniture industry in order to understand how the situation and the
industry environment affects Steelcase and Herman Miller. Office Furniture Manufacturing in the US
alone has a market size of roughly $15-20B with 8,470 total businesses, and a total employment of
113,125. In the global scale, it is currently roughly $60-70B. By 2024, the global market size is
expected to reach $87.6B, growing with a CAGR of 6.7%. The development of modular office furniture
is a leading factor to promoting growth, and the global GDP growth is a primary reason for growth.
The Asia Pacific region is expected to account for a share of 45.4% in terms of value by 2024 in the
office furniture, which is the leading shared region.

Looking into the future, over the next five years, revenue for the Office Furniture Industry is expected
to grow slowly as the global economy recovers from the current COVID-19 pandemic. The recent rise
in the national unemployment rate is expected to lead to businesses rehiring employees, which will
increase demand for office furniture. The performance of the segments in the industry will most likely
diverge, with non-advanced furniture production struggling versus global competition. Overall, the
office furniture industry is expected to increase over the next five years.

The Cage Match in the Office Furniture Industry 6

Power of Customers

Buyer power is high. The market for office furniture is highly saturated. There are numerous
companies to choose from when it comes to purchasing office furniture, Herman Miller and Steelcase
being some of the largest in the industry. As stated above, there are over 8,000 manufacturers in the
US and just as many around the globe. The differentiation comes with the ability to provide high
quality products and serve major customers with major projects with their size and scale. In order to
reduce the attractiveness of other options to their buyer’s, competitors in the office furniture industry
can do a few things. Building a large customer base and focusing on new products and innovation of
current products. If the companies in this industry focus on their customer base and their products,
they will reduce bargaining power of their buyers by having the products they want that fulfill their
evolving needs. Buyers enjoy working with companies that are highly focused on innovation because
it makes them feel as though they are on time with the changes that happen in the industry, and they
will always have the best products available to them. Overall, buyers have high power in the office
industry as they competitively bid against each other and other capable manufacturers such as
Haworth and Knoll. Herman Miller and Steelcase need to focus on their customers and product
innovation to try to reduce the power of their buyers as much as possible.

Substitute Products

Steelcase and Herman Miller both operate in the office furniture manufacturing industry. The
substitutes for normal office furniture are numerous. The industry has made advancements in chairs,
desks, and cubicles, but the design has been relatively stagnant for most of the time. There are some
substitutes that have taken a new direction on the traditional products Steelcase and Herman Miller
manufacturer. These include yoga balls instead of chairs and other types of balancing chairs. These
are gaining popularity, but most people and companies still prefer a traditional office chair. Desks
have few to zero substitutes. There are new innovations for desks such as smart desks and standing
desks, but workers need a platform to do work on. They must be able to set a laptop or computer
down with papers and do work. The threat of substitutes is low for Herman Miller and Steelcase.

Threat of New Entrants

There is a high activity for new entrants in the office furniture industry because the barriers to entry
are low. Starting up a company doesn’t require an abundance of resources to begin manufacturing,
and the demand for furniture is, and has been, relatively high. A lot of the small companies use these
to their advantage when starting out. There are 8,000 manufacturers in the industry, which is where
the competition comes into play. An issue for the bigger firms in the industry are these smaller firms
creating a platform in the international market, which creates a dilemma for the bigger firms. Since
new entrants are trying to compete in the industry, this means they may reduce the profit potential,
although this isn’t always the case for every company.

Supplier Power

The supplier power is relatively low. Steelcase has numerous suppliers to choose from which gives the
suppliers less control on their prices they charge. The product the suppliers for Steelcase provide is
standardized which allows for little switching costs for Steelcase. Steelcase is an important customer

The Cage Match in the Office Furniture Industry 7

in the industry for its suppliers causing the suppliers to have to provide reasonable costs due to their
profits being tied with Steelcase’s success which makes the supplier power lower. The same goes for
Herman Miller for the most part. Overall, Herman Miller’s suppliers still have little power in the same
regards that Steelcase suppliers do.

Rivalry

Rivalry in the office furniture industry is extremely high. The main competitors in the U.S. include
Herman Miller, HNI-Allsteel Corporation, Knoll, Steelcase, Haworth, Major companies outside the
US include Okamura and Kokuyo in Japan and Samson Holding in China. Steelcase and Herman
Miller make up about 25% of the Office Furniture industry, while the top 5 manufacturers make up
60% of the industry. The other 40% is made up of smaller firms that either focus on specialty
offerings or price. The Global size of the office furniture industry is $450 billion, and it’s expected to
grow 5% each year through 2025. In the US, the office furniture industry generates about $75 billion
in revenue annually with 15,000 establishments, which are single location and multi-location. In the
US market, the profit margin increased from 31.2% in 2015 to about 32.2% in 2018. Because of
COVID-19, the monthly furniture sale decreased to $3,865 million by April 2020 and then quickly
recovered back to $10,192 million by July 2020. The compound annual growth rate (CAGR) is 7% for
the office furniture industry in the US Market. Of this 7%, the Census Bureau reported that 45% of the
revenue comes from household furniture, 17% of the revenue comes from office furniture. The
volume of furniture sales depends on overall how the economy is doing. Most of the costs are fixed,
and large companies are enjoying the economy of sales, while the small companies can only compete
if they make high quality workmanship or specialty goods that they would be able to sell for a
premium price. The Furniture manufacturing is very labor-intensive, and the industry’s illness and
injury is 60% higher than the national rate. This may also create an attractive desire to enter the
market due to the low startup costs and possible return on investment given the increase in the
market size in the past 3 years. Most of the large manufacturers are selling directly to the retailers,
while smaller firms mainly sell through the independent manufacturers’ representatives.

Industry Analysis Summary

In the office furniture industry, buyer power is extremely high, and in turn, supplier power is
relatively low. The threat of new entrants is high in the industry due to the barrier of entry being low
and startup costs being low as well.

Rivalry is high, however, since Steelcase and Herman Miller make up around 50% of the market,
meanwhile the other 50% is distributed to the rest of the firms. The margin of substitute products is
very low because of the same designs used throughout the years of the industry.

Resource Based Analysis

Steelcase’s key resources include a strong brand portfolio. Steelcase owns a few strong brands of their
own such as Coalesse, Turnstone, Steelcase Education, Designtex, and many more; this can be useful
if Steelcase would want to expand even more into new product categories. A tangible resource that
contributes to a capability that Steelcase has is the resource of a strong free cash flow. Their
abundance of free cash flow can be viewed as a resource that allows Steelcase the opportunity to start
new successful projects and also obtain returns on their capital expenditure such as
spending/expanding on long-term assets like some of their equipment and buildings which can be

The Cage Match in the Office Furniture Industry 8

viewed as a capability for Steelcase. Steelcase also has a strong distribution network which allows
them to reach their market easily and along with the intangible resource of a strong distribution
network, Steelcase also has a strong bond with distributors. These distributors have a well-built
connection with Steelcase through incentives to the point where the distributors promote Steelcase’s
product and they also train their own sales team on the best ways to get the Steelcase product sold.
This relationship with distributors is rare, along with their distribution network that would be hard to
match for competitors in terms of the organization of the network providing substantial value for the
company. It has been determined that the distribution network of Steelcase would be considered a
core capability for the company based on this information.

Herman Miller also manages both its tangible and intangible resources well to create some
capabilities. An intangible resource Herman Miller has would include their power over suppliers.
Herman Miller has little switching costs when it comes to their suppliers, this allows the company to
be able to build a strong relationship with suppliers they want/choose to do business with and also
sign contracts that tend to be in favor of Herman Miller, with the suppliers. Along with the power over
supplier’s intangible, Herman Miller is near the top of its industry when it comes to distribution in the
same notion as Steelcase in the previous paragraph. Herman Miller is known for its success in
innovation in its products/brands, and this capability contributes to another capability being top level
customer satisfaction for present and future customers. Having a high level of customer satisfaction
and also a hefty free cash flow, like Steelcase, has proved to allow Herman Miller to enter new
markets easily by sometimes creating new brands and also has proved Herman Miller to be successful
in these markets creating more revenue streams for Herman Miller. Herman Miller has been in their
industry doing business since 1905 creating strong cash flows which is longer than much of their
competitors; this allows the company to have an advantage that would be difficult to imitate for
competitors, especially new entrants. Herman Miller’s rare free cash flow and financial assets
combined with customer satisfaction allowing the company to enter and be successful in new markets
can be determined as a core capability for the company.

CURRENT STRATEGIES ANALYSIS

Corporate Level Strategies

Steelcase utilizes a moderate level of diversification. Steelcase owns multiple other brands that are
horizontally related in the office furniture manufacturing industry. Steelcase’s other brands include
education, healthcare, Coalesse, Turnstone, Designtex, AMQ, Smith System, and OrangeBox. These
types of businesses have allowed Steelcase to develop a concentric type of diversification. Under the
Steelcase corporation, they have entered textile manufacturing and other types of furniture
manufacturing to be able to provide whatever type of product that their customers might desire. Their
brands reach international markets and fulfill the need for innovative open office designs. The brands
also provide technologically integrated furniture and the best options to learn and work from.
Steelcase can use similar distribution channels for most of their brands and the other brands
combined are still not as dominant as the Steelcase brand, but they do provide a moderate amount of
their revenues.

Herman Miller also has a moderate level of diversification. Their diversification is a bit more intense
than Steelcase’s. The brands that operate horizontally under the Herman Miller Group are Design
Within Reach, Geiger, Maharam, Nemschoff Inc., Colebrook Bosson Saunders, Naughtone, Maars
Living Walls, and HAY. The brands/ companies that the Herman Miller group own operate more in
the international market operate solely in a single foreign market. Therefore, they have a higher level

The Cage Match in the Office Furniture Industry 9

of diversification, but the firms can share most of the operations, shipping, and marketing channels.
The brands cover most of the same topics as the Steelcase brands: textiles, technologically advanced
furniture, and healthcare. Herman Miller, like Steelcase, has also diversified horizontally in the office
furniture manufacturing industry, and the brands that they have acquired give them a concentric type
of diversification.

International Level Strategies

Steelcase operates internationally across regions like North and South America, Europe, and Asia.
Because of their reputation and experience in the industry, this allows them to create and sustain
relationships, which is one of their most important things they focus on. In 2020, they did $1.05B in
global sales, with $2.672B in the Americas. This translates into about 39% of sales in international
markets, with the other 61% roughly in the Americas. Steelcase involves themselves with
exporting/creating goods and shipping them out to their foreign suppliers, as well as licensing with
various firms in the countries they supply to. They offer flexibility in their shipping, in which they can
adjust to changes swiftly, and their products arrive to consumers very rarely damaged/defected. As
the world strives towards more technology, Steelcase is right on par with these advancements as they
are very efficient in this manner. They can create new products and innovate older products to
continue to supply consumers and businesses.

Herman Miller also operates internationally to a large extent. They use their own production system
in order to utilize a cost saving strategy, and their manufacturing is assembly based to limit the fixed
production cost. In 2020, they did $690.8M in global sales, with $1.795B in the US. This translates
into about 38% of sales in international markets, with the other 62% roughly in the US. Like
Steelcase, Herman Miller produces the goods themselves, then exports them to their foreign
suppliers. Additionally, they have licensing agreements with the companies they are involved with
internationally. Like Steelcase, Herman Miller focuses on maintaining relationships with their
consumers in order to keep expanding their prices to future consumers. Herman Miller is constantly
innovating their products to match their customer’s needs, in which they conduct research to figure
out what people want, don’t want, and how they can change their existing products.

Business Level Strategies

Herman Miller demonstrates evidence of using a Differentiation strategy. The company defines their
R&D as understanding the customers' problems and solving their needs by designing the most
innovative products and services. They use independent research resources for their R&D system,
which they incurred about $58.8 million in the 2019 fiscal year that counts as 2.3% of their revenue.
Herman Miller have designed many award-winning products in the past which they have established
themselves as a leader in the design and development of furniture, technology solution, and textiles.
The company has a wide range of products in the diversified market to mitigate the risks associated
with the dependence only on a select market, and they mainly serve residential homes, offices,
education institutions, health care, and some other industries. Herman Miller also serves large
domestic and international customers that such diversification helps the company to increase their
revenue and have a positive impact in the company's long-term success. The company has an efficient
procurement step that allows them to get high quality, raw materials from their suppliers in a timely
manner and that enables them to react quickly if they need to adapt to changes in the market.
Operational excellence is a part of their operation strategy that enables them to implement lean
manufacturing processes that have dramatically increased their sales and profitably while reducing
the manufacturing square footage.

The Cage Match in the Office Furniture Industry 10

Steelcase also demonstrates the use of a Differentiation business level strategy. They offer seating
solutions, integrated collection of furniture systems, interior architect products and user-centered
technology for different prices, and their furniture range including freestanding furniture, ergonomic
chairs, panel-based, complementary products like table, storage and ergonomic work tools. Their
interior architectural production includes partial and full height walls and doors. Additionally, they
offer services for the leasing organization services, workplace strategy, and asset management hosted
space that helps reduce cost and increase performance. The company priority is to increase their sales
and market share by bringing new products and enhancing their existing product lines. They invested
about $44 million, $35.8 million and $33 million in design, research and development activities each
year from 2016 to 2018. They have also expanded their portfolio through acquisition and partnership
in three new markets and have introduced about 50 new products in the past 18 months and Verb
Active Media table is one of their recent innovations.

HYPOTHESIS STATEMENTS
We suggested two hypotheses to address the two companies and how they differentiate themselves:

H1: There are differences with Herman Miller and Steelcase with their performance
between the last 20 years.

H2: There are no differences with Herman Miller and Steelcase with their performance
between the last 20 years.

What we want to test

Before testing our Hypotheses, we will collect information through our primary and secondary
resources. We will investigate the percentage of the revenue that firms invest in R&D that helps us to
understand both firms’ capability of design and product innovations. We will collect information
about firms' market shares that allow us to see which firms grow the most in the past 20 years in
terms of sales, revenue and profits and understand the strategy that they have used to achieve that
growth.

What information or data is needed

In order to analyze the performance of the two companies, we have collected data for our performance
tests. We looked at the financial statements of both companies to get data that was used to evaluate a
company’s financial performance. These financial statements include, but are not limited to balance
sheets, annual reports, and income statements. The data collected from these various financial
statements was implemented into ratios and other tests that determined how well a company
performed during a given year and was used to determine how different, or not so different, the two
companies have performed over the past 20 years. Data that was collected from these financial
statements include growth in net profits, revenue today, debt, assets, other liabilities, growth in
revenues, and their stock price/performance over the 20 years. Another data point that does not
always show up in a company’s financial statement, but we still managed to use to judge an area of
performance is comparing the number of full-time employees and the employee’s turnover. In terms
of international performance, data that was collected includes, but is not limited to: number of
acquisitions the firm has, market share it has in international markets, and data that was used to
determine global capabilities for the two firms.

The Cage Match in the Office Furniture Industry 11

For R&D, we collected information including but not limited to, data about the percentage of revenue
that both firms invested in innovation as a part of their research and development, and the number of
new products that they have launched over the past years. We gathered information about which
firms have designed award-winning products that established them as the leader of development and
design in the office furniture industry. We collected information about the strategies that both firms
have used to enhance their innovation capabilities including collaborating with leading universities
and furniture design institutions. The numbers of companies that either Herman Miller or Steelcase
have bought out also helped us to understand their growth which can lead to attracting more
investors because of higher returns on investment.

Method for collecting data

The methods we will use to collect data will involve both primary and secondary research. Our
primary research will involve Zoom interviews with various people involved in the value chain of
Herman Miller and Steelcase. These interviews will involve questions that will help us better
understand what goes on within the value chain of both companies. We have conducted one interview
with the President and CEO of Custer Inc., Todd Custer. Custer Inc. is a dealer for Steelcase. This
interview gave us an inside look at how Steelcase differentiates itself to stand out in the market and
build success. On November 10th we will be interviewing Diego Cervantes, former VP of Latin
American Sales for Herman Miller and currently working with Teknion, another major competitor to
both Steelcase and Herman Miller.

For our secondary research we will use the GVSU library databases to find articles on the two
companies. We will be searching for information on their sales, market share, size of the company,
strategies, research and development, and growth based on several factors, mentioned in the “what
we want to test” section. The research from these sources will give us a large base of information to
use in making our suggestions for both Herman Miller and Steelcase.

Project Methodology Plan

Task Status Assigned to Start Date End Date

Custer Zoom Interview Complete Tyler 11/2 11/2

Jackie
Asad

Herman Miller Zoom Interview Complete Tyler 11/9 11/9

Jackie
Zach
Asad

Secondary Research on Complete Zach 10/1 12/1

Financials

Secondary Research on Complete Chase 10/1 12/1

International Markets

Secondary Research on R&D Complete Asad 10/1 12/1

The Cage Match in the Office Furniture Industry 12

Secondary Research on Sales Complete Tyler 10/1 12/1
and Market Share

Secondary Research on Complete Zach 10/1 12/1

Strategies and Growth Asad

How data will be analyzed

We will analyze both companies in terms of the number of new products that they have launched and
compare their strategy they have used to grow and increase their market share as well as their
products' portfolio. We will compare both firms' financial statements to find out their profitability and
debt ratio and analyze their sales growth with geographically operating regions including revenue
reported in the US and foreign locations. After doing so, we will be able to have a better
understanding of which firm is doing better/has done better, and propose a potential solution based
on our findings.

Analytical tools that will be used

The following analytical tools will be used to help us analyze the primary and secondary data we have
collected and researched. A comparative analysis of the two companies’ financial data will be used to
see how Steelcase and Herman Miller have matched up to each other over the past 20 years. Meta
analyzes will be used to find if there have been any trends in popularity of one company or the other
using historical data. The historical data includes articles and cases of Steelcase and Herman Miller
for the trend analyzes. Sentiment analysis will be performed based on the interviews that we conduct
with professionals in the industry. The sentiment analysis will measure the relative comfortability that
the professionals have with either Steelcase or Herman Miller and their success in the past, currently,
and in the future. The final conclusions that we will come to will not be solely based on the one single
analytical tool but will be composed of all the tools and the other previous analyzes that we have
performed.

SUMMARY OF DATA COLLECTED

Some data that we have collected comes from interviewing Daniel King, who worked for Herman
Miller for more than 30 years, and Todd Custer, president & CEO of Custer Inc, one of the large
dealerships with Steelcase. Diego Cervantes, who worked with Daniel since 2001, was responsible to
take Herman Miller to Mexico and make the company one of the strongest organization base size and
skills for Herman Miller. During the interview, they said that Herman Miller was the first to enter
Mexico and then Steelcase followed suit, but they couldn’t compete with Herman Miller and left
Mexico. In late 2005, Steelcase came up with the strategy of building large manufacturers and started
selling directly to customers in Mexico, and they moved some of their US production. Meanwhile,
Herman Miller was still operating as dealerships in Mexico. Diego mentioned that they reduced their
operating expenses and price to be competitive when they first entered Mexico and built the AND
(Architecture and design community). From the interview, we discovered that Steelcase is around
30% bigger than Herman Miller in Mexico now with the spread that Herman Miller is about $2.5B
and Steelcase right around $3.5B. This is mainly because of their leverage and ability to perform on
government contracts.

The Cage Match in the Office Furniture Industry 13

We used qualitative research to analyze the past 20 years of operations between the two companies.
This was done by conducting 2 in-depth interviews structured around the strategies Steelcase,
Herman Miller, and their dealers used to compete in the market. The individuals we conducted
interviews with hold or held leadership positions in their respective companies, are/were involved in
the operations of the companies and have an authority in the decision-making process. Appendix 1
summarizes the basic information about the companies and the respective individuals interviewed.

The questions were used across all 3 interviews, with some slight variation, to keep the interviews
consistent with one another. The questions were structured around the value propositions, the role of
dealers in the industry and why they’re important, why they deal to their specific companies, the
strengths and weaknesses of the companies, what defines success in the industry for each company,
the strategies they are using/can use moving forward to differentiate, and how the industry will
change post pandemic. After doing so, we evaluated our primary research and asked follow-up
questions via email. We also added secondary research that was used from the company's website and
additional information through databases. Below is a summary of the results from our data.

Results and Analysis

Our results from collecting data and analyzing the data we collected indicate that there are differences
in the way Steelcase and Herman Miller have performed over the past 20 years. It was determined
before data collection that Steelcase has a core capability in their distribution network and
relationship with their dealers. This was verified through our interview with Todd Custer who
suggested that Steelcase is more reliable than Herman Miller in the way they operate due to the
advanced integrated dealer network that Steelcase has which results in Steelcase outperforming
Herman Miller in the measure of which company’s distribution network outperforms the other.

Our analysis of data collected also indicated that Steelcase has higher revenues and profits over the
past 20 years. Although Steelcase had higher revenues and profits over this time period, Herman
Miller was able to have higher gross profit margins indicating that Herman Miller generally
outperformed Steelcase in how they handle their finances overall, but in terms of who outperformed
each other in revenue and profits still would lean towards Steelcase’s performance over the past 20
years.

Steelcase also outperforms Herman Miller in terms of research and development. Steelcase focuses
more on research and development than Herman Miller. This is shown through how Steelcase
finances research and development which includes investing in the infrastructure needed to develop
and process new products and services made available through research and development.

Our first hypothesis is proven from our data and analysis of the data indicating that there were
differences in the way Steelcase and Herman Miller performed over the past 20 years. The two
companies had differences in various performance measures, including how well they finance, their
performance in research and development, and which company was more profitable over the past 20
years explained above in the “Results and Analysis” section.

Our second hypothesis was proven to be wrong. The second hypothesis stated that there were no
differences in the way Steelcase and Herman Miller performed over the past 20 years. As stated and
explained before in the “Results and Analysis” section, Steelcase outperformed Herman Miller in a
few financial performance evaluations and just the opposite with Herman Miller outperforming
Steelcase in other financial performances.

The Cage Match in the Office Furniture Industry 14

Report Findings

● Steelcase operates with more reliability in their supply chain because they have an advanced
integrated dealer network. Steelcase has software that every authorized dealer uses that
connects them directly with Steelcase corporate. This allows them to know exactly when
shipments are leaving/ arriving and what is coming/ how much.
○ Steelcase has 224 Authorized Dealers in the US that not only sell the product, but also
provide skilled labor, design services, installation, and post-transaction customer
service.
○ Steelcase’s largest dealer in North America is Empire, a privately owned company, with
four locations in some of the largest cities in the US. They employ 450 people and offer
customization of Steelcase’s products. They do not have any public financial records to
analyze.
○ Steelcase’s 2019 Preferred Dealer was Custer Inc. They are headquartered in West
Michigan but are relatively small with 90 employees and $30M in yearly revenue.
● Steelcase has had higher (dollar amounts) revenues and profits in the last 21 years, but
Herman Miller has better gross profit margins.
○ Yes, these two companies are not the same size, but they are competitors, so it is good to
keep in mind that Steelcase is larger and has more resources
● In contrast, Herman Miller has had an average gross profit margin of 34.6% while Steelcase
has had an average gross profit margin of 30.7%.
○ While Steelcase does have more resources and is a larger company than Herman Miller,
they do provide a lot of customization and try to invest in their dealer networks more
than Herman Miller
● Steelcase and Herman Miller both have a similar R&D Intensity Ratio overall. One finding that
we found interesting is that Steelcase invests more in their other brands than Herman Miller.
Herman Miller can start to invest more into their other brands to help them continue to
compete with Steelcase.
● In summary, Steelcase is a larger company than Herman Miller, but has lower profit margins.
Steelcase and Herman Miller both have stayed somewhat stagnant in their sales and profit
margins for the last 20 years. Steelcase needs to find a way to increase profit margins or grow
in revenue while maintaining their current profit margins.

Our interview with Diego Cervantes, the former VP of Latin American sales for Herman Miller shed
light on another company called WeWork. Dan King and Diego Cervantes both communicated that we
should investigate this company to help us with our recommendation. They are a community office
space provider; this means that they own the building and furniture in the building but rent out the
space to whoever wants an office. This may seem like an unrelated topic, but after more research on
WeWork and other similar companies, we found that the largest financial asset for these companies is
their furniture. They are not a true competitor, but the two companies overlap with the people they
office products and services too. Steelcase dealers focus on selling to people or corporations for their
own offices. While WeWork focuses on providing an office space that has all of that included already.
These two companies can expect to compete in the future.

The Cage Match in the Office Furniture Industry 15

RECOMMENDATIONS
Enter the Office Sharing Industry
Based on our findings of high demand and rapid growth in office and coworking space our
recommendation for Steelcase is to enter the office sharing industry in Europe. Steelcase has strong
relationships with Fortune 500 companies, and they have great executive involvement with major
client sales. Steelcase dominates the office furniture manufacturing industry, and they excel at
knowing how people work and what they need through their R&D department. One of the biggest
hard assets for office sharing companies is furniture. Steelcase can make the furniture for half the cost
of what competitors could buy it for and that is a major competitive advantage for them entering the
office sharing industry. They have a client base network that can help to market their office sharing
space to possible renters. The major companies in the office sharing industry include Regus, WeWork,
Knotel, Space, Premier Workspaces and Industrious. WeWork’s business consists of signing long term
leases with landlords, then fixing up and buying furniture for the space and renting it out to small
businesses, big businesses, and individuals; they then collect the monthly lease amount. There are
many other companies like Knotel and Regus that use franchise agreement to use less of its own
capital to reduce the future risk. There are some new companies that shifted to management contracts
with the landlords instead of leasing and splitting the profits. According to the brokerage firm CBRE,
by 2030 the flexible office space will account for 13% of the total U.S. office supply. The companies
like Knotel and Industrious have attracted large investors such as Wells Fargo Strategic Capital and
Newmark Knight Frank.

Europe is a great place to enter the office sharing industry because it is the largest in the region in
terms of growth in coworking and office sharing spaces. The office sharing industry has a low barrier
to entry and starts with the firm leasing the spaces and buying furniture to set up the offices, but
economies of scale plays an important role in the success of the company. The bigger the company is
the cheaper and efficient to build and run the office spaces. A large and recognized brand is most
likely to dominate the office and coworking space in the future. The office sharing space expected to
reach $11.12 billion by 2023. As of 2019, the CAGR was 6% in the U.S. and 13% in Europe. The
number of coworking spaces worldwide has grown from 12,100 in 2016 to 26,300 in 2020. The top
competitors of Steelcase offer office space, coworking, meeting rooms and virtual offices at the same
time.

Based on these findings we recommend that Steelcase open a shared office space in Europe. After an
in-depth industry analysis, we have found that the shared office industry is strong in Europe. The
industry analysis from Mergent and a financial report from Regus both show that more than half of
the “office workers” in Europe and the UK work remotely. Steelcase has offices in London, Spain,
Paris, Strasbourg, and Zurich that are all operated locally under unique guidance that is in line with
the cultural differences that each location has. Depending on where Steelcase would plan to pursue a
shared office building, the local office would be able to handle the operations. They would work
closely with their sales and R&D teams to develop a layout and plan that is highly sought after by
existing clients in the local area. They would fill the entire office space with Steelcase furniture and
software. The office space would not only be stylish and practical, but a place that the renters enjoy
coming to and doing their work at. This would also be used to show off their furniture in a rentable
and usable showroom. We are unsure of what prices that Steelcase would charge for office spaces
based on how much it would cost them to obtain the land/ building, and then the manufacturing of
the furniture, and installation of the furniture (plus design costs).

The Cage Match in the Office Furniture Industry 16

The office space sharing industry has an average gross profit margin of around 19% in the US, but
upwards of 35% internationally. If Steelcase can hit the average gross profit margin of the
international part of the industry, they would be able to increase their overall profitability. The two
highest costs for businesses in the office sharing industry are their operational costs and the rental of
office furniture. Steelcase would be able to mitigate the rental of office furniture cost by having a
higher initial startup cost of manufacturing their own furniture and using that. In the long run (which
is where Regus says the most profitability is for this industry) Steelcase would save money on this
deciding factor cost. The high startup cost can be a barrier of entry for Steelcase, but Steelcase has a
lot of resources and this is a venture that has been proven by other companies to be very profitable
when operated correctly.

Steelcase and the Acquisition of Knoll

Our second recommendation for Steelcase would be to purchase the company Knoll. In brief, Knoll is
a modern furniture design firm that produces modern office furniture with their headquarters found
in East Greenville, Pennsylvania. Knoll has many dealer locations across the United States as well as
international dealers in countries around the world such as Canada, Italy, France, and Denmark.
Knoll is a respected competitor in the office furniture industry, and this can be seen from their 2019
annual financial statements with Knoll having revenues of $1,428 million and net earnings of $67.5
million compared to Steelcase’s revenues of $3,443 million and $126 million in net earnings. Knoll is
one of the biggest competitors to Herman Miller. A lot of the products that Knoll offers are designed
by the same designers that design the core products for Herman Miller. Knoll is like Herman Miller in
size, and they focus on the high price, fancily designed wood furniture. This is a way for Steelcase to
more directly compete with Herman Miller, by buying a brand that is extremely similar to Herman
Miller. Steelcase’s resource of a large free cash flow will allow for a better opportunity to acquire
Knoll. Adding to their core capability of an advanced integrated distribution network will also be
made possible through gaining the company Knoll.

In order to determine if purchasing Knoll is a valuable move for Steelcase or not, Steelcase will have
to get their certified financial analysts together with other Steelcase decision makers that help in
business acquisitions to analyze making a decision on the profitability of acquiring Knoll. With Knoll
being one of the biggest competitors to Herman Miller, Steelcase will gain the ability to better
compete with Herman Miller in the office furniture industry. Steelcase is mostly known for making
standard office furniture that is easier to produce than the more design-based office furniture that
Herman Miller produces at a higher cost. Acquiring Knoll would allow Steelcase to have the ability to
compete with Herman Miller in selling more luxury type furniture as that is what Knoll focuses on
producing like Herman Miller. More specifically, the home office furniture division of the office
furniture industry that is made up of more high-quality luxurious furniture will now not be dominated
by Herman-Miller if Steelcase acquired Knoll.

Based on our report findings regarding Steelcase’s advanced integrated dealer network, Steelcase
could have the ability to add to their already strong distribution network as they would acquire the
distribution network of Knoll. Steelcase will have a major increase in customers and sales from
acquiring Knoll as well as Knoll’s customers would now be buying from Steelcase. Steelcase would be
adding to their 224 authorized dealers around the U.S; along with adding U.S dealers, Steelcase will
also be acquiring many more international dealers that Knoll has in place, creating a better global
image of Steelcase and increasing sales internationally. This increase to their already well maintained
and very efficient dealer network along with the recommendation of acquiring Knoll in general will

The Cage Match in the Office Furniture Industry 17

allow Steelcase to be able to keep their competitive advantage over Herman Miller and other
competitors in the office furniture industry.

Another report finding that supports the acquisition of Knoll is how Steelcase already invests more in
research and development for their brands than Herman Miller. With having the resource of more
spare capital to invest, a goal for Steelcase should be to maintain investing more in research and
development than Herman Miller; acquiring a company like Knoll will allow Steelcase to do this.
Acquiring Knoll follows Steelcase’s concentric diversification method they already have in place with
adding and improving on more products which was discussed in the “Corporate Level Strategies”
section of the report. Gaining Knoll also means gaining the product designers that Knoll has that
focus more on luxury home office furniture which will give Steelcase the opportunity to eventually
overtake Herman Miller in terms of the specific home office furniture division of the office furniture
industry. Knoll will also allow Steelcase to expand by losing the debilitating company image of only
producing less fancy and more standard furniture than brands like Herman Miller.

Steps of Implementation

● Step 1
○ Meet with the leaders and inform them of the new business opportunities
○ Present the hard facts and data to show why these are both great opportunities that
should not be passed up

● Step 2
Office sharing recommendation:
○ Work with the leaders of design and manufacturing to start thinking about how this
space will look and what it will cost

Knoll acquisition recommendation:

○ Work with financial analysts to determine the profitability of acquiring Knoll
○ Determine duration of time to breakeven on Knoll acquisition investment

● Step 3
Office sharing recommendation:
○ Design the layout and furniture that will be used
○ Obtain land or a building to purchase for the shared office space
○ Set up/ stage the new space so marketing and advertising can get to work

Knoll acquisition recommendation:

○ Connect with Knoll leaders
○ Make a desirable offer that will benefit both parties

● Step 4
Office sharing recommendation:
○ Seek out potential renters for the space using the large network of Steelcase
○ Run marketing and advertising campaigns on the new shared office space by Steelcase

The Cage Match in the Office Furniture Industry 18

 Knoll acquisition recommendation:
○ Acquire Knoll
○ Implement Steelcase business strategies and distribution network

● Step 5
Office sharing recommendation:
○ Have the renters sign their lease
○ Renters start working in the new shared office space

Knoll acquisition recommendation:

○ Build and maintain relationships with Knoll’s previous customers and business partners

CONCLUSION
The office furniture industry is a large market that has many opportunities to grow. We urge Steelcase
to take our recommendations into consideration and act accordingly to what they feel best fits them in
order to grow more than they currently are. Whether it be entering the office sharing industry, or
buying the company Knoll, these two options leave options for ways to progress at quicker rates.

We would like to thank Herman Miller, Steelcase, and the interviewees we held meetings with for
spending their valuable time with us and hosting our team. We want to send a special thank you to
our project sponsor for sharing his knowledge and experience in the industry and being cooperative
with our conflicting schedules. Our objective is to provide suggestions and strategies to have the
company expand rather than stay in the same static growth.

If you have any questions, comments or concerns, please feel free to contact us. It has been a pleasure
working alongside you and we thank you for the opportunity to conduct this report.

The Cage Match in the Office Furniture Industry 19

Appendix 1

Information on Organizations and Individuals Interviewed

Organization & Headquarters Title of Number of Relationshi Additional

person Individual Employees p Locations
interviewed Interviewed

Custer Inc., Grand President 90 Steelcase Kalamazoo,

Tom Custer Rapids, & CEO dealer Fort
Michigan Wayne,
Holland,
Traverse
City

Formerly Ontario, Former VP 3200 Competitor United

Herman Canada Sales to Steelcase States,
Miller, now Herman and Herman Africa,
with Teknion, Miller Miller Middle
Diego East, Asia,
Cervantas Europe,
Latin
America

The Cage Match in the Office Furniture Industry 20

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The Cage Match in the Office Furniture Industry 23